Crocs
Annual Report 2013

Plain-text annual report

Use these links to rapidly review the documentCrocs, Inc. Table of Contents to the Annual Report on Form 10-K For the Year Ended December 31, 2013 TABLE OF CONTENTS 2Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KCommission File No. 0-51754CROCS, INC.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization) 20-2164234(I.R.S. Employer Identification 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 MarketSecurities 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  No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the fiscal year ended December 31, 2013oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the transition period from to  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes  No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files). Yes  No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will notbe contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of theForm 10-K or any amendment to the Form 10-K.  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Checkone): Indicate by check mark whether the registrant is shell company (as defined in Rule 12b-2 of the Act). Yes o No  The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2013 was $1.4 billion. For thepurpose of the foregoing calculation only, all directors and executive officers of the registrant and owners of more than 10% of the registrant's commonstock are assumed to be affiliates of the registrant. This determination of affiliate status is not necessarily conclusive for any other purpose. The number of shares of the registrant's common stock outstanding as of January 31, 2014 was 88,546,729.DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates certain information by reference from the registrant's proxy statement for the 2014 annual meeting of stockholders to be filedno later than 120 days after the end of the registrant's fiscal year ended December 31, 2013. Large accelerated filer  Accelerated filer o Non-accelerated filer o(do not check if asmaller reporting company) Smaller reporting company oTable of ContentsSpecial Note Regarding Forward Looking Statements Statements in this Form 10-K and in documents incorporated by reference herein (or otherwise made by us or on our behalf) may contain "forwardlooking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oralcommunications from time to time that contain such statements. Forward looking statements include statements as to industry trends, our futureexpectations and other matters that do not relate strictly to historical facts and are based on certain assumptions of our management. These statements,which express management's current views concerning future events or results, use words like "anticipate," "assume," "believe," "continue," "estimate,""expect," "future," "intend," "plan," "project," "strive," and future or conditional tense verbs like "could," "may," "might," "should," "will," "would"and similar expressions. Forward looking statements are subject to risks, uncertainties and other factors which may cause actual results to differmaterially from future results expressed or implied by such forward looking statements. Important factors that could cause actual results to differmaterially from the forward looking statements include, without limitation, those described in the section titled "Risk Factors" (Item 1A of this Form 10-K). Moreover, such forward looking statements speak only as of the date of this report. We undertake no obligation to update any forward lookingstatements to reflect events or circumstances after the date of such statements.Table of ContentsCrocs, Inc.Table of Contents to the Annual Report on Form 10-KFor the Year Ended December 31, 2013 1PART IItem 1. Business 2Item 1A. Risk Factors 14Item 1B. Unresolved Staff Comments 27Item 2. Properties 28Item 3. Legal Proceedings 28Item 4. Mine Safety Disclosures 30PART IIItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 31Item 6. Selected Financial Data 34Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 35Item 7A. Quantitative and Qualitative Disclosures About Market Risk 65Item 8. Financial Statements and Supplementary Data 67Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 67Item 9A. Controls and Procedures 67PART IIIItem 10. Directors, Executive Officers and Corporate Governance 70Item 11. Executive Compensation 70Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 70Item 13. Certain Relationships and Related Transactions, and Director Independence 71Item 14. Principal Accountant Fees and Services 71PART IVItem 15. Exhibits and Financial Statement Schedules 72Signatures 77Table of ContentsPART I ITEM 1. Business The Company Crocs, Inc. and its consolidated subsidiaries (collectively the "Company," "we," "our" or "us") are engaged in the design, development,manufacturing, worldwide marketing and distribution of casual lifestyle footwear, apparel and accessories for men, women and children. We strive to bethe global leader in the sale of molded footwear featuring fun, comfort, color and functionality. Our products include footwear and accessories thatutilize our proprietary closed-cell resin, called Croslite. The use of this unique material enables us to produce innovative, lightweight, non-marking, andodor-resistant footwear. We currently sell our products in more than 90 countries through domestic and international retailers and distributors anddirectly to end-user consumers through our company-operated retail stores, outlets, kiosks and webstores. In 2002, we launched the marketing and distribution of our original clog style footwear in the United States. The unique characteristics of Crosliteenabled us to offer consumers a shoe unlike any other footwear model then available. Since the initial introduction and popularity of the Beach andCrocs Classic designs, we have expanded our Croslite products to include a variety of new styles and products and have further extended our productreach through the acquisition of brand platforms such as Jibbitz, LLC ("Jibbitz") and Ocean Minded, Inc. ("Ocean Minded"). We intend to continue toexpand the breadth of our footwear product lines, bringing a unique and original perspective to the consumer in styles that may be unexpected fromCrocs. We believe this will help us to continue to build a stable year-round business as we move toward becoming a four-season brand. The broad appeal of our footwear has allowed us to market our products to a wide range of distribution channels, including department stores andtraditional footwear retailers as well as a variety of specialty and independent retail channels. Our marketing efforts surround specific product launchesand employ a fully integrated approach utilizing a variety of media outlets, including print and websites. Our marketing efforts drive business to bothour wholesale partners and our company-operated retail and internet stores, ensuring that our presentation and story are first class and drive purchasingat the point of sale. As a global company, we have significant revenues and costs denominated in currencies other than the U.S. Dollar. Sales in international marketsin foreign currencies are expected to continue to represent a substantial portion of our revenues. Likewise, we expect our subsidiaries with functionalcurrencies other than the U.S. dollar will continue to represent a substantial portion of our overall gross margin and related expenses. Accordingly,changes in foreign currency exchange rates could materially affect revenues and costs or the comparability of revenues and costs from period to periodas a result of translating our financial statements into our reporting currency.ProductsFootwear Our footwear product offerings have grown significantly since we first introduced the single-style clog in six colors, in 2002. We currently offer awide variety of footwear products, some of which includes boots, sandals, sneakers, mules and flats, which are made of materials like leather and textilefabrics as well as Croslite. Footwear sales made up 96.9%, 95.8% and 95.6% of total revenues for the years ended December 31, 2013, 2012 and 2011,respectively. During the years ended December 31, 2013, 2012 and 2011, approximately 71.1%, 75.3% and 73.1%, respectively, of unit sales consistedof products geared toward adults compared to 28.9%, 24.7% and 26.9%, respectively, of unit sales of products geared towards children.2Table of Contents A key differentiating feature of our footwear products is the Croslite material, which is uniquely suited for comfort and functionality. Croslite iscarefully formulated to be of a density that creates extremely lightweight, comfortable and non-marking footwear which conforms to the shape of thefoot and increases comfort. Croslite is a closed-cell resin material which is water resistant, virtually odor free and allows many of our footwear styles tobe cleaned simply with water. As we have expanded our product offering, we have incorporated traditional materials such as textile fabric and leatherinto many new styles; however, we continue to utilize the Croslite material for the foot bed, sole and other key structural components for many of thesestyles. We strive to provide our global consumer with a year-round product assortment featuring comfort, fun, color and innovation. Our collections aredesigned to meet the needs of the family by focusing on their key wearing occasions. Our goal is to deliver world-class product assortments for thefamily with all of the comfort features and benefits Crocs is known for. Our products are divided into three product offerings: Core, Style and Active.Core Products At the heart of our brand resides the Classic, our first and most iconic style for adults and kids that embodies our innovation in molding anddesign, delivers all-day comfort, and has established a new category in the footwear marketplace. The unique look and feel of the Classic can beexperienced throughout our entire product line due to the design and application of our proprietary material Croslite. Dual density technology, warmlined styles, seasonal flips and slides drive additional business to our core molded product line introduced in 2002. Licensed style partnerships fromDisney, Sanrio, Nickelodeon and Warner Bros. provide popularity to our kids core line along with our kids-only product innovations including color-change materials, lights and interactive elements. In addition, we have extended our licensing partnerships to sports leagues such as Major LeagueBaseball and the NCAA and artists such as Van Gogh, Mondo Guerra and Jon Burgerman. Our core molded products are available to all channels ofdistribution and span both stylish and active wearing occasions for the entire family.Style Products Our Style Category showcases collections designed for the family around casual and stylish wearing occasions with a relaxed and fun point ofview. This category is primarily designed for our consumers shopping in footwear, department stores, specialty/independent and our own direct-to-consumer channel. Stretch Sole Launched in Spring 2014, Stretch Sole featuring Fit2U technology represents the ultimate of 360 degree fit-to-you comfort and moldinginnovation. Our new proprietary platform is intended to raise the bar of combined comfort and style. Launched exclusively in our direct-to-consumer channel and premium wholesale accounts, Stretch Sole is the latest addition to our collection of comfort-enhancing technologies anddesigns. Translucents The beauty of molding is best expressed in our Translucents collection, first introduced in 2011 with the goal of providing our femaleconsumer with new and innovative styles. Translucents, a beautiful and opaquely colorful collection of flats, sandals, flips and clogs, havebecome a summer staple for women and girls looking for the ultimate combination of comfort and style for the spring and summer months.3Table of Contents A'Leigh This day-to-night collection showcases traditionally stylish and natural materials including leather, canvas, cork and wood combined withour proprietary Croslite material in a variety of simple, fashionable wedge silhouettes. This combination of comfort and style has proven to becompelling for our female consumers looking to expand their wearing occasions with our brand. Canvas Collection A staple for the family, our collection of casual canvas loafers including Walu, Santa Cruz and the Cabo provide industry-leading comfortcushioning via our Croslite footbeds and outsoles combined with simple, easy to wear, casually stylish uppers suitable for a day at the office anda night at the movies.Active Products Our Active Category showcases collections designed with an active-casual point of view, catering to on-the-go families with busy lifestyles. Thesecollections are primarily found in sport, footwear, specialty/independent retailers and our own direct-to-consumer channel. Busy Day Designed with the busy mom in mind, the Busy Day collection drives a casually active design through a wide variety of silhouettesincluding flats, Mary Janes, sneakers and slip-ons. This collection is instantly recognizable from its simple sleek styling, easy on-and-offdesigns, Croslite outsole and drop-in Croslite footbed designed for maximum comfort and cushioning for all-day wear. The collection willexpand in 2014 to include Busy Day styles designed for active boys and girls. Outdoor/Active Sandals and Boots Season after season, our Outdoor/Active Sandals and Boot Collections provide opportunities for wearing occasions for the familycelebrating the outdoors and the change of seasons from sun to rain to snow. Our collections around Yukon Sport, Real Tree™, SwiftwaterSandals, Handle It and Jaunt Rain Boots and Crocband and Gust Winter Boots offer a variety of fun and comfortable seasonal options for everymember of the family. Crocs Golf Introduced in 2012, our Crocs Golf Collection won the Best New Product at the 2012 PGA Show and Editor's Pick at the 2013 PGAShow. Combining the best of casual golf styles and outstanding underfoot comfort via our proprietary Croslite material, the Crocs Golf lineprovides a number of outstanding styles for casual golfers. Crocs Professional Footwear Division (PFD) Providing solutions to our consumers in Healthcare, Food and Beverage and Light Industrial, we combine the comfort of Croslite withpurpose-built benefits including slip-resistance, seamless uppers and electrical hazard safety in our Professional Footwear Division productcollection. As a global leader in casual footwear, we recognize the responsibility we have to our employees and the global communities we serve. We strive tomaintain a spirit of "giving back" as a part of the Crocs culture and worldwide reputation. With the help of our donation partners, we are able to provideshoes to millions of individuals. We have donated over three million pairs of shoes to individuals in need both domestically and internationally in morethan 40 countries including Democratic Republic of4Table of ContentsThe Congo, Haiti, Iraq, and Malawi. These donations and other social responsibility initiatives, form the Crocs Cares program. Crocs is dedicated toproviding robust programs, donations, and community work opportunities designed to make a difference in the lives of our employees as well as bothlocal and global communities.Accessories In addition to our footwear brands, we own the Jibbitz brand, a unique accessory product-line with colorful snap-on charms specifically suited forCrocs shoes. We acquired Jibbitz in December 2006 and have expanded the product line to include a wide variety of charms in varying shapes andsizes, with designs such as flowers, sports gear, seasonal and holiday designs, animals, symbols, letters and rhinestones. Crocs licensing agreementsalso extend to Jibbitz, which allows Jibbitz to create designs bearing logos and emblems of Disney, Nickelodeon and the Crocs collegiate line, amongothers. Jibbitz designs allow Crocs consumers to personalize their footwear to creatively express their individuality. More than 3,000 unique Jibbitzcharm designs have been sold to consumers for personalizing their Crocs footwear. Sales from Jibbitz designs made up 2.8%, 3.5% and 3.7% of totalrevenues for the years ended December 31, 2013, 2012 and 2011, respectively.Sales and Marketing Each season, we focus on presenting a compelling "brand story and experience" for our new product collections and our broader casual lifestyleassortment. Our marketing efforts center on multi-level story-telling across diverse wearing occasions and product silhouettes. As we are a global brand, our marketing model is based on global relevance while still allowing for regional flexibility in execution and message.At the regional or market level, campaigns are initiated using a mix of digital, social, and traditional media outlets that align with local marketplaces andtarget consumer dynamics. This strategy allows for relevant cross-channel input coordinated through our global brand objectives to drive an alignedglobal 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 andexecuting marketing programs to effectively engage target customers in a meaningful manner. We utilize a proprietary Brand Performance System tohelp prioritize demand generation initiatives and optimize local marketing activities. The Brand Performance System integrates multiple research andconsumer database platforms across key markets to provide guidance on highest yielding customer growth opportunities and market performanceanalysis. We have three primary sales channels: wholesale, retail and internet (discussed at a more detailed level below). Our marketing efforts are aimedtoward driving business to both our wholesale partners and our company-operated retail and internet stores. Our marketing efforts in the wholesale andretail channels are focused on visual product merchandising with alignment on key stories, activation materials and creative materials. Retail storesprovide a unique opportunity to engage with customers in a three-dimensional manner. Strong emphasis is placed on making the store experience ameaningful and memorable showcase of our larger assortment of casual lifestyle footwear and key new product launches. Our marketing,merchandising, and visual merchandising departments work closely together to ensure the store environment and merchandise are aligned to supportkey seasonal product stories while promoting the larger product lines and 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 brandcampaign, the team helps to adapt key brand story content and produces additional web-specific content for our internet channel.5Table of ContentsWholesale Channel During the years ended December 31, 2013, 2012 and 2011, approximately 56.5%, 57.5% and 59.8% of net revenues, respectively, were derivedfrom sales through the wholesale channel which consists of sales to distributors and third party retailers. Wholesale customers include national andregional retail chains, department stores, sporting goods stores, independent footwear retailers and family footwear retailers, such as Academy, RackRoom Shoes, Famous Footwear, Kohl's, DSW, Shoe Carnival, Dick's Sporting Goods, Nordstrom, Xebio and Murasaki Sports, as well as on-lineretailers such as Amazon and Zappos. No single customer accounted for 10% or more of our revenues for any of the years ended December 31, 2013,2012 and 2011. We use third party distributors in select markets where we believe such arrangements are preferable to direct sales. These third party distributorspurchase products pursuant to a price list and are granted the right to resell the products in a defined territory, usually a country or group of countries.Our typical distribution agreements have terms of one to four years, are generally terminable on 30 days prior notice and have minimum salesrequirements. Many of our agreements allow us to accept returns from wholesale customers at our discretion for defective products, quality issues andshipment errors on an exception basis or, for certain wholesale customers, extend pricing discounts in lieu of defective product returns. We also mayaccept returns from our wholesale customers, on an exception basis, for the purpose of stock re-balancing to ensure that our products are merchandisedin the proper assortments. Additionally, we may provide markdown allowances to key wholesale customers to facilitate in-channel product markdownswhere sell-through is less than anticipated.Consumer Direct Channels Consumer 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.Retail Channel During the years ended December 31, 2013, 2012 and 2011, approximately 35.0%, 33.4% and 30.6%, respectively, of our net revenues werederived from sales through our retail channel. We operate our retail channel through three integrated platforms: full retail locations, outlet locations, andkiosk/store-in-store locations. Our three types of store platforms enable us to organically promote the breadth of our product in high-traffic, highlyvisible locations. Our strategy for expanding our global retail business is to increase our market share in a disciplined manner, by selectively openingadditional stores in new and existing markets, as well as increasing sales in existing stores, to support our long-term strategic growth objective to furtherbuild Crocs into the leading casual lifestyle footwear brand in the world. As store growth will vary in new and existing markets due to many factors,including maturity of the market and brand recognition, we periodically evaluate the fixed assets and leasehold improvements related to our retaillocations for impairment.•Full Retail LocationsOur company-operated retail locations allow us to effectively showcase the full extent of our new and existing products to customers atretail pricing. In addition, our full retail locations enable us to interact with our customers on a personal level in order to guarantee asatisfying shopping experience as well as to obtain key retail metrics to better fulfill customer demands. On average, the optimal spacefor our retail locations is between approximately 1,500 and 1,800 square feet, depending on the geographical vicinity of the property, andtypically located in high-traffic shopping malls or districts. In early 2014, we opened a three-story flagship location with approximately4,500 square feet of selling space in a 13,600 square foot building located on6Table of Contents34th Street in New York. As of December 31, 2013, 2012, and 2011, we operated 327, 287 and 180 global full retail stores,respectively.•Outlet LocationsOur company-operated outlet locations allow us to sell discontinued and overstock merchandise directly to consumers at discountedprices. We additionally sell full priced products in certain of our outlet stores. Outlet locations follow a similar size model as our fullretail stores; however, they are generally located within outlet shopping locations. As of December 31, 2013, 2012 and 2011, weoperated 170, 129 and 92 global outlet stores, respectively.•Kiosk/Store-in-Store LocationsOur company-operated kiosks and store-in-store locations allow us to market specific product lines with the further flexibility to tailorproducts to consumer preferences in shopping malls and other high foot traffic areas. With bright and colorful displays, efficient use ofretail space, and limited initial capital investment, we believe that kiosks can be an effective outlet for marketing our products. As part ofour overall retail strategy, we continue to close certain kiosks/store-in-store locations, as we believe our full retail and outlet locationsallow us to better merchandise the full extent and depth of our product line. As of December 31, 2013, 2012 and 2011, we operated 122,121 and 158 global kiosks and store-in-stores, respectively.7Table of Contents The following table illustrates the net growth in 2013 with respect to the number of our company-operated retail locations by reportable operatingsegment and country:Internet Channel As of December 31, 2013, we offered our products through 43 company-operated internet webstores worldwide. During the years endedDecember 31, 2013, 2012 and 2011, approximately 8.5%, 9.1% and 9.6%, respectively, of our net revenues were derived from sales through ourinternet channel. Our internet presence enables us to have increased access to our customers and provides us with an opportunity to educate them aboutour 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.8Company-operated retail locations: December 31,2012 Opened Closed December 31,2013 Americas U.S. 170 30 (14) 186 Canada 12 2 (1) 13 Brazil 8 1 (1) 8 Puerto Rico 7 — — 7 Argentina 1 1 — 2 Chile 1 — (1) — Total Americas 199 34 (17) 216 Asia Pacific Korea 63 17 (4) 76 Taiwan 39 27 (8) 58 China 43 2 (7) 38 Hong Kong 17 8 (4) 21 Singapore 14 2 (1) 15 Australia 11 1 (1) 11 United Arab Emirates (UAE) 8 2 (1) 9 South Africa 6 2 — 8 Total Asia Pacific 201 61 (26) 236 Japan 40 11 (2) 49 Europe Russia 29 7 — 36 Germany 18 6 (4) 20 Great Britain 16 2 (1) 17 France 7 7 — 14 Netherlands 8 1 — 9 Finland 6 1 — 7 Spain 6 — — 6 Belgium 3 — — 3 Italy — 2 — 2 Sweden 2 — — 2 Ireland 1 — — 1 Portugal 1 — — 1 Total Europe 97 26 (5) 118 Total company-operated retail locations 537 132 (50) 619 Table of ContentsBusiness Segments and Geographic Information During the first quarter of 2013, we adjusted our operating segment structure for internal reports reviewed by the chief operating decision maker("CODM") by presenting Japan separate from the Asia Pacific segment. This change was made due to recurring amounts of substantial businessactivity as well as the macroeconomic environment within Japan, which resulted in the need for a regular review of Japan operating results bymanagement and the CODM in order to better evaluate performance and allocate resources for the consolidated business. See Note 14—OperatingSegments and Geographic Information in the accompanying notes to the consolidated financial statements for additional financial information regardingour operating segments. Segment information for all periods presented has been reclassified to conform to the fiscal 2013 presentation. As a result of the changes discussed above, we have four reportable operating segments based on the geographic nature of our operations:Americas, Asia Pacific, Japan and Europe. We also have an "Other businesses" category which aggregates insignificant operating segments that do notmeet the reportable segment threshold and represents manufacturing operations located in Mexico, Italy and Asia. The composition of our reportableoperating segments is consistent with that used by our 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 as well asintersegment sales. Revenues of the "Other businesses" category are primarily made up of intersegment sales. The remaining revenues for the "Otherbusinesses" represent non-footwear product sales to external customers. Intersegment sales are not included in the measurement of segment operatingincome or regularly reviewed by the CODM and are eliminated when deriving total consolidated revenues. The primary financial measure utilized by the CODM to evaluate performance and allocate resources is segment operating income. Segmentperformance evaluation is based primarily on segment results without allocating corporate expenses, or indirect general, administrative and otherexpenses. Segment profits or losses of our reportable operating segments include adjustments to eliminate intersegment profit or losses on intersegmentsales. As such, reconciling items for segment operating income represent unallocated corporate and other expenses as well as intersegment eliminations.Segment assets consist of cash and cash equivalents, accounts receivable and inventory as these balances are regularly reviewed by the CODM.Americas The Americas segment consists of revenues and expenses related primarily to product sales in the North and South America geographic regions.Regional wholesale channel customers consist of a broad range of sporting goods and department stores as well as specialty retailers and distributors.The regional retail channel sells directly to the consumer through 216 company-operated store locations as well as through webstores. During the yearsended December 31, 2013, 2012 and 2011, revenues from the Americas segment constituted approximately 41.9%, 44.1% and 44.7% of ourconsolidated revenues, respectively.Asia Pacific The Asia Pacific segment consists of revenues and expenses related primarily to product sales throughout Asia (excluding Japan), Australia, NewZealand, the Middle East and South Africa. The Asia Pacific wholesale channel consists of sales to a broad range of retailers similar to the wholesalechannel we have established in the Americas segment. We also sell products directly to the consumer through 236 company-operated stores as well asthrough our webstores. During the years ended December 31, 2013, 2012 and 2011, revenues from the Asia segment constituted 28.7%, 26.1% and22.7% of our consolidated revenues, respectively.9Table of ContentsJapan The Japan segment consists of revenues and expenses related to product sales in Japan. The Japan wholesale channel consists of sales to a broadrange of retailers similar to the wholesale channel we have established in the Americas segment. The regional retail channel sells directly to theconsumer through 49 company-operated store locations as well as through webstores. During the years ended December 31, 2013, 2012 and 2011,revenues from the Japan segment constituted approximately 11.3%, 14.7% and 15.5% of our consolidated revenues, respectively.Europe The Europe segment consists of revenues and expenses related primarily to product sales throughout Europe and Russia. The Europe segmentwholesale channel customers consist of a broad range of retailers, similar to the wholesale channel we have established in the Americas segment. Wealso sell our products directly to the consumer through 118 company-operated stores as well as through our webstores. During the years endedDecember 31, 2013, 2012 and 2011, revenues from the Europe segment constituted 18.1%, 15.1% and 17.1% of our consolidated revenues,respectively.Distribution and Logistics On an ongoing basis, we look to enhance our distribution and logistics network so as to further streamline our supply chain, increase our speed tomarket and lower operating costs. During the year ended December 31, 2013, we stored our raw material and finished goods inventories in company-operated warehouse and distribution facilities located in the United States, Mexico, the Netherlands, Japan, Finland, South Africa, Russia and Italy. Wealso utilize distribution centers which are operated by third parties located in the United States, China, Japan, Hong Kong, Australia, Korea, Singapore,India, Taiwan, the United Arab Emirates, Russia, Brazil, Argentina, Chile, Puerto Rico and Italy. Throughout 2013, we continued to engage in efforts toconsolidate our global warehouse and distribution facilities to maintain a lean cost structure. As of December 31, 2013, our company-operatedwarehouse and distribution facilities provided us with approximately 1.0 million square feet and our third party operated distribution facilities providedus with approximately 0.4 million square feet. We also ship a portion of our products directly to our customers from our internal and third partymanufacturers. We are actively pursuing initiatives aimed at shipping more of our product directly to our customers in an effort to lower future cost ofsales.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 is soft and durable and allows our material to be non-marking in addition to being extremely lightweight. We continue to invest in research anddevelopment in order 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 chemicalmanufacturers, together with certain other production inputs such as color dyes. At this time, we have identified multiple suppliers that produce theelastomer resins used in the Croslite material. We may, however, in the future identify and utilize materials produced by other suppliers as an alternativeto the elastomer resins we currently use in the production of our proprietary material. All of the other raw materials that we use to produce the Crosliteproducts are readily available for purchase from multiple suppliers. Since our inception, we have substantially increased the number of footwear products that we offer. Many of our new products are constructedusing leather, textile fabrics or other non-Croslite materials. We, or our third party manufacturers, obtain these materials from a number of third party10Table of Contentssources and we believe these materials are broadly available. We also outsource the compounding of the Croslite material and continue to purchase aportion of our compounded raw materials from a third party in Europe.Design and Development We continue to dedicate significant resources to product design and development as we develop footwear styles based on opportunities we identifyin the marketplace. Our design and development process is highly collaborative, as members of the 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 andmarketing staff, production and supply managers and certain of our retail customers to further refine our products to meet the particular needs of ourtarget market. We continually strive to improve our development function so we can bring products to market quickly and reduce costs whilemaintaining product quality. We spent $15.4 million, $12.0 million and $10.8 million in research, design and development activities for the years endedDecember 31, 2013, 2012 and 2011, respectively.Manufacturing and Sourcing Our strategy is to maintain a flexible, globally diversified, low-cost manufacturing base. We currently have company-operated production facilitiesin Mexico and Italy. We also contract with third party manufacturers to produce certain of our footwear styles or provide support to our internalproduction processes. We believe that our internal manufacturing capabilities enable us to rapidly make changes to production, providing us with theflexibility to quickly respond to orders for high demand models and colors throughout the year, while outsourcing allows us to capitalize on theefficiencies and cost benefits of using contracted manufacturing services. We believe this strategy will continue to minimize our production costs,increase overall operating efficiencies and shorten production and development times. In the years ended December 31, 2013, 2012 and 2011, we manufactured approximately 15.1%, 21.1% and 20.6%, respectively, of our footwearproducts internally. We sourced the remaining footwear production from multiple third party manufacturers primarily in China, Vietnam, EasternEurope and South America. During the years ended December 31, 2013, 2012 and 2011, our largest third-party manufacturer in China producedapproximately 28.0%, 31.7% and 33.1%, respectively, of our footwear unit volume. We do not have written supply agreements with our primary thirdparty manufacturers in Asia.Intellectual Property and Trademarks We rely on a combination of trademark, copyright, trade secret, trade dress and patent protection to establish, protect and enforce our intellectualproperty rights in our product designs, brand, materials and research and development efforts, although no such methods can afford completeprotection. We own or license the material trademarks used in connection with the marketing, distribution and sale of all of our products, bothdomestically and internationally, in most countries where our products are currently either sold or manufactured. Our major trademarks include theCrocs logo and the Crocs word mark, both of which are registered or pending registration in the U.S., the European Union, Japan, Taiwan, China andCanada among other places. We also have registrations or pending trademark applications for the marks Jibbitz, Jibbitz Logo, YOU by Crocs, YOU byCrocs Logo, Ocean Minded, Tail Logo, Bite, Bite Logo, Crocband, Crocs Tone and Crocs Littles, "Croslite" and the Croslite logo, as well as othermarks 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 registeredwithin and outside of the U.S. are generally valid as long11Table of Contentsas they are in use and their registrations are properly maintained and have not been found to become generic. We believe our trademarks are crucial tothe successful marketing and sale of our products. We intend to continue to strategically register, both domestically and internationally, the trademarksand copyrights we utilize today and those we develop in the future. We will also continue to aggressively police our patents, trademarks and copyrightsand pursue those who infringe upon them, both domestically and internationally, as we deem necessary. We consider the formulations of the materials covered by our trademark Croslite and used to produce our shoes to be a valuable trade secret.Croslite material is manufactured through a process that combines a number of components in various proportions to achieve the properties for whichour products are known. We use multiple suppliers to source these components but protect the formula by using exclusive supply agreements for keycomponents, confidentiality agreements with our third party processors and by requiring our employees to execute confidentiality agreementsconcerning the protection of our confidential information. Other than our third party processors, we are unaware of any third party using our formula inthe production of shoes. We believe the comfort and utility of our products depend on the properties achieved from the compounding of Croslitematerial 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 andretailers, as well as outside investigators and attorneys, to police against infringing products by encouraging them to notify us of any suspect productsand to assist law enforcement agencies. Our sales representatives and distributors are also educated on our patents, pending patents, trademarks andtrade dress to assist in preventing potentially infringing products from obtaining retail shelf space. The laws of certain countries do not protectintellectual property rights to the same extent or in the same manner as do the laws of the U.S., and, therefore, we may have difficulty obtaining legalprotection for our intellectual property in certain jurisdictions.Seasonality Due to the seasonal nature of our footwear which is more heavily focused on styles suitable for warm weather, revenues generated during our firstand fourth quarters are typically less than revenues generated during our second and third quarters, when the northern hemisphere is experiencingwarmer weather. We continue to expand our product line to include more winter oriented styles to mitigate some of the seasonality of our revenues. Ourquarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of new model introductions orgeneral economic or consumer conditions. Accordingly, results of operations and cash flows for any one quarter are not necessarily indicative of resultsto be expected for any other quarter or year.Backlog We receive a significant portion of orders from our wholesale customers and distributors that remain unfilled as of any date and, at that point,represent orders scheduled to be shipped at a future date. We refer to these unfilled orders as backlog. While all orders in our backlog are subject tocancellation by customers, we expect that the majority of such orders will be filled within one year. Backlog as of a particular date is affected by anumber of factors, including seasonality, manufacturing schedule and the timing of product shipments. Further, the mix of future and immediatedelivery orders can vary significantly period over period. Backlog only relates to wholesale and distributor orders for the next season and current seasonfill-in orders and excludes potential sales in our retail and internet channels. Backlog also is affected by the timing of customers' orders and productavailability. Due to these factors and since the unfulfilled orders can be canceled at any time prior to shipment by our customers, we believe that backlogmay be an imprecise indicator of future revenues that may be achieved in a fiscal period and comparisons of backlog from period to period may bemisleading. In12Table of Contentsaddition, our historical cancellation experience may not be indicative of future cancellation rates. The following table summarizes backlog by reportablesegment as of December 31, 2013 and 2012:Competition The global casual, athletic and fashion footwear markets are highly competitive. Although we believe that we do not compete directly with anysingle company with respect to the entire spectrum of our products, we believe portions of our wholesale business compete with companies such as, butnot limited to, Deckers Outdoor Corp., Skechers USA Inc., Steve Madden, Ltd., Wolverine World Wide, Inc. and VF Corporation. Our company-operated retail locations also compete with footwear retailers such as Genesco, Inc., Macy's, Dillard's, Dick's Sporting Goods Inc., The Finish Line Inc.and Footlocker, Inc. The principal elements of competition in these markets include brand awareness, product functionality, design, quality, pricing, customer service,marketing and distribution. We believe that our unique footwear designs, the Croslite material, our prices, expanded product line and our distributionnetwork continue to position us well in the marketplace. However, some companies in the casual footwear and apparel industry have greater financialresources, more comprehensive product lines, broader market presence, longer standing relationships with wholesalers, longer operating histories,greater distribution capabilities, stronger brand recognition and greater marketing resources than we have. Furthermore, we face competition from newplayers who have been attracted to the market with imitation products similar to ours as the result of the unique design and success of our footwearproducts.Employees As of December 31, 2013, we had approximately 5,000 full-time, part-time and seasonal employees, none of which were represented by a union.Available Information We were organized in 1999 as a limited liability company. In January 2005, we converted to a Colorado corporation and subsequently re-incorporated as a Delaware corporation in June 2005. In February 2006, we completed our initial public offering and trading of our common stock onNASDAQ commenced. Our internet address is www.crocs.com on which we post the following filings, free of charge, as soon as reasonably practicable after they areelectronically filed with or furnished to the Securities and Exchange Commission: our annual report on Form 10-K, our quarterly reports on Form 10-Q,our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities ExchangeAct 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 inwriting to Integrated Corporate Relations, 761 Main Avenue, Norwalk, CT 06851.13 December 31, ($ thousands) 2013 2012 Americas $113,972 $122,376 Asia Pacific 141,446 121,767 Japan 47,651 53,732 Europe 76,203 56,456 Total backlog $379,272 $354,331 Table of ContentsITEM 1A. Risk Factors Described below are certain risks that our management believes are applicable to our business and the industry in which we operate. These riskshave the potential to materially adversely affect our business, results of operations, financial condition, liquidity or access to sources of financing. Therisks included here are not exhaustive and there may be additional risks that are not presently material or known. You should carefully consider each ofthe following risks described below in conjunction with all other information presented in this report. Since we operate in a very competitive and rapidlychanging environment, new risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assessthe impact of all such risk factors on our business.Uncertainty about current global economic conditions may adversely affect consumer spending and the financial health of our customers andothers with whom we do business which may adversely affect our financial condition, results of operations and cash resources. Uncertainty about current and future global economic conditions may cause consumers and retailers to defer purchases or cancel purchase ordersfor our products in response to tighter credit, decreased cash availability and weakened consumer confidence. Our financial success is sensitive tochanges in general economic conditions, both globally and nationally, that may adversely affect the demand for our products including recessionaryeconomic 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. For example, we experiencedvolatility in sales and operating performance in our Americas and Japan segments in 2013 due to adverse macroeconomic conditions in those regionsand overall weakness in consumer confidence. In addition, sales and operating performance in our Europe segment in 2012 were adversely affected bythe macroeconomic conditions surrounding the European sovereign debt crisis. If global economic and financial market conditions deteriorate or remainweak for an extended period of time, the following factors could have a material adverse effect on our business, operating results and financialcondition:•Slower consumer spending may result in our inability to maintain or increase our sales to new and existing customers, reduced orders ororder cancellations from wholesale accounts that are directly impacted by fluctuations in the broader economy, increased difficultyregarding inventory management, higher discounting efforts and lower gross margins. •We may be unable to open and operate new retail stores, or continue to operate existing stores, due to the high fixed cost nature of theretail segment. •We conduct operations in several different countries and therefore, are exposed to fluctuations in foreign currency exchange rates relativeto the U.S. Dollar. Transactional and translational foreign currency risk exposure could have a material impact on our reported financialresults and condition. •Any decrease in available credit caused by a weakened global economy may result in financial difficulties for our wholesale and retailcustomers, product suppliers and other service providers, as well as the financial institutions that are counterparties to our credit facilityand derivative transactions. If credit pressures or other financial difficulties result in insolvency for these parties, it could adverselyimpact our estimated reserves, our ability to obtain future financing and our financial results. •If our customers experience diminished liquidity, we may experience a reduction in product orders, an increase in customer ordercancellations and/or the need to extend customer payment14Table of Contentsterms which could lead to higher accounts receivable balances, reduced cash flows, greater expense associated with collection efforts andincreased bad debt expense.•If our manufacturers or other parties in our supply chain experience diminished liquidity, they may not meet their obligations to us, andwe may experience the inability to meet customer product demands in a timely manner.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 intothe marketplace and has increased competition from established companies. Our competitors include most major athletic and footwear companies,branded apparel companies and retailers with their own private label footwear products. A number of our competitors have significantly greater financialresources than us, more comprehensive product lines, a broader market presence, longer standing relationships with wholesalers, a longer operatinghistory, greater distribution capabilities, stronger brand recognition and spend substantially more than we do on product marketing. Our competitors'greater capabilities in these areas may enable them to better withstand periodic downturns in the footwear industry, compete more effectively on thebasis of price and production and more quickly develop new products. Additionally, some of our competitors are offering products that are substantiallysimilar, in design and materials, to Crocs branded footwear. In addition, access to offshore manufacturing is also making it easier for new companies toenter the markets in which we compete. If we fail to compete successfully in the future, our sales and profits may decline, we may lose market share,our financial condition may deteriorate and the market price of our common stock is likely to fall.We may be unable to successfully execute our long-term growth strategy, maintain our current revenue levels or accurately forecast geographicdemand and supply for our products. 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 maintainour brand image, our ability to bring compelling and revenue enhancing footwear offerings to market, and our ability to expand within our currentdistribution channels and increase sales of our products into new locations internationally. Successfully executing our long-term growth and profitabilitystrategy will depend on many factors, including:•the global strengthening of the Crocs brand into a leading casual lifestyle footwear provider; •focusing on relevant product innovation and profitable new growth platforms while maintaining demand for our current offerings; •our ability to balance disciplined global retail store growth and existing store renovation while meeting operational and financial targets atthe retail store level; •accurately forecasting the global demand for our products and the timely execution of supply chain strategies to deliver product aroundthe globe efficiently based on that demand; •our ability to use and protect the Crocs brand and our other intellectual property in new markets and territories; •achieving and maintaining a strong competitive position in new and existing markets; •our ability to attract and retain qualified distributors or agents or to continue to develop direct sales channels; •our ability to consolidate our network to leverage resources and simplify our fulfillment process; and15Table of Contents•executing a multi-channel advertising and marketing campaign to effectively communicate our message directly to our consumers andemployees. If we are unable to successfully implement any of the above mentioned strategies and many other factors mentioned throughout this section, ourbusiness may fail to grow, our brand may suffer and our results of operations may be adversely impacted.Our success depends substantially on the value of our brands and failure to strengthen and preserve their value, either through our actions orthose of our business partners, could have a negative impact on our financial results. We believe much of our success has been attributable to the strengthening of the Crocs global brand. To be successful in the future, particularlyoutside of the U.S., where the Crocs brand is less well-known and perceived differently, we believe we must timely and appropriately respond tochanging consumer demand and leverage the value of our brands across all sales channels. We may have difficulty managing our brand image acrossmarkets and international borders as certain consumers may perceive our brand image to be outdated and one-dimensional prior to purchasing ourproducts. Brand value is based in part on consumer perceptions on a variety of subjective qualities. In the past, several footwear companies includingours have experienced periods of rapid growth in revenues and earnings followed by periods of declining sales and losses. Our business has been andmay be similarly affected in the future. Business incidents, such as perceived product safety issues, whether isolated or recurring, that erode consumertrust, particularly if the incidents receive considerable publicity or result in litigation, can significantly reduce brand value and have a negative impact onour financial results. Consumer demand for our products and our brand equity could diminish significantly if we fail to preserve the quality of ourproducts, are perceived to act in an unethical or socially irresponsible manner, fail to comply with laws and regulations or fail to deliver a consistentlypositive consumer experience in each of our markets. Additionally, counterfeit reproductions of our products or other infringement of our intellectualproperty rights, including from unauthorized uses of our trademarks by third parties could harm our brand and adversely impact our business.Opening and operating additional retail stores, which require substantial financial commitments and fixed costs, are subject to numerous risks,and 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. Our ability to open new storessuccessfully depends on our ability to identify suitable store locations, negotiate acceptable lease terms, hire, train and retain store personnel and satisfythe fashion preferences in new geographic areas. Many of our retail stores are located in shopping malls where we depend on obtaining prominentlocations and the overall success of the malls to generate customer traffic. We cannot control the success of individual malls and an increase in storeclosures by other retailers may lead to mall vacancies and reduced foot traffic. Reduced customer traffic could reduce sales of existing retail stores orhinder our ability to open retail stores in new markets, which could negatively affect our operating results. Opening retail stores globally involves substantial investment, including the construction of leasehold improvements, furniture and fixtures,equipment, information systems, inventory and personnel. Operating global retail stores incurs fixed costs; if we have insufficient sales, we may beunable to reduce such fixed costs and avoid losses or negative cash flows. The testing of our retail stores' long-lived assets for impairment requires us tomake significant estimates about our future performance and cash flows that are inherently uncertain. These estimates can be affected by numerousfactors, including changes in economic conditions, our results of operations, and competitive conditions in the industry. Due to the high fixed coststructure associated with our retail operations, negative cash flows or the closure of a store could result in write downs of inventory, impairment ofleasehold16Table of Contentsimprovements, impairment losses on other long-lived assets, severance costs, significant lease termination costs or the loss of working capital, whichcould adversely impact our financial position, results of operations or cash flows. For example, during 2013, we recorded impairments relating to retailstores of $10.6 million, and these impairment charges may increase as we expand our retail operations.Our business relies significantly on the use of information technology, and any material disruption to operational technology or failure to protectthe integrity and security of customer and employee information could harm our reputation and/or our ability to effectively operate our business. We rely heavily on the use of information technology systems and networks in our operations and supporting departments such as marketing,accounting, finance, and human resources. The future success and growth of our business depend on streamlined processes made available throughinformation systems, global communications, internet activity and other network processes. Despite our current security measures, our systems, andthose of our third-party service providers, may be vulnerable to information security breaches, acts of vandalism, computer viruses and interruption orloss of valuable business data. Any disruption to these systems or networks could result in product fulfillment delays, key personnel being unable toperform duties or communicate throughout the organization, loss of retail and internet sales, significant costs for data restoration and other adverseimpacts on our business. Over the last several years, we have implemented numerous information systems designed to support various areas of our business, includingwarehouse management, order management, retail point-of-sale and internet point-of-sale as well as various interfaces between these systems andsupporting back office systems. In addition, we are currently in the process of implementing a customized and fully-integrated global accounting,operations and finance ERP system, which is expected to launch in late 2014. Delays or issues in introducing the new ERP system to our currentoperations, failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or a breach in security ofthese systems could cause delays in product fulfillment and reduced efficiency of our operations, could require significant additional capital investments,including to remediate problems, and may have an adverse effect on our results of operations and financial condition. We routinely possess sensitive customer and employee information and, while we believe we have taken reasonable and appropriate steps toprotect that information, if our security procedures and controls were compromised, it could harm our business, reputation, results of operations andfinancial condition and may increase the costs we incur to protect against such information security breaches, such as increased investment intechnology, the costs of compliance with consumer protection laws and costs resulting from consumer fraud.We depend on key personnel across the globe, the loss of whom would harm our business. We rely on executives and senior management to drive the financial and operational performance of our business. Turnover of executives andsenior management can adversely impact our stock price, our results of operations and our client relationships and may make recruiting for futuremanagement positions more difficult. Changes in other key management positions may temporarily affect our financial performance and results ofoperations as new management becomes familiar with our business. In recent years, we have experienced management turnover. Our future successdepends on our ability to identify, attract and retain qualified personnel on a timely basis. In addition, we must successfully integrate any newly hiredmanagement personnel within our organization in order to achieve our operating objectives. In late 2013, our President and CEO, John McCarvel,announced his resignation from the Company effective the earlier of April 30, 2014 or the board of director's appointment of his successor. If we areunable to appoint a qualified successor prior to his resignation17Table of Contentsor the appointed successor does not perform up to expectations, we may experience declines in our financial performance and/or delays in our long-termgrowth strategy. In some cases, we may be required to pay significant amounts of severance to terminated management employees. For example, weagreed to pay Mr. McCarvel approximately $2.1 million in separation payments in connection with his resignation. As a global company, we also rely on a limited number of key international personnel to perform their functions at a high level in many of ourgeographic regions. In certain instances, one or two personnel may be the primary knowledge base for business operations in a geographic region. Theloss of key international personnel can adversely impact our operations and our client relationships.If we do not accurately forecast consumer demand, we may have excess inventory to liquidate or have greater difficulty filling our customers'orders, either of which could adversely affect our business. The footwear industry is subject to cyclical variations, consolidation, contraction and closings, as well as fashion trends, rapid changes inconsumer preferences, the effects of weather, general economic conditions and other factors affecting demand and possibly impairing our brand image.In addition, sales to our wholesale customers are generally subject to rights of cancellation and rescheduling by the customer. These factors make itdifficult to forecast consumer demand. If we overestimate demand for our products, we may be forced to liquidate excess inventories at discountedprices resulting in lower gross margins. Conversely, if we underestimate consumer demand, we could have inventory shortages which can result inlower sales, delays in shipments to customers, strains on our relationships with customers and diminished brand loyalty. A decline in demand for ourproducts, or any failure on our part to satisfy increased demand for our products, could adversely affect our business and results of operations. Inaddition, an inability to accurately forecast consumer demand could cause our revenue and earnings guidance to differ materially from our financialresults.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 andprovide appealing merchandise in a timely manner. New footwear models that we introduce may not be successful with consumers or our brand mayfall out of favor with consumers. If we are unable to anticipate, identify, or react appropriately to changes in consumer preferences, our revenues maydecrease, our brand image may suffer, our operating performance may decline and we may not be able to execute our growth plans. In producing new footwear models, we may encounter difficulties that we did not anticipate during the product development stage. Ourdevelopment schedules for 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 efficiently manufacture new products in quantities sufficient to support retail and wholesale distribution, we may not be able torecover our investment in the development of new styles and product lines and we would continue to be subject to the risks inherent to having a limitedproduct line. Even if we develop and manufacture new footwear products that consumers find appealing, the ultimate success of a new style maydepend on our pricing. We have a limited history of introducing new products in certain target markets; as such, we may set the prices of new styles toohigh for the market to bear or we may not provide the appropriate level of marketing in order to educate the market and potential consumers about ournew products. Achieving market acceptance will require us to exert substantial product development and marketing efforts, which could result in amaterial increase in our selling, general and administrative expenses and there can be no assurance that we will have the resources necessary toundertake such efforts effectively or that such efforts will be successful. Failure to gain market acceptance for new products could impede our ability tomaintain or grow18Table of Contentscurrent revenue levels, reduce profits, adversely affect the image of our brands, erode our competitive position and result in long-term harm to ourbusiness.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 areattributable to footwear styles that are more suitable for fair weather and are derived from sales in the northern hemisphere, we typically experience ourhighest sales activity during the second and third quarters of the calendar year, when there is fair weather in the northern hemisphere. While we continueto create new footwear styles that are more suitable for cold weather, the effects of favorable or unfavorable weather on sales can be significant enoughto affect our quarterly results which could adversely affect our common stock price. Quarterly results may also fluctuate as a result of other factors,including new style introductions, general economic conditions or changes in consumer preferences. Results for any one quarter are not necessarilyindicative of results to be expected for any other quarter or for any year and revenues for any particular period may fluctuate. This could lead to resultsoutside of analyst and investor expectations, which could increase volatility of our stock price.We depend heavily on third party manufacturers located outside the U.S. Third party manufacturers located in China and Vietnam produced 81.3% of our footwear products in 2013. We depend on the ability of thesemanufacturers to finance the production of goods ordered, maintain adequate manufacturing capacity and meet our quality standards. We compete withother companies for the production capacity of our third party manufacturers, and we do not exert direct control over the manufacturers' operations. Assuch, we have experienced at times, delays or inabilities to fulfill customer demand and orders, particularly in China. We cannot guarantee that any thirdparty manufacturer will have sufficient production capacity, meet our production deadlines or meet our quality standards. In addition, we do not have 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 acceptablequality and price from our third party manufacturers. Foreign manufacturing is subject to additional risks, including transportation delays andinterruptions, work stoppages, political instability, expropriation, nationalization, foreign currency fluctuations, changing economic conditions, changesin governmental policies and the imposition of tariffs, import and export controls and other non-tariff barriers. We may not be able to offset anyinterruption or decrease in supply of our products by increasing production in our internal manufacturing facilities due to capacity constraints, and wemay not be able to substitute suitable alternative third party manufacturers in a timely manner or at acceptable prices. Any disruption in the supply ofproducts from our third party manufacturers may harm our business and could result in a loss of sales and an increase in production costs, which wouldadversely affect our results of operations. In addition, manufacturing delays or unexpected demand for our products may require us to use faster, moreexpensive transportation methods, such as aircraft, which could adversely affect our profit margins. The cost of fuel is a significant component intransportation costs. Increases in the price of petroleum products 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 orpolitical relations between the U.S. and these countries, political instability in China, increases in labor costs, or adverse weather conditions couldsignificantly interfere with the production and shipment of our products, which would have a material adverse effect on our operations and financialresults.19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 fixedcosts to our cost structure which are not as easily scalable as variable costs. In addition, the manufacture of our products from the Croslite materialrequires the use of a complex process and we may experience difficulty in producing footwear that meets our high quality control standards. We will berequired to absorb the costs of manufacturing and disposing of products that do not meet our quality standards. Any increases in our manufacturingcosts could adversely impact our profit margins. Furthermore, our manufacturing capabilities are subject to many of the same risks and challenges facedby our third party manufacturers, including our ability to scale our production capabilities to meet the needs of our customers. Our manufacturing mayalso be disrupted for reasons beyond our control, including work stoppages, fires, earthquakes, floods or other natural disasters. Any disruption to ourmanufacturing operations will hinder our ability to deliver products to our customers in a timely manner and could have a material and adverse effect onour business and 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 internationalmarkets is subject to risks associated with international sales operations as well as the difficulties associated with promoting products in unfamiliarcultures. In addition to foreign manufacturing, we operate retail stores and sell our products to retailers outside of the U.S. Foreign manufacturing andsales activities are subject to numerous risks, including tariffs, anti-dumping fines, import and export controls, and other non-tariff barriers such asquotas and local content rules; delays associated with the manufacture, transportation and delivery of products; increased transportation costs due todistance, energy prices, or other factors; delays in the transportation and delivery of goods due to increased security concerns; restrictions on the transferof funds; restrictions, due to privacy laws, on the handling and transfer of consumer and other personal information; changes in governmental policiesand regulations; political unrest, changes in law, terrorism, or war, any of which can interrupt commerce; potential violations of U.S. and foreign anti-corruption and anti-bribery laws by our employees, business partners or agents, despite our policies and procedures relating to compliance with theselaws; expropriation and nationalization; difficulties in managing foreign operations effectively and efficiently from the U.S.; and difficulties inunderstanding and complying with local laws, regulations and customs in foreign jurisdictions. In addition, we are subject to customs laws andregulations with respect to our export and import activity which are complex and vary within legal jurisdictions in which we operate. We cannot assurethat there will be no control failure around customs enforcement despite the precautions we take. We are currently subject to audits by various customsauthorities including the U.S. and Mexico. Any failure to comply with customs laws and regulations could be discovered during a U.S. or foreigngovernment customs audit, or customs authorities may disagree with our tariff treatments, and such actions could result in substantial fines andpenalties, which could have an adverse effect on our financial position and results of operations.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 othermatters, including compliance with applicable labor, environmental and other laws; however, we do not control our third party manufacturers or theirrespective labor practices. A failure by any of our third party manufacturers to adhere to quality standards or labor, environmental and other laws couldcause us to incur additional costs for our20Table of Contentsproducts, generate negative publicity, damage our reputation and the value of our brand and discourage customers from buying our products. We alsorequire our third party manufacturers to meet certain product safety standards. A failure by any of our third party manufacturers to adhere to suchproduct safety standards could lead to a product recall which could result in critical media coverage and harm our business and reputation and couldcause 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, significantmonetary penalties, the seizure and the forfeiture of the products we are attempting to import or the loss of our import privileges. Possible violations ofU.S. or foreign laws or regulations could include inadequate record keeping of our imported products, misstatements or errors as to the origin, quotacategory, classification, marketing or valuation of our imported products, fraudulent visas or labor violations. The effects of these factors could renderour conduct of business in a particular country undesirable or impractical and have a negative impact on our operating results. We cannot predictwhether additional U.S. or foreign customs quotas, duties, taxes or other changes or restrictions will be imposed upon the importation of foreignproduced products in the future or what effect such actions could have on our business, financial condition or results of operations.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, 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 or capitalexpenditures could negatively impact our ability to meet these financial covenants. If we breach such covenants or any of the restrictive covenantsdescribed below, the lenders could either refuse to lend funds to us or accelerate the repayment of any outstanding borrowings under the revolvingcredit facility. We may not have sufficient assets to repay such indebtedness upon a default. If we are unable to repay the indebtedness, the lenders couldinitiate a bankruptcy proceeding or collection proceedings with respect to our assets, all of which secure our indebtedness under the revolving creditfacility. The credit agreement also contains certain restrictive covenants that limit and in some circumstances prohibit, our ability to, among other thingsincur additional debt, sell, lease or transfer our assets, pay dividends on our common stock, make capital expenditures and investments, guarantee debtor obligations, create liens, repurchase our common stock, enter into transactions with our affiliates and enter into certain merger, consolidation or otherreorganizations transactions. These restrictions could limit our ability to obtain future financing, make acquisitions or needed capital expenditures,withstand the current or future downturns in our business or the economy in general, conduct operations or otherwise take advantage of businessopportunities that may arise, any of which could place us at a competitive disadvantage relative to our competitors.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 theU.S. Dollar. We pay the majority of expenses attributable to our foreign operations in the functional currency of the country in which such operationsare conducted and pay the majority of our overseas third-party manufacturers in U.S. Dollars. Our ability to sell our products in foreign markets and theU.S. Dollar value of the sales made in foreign currencies can be significantly influenced by foreign currency fluctuations. A decrease in the value offoreign currencies relative to the U.S. Dollar could result in lower revenues, product price pressures and increased losses from currency exchange rates.Price increases caused by currency21Table of Contentsexchange rate fluctuations could make our products less competitive or have an adverse effect on our profitability as most of our purchases from thirdparty suppliers are denominated in U.S. Dollars. Currency exchange rate fluctuations could also disrupt the business of the third party manufacturersthat produce our products by making their purchases of raw materials more expensive and more difficult to finance. In addition to the operational effects of foreign currency fluctuations, any amounts recorded in foreign currencies and translated into U.S. Dollarsfor consolidated financial reporting are affected by foreign currency fluctuations. For example, in 2013, we experienced a decrease of $30.2 million inrevenue in our Japan segment related to foreign currency translation losses as a result of decreases in the value of the Japanese Yen compared to theU.S. Dollar. While we enter into foreign currency exchange forward contracts as economic cash flow hedges to reduce our exposure to changes in exchangerates, the volatility of foreign currency exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy and our forwardcontracts may not prove effective in reducing our exposures.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 longterm contracts with any of our wholesale customers. Sales to our wholesale customers are generally on an order-by-order basis and are subject to rightsof cancellation and rescheduling by the customer. If we cannot fill our customers' orders in a timely manner, the sales of our products and ourrelationships with those customers may suffer. Alternatively, if our customers experience diminished liquidity or other financial issues, we mayexperience a reduction in product orders, an increase in customer order cancellations and/or the need to extend customer payment terms which couldlead to higher accounts receivable balances, reduced cash flows, greater expense associated with collection efforts and increased bad debt expense. Thiscould have a material adverse effect on our product sales and ability to grow our product lines. Additionally, many of our wholesale customers compete with each other. If they perceive that we are offering their competitors better pricing andsupport, they may reduce purchases of our products. Moreover, we compete directly with our wholesale customers by selling our products directly toconsumers over the internet and through our company-operated retail locations. If our wholesale customers believe that our direct sales to consumersdivert sales from their stores, our relationships with such customers may weaken and cause them to reduce purchases of our products. As we continueto grow our consumer direct channels (company-operated retail stores and internet webstores) 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 theprimary raw materials used in compounding our Croslite products, which we use to produce our various footwear products, from multiple suppliers. Ifthe suppliers we rely on for elastomer resins were to cease production of these materials, we may not be able to obtain suitable substitute materials intime to avoid interruption of our production cycle. We are also subject to market issues related to supply and demand for our raw materials. We mayhave to pay substantially higher prices in the future for the elastomer resins or any substitute materials we use, which would increase our productioncosts and could have a significantly adverse impact on our profit margins and results of operations. If we are unable to obtain suitable elastomer resinsor if we are unable to procure sufficient quantities of the Croslite material, we may not be able to meet our22Table of Contentsproduction requirements in a timely manner or may need to modify our product characteristics resulting in less favorable market acceptance which couldresult in lost potential sales, delays in shipments to customers, strained relationships with 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.We believe that having distinctive marks that are readily identifiable is important to our brand, our success and our competitive position. The laws ofsome countries, for example, China, do not protect intellectual property rights to the same extent as do U.S. laws. We frequently discover products thatare counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging anotherparty's products on the basis of trademark or design or utility patent infringement, particularly in some foreign countries, or if we are required to changeour name or use a different logo, continued sales of such competing products by third parties could harm our brand and adversely impact our business,financial condition, revenues and results of operations by resulting in the shift of consumer preference away from our products. If our brands areassociated with inferior counterfeit reproductions, the integrity and reputation of our brands could be adversely affected. Furthermore, our efforts toenforce our intellectual property rights are typically met with defenses and counterclaims attacking the validity and enforceability of our intellectualproperty rights. We may face significant expenses and liability in connection with the protection of our intellectual property, and if we are unable tosuccessfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition could be adversely affected. We also rely on trade secrets, confidential information and other unpatented proprietary rights and information related to, among other things, theCroslite material and product development, particularly where we do not believe patent protection is appropriate or obtainable. Using third partymanufacturers and compounding facilities may increase the risk of misappropriation of our trade secrets, confidential information and other unpatentedproprietary information. The agreements we use in an effort to protect our intellectual property, confidential information and other unpatentedproprietary information may be ineffective or insufficient to prevent unauthorized use or disclosure of such trade secrets and information. A party to oneof these agreements may breach the agreement and we may not have adequate remedies for such breach. As a result, our trade secrets, confidentialinformation and other unpatented proprietary rights and information may become known to others, including our competitors. Furthermore, ourcompetitors or others may independently develop or discover such trade secrets and information, which would render them less valuable to us.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 unremittedearnings of subsidiaries operating outside of the U.S. to be indefinitely reinvested and it is not our current intent to change this position. Cash heldoutside of the U.S. is primarily used for the ongoing operations of the business in the locations in which the cash is held. Most of the cash held outsideof the U.S. could be repatriated to the U.S., but under current law, would be subject to U.S. federal and state income taxes, less applicable foreign taxcredits. In some countries, repatriation of certain foreign balances is restricted by local laws and could have adverse tax consequences if we were tomove the cash to another country. Certain countries, including China, may have monetary laws which may limit our ability to utilize cash resources inthose countries for operations in other countries. These limitations may affect our ability to fully utilize our cash resources23Table of Contentsfor needs in the U.S. or other countries and may adversely affect our liquidity. Since repatriation of such cash is subject to limitations and may besubject to significant taxation, we cannot be certain that we will be able to repatriate such cash on favorable terms or in a timely manner. If we incuroperating losses on a continued basis and require cash that is held in international accounts for use in our U.S. operations, a failure to repatriate suchcash in a timely and cost-effective manner could adversely affect our business, financial condition and results of operations.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 cannot accurately predict the ultimate outcome of any such proceedings. We are currently involved in several, potentially adverse legal proceedings.For a detailed discussion of our current legal proceedings, see Item 3 Legal Proceedings in Part I of this Form 10-K. An unfavorable outcome in any ofthese proceedings could have an adverse impact on our business, financial condition and results of operations. In addition, any significant litigation inthe future, regardless of its merits, could divert management's attention from our operations and result in substantial legal fees. In the past, securitiesclass action litigation has been brought against us. If our stock price is volatile, we may become involved in this type of litigation in the future. Anylitigation could result in substantial costs and a diversion of management's attention and resources that are needed to successfully run our business.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 opinionsand are often different from management's estimates or expectations of our business. If our operating results are below the estimates or expectations ofpublic market analysts and investors, our stock price could decline.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 beadversely affected by a number of factors, including changes in the mix of earnings in countries with differing statutory tax rates, changes in thevaluation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax audits in various jurisdictions around the world and anyrepatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes. We regularly assess all of these matters to determine theadequacy of our tax provision, which is subject to significant discretion and we could face significant adverse impact if our assumptions are incorrectand/or face significant cost to defend our practices from international and U.S. tax authorities. We are regularly subject to, and are currently undergoing,audits by tax authorities in the United States and foreign jurisdictions for prior tax years. Please refer to Item 3 Legal Proceedings in Part I of thisForm 10-K as well as Note 13—Commitments and Contingencies in the accompanying notes to the consolidated financial statements for additionaldetails regarding current tax audits. Although we believe our tax estimates are reasonable and we intend to defend our positions through litigation ifnecessary, the final outcome of tax audits and related litigation is inherently uncertain and could be materially different than that reflected in our historicalincome tax provisions and accruals. Moreover, we could be subject to assessments of substantial additional taxes and/or fines or penalties relating toongoing or future audits. The adverse resolution of any audits or litigation could have an adverse effect on our financial position and results ofoperations.24Table of ContentsWe are required to pay regular dividends on the Series A Convertible Preferred Stock, par value $0.001 per share ("Series A Preferred Stock")issued to Blackstone Capital Partners VI L.P. ("Blackstone") in 2014, which ranks senior to our common stock, and we may be required undercertain circumstances to repurchase the outstanding shares of Series A Preferred Stock; such obligations could adversely affect our liquidity andfinancial condition. The Series A Preferred Stock ranks senior to our common stock with respect to dividend rights, and holders of Series A Preferred Stock areentitled to cumulative dividends payable quarterly in cash at a rate of 6% per annum of the stated value of $1,000 per share. These regular cashdividends on our Series A Preferred Stock are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing onApril 1, 2014. If the Company fails to make timely dividend payments, the dividend rate will increase to 8% per annum until such time as all accrued butunpaid dividends have been paid in full. In addition, the holders of our Series A Preferred Stock have certain redemption rights, including upon certainchange in control events involving us, which, if exercised, could require us to repurchase all of the outstanding shares of Series A Preferred Stock at100% or more of the stated value of the shares, plus all accrued but unpaid dividends. Our obligations to pay regular dividends to the holders of ourSeries A Preferred Stock or any required repurchase of the outstanding shares of Series A Preferred Stock could impact our liquidity and reduce theamount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Ourobligations to the holders of Series A Preferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, whichcould have an adverse effect on our financial condition.Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns. From time to time, we may invest in business infrastructure, acquisitions of new businesses and expansion of existing businesses, such as ourretail operations, which require substantial cash investment and management attention. We believe cost effective investments are essential to businessgrowth and profitability; however, significant investments are subject to typical risks and uncertainties inherent in acquiring or expanding a business.The failure of any significant investment to provide the returns or profitability we expect or the failure to integrate newly acquired businesses could havea material adverse effect on 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. orabroad, and the consequences and effects thereof, including energy shortages and public health issues, could disrupt our operations or the operations ofour vendors and other suppliers, or result in economic instability that may negatively impact our operating results and financial condition. For example,the 2011 tsunami in Japan negatively impacted consumer demand for our products in Japan in the months following the disaster.The issuance of 200,000 shares of our Series A Preferred Stock to Blackstone in 2014 and certain of its permitted transferees reduces the relativevoting power of holders of our common stock, may dilute the ownership of such holders, and may adversely affect the market price of ourcommon stock. On January 27, 2014, we issued 200,000 shares of Series A Preferred Stock to Blackstone and certain of its permitted transferees (collectively, the"Blackstone Purchasers") pursuant to an Investment Agreement between us and Blackstone, dated December 28, 2013 (as amended, the "InvestmentAgreement"). The Blackstone Purchasers currently own all of the outstanding shares of Series A Preferred Stock, and based on the number of shares ofour common stock outstanding as of25Table of ContentsJanuary 31, 2014, the Blackstone Purchasers collectively own Series A Preferred Stock convertible into approximately 13.5% of our common stock. Asholders of our Series A Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our common stock as a single class on allmatters submitted to a vote of our common stock holders, the issuance of the Series A Preferred Stock to the Blackstone Purchasers has effectivelyreduced the relative voting power of the holders of our common stock. In addition, conversion of the Series A Preferred Stock to common stock will dilute the ownership interest of existing holders of our commonstock, and any sales in the public market of the common stock issuable upon conversion of the Series A Preferred Stock could adversely affectprevailing market prices of our common stock. We have granted the Blackstone Purchasers registration rights in respect of the shares of Series APreferred Stock and any shares of common stock issued upon conversion of the Series A Preferred Stock. These registration rights would facilitate theresale of such securities into the public market, and any such resale would increase the number of shares of our common stock available for publictrading. Sales by the Blackstone Purchasers of a substantial number of shares of our common stock in the public market, or the perception that suchsales might occur, could have a material adverse effect on the price of our common stock.Blackstone may exercise significant influence over us, including through its ability to elect up to two members of our Board of Directors. As of January 31, 2014, the shares of Series A Preferred Stock owned by the Blackstone Purchasers represent approximately 13.5% of the votingrights of our common stock, on an as-converted basis, so the Blackstone Purchasers will have the ability to significantly influence the outcome of anymatter submitted for the vote of our stockholders. In addition, the Certificate of Designations of the Series A Preferred Stock grants certain consentrights to the holders of Series A Preferred Stock in respect of certain actions by the Company, including the issuance of pari passu or senior equitysecurities of the Company, certain amendments to our certificate of incorporation or bylaws, any increase in the size of our Board above eight members,the payment of certain distributions to our stockholders, and the incurrence or refinancing of a certain level of indebtedness. The Blackstone Purchasersmay have interests that diverge from, or even conflict with, those of our other stockholders. For example, Blackstone and its affiliates may have aninterest in directly or indirectly pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their otherequity investments, even though such transactions might involve risks to us. Blackstone and its affiliates are in the business of making or advising oninvestments in companies, including businesses that may directly or indirectly compete with certain portions of our business. They may also pursueacquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, the Investment Agreement grants Blackstone certain rights to designate directors to serve on our Board. For so long as Blackstone andits permitted transferees (i) beneficially own at least 95% of the Series A Preferred Stock or the as-converted common stock purchased pursuant to theInvestment Agreement or (ii) maintain beneficial ownership of at least 12.5% of our outstanding common stock (the "Two-Director Threshold"),Blackstone will have the right to designate for nomination two directors to our Board. For so long as Blackstone and its permitted transfereesbeneficially own shares of Series A Preferred Stock or the as-converted common stock purchased pursuant to the Investment Agreement that representless than the Two-Director Threshold but more than 25% of the number of shares of the as-converted common stock purchased pursuant to theInvestment Agreement, Blackstone will have the right to designate for nomination one director to our Board. The directors designated by Blackstone areentitled to serve on Board committees, subject to applicable law and stock exchange rules, and one of such directors has been appointed to the newly-26Table of Contentsformed committee tasked with identifying a new chief executive officer to fill the vacancy resulting from Mr. McCarvel's resignation.Our restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could discourage a third partyfrom acquiring us and consequently decrease the market value of an investment in our stock. Our restated certificate of incorporation, amended and restated bylaws, and Delaware corporate law each contain provisions that could delay, defer,or prevent a change in control of us or changes in our management. These provisions could discourage proxy contests and make it more difficult for ourstockholders to elect directors and take other corporate actions, which may prevent a change of control or changes in our management that a stockholdermight consider favorable. In addition, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control ofus. Any delay or prevention of a change of control or change in management that stockholders might otherwise consider to be favorable could cause themarket price of our common stock to decline.ITEM 1B. Unresolved Staff Comments None.27Table of ContentsITEM 2. Properties Our principal executive and administrative offices are located at 7477 East Dry Creek Parkway, Niwot, Colorado. We lease, rather than own, all ofour domestic and international facilities. We currently enter into short-term and long-term leases for kiosk, manufacturing, office, outlet, retail, andwarehouse space. The terms of our leases include fixed monthly rents and/or contingent rents based on percentage of revenues for certain of our retaillocations, and expire at various dates through the year 2033. The general location, use and approximate size of our principal properties are given below. In addition to the principal 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 more than 600 retail, outlet and kiosk/store in store locationsworldwide. See Item 1 of this Form 10-K for further discussion regarding global company-operated stores.ITEM 3. Legal Proceedings We and certain current and former officers and directors have been named as defendants in complaints filed by investors in the United StatesDistrict Court for the District of Colorado. The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter.These actions were consolidated and, in September 2008, the district court appointed a lead plaintiff and counsel. An amended consolidated complaintwas filed in December 2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act on behalf of aclass of all persons who purchased our common stock between April 2, 2007 and April 14, 2008 (the "Class Period"). The amended complaint alsoadded our independent auditor as a defendant. The amended complaint alleges that, during the Class Period, the defendants made false and misleadingpublic statements about us and our business and prospects and, as a result, the market price of our common stock was artificially inflated. The amendedcomplaint also claims that certain current and former officers and directors traded in our common stock on the basis of material non-public information.The amended complaint seeks compensatory damages on behalf of the alleged class in an unspecified amount, including interest, and also addedattorneys' fees and costs of litigation. On February 28, 2011,28Location Reportable Operating Segment(s)that Use this Property Use ApproximateSquare Feet Ontario, California Americas Warehouse 399,000 Leon, Mexico Americas, Asia Pacific, Japan,Europe Manufacturing/warehouse/offices 392,000 Rotterdam, the Netherlands Europe Warehouse 174,000 Niwot, Colorado Americas Corporate headquarters andregional offices 160,000 Narita, Japan Asia Pacific, Japan Warehouse 156,000 Tampere, Finland(1) Europe Warehouse/offices 78,000 Padova, Italy Americas, Asia Pacific, Japan,Europe Manufacturing/warehouse/offices 45,000 Hoopddorf, the Netherlands Europe Regional offices 31,000 Shenzen, China Asia Pacific Regional offices 28,000 Gordon's Bay, South Africa Asia Pacific Warehouse/offices 28,000 Singapore Asia Pacific Regional offices 23,000 Shanghai, China Asia Pacific Regional offices 19,000 Tokyo, Japan Japan Regional offices 13,000 Moscow, Russia Europe Warehouse/offices 11,000 (1)The warehouse facilities in this location are fully or partially subleased.Table of Contentsthe District Court granted motions to dismiss filed by the defendants and dismissed all claims. A final judgment was thereafter entered. Plaintiffssubsequently 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. Ourindependent auditor is not a party to the Stipulation of Settlement. The Stipulation of Settlement received preliminary approval from the District Court onAugust 28, 2013. It remains subject to customary conditions, including final court approval following notice to stockholders. On February 13, 2014 afinal settlement hearing took place and the parties are awaiting a ruling in conjunction with the same. 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, orthat approval 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 Courtof Justice, Queen's Bench Division, Royal Courts of Justice in London, United Kingdom ("UK"). Spectrum acted as an agent for Crocs products in theUK from 2005 until Crocs Europe terminated the relationship on July 3, 2008 due to Spectrum's breach of its duty to act in good faith toward CrocsEurope. Spectrum alleges that Crocs Europe unlawfully terminated the agency relationship and failed to pay certain sales commissions. A trial on theliability, not quantum (compensation and damages), was held at the High Court in London from November 30, 2011 to December 5, 2011. OnDecember 16, 2011, the High Court of Justice issued a judgment that found that although Spectrum's actions were a breach of its duty to act in goodfaith toward Crocs Europe the breach was not sufficiently severe to justify termination. We believe that the trial judge erred in his findings andsubsequently appealed the judgment. On October 30, 2012, the Court of Appeal handed down its judgment confirming the trial judge's findings. Wesubmitted a request to the Supreme Court seeking permission to appeal. On April 24, 2013 the Supreme Court declined to grant permission to appeal.Given that to date the legal proceedings in this case have only addressed liability, there have been no findings in relation to the amount of compensationor damages other than with respect to legal fees. Under English law, the prevailing party is entitled to reimbursement of reasonable legal fees incurred inthe proceedings. The trial of liability and quantum were split by the Court in the interests of case management. The alleged quantum of damages has notbeen fully pleaded out and will be assessed as part of the forthcoming damages phase. A trial and judgment on damages is expected in approximately12 months. We are currently subject to an audit by U.S. Customs & Border Protection ("CBP") in respect of the period from 2006 to 2010. In the course ofthe audit, we identified certain valuation errors and tendered approximately $1.4 million in additional duties. Subsequently, we identified additional valueerrors which will require the payment of additional duties totaling approximately $718,000. The exact amount of this additional tender is subject toverification by CBP. In October 2013, CBP issued an audit report to which we filed comments and objections. CBP has projected unpaid duties totalingapproximately $12.4 million in connection with various classification errors during the period under review. We have responded that these projectionsare erroneous and provided arguments that demonstrate the amount due in connection with this matter is considerably less than the amount projected.CBP is currently reviewing this response. It is not possible at this time to predict whether our arguments will be successful in eliminating or reducingthe amount in dispute. At this time, it is not possible to determine when a formal notice of claim will be received from CBP. Likewise, it is not possibleto predict whether CBP may seek to assert a claim for penalties in addition to any unpaid duties. Mexico's Federal Tax Authority ("SAT") audited the period from January 2006 to July 2011. There were two phases to the audit, the first forcapital equipment and finished goods and the second for raw29Table of Contentsmaterials. The first phase was completed and no major discrepancies were noted by the SAT. On January 9, 2013, Crocs received a notice for thesecond phase in which the SAT issued a tax assessment (taxes and penalties) of roughly 280.0 million pesos (approximately $22.0 million) based onthe value of all of Crocs' imported raw materials during the audit period. We believe that the proposed penalty amount is unfounded and without merit.With the help of local counsel we filed an appeal by the deadline of March 15, 2013. We have argued that the amount due in connection with the matter,if any, is substantially less than that proposed by the SAT. In connection with the appeal, the SAT required us to post an appeal surety bond in theamount of roughly 321.0 million pesos (approximately $26.0 million), which amount reflects estimated additional penalties and interest if we are notsuccessful on our appeal. This amount will be adjusted on an annual basis. We are currently awaiting a ruling from the Mexican courts. It is not possibleat 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 andproduct liability claims, we are not party to any other pending legal proceedings that we believe will have a material adverse impact on our business,financial position, results of operations or cash flows.ITEM 4. Mine Safety Disclosures None.30Table of ContentsPART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock, par value $0.001, is listed on the NASDAQ Global Select Market and trades under the stock symbol "CROX". The followingtable shows the high and low sales prices of our common stock for the periods indicated. Performance Graph The following performance graph illustrates a five-year comparison of cumulative total return of our common stock, the NASDAQ CompositeIndex and the Dow Jones U.S. Footwear Index from December 31, 2008 through December 31, 2013. The graph assumes an investment of $100 onDecember 31, 2008 and assumes the reinvestment of all dividends and other distributions and reflects our stock prices post-stock split.31Fiscal Year 2013 Three Months Ended High Low March 31, 2013 $16.36 $14.13 June 30, 2013 17.95 14.19 September 30, 2013 17.62 12.65 December 31, 2013 $16.27 $11.96 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 Table of ContentsComparison of Cumulative Total Return on Investment The Dow Jones U.S. Footwear Index is a sector index and includes companies in the major line of business in which we compete. This index doesnot encompass all of our competitors or all of our product categories and lines of business. The Dow Jones U.S. Footwear Index consists ofCrocs, Inc., NIKE, Inc., Deckers Outdoor Corp., Iconix Brand Group, Inc., Skechers U.S.A., Inc. Steven Madden Ltd. and Wolverine WorldWide, Inc., among other companies. As Crocs, Inc. is part of the Dow Jones U.S. Footwear Index, the price and returns of our stock have an effect onthis index. The Nasdaq Composite Index is a market capitalization-weighted index and consists of more than 3,000 common equities, includingCrocs, Inc. The stock performance shown on the performance graph above is not necessarily indicative of future performance. We do not make or endorse anypredictions as to future stock performance.Holders The approximate number of stockholders of record of our common stock was 154 as of January 31, 2014. Because many of the shares of ourcommon stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial ownersrepresented by these stockholders of record.Dividends We have never declared or paid cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock inthe foreseeable future. Our financing arrangements contain certain restrictions on our ability to pay cash dividends on our common stock. In addition,the Certificate of Designations governing the Series A Convertible Preferred Stock that we issued in January 2014 restricts us from declaring andpaying certain dividends on our common stock if we fail to pay all accumulated and unpaid regular dividends and/or declared and unpaid participatingdividends to32 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 Crocs, Inc. $100.00 $463.71 $1,380.65 $1,191.13 $1,160.48 $1,283.87 Dow JonesUSFootwearIndex 100.00 127.86 167.41 187.27 196.23 300.80 NasdaqCompositeIndex $100.00 $143.89 $168.22 $165.19 $191.47 $264.84 Table of Contentswhich the preferred holders are entitled. Any future determination to declare cash dividends on our common stock will be made at the discretion of ourboard of directors, subject to compliance with covenants under any then-existing financing agreements and the terms of the Certificate of Designations.Purchases of Equity Securities by the Issuer33Period TotalNumberof Shares(or Units)Purchased AveragePricePaidper Share(or Unit) Total NumberofShares (orUnits)Purchased asPart ofPubliclyAnnouncedPlans orPrograms MaximumNumberof Shares thatMay Yet BePurchasedUnder thePlansPrograms(1) ApproximateDollarValue of SharesthatMay Yet BePurchasedUnder thePlan Programs(inthousands)(2) October 1, 2013—October 31, 2013 — $— — 17,758,776 $— November 1, 2013—November 30, 2013 — — — 17,758,776 — December 1, 2013—December 31, 2013 — — — — 350,000 Total — $— — — $350,000 (1)On November 1, 2007 and April 14, 2008, the Company's board of directors (the "Board") approved an authorization to repurchase up to 1.0 million shares and5.0 million shares, respectively, of our common stock. On October 29, 2013, the Board authorized the repurchase of up to an additional 15.0 million shares ofCompany common stock under the Company's previously announced stock repurchase authorization. This brought the total shares available for repurchase bythe Company under existing board authorizations up to approximately 17.8 million shares as of December 25, 2013. (2)On December 26, 2013, the Board approved the repurchase of up to $350.0 million of our common stock, which was announced on December 30, 2013. Thisauthorization effectively replaced our previous stock repurchase authorizations. The number, price, structure and timing of the repurchases, if any, will be at theCompany's sole discretion and future repurchases will be evaluated by the Company depending on market conditions, liquidity needs and other factors. Sharerepurchases may be made in the open market or in privately negotiated transactions. The repurchase authorization does not have an expiration date and doesnot oblige us to acquire any particular amount of our common stock. The Board may suspend, modify or terminate the repurchase program at any time withoutprior notice.Table of ContentsITEM 6. Selected Financial Data The following table presents selected historical financial data for each of our last five fiscal years. The information in this table should be read inconjunction with the consolidated financial statements and accompanying notes and with Management's Discussion and Analysis of FinancialConditions and Results of Operations included in Item 7 of this Form 10-K. 34 Financial History ($ thousands, except share and per share data) 2013 2012 2011 2010 2009 Year Ended December 31, Revenues $1,192,680 $1,123,301 $1,000,903 $789,695 $645,767 Cost of sales 569,482 515,324 464,493 364,631 337,720 Restructuring charges — — — 1,300 7,086 Gross profit 623,198 607,977 536,410 423,764 300,961 Gross margin % 52.3% 54.1% 53.6% 53.7% 46.6%Selling, general and administrativeexpenses 549,154 460,393 404,803 342,961 319,102 Selling, general and administrativeexpenses as a % of revenues 46.0% 41.0% 40.4% 43.4% 49.4%Restructuring charges — — — 2,539 7,623 Asset impairment charges 10,949 1,410 528 141 26,085 Income (loss) from operations 63,095 146,174 131,079 78,123 (51,849)Income (loss) before income taxes 59,959 145,548 136,690 80,792 (48,621)Income tax (benefit) expense 49,539 14,205 23,902 13,066 (6,543)Net income (loss) $10,420 $131,343 $112,788 $67,726 $(42,078)Income (loss) per common share: Basic $0.12 $1.46 $1.27 $0.78 $(0.49)Diluted $0.12 $1.44 $1.24 $0.76 $(0.49)Weighted average common shares: Basic 87,988,798 89,571,105 88,317,898 85,482,055 85,112,461 Diluted 89,089,473 90,588,416 89,981,382 87,595,618 85,112,461 Cash provided by operating activities $83,464 $128,356 $142,376 $104,274 $61,109 Cash used in investing activities (69,758) (65,943) (41,664) (42,078) (25,731)Cash provided by (used in) financingactivities $(1,161)$(16,625)$8,917 $5,245 $(22,191) Financial History ($ thousands) 2013 2012 2011 2010 2009 As of December 31, Cash and cashequivalents $317,144 $294,348 $257,587 $145,583 $77,343 Inventories 162,341 164,804 129,627 121,155 93,329 Working capital 453,149 455,177 370,040 243,252 180,598 Total assets 875,159 829,638 695,453 549,481 409,738 Long term obligations 63,487 54,300 48,370 35,613 35,462 Total stockholders'equity $624,744 $617,400 $491,780 $376,106 $287,620 Table of ContentsITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Business Overview We are a designer, developer, manufacturer, worldwide marketer and distributor of casual lifestyle footwear, apparel and accessories for men,women and children. We strive to be the global leader in the sale of molded footwear featuring fun, comfort, color and functionality. Our productsinclude footwear and accessories that utilize our proprietary closed cell-resin, called Croslite. Our products include footwear and accessories that utilizeour proprietary closed-cell resin, called Croslite. The use of this unique material enables 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 distributors and directly toend-user consumers through our company-operated retail stores, outlets, kiosks and webstores. Since the initial introduction and popularity of the Beach and Crocs Classic designs, we have expanded our Croslite products to include a variety ofnew styles and products and have further extended our product reach through the acquisition of brand platforms such as Jibbitz and Ocean Minded. Weintend to continue to expand the breadth of our footwear product lines, bringing a unique and original perspective to the consumer in styles that may beunexpected from Crocs. We believe this will help us to continue to build a stable year-round business as we move toward becoming a four-seasonbrand. The broad appeal of our footwear has allowed us to market our products to a wide range of distribution channels, including department stores andtraditional footwear retailers as well as a variety of specialty and independent retail channels. Our marketing efforts surround specific product launchesand employ a fully integrated approach utilizing a variety of media outlets, including print and websites. Our marketing efforts drive business to bothour wholesale partners and our company-operated retail and internet stores, ensuring that our presentation and story are first class and drive purchasingat the point of sale. As a global company, we have significant revenues and costs denominated in currencies other than the U. S. Dollar. Sales in international marketsin foreign currencies are expected to continue to represent a substantial portion of our revenues. Likewise, we expect our subsidiaries with functionalcurrencies other than the U.S. Dollar will continue to represent a substantial portion of our overall gross margin and related expenses. Accordingly,changes in foreign currency exchange rates could materially affect revenues and costs or the comparability of revenues and costs from period to periodas a result of translating our financial statements into our reporting currency.Recent Events On January 27, 2014, we issued to Blackstone Capital Partners VI L.P. ("Blackstone") and certain of its permitted transferees (together withBlackstone, the "Blackstone Purchasers"), 200,000 shares of our Series A Preferred Stock for an aggregate purchase price of $198.0 million, or $990per share, pursuant to an Investment Agreement between us and Blackstone, dated December 28, 2013 (as amended, the "Investment Agreement"). Inconnection with the issuance of the Series A Preferred Stock (the "Closing") and pursuant to the Investment Agreement, we paid Blackstone a closingfee of $2.0 million and reimbursed Blackstone's transaction fees and expenses of approximately $4.0 million. We intend to use the net proceeds of thetransactions, as well as cash on hand, to fund the previously announced $350.0 million stock repurchase authorization approved by the board ofdirectors. The Blackstone investment represented approximately 13.5% ownership of the Company as of January 31, 2014. We believe this investmentprovides an opportunity to drive shareholder value and refine the strategic direction of the business.35Table of Contents The Series A Preferred Stock ranks senior to our common stock with respect to dividend rights and rights on liquidation, winding-up anddissolution. Holders of Series A Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 6% per annum as well as anydividends declared or paid on common stock and are entitled to vote together with the holders of common stock on an as-converted basis. Pursuant tothe Investment Agreement, the Series A Preferred Stock is subject to several different conversion features as well as redemption rights, which are at theoption of the holder, the Company or contingent events. The conversion rate is subject to customary anti-dilution and other adjustments subject tocertain share caps and other restrictions. As a condition of the Investment Agreement, Blackstone received rights to designate two out of eight members of the board of directors. As aresult, Stephen Cannon and Jeffrey Margolis have resigned from the Company's board and Blackstone's two nominees, Prakash Melwani and GreggRibatt, have been added to the board of directors. The board of directors will remain at eight members. Mr. Melwani is currently a Senior ManagingDirector at Blackstone and Chief Investment Officer of the firm's Private Equity Group; Mr. Ribatt most recently served as the President and ChiefExecutive Officer of Collective Brands Performance + Lifestyle Group. In addition, on December 27, 2013, John McCarvel resigned from his position as President, Chief Executive Officer and director of the Companyeffective upon the earlier to occur of (i) April 30, 2014 or (ii) the board of director's appointment of his successor as CEO. In connection with hisresignation, we entered into a separation agreement that will pay Mr. McCarvel $2.1 million within one year of the effectiveness of his resignation.Mr. McCarvel has agreed to continue in a consulting capacity with the Company through April 30, 2014 if his successor is appointed prior to such date.The separation payments are conditioned upon the effectiveness of Mr. McCarvel's release of claims in favor of the Company and his compliance withthe non-competition, non-solicitation and confidentiality covenants contained in the separation agreement. Pursuant to the terms of the Investment Agreement, as amended, the board of directors formed a special committee on January 24, 2014 and hasgranted to such committee the sole power and authority to identify, consider, assess, evaluate, research, and recommend individual nominees for theposition of CEO of the Company to replace Mr. McCarvel. Any recommendation from the Search Committee with respect to a Chief Executive Officernominee requires the unanimous consent of the members of the special committee, and the board of directors may not appoint a new CEO without therecommendation of the committee. The board of directors has appointed Thomas Smach, Ronald Frasch, Peter Jacobi and Prakash Melwani as membersof the committee.2013 Financial Highlights Our results for fiscal year 2013 demonstrated our overall focus on becoming the leading brand in casual lifestyle footwear and deliveringshareholder value through the balanced global expansion of our direct-to-consumer markets and wholesale partners, innovative product developmentand strategic financial decisions. We are committed to delivering fun, colorful and comfortable products to the global marketplace through efficientdistribution channels with an emphasis on customer service. Despite ongoing macroeconomic challenges around the globe, we delivered recordrevenues and footwear unit sales. Our revenues increased 6.2% to $1.2 billion and footwear unit sales increased 8.8% to 54.3 million pairs sold. We specifically experienced exceptional growth and exceeded expectations in our Asia Pacific segment and saw marked improvement in ourEurope segment partially due to slow signs of macroeconomic recovery from prior years. Our Asia Pacific segment remains a key component of thebusiness and a fundamental driver of our growth strategy as all revenue channels experienced double-digit growth within the region. Our Europesegment experienced drastic improvement in 2013 compared to the prior year as we achieved growth in all three revenue channels. In addition to our36Table of Contentspositive results, we faced several challenges in the current year relating to our Americas and Japan segments. Specific challenges in our Americassegment include wholesale accounts remaining lean on inventory and weak consumer confidence in the region as lingering effects of recessionary trafficand spending continue to impact retail markets. On a constant-currency basis, our Japan segment performed on-par with the prior year; however, limitedability for growth due to macroeconomic turmoil presented a major challenge for us in 2013 as we saw the Japanese Yen decline approximately 18.0%on a year-to-date average basis compared to 2012. Based solely on currency factors, our year-over-year revenues in our Japan segment decreased$30.2 million. Globally, we continued to focus on and expand our direct-to-consumer channel. On a constant-currency basis, our direct-to-consumer channelsales grew 10.8% primarily through the addition of 82 global retail locations (net of store closures) partially offset by a decrease in global comparablestore sales of 2.7% due to lingering recessionary effects and weak consumer confidence in select markets. The expansion of our retail footprint has ledto increased gross margins in the U.S. and other markets around the globe. Our wholesale business performed well on a year-over-year basis as weexpanded through existing wholesale accounts and global distributors in emerging markets. Despite conservative at-once ordering and inventory levelsfrom our wholesale partners, we experienced a 7.3% increase in wholesale sales on a constant-currency basis, which demonstrates the depth of ourwholesale relationships and ability to deliver product. Overall, the current year presented us with many growth opportunities as well as challenges. Despite these challenges, we exceeded expectations inseveral areas of the globe and have identified key areas of focus for the business going forward. The Company goes into 2014 with a renewed sense offocus which is aided by our recent relationship with Blackstone. We believe the investment by Blackstone conveys a strong financial commitment in ourbrand and, coupled with our strong balance sheet, will enhance our long-term growth strategy. The following are the more significant developments in our businesses during the year ended December 31, 2013:•Revenues increased $69.4 million, or 6.2%, to $1.2 billion compared to 2012. Revenue growth was predominately driven by salesvolume though balanced wholesale and retail expansion combined with new and classic product expansion as we continue to transforminto an all-season footwear brand. •Gross profit increased $15.2 million, or 2.5%, to $623.2 million compared to 2012; however, gross margin percentage decreased 180basis points, or 3.3%, to 52.3%. The decline in gross margin percentage is primarily driven by the evolution of our product assortmentand is consistent with our product strategy. As we expand our product lines, product mix shifts into styles that may utilize moreexpensive materials such as textile fabric and leather compared to the traditional clog. Product cost inflation also contributed to thedecline in gross margin percentage, but was mostly offset by internal cost saving initiatives. •Selling, general and administrative expenses increased $88.8 million, or 19.3%, to $549.2 million compared to 2012. Selling, general andadministrative expenses continued to rise as we increased our global retail presence. In addition, we experienced several increases due tonon-recurring charges such as the resolution of a statutory tax audit in Brazil during the second quarter of 2013, operating expensesrelated to our ERP implementation and additional charges related to on-going litigation. •We recorded $10.6 million in retail asset impairment charges related to 60 underperforming stores in 2013 compared to $1.4 million inretail asset impairment charges related to four underperforming stores in 2012. The $10.6 million in asset impairment charges consists of37Table of Contents$6.6 million related to 35 stores in Europe, $3.9 million related to 23 stores in the Americas and $0.2 million related to two stores in AsiaPacific.•Net income decreased $120.9 million, or 92.1%, to $10.4 million compared to 2012 driving our diluted earnings per share from $1.44 to$0.12. •We continued to expand our retail channel through the net addition of 82 stores in 2013 in order to further increase brand recognition andcreate opportunities to present new and classic product lines. In January 2014, we opened our much anticipated three-story flagshiplocation with approximately 4,500 square feet of selling space in a 13,600 square foot building located on 34th Street in New York. •We continue to fund the implementation of our customized and fully integrated operations, accounting, and finance ERP system, whichis expected to launch globally in late 2014. The introduction of the new ERP system to our current environment will allow for seamlessand high-quality data across the Company. As of December 31, 2013, total costs to date related to the ERP implementation were$41.4 million, of which $34.6 million was capitalized and $6.8 million was expensed. As of December 31, 2013, we had $16.8 millionin outstanding borrowings related to the ERP system under a Master Installment Payment Agreement ("Master IPA") with PNCEquipment Finance, LLC ("PNC Equipment"). •We repurchased approximately 0.8 million shares at an average price of $14.99 per share for a total value of $12.5 million, excludingrelated commission charges.Future Outlook Given the recent events including the investment from Blackstone and the resignation of our CEO, we expect to undergo some strategictransitioning during the next fiscal year to refine our short-term and long-term growth strategies, which will include prioritizing earnings growth, andour focus on becoming the leading brand in casual lifestyle footwear. The investment by Blackstone is a vote of confidence in our company and ourbrand, and we anticipate both will benefit from Blackstone's financial, consumer, retail and brand experience. Due to these recent events and additionalchanges expected in 2014, we expect an environment that is more challenging to predict the impact on our business, financial position and results ofoperations. We head into 2014 with a renewed sense of focus and an emphasis on delivering shareholder value. We intend to use the proceeds from theBlackstone investment as well as internal cash to repurchase approximately $350.0 million of our common stock. We intend to be patient, methodicaland opportunistic in the execution of this expanded buyback plan. In addition, we are excited about our new product launches for spring/summer,including the Stretch Sole and Busy Day, as well as carryover products such as the Huarache and A-Leigh wedge, which are proving more successfulin their second seasons. Entering the year, our backlog was up approximately $24.6 million to $378.9 million, which shows the strength of ourwholesale relationships. We have implemented several investment strategies that we believe will drive revenue growth while improving the operational and technologicalefficiency of the business. As part of our overall retail expansion strategy, we ended the year with 619 global retail locations. In 2014, as we intend toincreasingly focus on profitable growth and retail excellence, we may moderate the pace of our investments in new retail stores as well as consolidatesome existing locations. We remain in the testing and development phase of our ERP system implementation. This implementation represents thebeginning of a transformational change intended to improve our operational efficiency as we adapt as a global company. We expect to launch our newERP system globally in late 2014. Overall, the organization is focused on delivering shareholder value through our focus on casual lifestyle footwear sales and balancing long-termglobal growth between company-operated retail locations, partner store and multiband independent wholesale accounts and internet sites in locallanguages.38Table of ContentsResults of OperationsComparison of the Years Ended December 31, 2013 and 2012 Revenues. During the year ended December 31, 2013, revenues increased $69.4 million, or 6.2%, compared to the same period in 2012,primarily due to an increase of 4.4 million, or 8.8%, in global footwear unit sales. This increase was partially offset by a decrease of $0.28 per unit, or1.3%, in average footwear selling price. For the year ended December 31, 2013, revenues from our wholesale channel increased $27.9 million, or 4.3%, compared to 2012, which wasprimarily driven by increased wholesale demand in our Asia Pacific, Europe and Americas segments partially offset by decreased wholesale sales in ourJapan segment. These increases were driven by strong commitments from current wholesale customers and global distributors in emerging marketsspecifically in our Asia Pacific and Europe regions. We faced challenges in our Americas segment due to lower than anticipated at-once sales as a resultof accounts remaining lean on inventory and in our Japan segment due to continued macroeconomic pressure on consumer spending and unfavorableexchange rates between the Japanese Yen and U.S. Dollar. For the year ended December 31, 2013, revenues from our retail channel increased $43.2 million, or 11.5%, compared to 2012, primarily driven bythe disciplined expansion of our global retail presence, which included the opening of 82 company-operated stores (net of store closures) during theyear. This increase was driven by a global balance as we realized retail revenue growth in all four segments on a constant currency basis. Partiallyoffsetting this increase was a global decrease in comparable store sales of 2.7% on a constant currency basis which is primarily the result of globalweakness in consumer confidence, particularly in the Americas and Japan, as lingering effects of recessionary traffic and spending continued to impactretail markets. Despite these macroeconomic challenges, we continued to39 Year Ended December 31, Change ($ thousands, except per share dataand average footwear selling price) 2013 2012 $ % Revenues $1,192,680 $1,123,301 $69,379 6.2%Cost of sales 569,482 515,324 54,158 10.5 Gross profit 623,198 607,977 15,221 2.5 Selling, general and administrative expenses 549,154 460,393 88,761 19.3 Asset impairment charges 10,949 1,410 9,539 676.5 Income from operations 63,095 146,174 (83,079) (56.8)Foreign currency transaction losses, net 4,678 2,500 2,178 87.1 Interest income (2,432) (1,697) (735) 43.3 Interest expense 1,016 837 179 21.4 Other income, net (126) (1,014) 888 (87.6) Income before income taxes 59,959 145,548 (85,589) (58.8)Income tax expense 49,539 14,205 35,334 248.7 Net income $10,420 $131,343 $(120,923) (92.1)% Net income per common share: Basic $0.12 $1.46 $(1.34) (91.9)% Diluted $0.12 $1.44 $(1.32) (91.9)% Gross margin 52.3% 54.1% (180)bps (3.3)%Operating margin 5.3% 13.0% (770)bps (59.2)%Footwear unit sales 54,326 49,947 4,379 8.8%Average footwear selling price $21.27 $21.55 $(0.28) (1.3)%Table of Contentsexpand our global retail footprint in a disciplined manner. Consistent with our retail growth strategy for 2013, we continue to close certain kiosks asbranded stores allow us to better merchandise the full breadth and depth of our product line. For the year ended December 31, 2013, revenues from our internet channel decreased $1.7 million, or 1.7%, compared to 2012, which wasprimarily driven by decreased internet sales in Americas and Japan partially offset by increased internet sales in Europe and Asia Pacific. Our internetsales totaled approximately 8.5% and 9.1% of our consolidated net sales in 2013 and 2012, respectively. We continue to increase our online presence byadding new webstores worldwide enabling us to have increased access to our customers in a low cost, attractive manner and providing an opportunityto educate them about our products and brand. Impact on Revenues due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translaterevenues from our functional currencies to our reporting currency during the year ended December 31, 2013 decreased our revenues by $29.1 millioncompared to 2012. The majority of this decrease was related to the decrease in value of the Japanese Yen compared to the U.S. Dollar due to thepolitical and macroeconomic environment in Japan. The following table summarizes our total revenue by channel for the years ended December 31, 2013 and 2012:40 Year Ended December 31, Change ConstantCurrencyChange(1) ($ thousands) 2013 2012 $ % $ % Channel revenues: Wholesale: Americas $239,104 $235,988 $3,116 1.3%$5,589 2.4%Asia Pacific 212,761 180,970 31,791 17.6 31,199 17.2 Japan 90,426 117,380 (26,954) (23.0) (6,940) (5.9)Europe 131,215 110,947 20,268 18.3 17,585 15.8 Other businesses 254 574 (320) (55.7) (325) (56.6) Total Wholesale 673,760 645,859 27,901 4.3 47,108 7.3 Consumer-direct: Retail: Americas 202,925 196,711 6,214 3.2 7,303 3.7 Asia Pacific 120,020 104,632 15,388 14.7 15,380 14.7 Japan 36,566 38,430 (1,864) (4.9) 6,526 17.0 Europe 58,507 35,052 23,455 66.9 22,728 64.8 Total Retail 418,018 374,825 43,193 11.5 51,937 13.9 Internet: Americas 56,523 63,153 (6,630) (10.5) (6,404) (10.1)Asia Pacific 9,971 7,244 2,727 37.6 2,749 37.9 Japan 7,871 8,755 (884) (10.1) 867 9.9 Europe 26,537 23,465 3,072 13.1 2,231 9.5 Total Internet 100,902 102,617 (1,715) (1.7) (557) (0.5) Total revenues: $1,192,680 $1,123,301 $69,379 6.2%$98,488 8.8% (1)Reflects year-over-year change as if the current period results were in "constant currency," which is a non-GAAP financialmeasure. See "Non-GAAP Financial Measures" below for more information.Table of Contents The table below illustrates the overall growth in the number of our company-operated retail locations by type of store and reportable operatingsegment as of December 31, 2013 and 2012: The table below sets forth our comparable store sales by reportable operating segment for the year ended December 31, 2013 as compared to 2012: Gross profit. During the year ended December 31, 2013, gross profit increased $15.2 million, or 2.5%, compared to 2012, which was primarilyattributable to the 6.2% increase in revenues as a result of higher footwear unit sales partially offset by lower footwear selling prices and a$54.2 million, or 10.5%, increase in cost of sales. Gross margin percentage decreased 180 basis points compared to 2012. The decline in gross marginpercentage is primarily driven by the evolution of our product assortment and is consistent with our product strategy. As we expand our product lines,product mix shifts into styles that may utilize more expensive materials such as textile fabric and leather compared to the traditional clog. Product costinflation also contributed to the decline in gross margin percentage, but was mostly offset by internal cost savings initiatives.41Company-operated retail locations: December 31,2012 Opened Closed December 31,2013 Type: Kiosk/Store in Store 121 23 (22) 122 Retail Stores 287 66 (26) 327 Outlet Stores 129 43 (2) 170 Total 537 132 (50) 619 Operating segment: Americas 199 34 (17) 216 Asia Pacific 201 61 (26) 236 Japan 40 11 (2) 49 Europe 97 26 (5) 118 Total 537 132 (50) 619 Comparable store sales(1) Constant CurrencyYear EndedDecember 31, 2013(2) Constant CurrencyYear EndedDecember 31, 2012(2) Americas (5.8)% 2.6%Asia Pacific 6.9 3.3 Japan (15.0) (13.0)Europe 2.4 5.4 Global (2.7)% 1.5%(1)Comparable store sales is determined on a monthly basis. Comparable store sales begin in the thirteenth month of a store'soperation. Stores in which selling square footage has changed more than 15% as a result of a remodel, expansion orreduction are excluded until the thirteenth month in which they have comparable prior year sales. Temporarily closedstores are excluded from the comparable store sales calculation during the month of closure. Location closures in excessof three months are excluded until the thirteenth month post re-opening. Comparable store sales growth is calculated on acurrency neutral basis using historical annual average currency rates. (2)Reflects year-over-year change as if the current period results were in "constant currency," which is a non-GAAPfinancial measure. See "Non-GAAP Financial Measures" below for more information.Table of Contents Impact on Gross Profit due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translaterevenues and costs of sales from our functional currencies to our reporting currency during the year ended December 31, 2013 decreased our grossprofit by $15.9 million compared to 2012. The majority of this decrease was related to the decrease in value of the Japanese Yen compared to the U.S.Dollar due to the political and macroeconomic environment in Japan. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $88.8 million, or 19.3%, during the yearended December 31, 2013 compared to 2012. We continue to focus our operating expense increases around the long-term growth of the Company andare currently undergoing several long-term strategic projects including global retail expansion and the implementation of our ERP system, whichresulted in selling, general and administrative charges as well as capitalized expenditures. The increase in selling, general and administrative expenses isprimarily due to:(i)an increase of $39.6 million, or 19.3%, related to the global expansion of our retail channel, in which we opened 82 company-operatedstores (net of store closures) during the year. This increase includes $23.5 million of additional building expenses such as rent andmaintenance fees, $11.4 million in additional labor expenses and $3.2 million in depreciation and amortization; (ii)an increase of $14.9 million, or 13.9%, related to non-retail labor charges including variable and stock compensation as well as thenormalization of 2012 headcount increases; (iii)an increase of $9.9 million, or 44.8%, related to other non-retail expenses which includes a $6.1 million non-recurring expense related tothe resolution of a statutory tax audit in Brazil during the second quarter of 2013; (iv)an increase of $9.8 million, or 25.3%, related to non-retail professional expenses related to various litigation services, consulting fees,contract labor and other outside services. This increase includes $3.5 million of additional non-recurring charges related to on-goinglitigation and $1.1 million of additional non-recurring fees related to our recent investment agreement with Blackstone, which includesprofessional service fees associated with the transaction and our cash repatriation activities; (v)an increase of $7.1 million in non-retail marketing expenses, which was part of a company-wide initiative to increase advertising andagency services in order to help drive demand; and (i)an increase of $5.0 million in operating expenses related to the implementation of our ERP system. As a percentage of revenue, selling, general and administrative expenses increased 12.2%, or 500 basis points, to 46.0% during the year endedDecember 31, 2013 compared to 2012 as we continue to increase our global retail presence, utilize state-of-the-art marketing techniques to expand ourglobal brand and update our information technology for a streamlined business approach. Impact on Selling, General, and Administrative Expenses due to Foreign Exchange Rate Fluctuations. Changes in average foreign currencyexchange rates used to translate expenses from our functional currencies to our reporting currency during the year ended December 31, 2013, decreasedselling, general and administrative expenses by approximately $8.6 million compared to 2012. The majority of this decrease was related to the decreasein value of the Japanese Yen compared to the U.S. Dollar due to the political and macroeconomic environment in Japan.42Table of Contents Asset Impairments. We periodically evaluate all of our long-lived assets for impairment when events or circumstances would indicate thecarrying value of a long-lived asset may not be fully recoverable. In addition, we assess goodwill for impairment annually on the last day of the fourthquarter, or more frequently if events and circumstances indicate impairment may have occurred. Asset impairments increased $9.5 million during theyear ended December 31, 2013 compared to 2012 primarily due to $10.6 million of long-lived asset impairment charges during the year endedDecember 31, 2013 related to 60 underperforming retail locations in the Americas, Asia Pacific and Europe segments that we concluded were unlikelyto generate sufficient cash flows to fully recover the carrying value of the stores' assets over their remaining economic life. In addition, we recorded$0.3 million of goodwill impairment during the year ended December 31, 2013 related to our Crocs Benelux B.V. business, which we purchased inJuly 2012. Foreign Currency Transaction Losses. The line item entitled 'Foreign currency transaction losses, net' is comprised of foreign currency gainsand 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. During the year ended December 31, 2013, losses on foreign currency transactions increased $2.2 million, or87.1%, compared to 2012. This increase is primarily related to an $8.0 million increase in net losses associated with exposure from day-to-day businesstransactions in various foreign currencies compared to 2012. This difference was partially offset by a $5.8 million increase in net gains associated withour derivative instruments and our ability to hedge foreign currency fluctuations through undesignated forward instruments compared to 2012. Income tax expense. During the year ended December 31, 2013, income tax expense increased $35.3 million resulting in a 72.9% increase ineffective tax rate compared to 2012, which was primarily the result of valuation allowances being recorded on net deferred tax assets in tax jurisdictionswhere we believe it is not more likely than not that those benefits will be realized and tax associated with our cash repatriation activities. Our effectivetax rate of 82.6% for the year ended December 31, 2013 differs from the federal U.S. statutory rate primarily because the result of valuation allowancesbeing recorded on net deferred tax assets in tax jurisdictions where we believe it is not more likely than not that those benefits will be realized and taxassociated with our cash repatriation activities.43Table of ContentsComparison of the Years Ended December 31, 2012 and 2011 Revenues. During the year ended December 31, 2012, revenues increased $122.4 million, or 12.2%, compared to 2011, primarily due to anincrease of 2.2 million, or 4.6%, in global footwear unit sales and an increase of $1.51, or 7.5%, in footwear average selling price. For the year endedDecember 31, 2012, revenues from our wholesale channel increased $47.5 million, or 7.9%, which was primarily driven by increased wholesale salesin Americas and Asia. Revenues from our retail channel increased $68.2 million, or 22.2%, primarily driven by strong demand in all three reportablesegments as well as the continued growth of our retail presence by opening 107 company-operated stores (net of store closures) during the year. Weclosed certain kiosks as branded stores allowed us to better merchandise the full breadth and depth of our product line. Revenues from our internetchannel increased $6.7 million, or 7.0%, compared to 2011 primarily driven by increased brand awareness in the Americas and Asia operating segmentsand focus on improving our regional webstore presence. Impact on Revenues due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translaterevenues from our functional currencies to our reporting currency during the year ended December 31, 2012 decreased our revenues by $18.0 millioncompared to 2011. The majority of this decrease was related to the decrease in value of the Euro and the Brazilian Real compared to the U.S. Dollar dueto the political and macroeconomic environments in Europe and Brazil.44 Year Ended December 31, Change ($ thousands, except per share dataand average footwear selling price) 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 impairment charges 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)Interest income (1,697) (957) (740) 77.3 Interest expense 837 853 (16) (1.9)Other income, net (1,014) (621) (393) 63.3 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% 50bps 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 $1.51 7.5%Table of Contents The following table summarizes our total revenue by channel for the years ended December 31, 2012 and 2011: The table below illustrates the overall growth in the number of our company-operated retail locations by type of store and reportable operatingsegment as of December 31, 2012 and 2011: Year Ended December 31, Change Constant CurrencyChange(1) ($ thousands) 2012 2011 $ % $ % Channel revenues: Wholesale: Americas $235,988 $214,062 $21,926 10.2%$25,920 12.1%Asia Pacific 180,970 144,483 36,487 25.3 35,932 24.9 Japan 117,380 114,621 2,759 2.4 3,052 2.7 Europe 110,947 124,995 (14,048) (11.2) (5,168) (4.1)Otherbusinesses 574 191 383 200.5 406 212.6 TotalWholesale 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 Pacific 104,632 78,864 25,768 32.7 26,827 34.0 Japan 38,430 32,786 5,644 17.2 5,716 17.4 Europe 35,052 20,167 14,885 73.8 16,093 79.8 TotalRetail 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 Pacific 7,244 3,614 3,630 100.4 3,693 102.2 Japan 8,755 7,398 1,357 18.3 1,356 18.3 Europe 23,465 25,707 (2,242) (8.7) (163) (0.6) TotalInternet 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% (1)Reflects year-over-year change as if the current period results were in "constant currency," which is a non-GAAP financialmeasure. See "Non-GAAP Financial Measures" below for more information.Company-operated retail locations: December 31,2011 Opened Closed December 31,2012 Type: Kiosk/Store in Store 158 39 (76) 121 Retail Stores 180 120 (13) 287 Outlet Stores 92 42 (5) 129 Total 430 201 (94) 537 Operating segment: Americas 197 44 (42) 199 Asia Pacific 174 78 (51) 201 Japan 24 16 — 40 Europe 35 63 (1) 97 Total 430 201 (94) 537 45Table of Contents The table below sets forth our comparable store sales growth by reportable operating segment for the year ended December 31, 2012 as comparedto 2011: Gross profit. During the year ended December 31, 2012, gross profit increased $71.6 million, or 13.3%, compared to 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 theresult of the continued growth and expansion of our retail and internet channels as the growth in combined sales from these channels began to outpaceour wholesale channel. These drivers were offset by higher costs primarily from the expansion of our product offerings in 2012 which utilizedtraditional materials, such as textile fabric and leather, and increased offerings of discounted products and promotional items through our wholesale anddirect-to-consumer channels. Impact on Gross Profit due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translaterevenues and costs of sales from our functional currencies to our reporting currency during the year ended December 31, 2012 decreased our grossprofit by $7.8 million compared to 2011. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $55.6 million, or 13.7%, during the yearended December 31, 2012 compared to 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 companyoperated retail stores; (ii)an increase of $14.4 million in salaries and related costs, including variable compensation, resulting from higher global headcountincluding those needed 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 additionalretail store locations, 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,consulting for our new ERP implementation which46Comparable store sales(1) Constant CurrencyYear EndedDecember 31, 2012(2) Constant CurrencyYear EndedDecember 31, 2011(2) Americas 2.6% 1.7%Asia Pacific 3.3 11.9 Japan (13.0) (11.3)Europe 5.4 (5.7) Global 1.5% 2.3%(1)Comparable store sales is determined on a monthly basis. Comparable store sales begin in the thirteenth month of a store'soperation. Stores in which selling square footage has changed more than 15% as a result of a remodel, expansion orreduction are excluded until the thirteenth month in which they have comparable prior year sales. Temporarily closedstores are excluded from the comparable store sales calculation during the month of closure. Location closures in excessof three months are excluded until the thirteenth month post re-opening. Comparable store sales growth is calculated on acurrency neutral basis using historical annual average currency rates. (2)Reflects year-over-year change as if the current period results were in "constant currency," which is a non-GAAPfinancial measure. See "Non-GAAP Financial Measures" below for more information.Table of Contentsbegan in October 2012, certain legal contingency accruals, increased outside IT costs related to the implementation of new networkingdevices in our corporate headquarters, and increased costs associated with contracted customer service, sales support, and performanceimprovement; and(v)the remaining difference was primarily a result of $2.1 million of net decreases in selling, general, and administrative expenses includingtravel, as we became 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% in2011. Impact on Selling, General, and Administrative Expenses due to Foreign Exchange Rate Fluctuations. Changes in average foreign currencyexchange rates used to translate expenses from our functional currencies to our reporting currency during the year ended December 31, 2012, decreasedselling, general and administrative expenses by approximately $4.8 million as compared to 2011. Asset Impairments. Asset impairments increased $0.9 million during the year ended December 31, 2012 compared to 2011 primarily due to theimpairment of $1.4 million of long-lived assets related to retail stores in the United States and Canada. During 2012, we recorded impairments related tofour retail locations as our projected discounted future cash flows of these locations was determined to be insufficient to cover our fixed assetinvestments for these stores. Foreign Currency Transaction (Gains)/Losses. The line item entitled "Foreign currency transaction (gains)/losses, net" is comprised of foreigncurrency gains and losses from the re-measurement and settlement of monetary assets and liabilities denominated in non-functional currencies and theimpact of certain foreign currency derivative instruments. In 2012, we recognized a loss of $2.5 million related to foreign currency transactions,compared to a $4.9 million gain in 2011, primarily due to a $4.3 million loss in the first quarter of 2012 as a result of large currency fluctuations and anincrease in international business. We implemented a foreign currency hedging strategy in the second quarter of 2012. As a result of this strategy, wewere able to reduce the impacts of foreign currency fluctuations on our financial statements. Income tax (benefit) expense. During the year ended December 31, 2012, income tax expense decreased $9.7 million resulting in a 7.7%decrease in effective tax rate compared to the same period in 2011, which was primarily due to a reversal of certain tax provisions and the release ofcertain valuation allowances associated with deferred tax assets. Our effective tax rate of 9.8% for the year ended December 31, 2012 differed from thefederal U.S. statutory rate primarily because of the above mentioned releases as well as differences between income tax rates between U.S. and foreignjurisdictions.Presentation of Reportable Segments During the first quarter of 2013, we adjusted our operating segment structure for internal reports reviewed by the chief operating decision maker("CODM") by presenting Japan separate from the Asia Pacific segment. This change was made due to recurring amounts of substantial businessactivity as well as the macroeconomic environment within Japan, which resulted in the need for a regular review of Japan operating results bymanagement and the CODM in order to better evaluate performance and allocate resources for the consolidated business. Segment information for allperiods presented has been reclassified to conform to the fiscal 2013 presentation. As a result of the changes discussed above, we have four reportable operating segments based on the geographic nature of our operations:Americas, Asia Pacific, Japan and Europe. We also have an "Other businesses" category which aggregates insignificant operating segments that do notmeet the47Table of Contentsreportable segment threshold and represent manufacturing operations located in Mexico, Italy and Asia. The composition of our reportable operatingsegments is consistent with that used by our 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 as well asintersegment sales. Revenues of the "Other businesses" category are primarily made up of intersegment sales. The remaining revenues for the "Otherbusinesses" represent non-footwear product sales to external customers. Intersegment sales are not included in the measurement of segment operatingincome or regularly reviewed by the CODM and are eliminated when deriving total consolidated revenues. The primary financial measure utilized by the CODM to evaluate performance and allocate resources is segment operating income. Segmentperformance evaluation is based primarily on segment results without allocating corporate expenses, or indirect general, administrative and otherexpenses. Segment profits or losses of our reportable operating segments include adjustments to eliminate intersegment profit or losses on intersegmentsales. As such, reconciling items for segment operating income represent unallocated corporate and other expenses as well as intersegment eliminations.Segment assets consist of cash and cash equivalents, accounts receivable and inventory as these balances are regularly reviewed by the CODM.48Table of ContentsComparison of the Years Ended December 31, 2013 and 2012 by Segment The following tables set forth information related to our reportable operating business segments for the years ended December 31, 2013 and 2012: Year Ended December 31, Change Constant CurrencyChange(4) ($ thousands) 2013 2012 $ % $ % Revenues: Americas $498,552 $495,852 $2,700 0.5%$6,488 1.3%Asia Pacific 342,752 292,846 49,906 17.0 49,328 16.8 Japan 134,863 164,565 (29,702) (18.0) 453 0.3 Europe 216,259 169,464 46,795 27.6 42,544 25.1 Total segmentrevenues 1,192,426 1,122,727 69,699 6.2 98,813 8.8 Otherbusinesses 254 574 (320) (55.7) (325) (56.6) Totalconsolidatedrevenues $1,192,680 $1,123,301 $69,379 6.2%$98,488 8.8% Operatingincome(loss): Americas $61,894 $85,538 $(23,644) (27.6)%$(24,364) (28.5)%Asia Pacific 80,693 74,535 6,158 8.3 5,419 7.3 Japan 37,560 66,293 (28,733) (43.3) (20,324) (30.7)Europe 16,192 21,678 (5,486) (25.3) (5,359) (24.7) Total segmentoperatingincome 196,339 248,044 (51,705) (20.8) (44,628) (18.0)Otherbusinesses(1) (20,811) (10,805) (10,006) 92.6 (9,756) 90.3 Intersegmenteliminations 61 60 1 1.7 1 0.9 Unallocatedcorporate andother(2) (112,494) (91,125) (21,369) 23.5 (21,242) 23.3 Totalconsolidatedoperatingincome(3) $63,095 $146,174 $(83,079) (56.8)%$(75,625) (51.7)% Foreigncurrencytransactionlosses, net 4,678 2,500 2,178 87.1 Interest income (2,432) (1,697) (735) 43.3 Interest expense 1,016 837 179 21.4 Other income,net (126) (1,014) 888 (87.6) Income beforeincome taxes $59,959 $145,548 $(85,589) (58.8)% 49income taxes $59,959 $145,548 $(85,589) (58.8)% (1)During the year ended December 31, 2013, operating losses of Other businesses increased $10.0 million compared to 2012,primarily due to a $9.7 million decrease in gross margin as a result of increased cost of sales and a $0.3 million increase inselling, general and administrative expenses. (2)Includes a corporate component consisting primarily of corporate support and administrative functions, costs associated withshare-based compensation, research and development, brand marketing, legal, depreciation on corporate and other assets notallocated to operating segments and costs of the same nature of certain corporate holding companies. For the year endedDecember 31, 2013, operating losses of Unallocated corporate and other expenses increased $21.4 million compared to 2012,primarily due to a $23.0 million increase in selling, general and administrative costs as a result of increased labor chargesincluding variable and stock compensation as well as the normalization of 2012 headcount increases and increased professionalservices expenses related to the implementation of our ERP system. This increase of selling, general and administrative expenseswas partially offset by a $1.6 million decrease in cost of sales primarily related to decreases in variable overhead and freightexpenses.Table of Contents Americas Operating Segment. During the year ended December 31, 2013, revenues from our Americas segment increased $2.7 million, or0.5%, compared to 2012 primarily due to a 5.0% increase in average footwear selling price. This increase was partially offset by a 2.6% decrease infootwear units sold and $3.8 million unfavorable impact from foreign currency fluctuations driven by weakening of the Brazilian Real against the U.S.Dollar. During the year ended December 31, 2013, revenue growth for the region was realized primarily in the retail channel which increased$6.2 million, or 3.2%, and in the wholesale channel which increased $3.1 million, or 1.3% compared to 2012. The increase in retail channel revenue ispredominately driven by the disciplined expansion of our retail presence, which included the opening of 17 company-operated stores (net of closures)during the year. Despite the advancement of our retail presence in the Americas segment and increased retail channel revenues, we experienced adecrease in comparable store sales of 5.8% on a constant currency basis. This decrease was primarily the result of weakness in consumer confidence inthe region as lingering effects of recessionary traffic and spending continue to impact retail markets. Despite the slight increase in wholesale channelrevenues on a year-over-year basis, we continue to face challenges in the region due to lower than anticipated at-once sales as a result of wholesaleaccounts remaining lean on inventory. In addition, we were impacted by economic and market conditions in Latin America as our revenue wasconstrained due to import restrictions and lower market demand. These increases in retail and wholesale channel revenues during the year endedDecember 31, 2013 were partially offset by our internet channel which decreased $6.6 million, or 10.5%, compared to 2012. This decrease wasattributable to decreased internet traffic and conversion rates throughout the year. During the year ended December 31, 2013, segment operating incomedecreased $23.6 million, or 27.6%, compared to 2012 driven predominately by:(i)a $18.4 million, or 11.3%, increase in selling, general and administrative expenses as a result of the continued expansion of our retailchannel, increased marketing efforts and a non-recurring net expense of $6.1 million related to the resolution of a statutory tax audit inBrazil; (ii)retail asset impairment charges of $3.9 million related to certain underperforming locations; (iii)a non-recurring write-off of $3.4 million related to obsolete inventory including raw materials, footwear and other accessories; and (iv)a decrease in segment gross margins of 1.6%, or 80 basis points. Partially offsetting this decrease were the revenue increases noted above and a $0.7 million favorable impact from foreign currency fluctuations. Asia Pacific Operating Segment. During the year ended December 31, 2013, revenues from our Asia Pacific segment increased $49.9 million,or 17.0%, compared to 2012 primarily due to a 14.1% increase in footwear units sold, a 3.0% increase in average footwear selling price and a$0.6 million favorable impact from foreign currency fluctuations. Although our leading footwear model in terms of sales in the Asia Pacific regioncontinues to be our traditional clog, the increase in footwear units sold and average footwear selling price was driven mainly through other footwearstyles such as our mary-jane, flip-flop and loafer. During the year ended December 31, 2013, we realized revenue growth for the region in all threechannels compared to 2012. Our wholesale channel revenue increased $31.8 million, or 17.6%, primarily due to the expansion of our wholesale doorsand the continued50(3)Please refer to our Results of Operations to reconcile total consolidated operating income to net income as segment informationdoes not have an effect on values below total consolidated operating income. (4)Reflects year-over-year change as if the current period results were in "constant currency," which is a non-GAAP financialmeasure. See "Non-GAAP Financial Measures" below for more information.Table of Contentssupport from existing customers. Our direct-to-consumer channel revenues increased $18.1 million, or 16.2%, primarily due to our continued focus onand the disciplined expansion of our retail channel as we opened 35 company-operated stores (net of store closures) during the year combined with anincrease in comparable store sales of 6.9% on a constant currency basis. During the year ended December 31, 2013, segment operating incomeincreased $6.2 million, or 8.3%, compared to 2012 driven predominately by the revenue increases noted above and a $0.7 million favorable impact fromforeign currency fluctuations. Partially offsetting this increase were the following:(i)a $21.2 million, or 20.5%, increase in selling, general and administrative expenses as a result of the continued expansion of our retailchannel, increased salaries and wages as we added approximately 40 full-time employees to our growing Asia Pacific business andincreased marketing efforts; (ii)retail asset impairment charges of $0.2 million related to certain underperforming locations; and (iii)a decrease in segment gross margins of 1.3%, or 80 basis points. Japan Operating Segment. During the year ended December 31, 2013, revenues from our Japan segment decreased $29.7 million, or 18.0%,compared to 2012 primarily due to $30.2 million unfavorable impact from foreign currency fluctuations as a result of recent decreases in the value of theJapanese Yen to the U.S. Dollar stemming from political and macroeconomic challenges in the region, which led to a 21.0% decrease in footwearselling price. This decrease was partially offset by a 4.8% increase in footwear units sold. During the year ended December 31, 2013, revenueunderperformance was realized primarily in the wholesale channel which decreased $27.0 million, or 23.0%, compared to 2012. This decrease wasmainly due to a soft wholesale market and slow sell-through of inventory as a result of macroeconomic declines. Our direct-to-consumer channelrevenues decreased $2.7 million, or 5.8%, primarily due to a decrease in comparable store sales growth of 15.0% on a constant currency basis. Despitecurrent macroeconomic conditions in Japan, we continue to expand our retail channel in the region as we opened nine company-operated stores (net ofstore closures) during the year in anticipation of an economic recovery. During the year ended December 31, 2013, segment operating income decreased$28.7 million, or 43.3%, compared to 2012 driven predominately by a the revenue decreases noted above, a $8.4 million unfavorable impact fromforeign currency fluctuations and a decrease in segment gross margins of 12.6%, or 800 basis points. Partially offsetting this decrease was a$0.9 million, or 2.3%, decrease in selling, general and administrative expenses. Europe Operating Segment. During the year ended December 31, 2013, revenues from our Europe segment increased $46.8 million, or 27.6%,compared to 2012 primarily due to a 41.9% increase in footwear units sold and a $4.3 million favorable impact from foreign currency fluctuationsdriven by strengthening of the Euro against the U.S. Dollar. This increase was partially offset by a 9.9% decrease in average footwear selling price. Ourtraditional clog continues to generate the majority of our footwear sales in Europe, making up approximately 70.3% of total footwear unit sales duringthe year; however, we did experience marked improvement in the sales of other footwear models during the year including boots and flip-flops. Duringthe year ended December 31, 2013, we realized revenue growth for the region in all three channels compared to 2012 as we experienced noticeableimprovement in the macroeconomic environment in Europe. Our retail channel revenue increased $23.5 million, or 66.9%, primarily due to ourcontinued focus on and the disciplined expansion of our retail channel as we opened 21 company-operated stores (net of store closures) during the yearcombined with an increase in comparable store sales growth of 2.4% on a constant currency basis. Our wholesale channel revenue increased$20.3 million, or 18.3%, primarily due to the expansion in our number of wholesale doors leading to improved backlog sales and at-once orders. Ourinternet channel revenue increased $3.1 million, or 13.1%, primarily due to increased internet traffic and our promotional focus. During51Table of Contentsthe year ended December 31, 2013, segment operating income decreased $5.5 million, or 25.3%, compared to 2012 driven predominately by:(i)a $26.8 million, or 41.5%, increase in selling, general and administrative expenses as a result of the continued expansion of our retailchannel and a non-recurring legal contingency accrual of $5.7 million related to on-going litigation; (ii)retail asset impairment charges of $6.9 million related to certain underperforming locations; (iii)a goodwill impairment charge of $0.3 million related to our acquisition of Benelux in 2012; and (iv)a $0.1 million unfavorable impact from foreign currency fluctuations. Partially offsetting this decrease were the revenue increases noted above and an increase in segment gross margins of 3.9%, or 200 basis points.52Table of ContentsComparison of the Years Ended December 31, 2012 and 2011 by Segment The following tables set forth information related to our reportable operating business segments for the years ended December 31, 2012 and 2011: Year Ended December 31, Change ConstantCurrencyChange(4) ($ thousands) 2012 2011 $ % $ % Revenues: Americas $495,852 $448,077 $47,775 10.7%$52,680 11.8%Asia Pacific 292,846 226,961 65,885 29.0 66,452 29.3 Japan 164,565 154,805 9,760 6.3 10,124 6.5 Europe 169,464 170,869 (1,405) (0.8) 10,762 6.3 Total segmentrevenues 1,122,727 1,000,712 122,015 12.2 140,018 14.0 Otherbusinesses 574 191 383 200.5 406 212.6 Totalconsolidatedrevenues $1,123,301 $1,000,903 $122,398 12.2%$140,424 14.0% Operatingincome(loss): Americas $85,538 $70,532 $15,006 21.3%$14,962 21.2%Asia Pacific 74,535 52,872 21,663 41.0 21,412 40.5 Japan 66,293 71,046 (4,753) (6.7) (4,711) (6.6)Europe 21,678 37,106 (15,428) (41.6) (12,137) (32.7) Total segmentoperatingincome 248,044 231,556 16,488 7.1 19,526 8.4 Otherbusinesses(1) (10,805) (14,128) 3,323 (23.5) 3,235 (22.9)Intersegmenteliminations 60 66 (6) (9.1) (16) (23.6)Unallocatedcorporate andother(2) (91,125) (86,415) (4,709) 5.5 (4,785) 5.5 Totalconsolidatedoperatingincome(3) $146,174 $131,079 $15,095 11.5%$17,960 13.7% Foreigncurrencytransaction(gains)losses, net 2,500 (4,886) 7,386 (151.2) Interest income (1,697) (957) (740) 77.3 Interest expense 837 853 (16) (1.9) Other income,net (1,014) (621) (393) 63.3 53Income beforeincome taxes $145,548 $136,690 $8,858 6.5% (1)During the year ended December 31, 2012, operating losses of Other businesses decreased $3.3 million compared to 2011primarily due to a $2.5 million increase in gross margin and a $0.8 million decrease in selling, general and administrativeexpenses. (2)Includes a corporate component consisting primarily of corporate support and administrative functions, costs associated withshare-based compensation, research and development, brand marketing, legal, depreciation on corporate and other assets notallocated to operating segments and costs of the same nature of certain corporate holding companies. For the year endedDecember 31, 2012, Unallocated corporate and other expenses increased $4.7 million compared to 2011, primarily due to a$3.3 million increase in cost of sales and a $2.0 million increase in selling, general, and administrative costs due to highercorporate headcount partially offset by a decrease of $0.5 million in asset impairments and a decrease of $0.1 million in charitablecontributions..Table of Contents Americas Operating Segment. During the year ended December 31, 2012, revenues from our Americas segment increased $47.8 million, or10.7%, compared to 2011 primarily due to a 4.3% increase in footwear units sold and a 5.8% increase in average footwear selling price partially offsetby a $4.9 million unfavorable impact from foreign currency fluctuations. Revenue growth for the region was realized primarily in our retail channelwhich increased $21.9 million, or 12.5%, and in our wholesale channel which increased $21.9 million, or 10.2%. We continued to focus on thedisciplined expansion of our retail channel by opening 22 full price stores (net of store closures) and 15 outlet stores (net of store closures) in 2012,offset by the closing of 35 underperforming kiosk locations (net of store closures). Segment operating income increased by $15.0 million, or 21.3%,compared to 2011 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 by a $12.5 million, or 8.3%, increase in selling, general and administrative expenses resulting from the continued expansion ofthe retail channel. Asia Pacific Operating Segment. During the year ended December 31, 2012, revenues from our Asia Pacific segment increased $65.9 million,or 29.0%, compared to 2011 primarily due to a 17.5% increase in footwear units sold and a 10.0% increase in average footwear selling price partiallyoffset by a $0.6 million unfavorable impact from foreign currency fluctuations. During the year ended December 31, 2012, revenue growth for theregion was realized in all three channels compared to the same period in 2012 as we retained strong support from our wholesale channel customers,continued to focus on disciplined expansion of our retail channel and continued to implement new, consumer-friendly webstores in various countries inour internet channel. Wholesale channel revenue increased $36.5 million, or 25.3%, retail channel revenue increased $25.8 million, or 32.7%, andinternet channel revenue increased $3.6 million, or 100.4%. During the year ended December 31, 2012, we opened 27 company-operated stores (net ofstore closures) in our Asia Pacific region compared to 2011. Segment operating income increased $21.7 million, or 41.0%, compared to 2011 primarilydue to the increase in revenues, a slight increase in segment gross margin of approximately 1.7%, or 100 basis points, and a $0.3 million favorable netimpact from foreign currency fluctuations on operating income. This increase was partially offset by a $20.7 million, or 25.1%, increase in selling,general and administrative expenses resulting from the continued expansion of the retail channel. Japan Operating Segment. During the year ended December 31, 2012, revenues from our Japan segment increased $9.8 million, or 6.3%,compared to 2011 primarily due to a 9.4% increase in footwear units sold. This increase was partially offset by a 2.0% decrease in average footwearselling price and a $0.4 million unfavorable impact from foreign currency fluctuations due to recent decreases in value of the Japanese Yen to the U.S.Dollar. During the year ended December 31, 2012, revenue growth for the region was realized in all three channels compared to the same period in2011. Retail channel revenue increased $5.6 million, 17.2%, wholesale channel revenue increased $2.8 million, or 2.4%, and internet channel revenueincreased $1.4 million, or 18.4%. During the year ended December 31, 2012, we opened 16 company-operated stores in our Japan region compared tothe same period in 2011. Segment operating income decreased $4.8 million, or 6.7%, compared to 2011 primarily due to a $6.9 million, or 22.1%,increase in selling, general and administrative expenses resulting from the continued expansion of the retail channel and a decrease in segment grossmargin of approximately 3.9%, or 260 basis points. This decrease was partially offset by the increase in revenues mentioned above.54(3)Please refer to our Results of Operations to reconcile total consolidated operating income to net income as segment informationdoes not have an effect on values below total consolidated operating income. (4)Reflects year-over-year change as if the current period results were in "constant currency," which is a non-GAAP financialmeasure. See "Non-GAAP Financial Measures" below for more information.Table of Contents Europe Operating Segment. During the year ended December 31, 2012, revenues from the Europe segment decreased $1.4 million, or 0.8%,compared to 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 adecrease 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 infootwear units sold and unfavorable impact of foreign currency fluctuations as a result of challenging macroeconomic conditions in Europe. Thewholesale and internet channel revenue decreases were partially offset by a revenue increase of $14.9 million, or 73.8%, in the retail channel as weopened 62 stores (net of store closures) in 2012 including 44 full price stores (net of store closures), 14 outlet stores (net of store closures) and 4 kiosklocations (net of store closures). Segment operating income decreased by $15.4 million, or 41.6%, compared to 2011 driven mainly by decreasedrevenues, 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 on operating income, and a slight decrease in segment gross margin ofapproximately 0.4%, or 20 basis points.Non-GAAP Financial Measures In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America("U.S. GAAP"), we present current period results below in 'adjusted results of operations', which is a non-GAAP financial measure. Adjusted resultsof operations exclude the impact of items that management believes are non-recurring, unusual and infrequent charges that affected our consolidatedstatements of operations in the periods presented. We also present certain information related to our current period results of operations in this Item 2 through "constant currency", which is a non-GAAP financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments underU.S. GAAP. Constant currency represents current period results that have been restated using prior year average foreign exchange rates for thecomparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations. Management uses adjusted results of operations and constant currency figures to assist in comparing business trends from period to period on aconsistent basis without regard to the impact of non-recurring, unusual and infrequent items and foreign exchange rate fluctuations and incommunications 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 other users of our financial statements in evaluating operating performance by providingbetter comparability between reporting periods because they provide an additional tool to evaluate our performance without regard to foreign currencyfluctuations and non-recurring items that may not be indicative of overall business trends. They also provide a better baseline for analyzing trends in ouroperations. We do not suggest that investors should consider these non-GAAP measures in isolation from, or as a substitute for, financial informationprepared in accordance with U.S. GAAP.55Table of Contents The following table is a reconciliation of our results of operations, the most directly comparable U.S. GAAP measures, to non-GAAP adjustedresults of operations: Year Ended December 31, 2013 2012 Non-Recurring,Unusual andInfrequentCharges Non-Recurring,Unusual andInfrequentCharges ($ thousands, except per share data) GAAP Cash Non-Cash Non-GAAP GAAP Cash Non-Cash Non-GAAP Revenues $1,192,680 $ $ $1,192,680 $1,123,301 $ $ $1,123,301 Cost of sales 569,482 515,324 Inventory write-down(1) — (3,419) (3,419) — — — Contingency accruals(2) — — — — (3,704) (3,704) Cost of sales — (3,419) 566,063 — (3,704) 511,620 Gross profit 623,198 626,617 607,977 611,681 Gross margin 52.3% 52.5% 54.1% 54.5%Selling, general and administrativeexpenses ("SG&A") 549,154 460,393 Brazil tax credits(3) (6,094) — (6,094) — — — New ERP implementation(4) (5,902) — (5,902) (870) — (870)Contingency accruals(2) — (5,714) (5,714) — (2,200) (2,200)Depreciation and amortization(5) — (2,991) (2,991) — (903) (903)Blackstone deal and cashrepatriation(6) (1,091) — (1,091) — — — Management turnover benefit(7) — 625 625 — — — SG&A (13,087) (8,080) 527,987 (870) (3,103) 456,420 SG&A as a percentage of revenues 46.0% 44.3% 41.0% 40.6%Asset impairment charges 10,949 1,410 Retail asset impairment charges(8) — (10,610) (10,610) — (1,410) (1,410)Goodwill impairment charges(9) — (339) (339) — — — Asset impairment charges — (10,949) — — (1,410) — Income from operations 63,095 98,630 146,174 155,261 Foreign currency transaction losses, net 4,678 — — 4,678 2,500 — — 2,500 Interest income (2,432) — — (2,432) (1,697) — — (1,697)Interest expense 1,016 — — 1,016 837 — — 837 Other income, net (126) — — (126) (1,014) — — (1,014) Income before income taxes 59,959 — — 95,494 145,548 — — 154,635 Income tax expense(10) 49,539 (1,000) (25,831) 22,708 14,205 — 11,368 25,573 Net income $10,420 $(14,087)$(48,279)$72,786 $131,343 $(870)$3,151 $129,062 Net income per common share: Basic $0.12 $1.46 Diluted $0.12 $0.82 $1.44 $1.42 (1)This relates to a write-off of obsolete inventory including raw materials, footwear and accessories. (2)This represents legal and customs contingency accruals during the year ended December 31, 2013 and 2012 of which $5.7 million and $2.2 million,respectively, was recorded in selling, general and administrative expenses and $0.0 million and $3.7 million, respectively, was recorded in cost of sales. (3)This represents a net expense related to the resolution of a statutory tax audit in Brazil. (4)This represents operating expenses related to the implementation of our new ERP system. (5)This represents the add-back of accelerated depreciation and amortization on tangible and intangible items related to our current ERP system and supportingplatforms that will no longer be utilized once the implementation of a new ERP is complete. (6)This is related to our recent investment agreement with Blackstone, which includes professional service fees associated with the transaction and our cashrepatriation activities. (7)This is related to benefits recognized by the Company due to the cancellation of stock awards associated with the resignation of our Chief Executive Officer.56Table of ContentsLiquidity and Capital ResourcesCash Flows Cash and cash equivalents at December 31, 2013 increased 7.7% to $317.1 million compared to $294.3 million at December 31, 2012. The cashand cash equivalents balance has fluctuated throughout the year due in part to typical seasonal changes in working capital requirements. Cash outflowsconsist of strategic reinvestments of excess cash into the business, including $68.8 million in net capital spending primarily related to our ERP systemimplementation and global retail expansion and a $12.5 million repurchase of stock associated with board authorized repurchases (further discussedbelow). Cash inflows were primarily sourced from operating income and net proceeds from bank borrowings related to the implementation of our ERPsystem. We anticipate that cash flows from operations will be sufficient to meet the ongoing needs of our business for the next twelve months. In order toprovide additional liquidity in the future and to help support our strategic goals, we issued Series A Convertible Preferred Stock ("Series A PreferredStock") to Blackstone Capital Partners VI L.P. ("Blackstone") on January 27, 2014 for net proceeds of approximately $182.2 million (see Sale ofPreferred Stock below), we have a revolving credit facility with a syndicate of lenders, including PNC Bank, National Association ("PNC"), whichcurrently provides us with up to $100.0 million in borrowing capacity and matures in December 2017 (see Revolving Credit Facility below) and wehave the ability to finance portions of our ERP system implementation through PNC Equipment Finance, LLC ("PNC Equipment") (see Long TermBank Borrowings below). Additional future financing may be necessary and there can be no assurance that, if needed, we will be able to secureadditional debt or equity financing on terms acceptable to us or at all.Sale of Preferred Stock On December 28, 2013, we entered into, and on January 27, 2014, we closed on an investment agreement with Blackstone, which resulted inapproximately $182.2 million of proceeds, which is net of related expenses, in exchange for 200,000 shares of the Company's Series A Preferred Stock,par value $0.001 per share, with an aggregate stated value of $200.0 million, or $1000 per share, and an aggregate purchase price of $198.0 million, or$990 per share. The Series A Preferred Stock ranks senior to our common stock with respect to dividend rights and rights on liquidation, winding-up anddissolution. Holders of Series A Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 6% per annum as well as anydividends declared or paid on common stock and are entitled to vote together with the holders of common stock on an as-converted basis. Pursuant tothe Investment Agreement, the Series A Preferred Stock is subject to several different conversion features as well as redemption rights, which are at theoption of the holder, the Company or contingent events. The conversion rate is subject to customary anti-dilution and other adjustments subject tocertain share caps and other restrictions. We intend to use the net proceeds of the transactions, as well as excess cash, to fund the previously announced $350.0 million stock repurchaseauthorization approved by the board of directors. The Blackstone investment represented approximately 13.5% ownership of the Company as of57(8)This represents retail asset impairment charges for certain underperforming locations in our Americas, Asia Pacific and Europe segments. (9)This is related to a portion of our Crocs Benelux B.V. business purchased by our Crocs Stores B.V. subsidiary in July 2012. (10)These represent the add-back of certain income tax expenses (benefits). The three months and year-ended December 31, 2013 includes a non-recurring taxexpense related to our cash repatriation strategy as well as a valuation allowance adjustment. The year-ended December 31, 2012 includes a non-recurring taxbenefit of $11.4 million related to the reversal of reserves for specific uncertain tax positions and the release of certain valuation allowances associated withdeferred tax assets.Table of ContentsJanuary 31, 2014. The Company believes this investment provides an opportunity to drive shareholder value and refine the strategic direction of thebusiness.Stock Repurchase Plan Authorizations We continue to evaluate options to maximize the returns on our cash and maintain an appropriate capital structure, including, among otheralternatives, repurchases of our common stock. On December 26, 2013, the Board approved the repurchase of up to $350.0 million of our common stock. This replaced any of the Company'sexisting stock repurchase authorizations. The number, price, structure and timing of the repurchases, if any, will be at the Company's sole discretion andfuture repurchases will be evaluated by the Company depending on market conditions, liquidity needs and other factors. Share repurchases may bemade in the open market or in privately negotiated transactions. The repurchase authorization does not have an expiration date and does not oblige us toacquire any particular amount of our common stock. The Board may suspend, modify or terminate the repurchase program at any time without priornotice. During the three months ended December 31, 2013, we did not repurchase any shares. During the year ended December 31, 2013, we repurchasedapproximately 0.8 million shares at an average price of $14.99 for an aggregate price of approximately $12.5 million excluding related commissioncharges, under a publicly-announced repurchase plan. As of December 31, 2013, subject to certain restrictions on repurchases under our revolving credit facility, we had $350.0 million of our commonshares available for repurchase under previously announced repurchase authorizations.Revolving Credit Facility On September 25, 2009, we entered into a Revolving Credit and Security Agreement, as amended, with the lenders named therein and PNC Bank,National Association ("PNC"), as a lender and administrative agent for the lenders. On December 16, 2011 and June 12, 2013, we entered into our firstand second amendments, respectively, to the Revolving Credit and Security Agreement (collectively, the "Amended and Restated Credit Agreement"). On December 27, 2013, we entered into the Third Amendment to Amended and Restated Credit Agreement (the "Third Amendment"), pursuant towhich certain terms of the Amended and Restated Credit Agreement were amended. The Third Amendment, among other things, (i) allows for thepayment of dividends on the Series A Preferred Stock, (ii) permits the Company to have greater flexibility to repurchase its Common Stock,(iii) decreases the maximum leverage ratio from 3.50 to 1.00 to 3.25 to 1.00, and (iv) amends certain definitions of the financial covenants to becomemore favorable to the Company. The Credit Agreement enables us to borrow up to $100.0 million, with the ability to increase commitments to up to $125 million subject to certainconditions, and is currently set to mature on December 16, 2017. The Credit Agreement is available for working capital, capital expenditures, permittedacquisitions, reimbursement of drawings under letters of credit, and permitted dividends, distributions, purchases, redemptions and retirements of equityinterests. Borrowings under the Credit Agreement are secured by all of our assets including all receivables, equipment, general intangibles, inventory,investment property, subsidiary stock and intellectual property. Borrowings under the Credit Agreement bear interest at a variable rate. For domestic rateloans, the interest rate is equal to the highest of (i) the daily federal funds open rate as quoted by ICAP North America, Inc. plus 0.5%, (ii) PNC's primerate and (iii) a daily LIBOR rate plus 1.0%, in each case there is an additional margin ranging from 0.25% to 1.00% based on certain conditions. ForLIBOR 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.58Table of ContentsThe Credit Agreement requires monthly interest payments with respect to domestic rate loans and at the end of each interest period with respect toLIBOR rate loans. The Credit Agreement further provides for a limit on the issuance of letters of credit to a maximum of $20.0 million. The CreditAgreement contains provisions requiring us to maintain compliance with certain restrictive and financial covenants. As of December 31, 2013 and 2012, we had no outstanding borrowings under the Credit Agreement. As of each of December 31, 2013 and 2012,we had issued and outstanding letters of credit of $7.2 million, which were reserved against the borrowing base under the terms of the CreditAgreement. During the years ended December 31, 2013, 2012 and 2011, we capitalized $0.1 million, $0.5 million and $0.4 million, respectively, in feesand third party costs which were incurred in connection with the Credit Agreement, as deferred financing costs. As of December 31, 2013, we were incompliance with all restrictive financial and other covenants under the Credit Agreement.Long-term Bank Borrowings On December 10, 2012, we entered into a Master Installment Payment Agreement ("Master IPA") with PNC Bank National Association ("PNC")in which PNC will finance the Company's purchase of software and services, which may include but are not limited to third party costs to design, installand implement software systems, and associated hardware described in the schedules defined within the Master IPA. This agreement was entered intoto finance the recent implementation of a new enterprise resource planning ("ERP") system which began in October 2012 and is estimated to continuethrough late 2014. The terms of the agreement consist of variable interest rates and payment terms based on amounts borrowed and timing of activitythroughout the implementation of the ERP system. As of December 31, 2013 and 2012, we had $16.8 million and $6.6 million, respectively, of long-term debt outstanding under five and oneseparate notes payable, respectively, of which $5.1 million and $2.0 million, respectively, represent current installments. As of December 31, 2013, thenotes bear interest rates ranging from 2.45% to 2.79% and maturities ranging from September 2016 to September 2017. As this debt arrangementrelates solely to the construction and implementation of an ERP system for use by the entity, all interest expense incurred under the arrangement hasbeen capitalized to the consolidated balance sheets until the assets are ready for intended use and will be amortized over the useful life of the softwareupon that date. During the year ended December 31, 2013, we capitalized $0.3 million in interest expense related to this debt arrangement to theconsolidated balance sheets. Interest rates and payment terms are subject to changes as further financing occurs under the Master IPA.Working Capital As of December 31, 2013, accounts receivable increased $12.1 million, or 13.1%, to $104.4 million when compared to December 31, 2012, whichis primarily the result of higher sales year-over-year. This increase was partially offset by increased efficiency in our accounts receivable and collectionsdepartments. Inventories decreased $2.5 million, or 1.5%, to $162.3 million as of December 31, 2013 when compared to December 31, 2012, as weconservatively managed unit inventory and the flow product towards the end of the year.Capital Assets During the year ended December 31, 2013, net capital expenditures acquired, inclusive of intangible assets, increased to $72.7 million compared to$59.5 million during the same period in 2012 primarily due to increased capitalization of our ERP implementation costs and further leaseholdimprovements related to our retail store expansion.59Table of Contents We have entered into various operating leases that require cash payments on a specified schedule. Over the next five years we are committed tomake payments of approximately $275.8 million related to our operating leases. We plan to continue to enter into operating leases related to our retailstores; however, we plan to reduce our overall retail expansion in 2014. We also continue to evaluate cost reduction opportunities. Our evaluation ofcost reduction opportunities will include an evaluation of contracts for sponsorships, operating lease contracts and other contracts that require futureminimum payments resulting in fixed operating costs. Any changes to these contracts may require early termination fees or other charges that couldresult in significant cash expenditures.Repatriation of Cash As we are a global business, we have cash balances which are located in various countries and are denominated in various currencies. Fluctuationsin foreign currency exchange rates impact our results of operations and cash positions. Future fluctuations in foreign currencies may have a materialimpact on our cash flows and capital resources. Cash balances held in foreign countries have additional restrictions and covenants associated with themwhich adds increased strains 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; however, our board ofdirectors recently approved a foreign cash repatriation strategy which is intended to, along with net cash proceeds received from the recent Blackstoneinvestment, substantially fund our previously announced $350.0 million stock repurchase authorization. As part of this strategy, we intend to repatriateapproximately $165.0 million of foreign cash by the end of 2014, of which $65.0 million was repatriated during the three months ended December 31,2013 and we expect the remaining $100.0 million will be repatriated by the end of 2014. Not including amounts previously accrued, we anticipate theaggregate tax impact of our repatriation strategy to be approximately $11.7 million, which was charged against the consolidated statement of operationsat December 31, 2013. 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 andstate income taxes less applicable foreign tax credits. In some countries, repatriation of certain foreign balances is restricted by local laws and could haveadverse tax consequences if we were to move the cash to another country. Certain countries, including China, have monetary laws which may limit ourability to utilize cash resources in those countries for operations in other countries. These limitations may affect our ability to fully utilize our cashresources for needs in the U.S. or other countries and could adversely affect our liquidity. As of December 31, 2013, we held $252.3 million of ourtotal $317.1 million in cash in international locations. This cash is primarily used for the ongoing operations of the business in the locations in which thecash is held. Of the $252.3 million, $15.3 million could potentially be restricted, as described above. If the remaining $237.0 million were to beimmediately repatriated to the U.S., we would be required to incur approximately $36.3 million in taxes that were not previously provided for in ourconsolidated statement of operations.Contractual Obligations In February 2011, we renewed and amended our supply agreement with Finproject S.r.l. which provides us the exclusive right to purchase certainraw materials used to manufacture our products. The agreement also provides that we meet minimum purchase requirements to maintain exclusivitythroughout the term of the agreement, which expires December 31, 2014. Historically, the minimum purchase requirements have not been onerous andwe do not expect them to become onerous in the future. Depending on the material purchased, pricing is either based on contracted price or is subject toquarterly reviews and fluctuates based on order volume, currency fluctuations and raw material prices. Pursuant to the agreement, we guarantee thepayment for certain third-party manufacturer60Table of Contentspurchases of these raw materials up to a maximum potential amount of €3.5 million (approximately $4.8 million as of December 31, 2013), through aletter of credit that was issued to Finproject S.r.l. The following table summarizes aggregate information about our significant contractual cash obligations as of December 31, 2013:61 Payments due by period ($ thousands) Total Less than1 year 1 - 3 years 3 - 5 years More than5 years Operating lease obligations(1) $412,434 $83,831 $119,661 $72,311 $136,631 Inventory purchase obligations with third partymanufacturers(2) 172,311 172,311 — — — Other contracts(3) 37,303 11,775 17,002 8,526 — Estimated liability for uncertain tax positions(4) 6,376 — 6,376 — — Debt obligations(5)(8) 17,559 5,525 10,405 1,629 — Minimum licensing royalties(6) 7,789 3,754 2,135 1,900 — Capital lease obligations(7)(8) 101 67 33 1 — Total $653,873 $277,263 $155,612 $84,367 $136,631 (1)Our operating lease obligations consist of leases for retail stores, offices, warehouses, vehicles, and equipment expiring atvarious dates through 2033. This balance represents the minimum cash commitment under contract to various third-parties foroperating lease obligations including the effect of rent escalation clauses and deferred rent. This balance does not include certaincontingent rent clauses that may require additional rental amounts based on sales volume, inventories, etc. as these amounts arenot determinable for future periods. (2)Our inventory purchase obligations with third party manufacturers consist of open purchase orders for footwear products. Allpurchase obligations with third party manufacturers are expected to be paid within one year. (3)Other contracts consist of various agreements with third-party providers primarily for IT renovation and maintenance in ourNiwot, CO facility and global accounting services. (4)Our estimated liability for uncertain tax positions are unrecognized tax benefits taken in our income tax return that would reduceour effective tax rate, if recognized. As of December 31, 2013, we had gross unrecognized tax benefits recorded in non-currentliabilities of $31.6 million and an additional $5.0 million in gross interest and penalties. Of the $31.6 million, we expectapproximately $6.4 million to be paid within one to three years. Of the remaining $25.2 million uncertain tax liabilities, we areunable to make a reasonable estimate of the timing of payments in individual years and therefore, such amounts are not includedin the contractual cash obligations table above. (5)We have entered into an agreement with PNC to finance the purchase of software and services related to the implementation ofour new ERP system, which began in October 2012 and is expected to continue into late 2014. Our current debt obligationsconsist of five separate notes issued under the agreement, which bear interest rates ranging from 2.45% to 2.79% and maturitiesranging from September 2016 to September 2017. We will continue to finance the ERP implementation on an as needed basisthrough this agreement. Interest rates and payment terms are subject to change as further financing occurs. (6)Our minimum licensing royalties consist of usage-based payments for the right to use various licenses, trademarks andcopyrights in the production of our footwear, apparel and accessories.Table of ContentsOff-Balance Sheet Arrangements We had no material off balance sheet arrangements as of December 31, 2013.Critical Accounting Policies and EstimatesGeneral Our discussion and analysis of financial condition and results of operations, outside of discussions regarding constant currency and non-GAAPfinancial measures, is based on the consolidated financial statements which have been prepared in accordance with GAAP. The preparation of thesefinancial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date ofthe financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates onan on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates under different assumptions or conditions. The following discussion pertains toaccounting policies management believes are most critical to the portrayal of our financial condition and results of operations that require management'smost difficult, subjective or complex judgments. Reserves for Uncollectible Accounts Receivable. We make ongoing estimates related to the collectability of our accounts receivable and maintaina reserve for estimated losses resulting from the inability of our customers to make required payments. Our estimates are based on a variety of factors,including the length of time receivables are past due, economic trends and conditions affecting our customer base, significant non-recurring events andhistorical write-off experience. Specific provisions are recorded for individual receivables when we become aware of a customer's inability to meet itsfinancial obligations. Because we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectibleaccounts may differ from our estimates and we may experience changes in the amount of reserves we recognize for accounts receivable that we deemuncollectible. If the financial condition of some of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve mightbe required. In the event we determine that a smaller or larger reserve is appropriate, we would record a credit or a charge to selling, general andadministrative expenses in the period in which we made such a determination. Sales Returns, Allowances and Discounts. We record reductions to revenue for estimated customer returns, allowances and discounts. Ourestimated sales returns and allowances are based on customer return history and actual outstanding returns yet to be received. Provisions for customerspecific discounts based on contractual obligations with certain major customers are recorded as reductions to net sales. We may accept returns from ourwholesale and distributor customers on an exception basis at the sole discretion of management for the purpose of stock re-balancing to ensure that ourproducts are merchandised in the proper assortments. Additionally, at the sole discretion of management, we may provide markdown allowances to keywholesale and distributor customers to facilitate the "in-channel" markdown of products where we have experienced less than anticipated sell-through.We62Royalty obligations are based on minimum guarantees under contract; however, may include additional royalty obligations basedon sales volume that are not determinable for future periods.(7)Our capital lease obligations consist of leases for office equipment expiring at various dates through 2016. This balancerepresents the minimum cash commitment under contract to various third-parties for capital lease obligations. (8)Amounts include anticipated interest payments.Table of Contentsalso record reductions to revenue for estimated customer credits as a result of price mark-downs in certain markets. Fluctuations in our estimates forsales returns, allowances and discounts may be caused by many factors, including, but not limited to, fluctuations in our sales revenue and changes indemand for our products. Our judgment in determining these estimates is impacted by various factors including customer acceptance of our new styles,customer inventory levels, shipping delays or errors, known or suspected product defects, the seasonal nature of our products and macroeconomicfactors affecting our customers. Because we cannot predict or control certain of these factors, the actual amounts of customer returns and allowancesmay 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 least annually, or more frequently if events and circumstances indicate fair value is less than carrying value, we evaluate our inventory for possibleimpairment using standard categories to classify inventory based on the degree to which we believe that the products may need to be discounted belowcost to sell within a reasonable period. We base inventory fair value on several subjective and unobservable assumptions including estimated futuredemand and market conditions and other observable factors such as current sell-through of our products, recent changes in demand for our product,shifting demand between the products we offer, global and regional economic conditions, historical experience selling through liquidation and "off-price" channels and the amount of inventory on hand. If the estimated inventory fair value is less than its carrying value, the carrying value is adjusted tomarket value and the resulting impairment charge is recorded in cost of sales on the consolidated statements of operations. The ultimate results achievedin selling excess and discontinued products in future periods may differ significantly from management's fair value estimates. See Note 2—Inventoriesin 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 thecarrying value of a long-lived asset may not be fully recoverable. Events that may indicate the impairment of a long-lived asset (or asset group, asdefined below) include: (i) a significant decrease in its market price, (ii) a significant adverse change in the extent or manner in which it is being used orin its physical condition, (iii) a significant adverse change in legal factors or business climate that could affect its value, including an adverse action orassessment by a regulator, (iv) an accumulation of costs significantly in excess of the amount originally expected for its acquisition or construction,(v) its current period operating or cash flow losses combined with historical operating or cash flow losses or a forecast of its cash flows demonstratecontinuing losses associated with its use, and (vi) a current expectation that, more likely than not, it will be sold or otherwise disposed of significantlybefore the end of its previously estimated useful life. If such facts indicate a potential impairment of a long-lived asset (or asset group), we assess therecoverability by determining if its carrying value exceeds the sum of its projected undiscounted cash flows expected from its use and eventualdisposition over its remaining economic life. If the asset is not supported on an undiscounted cash flow basis, the amount of impairment is measured asthe 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 tosell. Fair value is determined by independent third party appraisals, the net present value of expected cash flows, or other valuation techniques asappropriate. Assets to be abandoned or from which no further benefit is expected are written down to zero at the time that the determination is made andthe assets are removed entirely from service. An asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assetsand liabilities. For assets involved in our retail business, our asset group is at the retail store level. Our estimates of future cash flows over the remaininguseful life of the asset group are based on management's operating budgets and forecasts. These budgets and forecasts take into consideration inputsfrom our regional management related to growth rates, pricing, new markets and other factors expected to affect the business, as well as63Table of Contentsmanagement's forecasts for inventory, receivables, capital spending, and other cash needs. These considerations and expectations are inherentlyuncertain, and estimates included in our operating forecasts beyond a three to six month future period are extremely subjective. Accordingly, actual cashflows may differ significantly from our estimated future cash flows. Impairment charges are driven by, among other things, changes in our strategic operational and financial decisions, global and regional economicconditions, demand for our product and other corporate initiatives which may eliminate or significantly decrease the realization of future benefits fromour long-lived assets and result in impairment charges in future periods. Significant impairment charges recognized during a reporting period could havean adverse effect on our reported financial results. Impairment of Goodwill & Intangible Assets. Intangible assets with indefinite lives (i.e. goodwill) are evaluated for impairment when events orchanges in circumstances indicate that the carrying value may not be fully recoverable and, at least, annually. Intangible assets that are determined tohave definite lives, such as customer relationships, core technology, capitalized software, patents and non-compete agreements are amortized over theiruseful lives and are evaluated for impairment only when events or circumstances indicate a carrying value may not be fully recoverable. Recoverabilityis based on the estimated future discounted cash flows of an asset. If the asset is not supported on a discounted cash flow basis, the amount ofimpairment is measured as the difference between its carrying value and its fair value. Determination of the fair value of indefinite lived intangible assetsinvolves a number of management assumptions including the expected future operating performance of our reporting units which may change in futureperiods due to technological changes, economic conditions, changes to our business operations, or the inability to meet business plans, among otherthings. The valuation is sensitive to the actual results of any of these uncertain factors which could be negatively affected and may result in additionalimpairment charges should the actual results differ from management's estimates. See Note 4—Goodwill & Intangible Assets, in the accompanyingnotes to the consolidated financial statements for additional information regarding our intangible assets. Share-based Compensation. We estimate the fair value of our stock option awards using a Black Scholes valuation model, the inputs of whichrequire various assumptions including the expected volatility of our stock price and the expected life of the option. The expected volatility assumptionsare derived using our historical stock price volatility and the historical volatilities of competitors whose shares are traded in the public markets. Theseassumptions reflect our best estimates, 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 differmaterially in the future from that recorded in the current period. Additionally, we make certain estimates about the number of awards which will be madeunder performance based incentive plans. As a result, if other assumptions or estimates had been used, share-based compensation expense could havebeen materially impacted. Furthermore, if we use different assumptions in future periods, share-based compensation expense could be materiallyimpacted in future periods. See Note 9—Equity in the accompanying notes to the consolidated financial statements for additional information regardingour share-based compensation. Income Taxes. We account for income taxes using the asset and liability method which requires the recognition of deferred tax assets andliabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets andliabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-stepapproach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income taxpositions. The impact of an uncertain tax position that is more likely than not of being sustained upon examination by the relevant taxing authority mustbe recognized at the largest amount that is more64Table of Contentslikely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of beingsustained. Interest expense is recognized on the full amount of deferred benefits for uncertain tax positions. While the validity of any tax position is amatter of tax law, the body of 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 whichwe operate. Significant judgment is required in determining our annual tax expense and in evaluating our tax positions. Tax laws require items to beincluded in our tax returns at different times than when these items are reflected in the consolidated financial statements. As a result, the annual tax ratereflected in our consolidated financial statements is different than that reported in our tax return (our cash tax rate). Some of these differences arepermanent, such as expenses that are not deductible in our tax return, and some differences reverse over time, such as depreciation expense. Thesetiming differences create deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between thefinancial reporting and tax basis of assets and liabilities. The tax rates used to determine deferred tax assets or liabilities are the enacted tax rates in effectfor the year in which the differences are expected to reverse. Based on the evaluation of all available information, we recognize future tax benefits, suchas net operating loss carryforwards, to the extent that realizing these benefits is considered more likely than not. We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable income using bothhistorical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted)and the availability of tax planning strategies. A valuation allowance is required to be established unless management determines that it is more likelythan not that we will ultimately realize the tax benefit associated with a deferred tax asset. Undistributed earnings of a subsidiary are accounted for as atemporary difference, except that deferred tax liabilities are not recorded for undistributed earnings of a foreign subsidiary that are deemed to beindefinitely reinvested in the foreign jurisdiction. We have operated under a specific plan for reinvestment of undistributed earnings of our foreignsubsidiaries which demonstrates that such earnings will be indefinitely reinvested in the applicable tax jurisdictions. Should we change our plans, wewould be required to record a significant amount of deferred tax liabilities. We recognize interest and penalties related to unrecognized tax benefitswithin the "Income tax expense" line in the accompanying consolidated statement of operations. Accrued interest and penalties are included within therelated tax liability line in the consolidated balance sheets. See Note 11—Income Taxes in the accompanying notes to the consolidated financialstatements for additional information regarding our income taxes. Recent Accounting Pronouncements. See Note 1—Organization and Summary of Significant Accounting Policies in the accompanying notesto the consolidated financial statements for recently adopted and issued accounting pronouncements.ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax consequences and overall financingstrategies. Our exposure to market risk includes interest rate fluctuations in connection with our revolving credit facility and certain financialinstruments. In addition to the revolving credit facility, we have incurred short- and long-term indebtedness related to the implementation of our ERPsystem. Borrowings under these debt instruments bear fixed interest rates and therefore, do not have the potential for market risk.65Table of Contents Borrowings under the revolving credit facility 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 rate as quoted by ICAP North America, Inc. plus 0.5%, (ii) PNC's prime rate and (iii) a daily LIBOR rate plus 1.0%, ineach case there is an additional margin ranging from 0.25% to 1.00% based on certain conditions. For LIBOR rate loans, the interest rate is equal to aLIBOR rate plus a margin ranging from 1.25% to 2.00% based on certain conditions. Borrowings under the revolving credit facility are thereforesubject to risk based upon prevailing market interest rates. Interest rates fluctuate as a result of many factors, including governmental monetary and taxpolicies, domestic and international economic and political considerations and other factors that are beyond our control. During the year endedDecember 31, 2013, the maximum daily amount borrowed under the revolving credit facility was $5.0 million and the average daily amount ofborrowings outstanding was $0.1 million. As of December 31, 2013, there were no borrowings outstanding under the revolving credit facility. If theprevailing market interest rates relative to these borrowings increased by 10% during the year ended December 31, 2013, our interest expense would nothave increased materially. We additionally hold cash equivalents including certificate of deposits, time deposits and money market funds. Interest income generated fromthese cash equivalents will fluctuate with the general level of interest rates. As of December, 2013, we held $37.9 million in cash equivalents subject tovariable interest rates. If the prevailing market interest rates relative to these investments increased 10% during the year ended December 31, 2013,interest income would have increased by approximately $0.2 million.Foreign Currency Exchange Risk As a global company, we have significant revenues and costs denominated in currencies other than the U.S. Dollar. We pay the majority ofexpenses attributable to our foreign operations in the functional currency of the country in which such operations are conducted and pay the majority ofour 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 inforeign currencies can be significantly influenced by foreign currency fluctuations. Fluctuations in the value of foreign currencies relative to the U.S.Dollar could result in downward price pressure for our products and increase losses from currency exchange rates. An increase of 1% in value of theU.S. Dollar relative to foreign currencies would have decreased income before taxes during the year ended December 31, 2013 by approximately$1.4 million. The volatility of the applicable exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy. In the eventour foreign sales and purchases increase and are denominated in currencies other than the U.S. Dollar, our operating results may be affected byfluctuations in the exchange rate of currencies we receive for such sales. See Item 7, "Management's Discussion and Analysis of Financial Conditionand Results of Operations," for a discussion of the impact of foreign exchange rate variances experienced during the years ended December 31, 2013and 2012. We transact business in various foreign countries and are therefore exposed to foreign currency exchange rate risk inherent in revenues, costs, andmonetary assets and liabilities denominated in non-functional currencies. We have entered into foreign currency exchange forward contracts andcurrency swap derivative instruments to selectively protect against volatility in the value of non-functional currency denominated monetary assets andliabilities, and of future cash flows caused by changes in foreign currency exchange rates. The following table summarizes the notional amounts of the outstanding foreign currency exchange contracts at December 31, 2013 and 2012. Thenotional amounts of the derivative financial instruments shown below are denominated in their U.S. dollar equivalents and represent the amount of allcontracts of the foreign currency specified. These notional values do not necessarily represent amounts66Table of Contentsexchanged by the parties and, therefore, are not a direct measure of our exposure to the foreign currency exchange risks.ITEM 8. Financial Statements and Supplementary Data The consolidated financial statements and supplementary data are as set forth in the index to consolidated financial statements on page F-1.ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.ITEM 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, weconducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, as of December 31, 2013 (the "Evaluation Date"). Based on this evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that as of the Evaluation Date, our disclosure controls and procedures were effective such that the information relating to us,including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission ("SEC") reports (i) is recorded,processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.67 December 31, ($ thousands) 2013 2012 Foreign currency exchange forward contracts by currency: Japanese Yen $ 68,707 $112,500 Euro 38,577 5,159 Singapore Dollar 28,225 — Mexican Peso 18,350 11,400 Russian Ruble 17,588 — Pound Sterling 15,487 8,742 South Korean Won 12,100 — Australian Dollar 4,941 4,178 New Taiwan Dollar 3,463 — Canadian Dollar 3,428 — South African Rand 3,076 — Indian Rupee 2,150 — Hong Kong Dollar 1,844 — Swedish Krona 1,615 — New Zealand Dollar 943 1,137 Total notional value, net $220,494 $143,116 Latest maturity date December 2015 December 2015 Table of ContentsManagement's Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange ActRules 13a-15(f) and 15d-15(f). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013,using the criteria set forth in the Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). Based on this assessment, management has concluded that our internal control over financial reporting was effectiveas of December 31, 2013. Deloitte & Touche LLP, our independent registered public accounting firm, has issued a report on our internal control over financial reporting,which is included herein.Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or isreasonably likely to materially affect, our internal control over financial reporting.68Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders ofCrocs, Inc.Niwot, Colorado We have audited the internal control over financial reporting of Crocs, Inc. and subsidiaries (the Company) as of December 31, 2013, based oncriteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying "Management's Annual Report on Internal Control OverFinancial Reporting". Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that amaterial weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnelto provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and proceduresthat (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper managementoverride of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluationof the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, basedon the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedfinancial statements as of and for the year ended December 31, 2013 of the Company and our report dated February 25, 2014 expressed an unqualifiedopinion on those financial statements./s/ Deloitte & Touche LLPDenver, ColoradoFebruary 25, 201469Table of ContentsPART III ITEM 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2014 Annual Meeting ofStockholders to be filed with the SEC within 120 days after December 31, 2013.Code of Ethics We have a written code of ethics in place that applies to all our employees, including our principal executive officer, principal financial officer,principal accounting officer and controller. A copy of our business code of conduct and ethics policy is available on our website: www.crocs.com. Weare required to disclose certain changes to, or waivers from, our code of ethics for our senior financial officers. We intend to use our website as amethod of disseminating any change to, or waiver from, our business code of conduct and ethics policy as permitted by applicable SEC rules.ITEM 11. Executive Compensation The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2014 Annual Meeting ofStockholders to be filed with the SEC within 120 days after December 31, 2013.ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2014 Annual Meeting ofStockholders to be filed with the SEC within 120 days after December 31, 2013, with the exception of those items listed below.Securities Authorized for Issuance under Equity Compensation Plans As shown in the table below, we reserved 4.1 million shares of common stock for future issuance on exercise of outstanding options and rightsunder equity compensation plans as of December 31, 2013.70Plan Category Number ofSecurities to be Issuedon Exercise ofOutstandingOptions and Rights Weighted AverageExercise Price ofOutstandingOptions(2) Number of SecuritiesRemaining Availablefor FutureIssuance UnderPlans, ExcludingSecurities Availablein First Column Equity compensation plans approved bystockholders(1) 4,070,819 $13.34 4,421,428 Equity compensation plans not approved bystockholders — — — Total 4,070,819 $13.34 4,421,428 (1)On July 9, 2007, at the annual stockholders' meeting, our stockholders approved the 2007 Equity Incentive Plan (the "2007Plan"), which previously had been approved by our board of directors and which became effective as of July 19, 2007. OnJune 28, 2011, our stockholders approved an amendment to the 2007 Plan to increase the number of shares of our common stockavailable for issuance from 9.0 million shares to 15.3 million shares, subject to adjustment for future stock splits, stock dividendsand similar changes in our capitalization. On April 27, 2005, our board of directorsTable of ContentsITEM 13. Certain Relationships and Related Transactions and Director Independence The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2014 Annual Meeting ofStockholders to be filed with the SEC within 120 days after December 31, 2013.ITEM 14. Principal Accountant Fees and Services The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2014 Annual Meeting ofStockholders to be filed with the SEC within 120 days after December 31, 2013.71adopted the 2005 Equity Incentive Plan (the "2005 Plan"). On January 10, 2006, our board of directors amended the 2005 Planto increase the number of shares of our common stock available for issuance under the 2005 Plan from 11.7 million shares to14.0 million shares. Following the adoption of the 2007 Plan, no additional grants were made under the 2005 Plan.(2)The weighted average exercise price of outstanding options pertains only to 2.1 million shares issuable on the exercise ofoutstanding options and rights.Table of ContentsPART IV ITEM 15. Exhibits and Financial Statement Schedules (1)Financial Statements The financial statements filed as part of this report are listed on the index to the consolidated financial statements on page F-1.(2)Financial Statement Schedules All financial statement schedules have been omitted because they are not required, are not applicable or the information is included in the FinancialStatements or Notes thereto.72Table of Contents(3)Exhibit list73ExhibitNumber Description 3.1 Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 4.1 toCrocs, Inc.'s Registration Statement on Form S-8, filed on March 9, 2006 (File No. 333-132312)). 3.1 Certificate of Amendment to Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein byreference to Exhibit 3.1 to Crocs, 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 toCrocs, Inc.'s Registration Statement on Form S-8, filed on March 9, 2006 (File No. 333-132312)). 3.3 Certificate of Designations of Series A Convertible Preferred Stock of Crocs, Inc. (incorporated herein byreference to Exhibit 3.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on January 27, 2014). 4.1 Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.'sRegistration 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 to Exhibit 10.1 to Crocs, Inc.'s Registration Statement on Form S-1, filedon August 15, 2005 (File No. 333-127526)). 10.2*Crocs, Inc. 2005 Equity Incentive Plan (the "2005 Plan") (incorporated herein by reference to Exhibit 10.2to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.3*Amendment No. 1 to the 2005 Plan (incorporated herein by reference to Exhibit 10.2.2 to Crocs, Inc.'sRegistration Statement on Form S-1/A, filed on January 19, 2006 (File No. 333-127526)). 10.4*Form of Notice of Grant of Stock Option under the 2005 Plan (incorporated herein by reference toExhibit 10.3 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.5*Form of Notice of Grant of Stock Option for Non-Exempt Employees under the 2005 Plan (incorporatedherein by reference to Exhibit 10.4 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15,2005 (File No. 333-127526)). 10.6*Form of Stock Purchase Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.5to Crocs, Inc.'s Registration Statement 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 toCrocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.8*Form of Restricted Stock Award Grant Notice under the 2005 Plan (incorporated herein by reference toExhibit 10.7 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)).Table of Contents74ExhibitNumber Description 10.9*Form of Restricted Stock Award Agreement under the 2005 Plan (incorporated herein by reference toExhibit 10.8 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.10*Form of Non Statutory Stock Option Agreement under the 2005 Plan (incorporated herein by reference toExhibit 10.9 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.11*Crocs, Inc. 2011 Board of Directors Compensation Plan. 10.12*Crocs, Inc. Amended and Restated 2007 Senior Executive Deferred Compensation Plan (incorporatedherein by reference to Exhibit 10.15 to Crocs, 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 byreference to Exhibit 10.1 to Crocs, 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 hereinby reference to Exhibit 10.1 to Crocs, 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 toExhibit 10.1 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on November 14, 2007). 10.17*Form of Non-Statutory Stock Option Agreement under the 2007 Plan (incorporated herein by reference toExhibit 10.2 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on November 14, 2007). 10.18*Form of Non-Statutory Stock Option Agreement for Non-Employee Directors under the 2007 Plan(incorporated herein by reference to Exhibit 10.3 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed onNovember 14, 2007). 10.19*Form of Restricted Stock Unit Agreement under the 2007 Plan (incorporated herein by reference toExhibit 10.2 to Crocs, Inc.'s Current Report on Form 8-K, filed on July 1, 2011). 10.20*Employment Agreement, dated February 9, 2009, between Crocs, Inc. and John McCarvel (incorporatedherein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on February 13,2009). 10.21*Employment Agreement, dated May 18, 2009, between Crocs, Inc. and Daniel P. Hart (incorporated hereinby reference to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on August 5, 2010). 10.22 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, NationalAssociation, as a lender and administrative agent for the lenders (the "Amended and Restated CreditAgreement") (incorporated herein by reference to Crocs, Inc.'s Current Report on Form 8-K, filed onDecember 19, 2011).Table of Contents75ExhibitNumber Description 10.23 First Amendment to the Amended and Restated Credit Agreement, dated December 10, 2012, amongCrocs, Inc., Crocs Retail, Inc., Ocean Minded, Inc., Jibbitz, LLC, Bite, Inc., the lenders named therein andPNC Bank, National Association, as a lender and administrative agent (incorporated herein by reference toCrocs, Inc.'s Current Report on Form 8-K, filed on December 11, 2012). 10.24 Second Amendment to Amended and Restated Credit Agreement, dated June 12, 2013, 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 (incorporated herein by reference to Exhibit 10.2to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on July 30, 2013). 10.25 Third Amendment to Amended and Restated Credit Agreement, dated December 27, 2013, amongCrocs, Inc., Crocs Retail, Inc., Ocean Minded, Inc., Jibbitz, LLC, Bite, Inc., the lenders named therein andPNC Bank, National Association, as a lender and administrative agent (incorporated herein by reference toExhibit 10.2 to Crocs, Inc.'s Current Report on Form 8-K, filed on December 30, 2013). 10.26 Master Installment Payment Agreement, dated December 10, 2012, among Crocs, Inc. the lender namedtherein and PNC Bank National Association, as a lender and administrative agent (incorporated herein byreference to Exhibit 10.24 to Crocs, Inc.'s Annual Report on Form 10-K, filed on February 25, 2013). 10.27*Crocs, Inc. 2013 Change in Control Plan (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'sCurrent Report on Form 8-K, filed on June 18, 2013). 10.28 Investment Agreement, dated December 28, 2013, between Crocs, Inc. and Blackstone Capital PartnersVI L.P. (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filedon December 30, 2013). 10.29 First Amendment to Investment Agreement, dated January 27, 2014, between Crocs, Inc. and BlackstoneCapital Partners VI L.P. (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report onForm 8-K, filed on January 27, 2014). 10.29*Separation Agreement, dated December 27, 2013, between Crocs, Inc. and John P. McCarvel (incorporatedherein by reference to Exhibit 10.3 to Crocs, Inc.'s Current Report on Form 8-K, filed on December 30,2013). 10.30*Form Severance Agreement (incorporated herein by reference to Exhibit 10.4 to Crocs, Inc.'s CurrentReport on Form 8-K, filed on December 30, 2013). 10.31 Registration Rights Agreement, dated January 27. 2014 (incorporated herein by reference to Exhibit 10.2 toCrocs, Inc.'s Current Report on Form 8-K, filed on January 27, 2014). 21†Subsidiaries of the registrant. 23.1†Consent of Deloitte & Touche LLP. 31.1†Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the SecuritiesExchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act. 31.2†Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the SecuritiesExchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes- Oxley Act.Table of Contents76ExhibitNumber Description 32†Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350as adopted pursuant to Section 906 of the Sarbanes-Oxley Act. 101.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 †Filed herewith.Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized, as of February 25, 2014. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.77 CROCS, INC.a Delaware Corporation By: /s/ JOHN P. MCCARVEL Name: John P. McCarvel Title: President and Chief Executive OfficerSignature Title Date /s/ JOHN P. MCCARVELJohn P. McCarvel President, Chief Executive Officer andDirector February 25, 2014 /s/ JEFFREY J. LASHERJeffrey J. Lasher Senior Vice President—Finance, ChiefFinancial Officer February 25, 2014 /s/ RAYMOND D. CROGHANRaymond D. Croghan Director February 25, 2014 /s/ RONALD L. FRASCHRonald L. Frasch Director February 25, 2014 /s/ PETER A. JACOBIPeter A. Jacobi Director February 25, 2014 /s/ PRAKASH A. MELWANIPrakash A. Melwani Director February 25, 2014 /s/ GREGG S. RIBATTGregg S. Ribatt Director February 25, 2014 Table of Contents78Signature Title Date /s/ THOMAS J. SMACHThomas J. Smach Chairman of the Board February 25, 2014 /s/ DOREEN A. WRIGHTDoreen A. Wright Director February 25, 2014 Table of ContentsINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTSF-1Financial Statements: Report of Independent Registered Public Accounting Firm F-2Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011 F-3Consolidated Statements of Comprehensive Income as of December 31, 2013, 2012 and 2011 F-4Consolidated Balance Sheets as of December 31, 2013 and 2012 F-5Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2013, 2012 and 2011 F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 F-7Notes to Consolidated Financial Statements F-8Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders ofCrocs, Inc.Niwot, Colorado We have audited the accompanying consolidated balance sheets of Crocs, Inc. and subsidiaries (the "Company") as of December 31, 2013 and2012 and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years inthe period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to expressan opinion on the financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Crocs, Inc. and subsidiaries asof December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31,2013, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company'sinternal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control—Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2014 expressed an unqualifiedopinion on the Company's internal control over financial reporting./s/ Deloitte & Touche LLPDenver, ColoradoFebruary 25, 2014F-2Table of ContentsCROCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS The accompanying notes are an integral part of these consolidated financial statements.F-3 Year Ended December 31, ($ thousands, except per share data) 2013 2012 2011 Revenues $1,192,680 $1,123,301 $1,000,903 Cost of sales 569,482 515,324 464,493 Gross profit 623,198 607,977 536,410 Selling, general and administrative expenses 549,154 460,393 404,803 Asset impairment charges 10,949 1,410 528 Income from operations 63,095 146,174 131,079 Foreign currency transaction (gains) losses, net 4,678 2,500 (4,886)Interest income (2,432) (1,697) (957)Interest expense 1,016 837 853 Other income, net (126) (1,014) (621) Income before income taxes 59,959 145,548 136,690 Income tax expense 49,539 14,205 23,902 Net income $10,420 $131,343 $112,788 Net income per common share (Note 12): Basic $0.12 $1.46 $1.27 Diluted $0.12 $1.44 $1.24 Table of ContentsCROCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME The accompanying notes are an integral part of these consolidated financial statements.F-4 December 31, ($ thousands) 2013 2012 2011 Net income $10,420 $131,343 $112,788 Other comprehensive income (loss): Foreign currency translation (5,335) 5,525 (16,031)Reclassification of cumulative foreign exchange translation adjustments to netincome, net of tax of $(3), $7 and $0, respectively 299 (658) — Total comprehensive income $5,384 $136,210 $96,757 Table of ContentsCROCS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, ($ thousands, except number of shares) 2013 2012 ASSETS Current assets: Cash and cash equivalents $317,144 $294,348 Accounts receivable, net of allowances of $10,513 and $13,315, respectively 104,405 92,278 Inventories 162,341 164,804 Deferred tax assets, net 4,440 6,284 Income tax receivable 10,630 5,613 Other receivables 11,942 24,821 Prepaid expenses and other current assets 29,175 24,967 Total current assets 640,077 613,115 Property and equipment, net 86,971 82,241 Intangible assets, net 74,822 59,931 Deferred tax assets, net 19,628 34,112 Other assets 53,661 40,239 Total assets $875,159 $829,638 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $57,450 $63,976 Accrued expenses and other current liabilities 97,111 81,371 Deferred tax liabilities, net 11,199 2,405 Income taxes payable 15,992 8,147 Current portion of long-term borrowings and capital lease obligations 5,176 2,039 Total current liabilities 186,928 157,938 Long term income tax payable 36,616 36,343 Long-term borrowings and capital lease obligations 11,670 4,596 Other liabilities 15,201 13,361 Total liabilities 250,415 212,238 Commitments and contingencies (Note 13) Stockholders' equity: Preferred shares, par value $0.001 per share, 5,000,000 shares authorized, noneoutstanding — — Common shares, par value $0.001 per share, 250,000,000 shares authorized, 91,662,656and 88,450,203 shares issued and outstanding, respectively, at December 31, 2013 and91,047,297 and 88,662,845 shares issued and outstanding, respectively, atDecember 31, 2012 92 91 Treasury stock, at cost, 3,212,453 and 2,384,452 shares, respectively (55,964) (44,214)Additional paid-in capital 321,532 307,823 Retained earnings 344,432 334,012 Accumulated other comprehensive income 14,652 19,688 Total stockholders' equity 624,744 617,400  The accompanying notes are an integral part of these consolidated financial statements.F-5Total liabilities and stockholders' equity $875,159 $829,638 Table of ContentsCROCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Treasury Stock AccumulatedOtherComprehensiveIncome TotalStockHolders'Equity AdditionalPaid inCapital RetainedEarnings ($ thousands) Shares Amount Shares Amount BALANCE—January 1,2011 88,066 $88 535 $(22,008)$277,293 $89,881 $30,852 $376,106 Amortization ofstockcompensation — — — — 8,928 — — 8,928 Forfeitures (149) — — — (435) — — (435)Exercises of stockoptions andissuance ofrestricted stockawards 1,912 2 (58) 2,739 8,173 — — 10,914 Repurchase ofcommon stockfor taxwithholding (22) — 22 (490) — — — (490)Net income — — — — — 112,788 — 112,788 Foreign currencytranslation — — — — — — (16,031) (16,031) BALANCE—December 31,2011 89,807 $90 499 $(19,759)$293,959 $202,669 $14,821 $491,780 Amortization ofstockcompensation — — — — 11,764 — — 11,764 Forfeitures (43) — — — (493) — — (493)Exercises of stockoptions andissuance ofrestricted stockawards 783 1 (29) 1,112 2,593 — — 3,706 Repurchase ofcommon stockfor taxwithholding — — 30 (493) — — — (493)Purchase oftreasury stock (1,884) — 1,884 (25,074) — — — (25,074)Net income — — — — — 131,343 — 131,343 Foreign currencytranslation — — — — — — 5,525 5,525 Reclassificationof cumulativeforeignexchangetranslationadjustments tonet income — — — — — — (658) (658) BALANCE—December 31,2012 88,663 $91 2,384 $(44,214)$307,823 $334,012 $19,688 $617,400 Amortization ofstockcompensation — — — — 14,483 — — 14,483 Forfeitures (78) — — — (2,014) — — (2,014)Exercises of stockoptions andissuance ofrestricted stockawards 715 1 (22) 1,039 1,240 — — 2,280 Repurchase ofcommon stockfor taxwithholding (16) — 16 (256) — — — (256)Purchase of The accompanying notes are an integral part of these consolidated financial statements.F-6treasury stock (834) — 834 (12,533) — — — (12,533)Net income — — — — — 10,420 — 10,420 Foreign currencytranslation — — — — — — (5,335) (5,335)Reclassificationof cumulativeforeignexchangetranslationadjustments tonet income — — — — — — 299 299 BALANCE—December 31,2013 88,450 $92 3,212 $(55,964)$321,532 $344,432 $14,652 $624,744 Table of ContentsCROCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ($ thousands) 2013 2012 2011 Cash flows from operating activities: Net income $10,420 $131,343 112,788 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 41,506 36,694 37,263 Unrealized (gain) loss on foreign exchange, net (6,420) 13,928 (11,892)Deferred income taxes 23,536 (2,981) (819)Asset impairment charges 10,949 1,410 528 Provision for (recovery of) doubtful accounts, net 1,930 2,166 (383)Share-based compensation 11,871 11,321 8,550 Inventory write-down charges 3,419 — — Other non-cash items 1,193 1,725 1,845 Changes in operating assets and liabilities: Accounts receivable (17,166) (9,475) (23,278)Inventories (5,274) (35,493) (13,328)Prepaid expenses and other assets (4,225) (25,490) (17,598)Accounts payable (5,740) 99 30,314 Accrued expenses and other liabilities 14,256 8,016 19,922 Accrued restructuring — — (439)Income taxes 3,209 (4,907) (1,097) Cash provided by operating activities 83,464 128,356 142,376 Cash flows from investing activities: Cash paid for purchases of property and equipment (40,424) (39,762) (27,718)Proceeds from disposal of property and equipment 250 2,216 319 Cash paid for intangible assets (28,404) (21,074) (13,922)Business acquisitions, net of cash — (5,169) — Restricted cash (1,180) (2,154) (343) Cash used in investing activities (69,758) (65,943) (41,664)Cash flows from financing activities: Proceeds from bank borrowings 23,375 96,086 316,595 Repayment of bank borrowings and capital lease obligations (13,160) (90,625) (317,704)Deferred debt issuance costs (100) (225) (398)Deferred offering costs (767) — — Issuances of common stock 2,280 3,706 10,914 Purchase of treasury stock (12,533) (25,074) — Repurchase of common stock for tax withholding (256) (493) (490) Cash provided by (used in) financing activities (1,161) (16,625) 8,917 Effect of exchange rate changes on cash 10,251 (9,027) 2,375 Net increase in cash and cash equivalents 22,796 36,761 112,004 Cash and cash equivalents—beginning of period 294,348 257,587 145,583 Cash and cash equivalents—end of period $317,144 $294,348 $257,587 Supplemental disclosure of cash flow information—cash paid during the periodfor: Interest $693 $619 843  The accompanying notes are an integral part of these consolidated financial statements.F-7Income taxes $20,274 $29,385 26,632 Supplemental disclosure of non-cash, investing, and financing activities: Assets acquired under capitalized leases $61 $34 — Accrued purchases of property and equipment $2,165 $2,368 4,022 Accrued purchases of intangibles $4,742 $768 223 Table of ContentsCROCS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization—Crocs, Inc. and its subsidiaries (collectively the "Company," "we," "our" or "us") are engaged in the design, development,manufacturing, marketing and distribution of footwear, apparel and accessories for men, women and children. Basis of Consolidation—The consolidated financial statements and accompanying notes have been prepared in accordance with accountingprinciples generally accepted in the United States of America ("U.S. GAAP"). The consolidated financial statements include the accounts of our wholly-owned subsidiaries as well as variable interest entities ("VIE") for which we are the primary beneficiary after the elimination of intercompany accountsand transactions. 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 theVIE's economic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receivebenefits from the VIE 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 productsin the People'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, we exercised an Equity Option Agreement that we had in place with ST and becamethe 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 ArabEmirates. We have determined that Crocs Gulf is a VIE for which we are the primary beneficiary due to our variable interest in Crocs Gulf's equity andbecause we currently control all of the VIE's business activities and will absorb all of its expected residual returns and expected losses. All voting anddividend rights have been assigned to us. As of December 31, 2013 and 2012, the consolidated financial statements included $2.4 million and$2.5 million in total assets of Crocs Gulf, respectively, which primarily consisted of cash and cash equivalents, inventory, property and equipment. Thetotal assets as of each of December 31, 2013 and 2012 were partially offset by $0.2 million in total liabilities, which primarily consisted of accountspayable and accrued expenses, excluding liabilities related to the support provided by us. Noncontrolling Interests—As of December 31, 2013, 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 thattypically exceed U.S. federally insured limits or in financial institutions in international jurisdictions where insurance is not provided andrestrictions may exist. As we are a global business, we have cash and cash equivalent balances which are located in various countries and are denominated invarious currencies. Most of the cash balances held outside of the U.S. could be repatriated to the U.S., but under current law, would be subjectto U.S. federal and state income taxes less applicable foreign tax credits. In some countries, repatriation of certain foreign balances is restrictedby local laws and could have adverse tax consequences if we were to move the cash to another country. Certain countries, including China, havemonetary laws which may limit our ability to utilize cash resources in those countries for operations in other countries. These limitations mayaffect our ability to fully utilize our cash andF-8Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)cash equivalent resources for needs in the U.S. or other countries and could adversely affect our liquidity. As of December 31, 2013, we held$252.3 million of our total $317.1 million in cash in international locations. This cash is primarily used for the ongoing operations of thebusiness in the locations in which the cash is held. Of the $252.3 million held in international locations, $15.3 million could potentially berestricted, as described above. On January 27, 2014, we issued to Blackstone Capital Partners VI L.P. ("Blackstone"), and certain of its permitted transferees (togetherwith Blackstone, the "Blackstone Purchasers"), 200,000 shares of our Series A Preferred Stock. In return, we received approximately$182.2 million in cash proceeds (net of related expenses) all of which is held in the U.S. See Note 17—Subsequent Events for further detailregarding the investment agreement. Accounts receivable— We have not experienced any significant losses in such accounts and believe we are not exposed to significant creditrisk. We consider any concentration of credit risk related to accounts receivable to be mitigated by our credit policy, the insignificance ofoutstanding balances owed by each individual customer at any point in time and the geographic dispersion of our customers. Manufacturing sources— We rely on a limited source of internal and external manufacturers. Establishing a replacement source couldrequire significant additional time and expense. Suppliers of certain raw materials— We source the elastomer resins that constitute the primary raw materials used in compoundingCroslite, which we use to produce our footwear products, from multiple suppliers. If the suppliers we rely on for elastomer resins were to ceaseproduction of these materials, we may not be able to obtain suitable substitute materials in time to avoid interruption of our production cycle, if atall. We may also have to pay materially higher prices in the future for the elastomer resins or any substitute materials we use, which wouldincrease our production costs and could have 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 currentperiod presentation as follows. Management Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates,judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting period. Management believes that the estimates, judgments and assumptions made when accounting for itemsand matters such as, but not limited to, the allowance for doubtful accounts, sales returns, impairment assessments and charges, recoverability of assets(including deferred tax assets), uncertain tax positions, share-based compensation expense, the assessment of lower of cost or market on inventory,useful lives assigned to long-lived assets, depreciation and provisions for contingencies are reasonable based on information available at the time theyare made. Management also makes estimates in the assessments of potential losses in relation to tax and customs matters and threatened or pending legalproceedings (see Note 13—Commitments & Contingencies and Note 15—Legal Proceedings). Actual results could materially differ from theseestimates. For matters not related to income taxes, if a loss is considered probable and the amount can be reasonably estimated, we recognize an expensefor the estimated loss. If there is the potential to recover a portionF-9Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)of the estimated loss from a third party, we make a separate assessment of recoverability and reduce the estimated loss if recovery is deemed probable. Accumulated Other Comprehensive Income—Activity within our accumulated other comprehensive income ("AOCI") balance consists solely ofgains and losses resulting from the translation of foreign subsidiary financial statements to our reporting currency. Foreign currency translation resultingin changes to other comprehensive income and related reclassification adjustments are presented net of tax effects on the consolidated statements ofother comprehensive income. Foreign currency reclassification adjustments are included within the line item entitled 'Foreign currency transaction gains(losses), net' on the consolidated statements of operations. Fair Value—Fair value is the price that would be received from the sale of an asset or transfer of a liability in an orderly transaction betweenmarket participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded atfair value, we consider the principal or most advantageous market in which a hypothetical sale or transfer would take place and consider assumptionsthat market participants 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 inmarkets that are not active and model derived valuations in which all significant inputs are observable in active markets; and Level 3—unobservable inputs for which there is little or no market data and which require us to develop our own assumptions. We categorize fairvalue measurements within the fair value hierarchy based upon the lowest level of the most significant inputs used to determine such fair valuemeasurement. Cash equivalents primarily include time deposits and certificates of deposit with original maturities of three months or less. Time deposits andcertificates of deposit included in cash equivalents are valued at amortized cost, which approximates fair value. These investments have been classifiedas a Level 1 measurement. Derivative financial instruments are required to be recorded at their fair value, on a recurring basis. The fair values of our derivative instruments aredetermined using a discounted cash flow valuation model. The significant inputs used in the model are readily available in public markets or can bederived from observable market transactions, and therefore, have been classified as Level 2. These inputs include the applicable exchange rates andforward rates, and discount rates based on the prevailing LIBOR deposit rates. Our other financial instruments are not required to be carried at fair value on a recurring basis. The carrying value of these financial instruments,including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximates fair value due to their short maturities. Based onborrowing rates currently available to us, with similar terms, the carrying values of capital lease obligations and the line of credit approximate their fairvalues.F-10Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Inventories and long-lived assets such as property and equipment and intangible assets are also not required to be carried at fair value on arecurring basis. For a discussion of inventory estimated fair value see "Inventory Valuation" below. However, when determining impairment losses, thefair values of property and equipment and intangibles must be determined. For such determination, we generally use either an income approach withinputs that are mainly unobservable, such as expected future cash flows, or a market approach using observable inputs such as replacement cost or thirdparty appraisals, as appropriate. Estimated future cash flows are based on management's operating budgets and forecasts which take into considerationboth observable and unobservable inputs including growth rates, pricing, new markets and other factors expected to affect the business, as well asmanagement's forecasts for inventory, receivables, capital spending, and other cash needs. We consider this type of estimate to be classified as a Level 3measurement. 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 monthsor less at the date of purchase. We consider receivables from credit card companies to be cash equivalents, if expected to be received within five days. Accounts Receivable—Accounts receivable represent amounts due from customers. Accounts receivable are recorded at invoiced amounts, net ofreserves and allowances, are not collateralized and do not bear interest. We use our best estimate to determine the required allowance for doubtfulaccounts based on a variety of factors, including the length of time receivables are past due, economic trends and conditions affecting our customer base,significant non-recurring events and historical non-collection experience. Specific provisions are recorded for individual receivables when we becomeaware of a customer's inability to meet its financial obligations. See Note 10—Allowances for further discussion related to provisions for doubtfulaccounts and sale returns and allowances. Inventory Valuation—Inventories are valued at the lower of cost or market. Inventory cost is determined using the moving average cost method.At least annually, or more frequently if events and circumstances indicate fair value is less than carrying value, we evaluate our inventory for possibleimpairment using standard categories to classify inventory based on the degree to which we believe that the products may need to be discounted belowcost to sell within a reasonable period. We base inventory fair value on several subjective assumptions including estimated future demand and marketconditions, as well as other observable factors such as current sell-through of our products, recent changes in demand for our products, global andregional economic conditions, historical experience selling through liquidation and price discounted channels and the amount of inventory on hand. Ifthe estimated inventory fair value is less than its carrying value, the carrying value is adjusted to market value and the resulting impairment charge isrecorded in 'Cost of sales' on the consolidated statements of operations. See Note 2—Inventories for further discussion related to inventories. Property and Equipment—Property, equipment, furniture and fixtures are stated at cost and depreciation is computed using the straight-linemethod based on the estimated useful lives ranging from two to five years. Leasehold improvements are stated at cost and amortized on the straight-linebasis over their estimated economic useful lives or the lease term, whichever is shorter. Depreciation of manufacturing assets is included in cost of saleson the consolidated statements of operations. Depreciation related to corporate, non-product and non-manufacturing assets is included in 'Selling,general and administrative expenses' on the consolidated statements of operations.F-11Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Impairment of Long-Lived Assets—Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate thecarrying value of a long-lived asset may not be fully recoverable. Events that may indicate the impairment of a long-lived asset (or asset group, asdefined below) include (i) a significant decrease in its market price, (ii) a significant adverse change in the extent or manner in which it is being used orin its physical condition, (iii) a significant adverse change in legal factors or business climate that could affect its value, including an adverse action orassessment by a regulator, (iv) an accumulation of costs significantly in excess of the amount originally expected for its acquisition or construction,(v) its current period operating or cash flow losses combined with historical operating or cash flow losses or a forecast of its cash flows demonstratecontinuing losses associated with its use, and (vi) a current expectation that, more likely than not, it will be sold or otherwise disposed of significantlybefore the end of its previously estimated useful life. If such facts indicate a potential impairment of a long-lived asset (or asset group), we assess therecoverability by determining if its carrying value exceeds the sum of its projected undiscounted cash flows from its use and eventual disposition overits remaining economic life. If the asset is not supported on an undiscounted cash flow basis, the amount of impairment is measured as the differencebetween its carrying value and its estimated fair value. Assets held for sale are reported at the lower of the carrying amount or fair value less costs tosell. Assets to be abandoned or from which no further benefit is expected are written down to zero at the time that the determination is made and theassets are removed entirely from service. An asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assetsand liabilities. For assets involved in our retail business, our asset group is at the retail store level. See Note 3—Property and Equipment for adiscussion of impairment 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 andare evaluated 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 tocorporate, non-product and non-manufacturing assets such as our global information systems is included in selling, general and administrative expenseson the consolidated statements of operations. The following table sets forth our definite lived intangible assets and the periods over which they areamortized. Capitalized Software— We capitalize certain internal and external software acquisition and development costs, including the costs ofemployees and contractors devoting time to the softwareF-12Intangible Asset Class Weighted Average Amortization PeriodPatents 10 yearsCustomer relationships Estimated customer lifeCore technology 5 yearsNon-competition agreement Contractual termCapitalized software Shorter of 7 years or useful lifeTable of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)development projects and external direct costs for materials and services. Initial costs associated with internally-developed-and-used software areexpensed until it is determined that the project has reached the application development stage. Once in its development stage, subsequentadditions, 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 enterpriseresource system software, warehouse management software and point of sale software. At least annually, we consider the potential impairmentof capitalized software by assessing the substantive service potential of the software, changes, if any, in the extent or manner in which thesoftware is used or is expected to be used, and the actual cost of software development or modification compared to expected cost. See Note 4—Goodwill and Intangible Assets for further discussion. Impairment of Intangible Assets— Intangible assets with indefinite lives are evaluated for impairment when events or changes incircumstances indicate that the carrying value may not be fully recoverable and at least annually. Intangible assets that are determined to havedefinite lives are amortized over their useful lives and are evaluated for impairment only when events or circumstances indicate a carrying valuemay not be fully recoverable. Recoverability is based on the estimated future undiscounted cash flows of the asset. If the asset is not supportedon an undiscounted cash flow basis, the amount of impairment is measured as the difference between its carrying value and its estimated fairvalue. Goodwill—Goodwill represents the excess purchase price paid over the fair value of assets acquired and liabilities assumed in acquisitions.Goodwill is considered an indefinite lived asset and therefore is not amortized. The Company assesses goodwill for impairment annually on the last dayof the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred. If the carrying value of goodwill exceedsits implied fair value, the Company records an impairment loss equal to the difference. See Note 4—Goodwill and Intangible Assets for discussion ofgoodwill balances and discussion of impairment losses recorded during the periods presented. Earnings per Share—Basic and diluted earnings per common share ("EPS") is presented using the two-class method, which is an earningsallocation formula that determines earnings per share for common stock and any participating securities according to dividend rights and participationrights in undistributed earnings. Under the two-class method, EPS is computed by dividing the sum of distributed and undistributed earningsattributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. A participating securityis an unvested share-based payment award containing non-forfeitable rights to dividends and must be included in the computation of earnings per sharepursuant to the two-class method. Shares of the Company's non-vested restricted stock awards are considered participating securities. Diluted EPSreflects the potential dilution from securities that could share in the earnings of the Company. Anti-dilutive securities are excluded from diluted EPS. SeeNote 12—Earnings per Share for further discussion. Recognition of Revenues—Revenues are recognized when the customer takes title and assumes risk of loss, collection of related receivables isprobable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Title passes on shipment or on receipt by thecustomerF-13Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)depending on the country in which the sale occurs and the agreement terms with the customer. Allowances for estimated returns and discounts arerecognized when the related revenue is earned. Shipping and Handling Costs and Fees—Shipping and handling costs are expensed as incurred and included in cost of sales. Shipping andhandling fees billed to customers are included in revenues. Share-based Compensation—We have share-based compensation plans in which certain officers, employees and members of the board ofdirectors are participants and may be granted stock options, restricted stock and stock performance awards. Awards granted under these plans are fairvalued and amortized, net of estimated forfeitures, over the vesting period using the straight-line method. The fair value of stock options is calculated byusing the Black Scholes option pricing model that requires estimates for expected volatility, expected dividends, the risk-free interest rate and the term ofthe option. If any of the assumptions used in the Black Scholes model or the anticipated number of shares to be awarded change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period. Share-based compensation expense associatedwith our manufacturing and retail employees is included in 'Cost of sales' in the consolidated statements of operations. Share-based compensationexpense associated with selling, marketing and administrative employees is included 'Selling, general and administrative expenses' on the consolidatedstatements of operations. Share-based compensation directly associated with the construction or implementation of certain long-term projects for internaluse are capitalized to the consolidated balance sheets until assets are ready for intended use and will be amortized over the useful life of the assets uponthat date. See Note 9—Equity for additional information related to share-based compensation. 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 ourU.S. payroll and provides employees with tax deferred salary deductions and alternative investment options. The Plan does not provide employees withthe option to invest in our common stock. Employees may contribute up to 75.0% of their salary, subject to certain limitations. We match employees'contributions to the Plan up to a maximum of 4.0% of eligible compensation. We expensed $6.8 million, $5.8 million and $4.6 million in the yearsended December 31, 2013, 2012 and 2011, 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 first run. Totaladvertising, marketing and promotional costs reflected in 'Selling, general, and administrative expenses' on the consolidated statement of operations were$47.6 million, $39.8 million and $39.8 million for the years ended December 31, 2013, 2012 and 2011, respectively. Research and Development—Research and development costs are expensed as incurred. Research and development expenses amounted to$15.4 million, $12.0 million and $10.8 million for the years ended December 31, 2013, 2012 and 2011, respectively, and are included in 'Selling,general, and administrative expenses' 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 theweighted average rate of exchange during the applicable period. Adjustments resulting from translating foreign functional currency financial statementsinto U.S. dollars are included in the foreign currencyF-14Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)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 consolidatedstatement of operations in the period in which they occur and are primarily associated with payables and receivables arising from intercompanytransactions. Derivative Foreign Currency Contracts—We are directly and indirectly affected by fluctuations in foreign currency rates which may adverselyimpact our financial performance. To mitigate the potential impact of foreign currency exchange rate risk, we may employ derivative financialinstruments including forward contracts and option contracts. Forward contracts are agreements to buy or sell a quantity of a currency at apredetermined future date and at a predetermined rate. An option contract is an agreement that conveys the purchaser the right, but not the obligation, tobuy or sell a quantity of a currency at a predetermined rate during a period or at a time in the future. These derivative financial instruments are viewed asrisk management tools and are not used for trading or speculative purposes. We recognize derivative financial instruments as either assets or liabilities inthe consolidated balance sheets and measure those instruments at fair value. Changes in the fair value of derivatives not designated or effective ashedges are recorded in 'Foreign currency transaction (gains)/losses, net" in the consolidated statements of operations. We had no derivative instrumentsthat qualified for hedge accounting during any of the periods presented. See Note 7—Fair Value Measurements and Financial Instruments for furtherdiscussion. Income Taxes—Income taxes are accounted for using the asset and liability method which requires the recognition of deferred tax assets andliabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets andliabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-stepapproach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income taxpositions. We recognize interest and penalties related to income tax matters in income tax expense in the consolidated statement of operations. SeeNote 11—Income Taxes for further discussion. Taxes Assessed by Governmental Authorities—Taxes assessed by governmental authorities that are directly imposed on a revenue transaction,including value added tax, are recorded on a net basis and are therefore excluded from sales.Application of Recent Accounting PronouncementsRecently Adopted Accounting Pronouncements In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-11 Balance Sheet(Topic 210) Disclosures about Offsetting Assets and Liabilities ("ASU No. 2011-11"). This pronouncement was issued to enhance disclosurerequirements 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 inthe statement of financial position and instruments and transactions subject to master netting arrangements. ASU No. 2011-11 was effective for us onJanuary 1, 2013. The adoption of this pronouncement did not haveF-15Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)a material impact to the Company's consolidated financial position or results of operations. ASU No. 2011-11 was subsequently amended by ASUNo. 2013-01. In January 2013, the FASB issued ASU No. 2013-01 Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets andLiabilities ("ASU No. 2013-01"). This pronouncement clarifies the scope of the offsetting disclosure requirements in ASU No. 2011-11. Under ASUNo. 2013-01, the disclosure would apply to derivative instruments accounted for in accordance with ASC 815. ASU No. 2013-01 was effective for usJanuary 1, 2013. The adoption of this pronouncement did not have a material impact to the Company's consolidated financial position or results ofoperations. In February 2013, the FASB issued ASU No. 2013-02 Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out ofAccumulated Other Comprehensive Income ("ASU No. 2013-02"). This pronouncement required entities to disclose the following additionalinformation about items reclassified out of AOCI:1)Changes in AOCI balances by component, with separate presentation of reclassification adjustments and current period othercomprehensive income ("OCI"). Both before-tax and net-of-tax presentations of the information are acceptable as long as an entitypresents the income tax benefit or expense attributed to each component of OCI and reclassification adjustments in either the financialstatements or the notes to the financial statements. 2)Significant items reclassified out of AOCI by component either on the face of the consolidated statements of operations or as a separatefootnote to the financial statements. This pronouncement does not change the current U.S. GAAP requirements for interim financial statement reporting of comprehensive income.However, public entities also need to include information about (1) changes in AOCI balances by component and (2) significant items reclassified outof AOCI in interim reporting periods. This pronouncement was effective for us on January 1, 2013. The adoption of this pronouncement did not have amaterial impact to the Company's consolidated financial position or results of operations. In March 2013, the FASB issued ASU No. 2013-05 Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative TranslationAdjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ("ASUNo. 2013-05"). This pronouncement indicates that the entire amount of a cumulative translation adjustment (CTA) related to an entity's investment in aforeign entity should be released when there has been a:1)Sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of theinvestment in the foreign entity. 2)Loss of a controlling financial interest in an investment in a foreign entity (i.e. deconsolidation) 3)Step acquisition for a foreign entity (i.e. when an entity has changed from applying the equity method for an investment in a foreignentity to consolidating the foreign entity). This ASU does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equitymethod investment in a foreign entity. For all public entities, this pronouncement is effective for fiscal years beginning on or after December 15, 2013.As early adoption is permitted, the Company adopted this pronouncement on January 1, 2013.F-16Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)The adoption of this pronouncement did not have a material impact to the Company's consolidated financial position or results of operations.Recently Issued Accounting Pronouncements In July 2013, the FASB issued ASU No. 2013-11 Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a NetOperating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU No. 2013-11"). This pronouncement providesguidance on financial statement presentation of an unrecognized tax benefit ("UTB") when a net operating loss ("NOL") carryforward, a similar tax lossor a tax credit carryforward exists. Under the pronouncement, an entity must present a UTB, or a portion of the UTB, in the financial statements as areduction to a deferred tax asset ("DTA") for an NOL carryforward, a similar tax loss or a tax credit carryforward except when:1)An NOL carryforward, a similar tax loss or a tax credit carryforward is not available as of the reporting date under the governing tax lawto settle that would result from the disallowance of the tax position. 2)The entity does not intend to use the DTA for this purpose (provided that the tax law permits a choice). If either of these conditions exists, an entity should present a UTB in the financial statements as a liability and should not net the UTB with a DTA.This amendment does not affect the amounts disclosed in the tabular reconciliation of the total amounts of UTBs because the tabular reconciliationpresents gross amounts of UTBs. This pronouncement is effective for fiscal years and interim periods within those fiscal years beginning afterDecember 15, 2013. The Company will adopt the provisions of ASU No. 2013-11 on January 1, 2014. We do not anticipate the provisions of ASUNo. 2013-11 will have a material impact on to the Company's consolidated financial position or results of operations.2. INVENTORIES The following table summarizes inventories by major classification as of December 31, 2013 and 2012:Inventory Write-down During the year ended December 31, 2013, we recorded approximately $3.4 million of inventory write-down charges related to obsolete inventorywith a market value lower than cost. These charges were related to certain obsolete raw materials, footwear and accessories in the Americas segment andare reported in 'Cost of sales' in the consolidated statement of operations for the year endedF-17 December 31, ($ thousands) 2013 2012 Finished goods $154,272 $155,833 Work-in-progress 685 911 Raw materials 7,384 8,060 Inventories $162,341 $164,804 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)2. INVENTORIES (Continued)December 31, 2013. We recorded no inventory write-down charges for the years ended December 31, 2012 and 2011.Charitable Contributions During the years ended December 31, 2013, 2012 and 2011, we donated certain inventory items to charitable organizations consisting primarily ofend of life units. The contributions made were expensed at their fair value of $0.6 million, $1.7 million and $2.0 million, respectively. Also during theyears ended December 31, 2013, 2012 and 2011, we recognized a gain of $0.1 million, $0.6 million and $0.7 million, respectively, and a net reductionof inventory of $0.5 million, $1.1 million and $1.3 million, respectively, as the fair value of the inventory contributed exceeded its carrying amount.3. PROPERTY AND EQUIPMENT The following table summarizes property and equipment by major classification as of December 31, 2013 and 2012: During the years ended December 31, 2013, 2012 and 2011, we recorded $24.3 million, $23.1 million and $27.5 million, respectively, indepreciation expense of which $2.9 million, $4.6 million and $11.5 million, respectively, was recorded in 'Cost of sales', with the remaining amountsrecorded in 'Selling, general and administrative expenses' on the consolidated statements of operations. During the year ended December 31, 2013, we retired $19.5 million of fully depreciated shoe molds related to styles that we no longer intend onmanufacturing. As such, we did not record a gain or loss associated with the disposal and the cost and accumulated depreciation previously classified asmachinery and equipment were removed from the consolidated balance sheets. We did not retire a material amount of fully depreciated, long-lived assetsduring the year ended December 31, 2012. We periodically evaluate all of our long-lived assets for impairment when events or circumstances would indicate the carrying value of a long-livedasset may not be fully recoverable. During the yearsF-18 December 31, ($ thousands) 2013 2012 Machinery and equipment $52,003 $68,713 Leasehold improvements 93,235 88,653 Furniture, fixtures and other 23,653 20,827 Construction-in-progress 16,231 8,766 Property and equipment, gross(1) 185,122 186,959 Less: Accumulated depreciation(2) (98,151) (104,718) Property and equipment, net $86,971 $82,241 (1)Includes $0.1 million of certain equipment held under capital leases and classified as equipment as of each ofDecember 31, 2013 and 2012. (2)Includes $0.1 million of accumulated depreciation related to certain equipment held under capital leases, as of each ofDecember 31, 2013 and 2012, which are depreciated using the straight-line method over the lease term.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3. PROPERTY AND EQUIPMENT (Continued)ended December 31, 2013 and 2012, we recorded $10.6 million and $1.4 million, respectively, in impairment charges related to underperforming retaillocations, respectively, that were unlikely to generate sufficient cash flows to fully recover the carrying value of the stores' assets over their remainingeconomic life. In addition, during the year ended December 31, 2011, we recorded $0.5 million in impairment charges in our 'Other business' category,which primarily related to obsolete molds previously depreciated in 'Cost of sales'. The following table summarizes asset impairment charges byreportable operating segment for the years ended December 31, 2013, 2012 and 2011:4. GOODWILL & INTANGIBLE ASSETS The following table summarizes the goodwill and identifiable intangible assets as of December 31, 2013 and 2012: December 31, 2013 2012 2011 ($ thousands, except store count data) Impairmentcharge Numberofstores Impairmentcharge Numberofstores Impairmentcharge Numberofstores Americas $3,861 23 $1,410 4 $— — Asia Pacific 185 2 — — — — Japan — — — — — — Europe 6,565 35 — — — — Asset impairment charges $10,611 60 $1,410 4 $— — December 31, 2013 December 31, 2012 ($ thousands) GrossCarryingAmount AccumulatedAmortization NetCarryingAmount GrossCarryingAmount AccumulatedAmortization NetCarryingAmount Capitalizedsoftware $118,940(1)$(49,665)(2)$69,275 $87,426(1)$(33,933)(2)$53,493 Customerrelationships 6,878 (6,439) 439 7,145 (6,222) 923 Patents,copyrights,andtrademarks 6,501 (4,272) 2,229 6,161 (3,522) 2,639 Coretechnology 4,548 (4,548) — 4,856 (4,856) — Other 983 (709) 274 670 (636) 34 Total finitelivedintangibleassets 137,850 (65,633) 72,217 106,258 (49,169) 57,089 Indefinite livedintangibleassets 97 — 97 113 — 113 Goodwill 2,508 — 2,508 2,729 — 2,729 Intangibleassets $140,455 $(65,633)$74,822 $109,100 $(49,169)$59,931 F-19(1)Includes $4.1 million of software held under a capital lease classified as capitalized software as of each of December 31, 2013and 2012.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)4. GOODWILL & INTANGIBLE ASSETS (Continued) During the years ended December 31, 2013, 2012 and 2011, amortization expense recorded for intangible assets with finite lives was$17.2 million, $13.6 million and $9.8 million, respectively, of which $6.0 million, $4.3 million and $2.9 million, respectively, was recorded in 'Cost ofsales', with the remaining amounts recorded in 'Selling, general and administrative expenses' on the consolidated statements of operations. The following table summarizes estimated future annual amortization of intangible assets as of December 31, 2013:Goodwill Impairment We assess goodwill for impairment on an annual basis on the last day of the fourth quarter, or more frequently if events and circumstances indicateimpairment may have occurred, at the reporting unit level. If the carrying value of the goodwill exceeds its implied fair value, we record an impairmentloss equal to the difference. During the year ended December 31, 2013, we recorded $0.3 million of goodwill impairment related to the retail channel ofour Crocs Benelux B.V. business purchased by our Crocs Stores B.V. subsidiary in July 2012. Goodwill and associated impairments are part of ourEurope operating segment. During the years ended December 31, 2012 and 2011, we did not record any impairments related to goodwill.F-20(2)Includes $1.9 million and $1.3 million of accumulated amortization of software held under a capital lease as of December 31,2013 and 2012, respectively, which is amortized using the straight-line method over the useful life.Fiscal years ending December 31, Amortization($ thousands) 2014 $16,721 2015 13,729 2016 13,935 2017 14,706 2018 7,198 Thereafter 5,928 Total $72,217 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES The following table summarizes accrued expenses and other current liabilities as of December 31, 2013 and 2012:Asset Retirement Obligations We record a liability equal to the fair value of the estimated future cost to retire an asset, if the liability's fair value can be reasonably estimated. Ourasset retirement obligation ("ARO") liabilities are primarily associated with the disposal of property and equipment which we are contractually obligatedto remove at the end of certain retail and office leases in order to restore the facilities back original condition as specified in the related lease agreements.We estimate the fair value of these liabilities based on current store closing costs and discount the costs back as if they were to be performed at theinception of the lease. At the inception of such leases, we record the ARO as a liability and also record a related asset in an amount equal to theestimated fair value of the obligation. The capitalized asset is then depreciated on a straight-line basis over the useful life of the asset. Upon retirement ofthe ARO liability, any difference between the actual retirement costs incurred and the previously recorded estimated ARO liability is recognized as again or loss in the consolidated statements of operations. Our ARO liability as of December 31, 2013 and 2012 was $2.0 million and $2.4 million,respectively.F-21 December 31, ($ thousands) 2013 2012 Accrued compensation and benefits $26,903 $19,714 Professional services 14,128 10,342 Fulfillment, freight and duties 12,565 8,621 Accrued rent and occupancy 12,198 10,226 Sales/use and VAT tax payable 9,142 12,444 Accrued legal 8,722 3,246 Customer deposits 6,940 2,593 Entrusted loan payable(1) — 7,943 Other(2) 6,513 6,242 Total accrued expenses and other current liabilities $97,111 $81,371 (1)A corresponding entrusted loan receivable of $7.9 million is recorded in 'Other receivables' as of December 31, 2012 asamounts are related to our subsidiaries in China. The entrusted loan was paid in full during the second quarter of 2013and as such, the entrusted loan payable, and corresponding receivable, were removed from the consolidated balancesheets as of December 31, 2013. (2)The amounts in Other consist of various accrued expenses and no individual item accounted for more than 5% of the totalbalance at December 31, 2013 or December 31, 2012.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)6. FAIR VALUE MEASUREMENTSRecurring Fair Value Measurements The following tables summarize the financial instruments required to be measured at fair value on a recurring basis as of December 31, 2013 and2012. See Note 1—Organization & Summary of Significant Accounting Policies for additional detail regarding our fair value measurementdeterminations. F-22 Fair Value as of December 31, 2013 ($ thousands) Quoted prices inactive marketsfor identicalassets or liabilities(Level 1) Significantotherobservableinputs(Level 2) Significantunobservableinputs(Level 3) Total Balance Sheet ClassificationCash equivalents $37,870 $— $— $37,870 Cash and cash equivalentsand other current assetsDerivative assets: Foreign currencycontracts — 13,501 — 13,501 Prepaid expenses and othercurrent assets and otherassetsDerivative liabilities: Foreign currencycontracts $— $984 $— $984 Accrued expense and othercurrent liabilities Fair Value as of December 31, 2012 ($ 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 currencycontracts — 5,548 — 5,548 Prepaid expenses and othercurrent assets and otherassetsDerivative liabilities: Foreign currencycontracts $— $295 $— $295 Accrued expense and othercurrent liabilitiesTable of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)6. FAIR VALUE MEASUREMENTS (Continued)Non-Recurring Fair Value Measurements The majority of our non-financial instruments, which include inventories, property and equipment and intangible assets, are not required to becarried at fair value on a recurring basis. However, if certain triggering events occur such that a non-financial instrument is required to be evaluated forimpairment and the carrying value is not recoverable, the carrying value would be adjusted to the lower of its cost or fair value and an impairment chargewould be recorded. See Note 2—Inventories, Note 3—Property and Equipment and Note 4—Goodwill & Intangible Assets for discussions onimpairment charges recorded during the periods presented.7. DERIVATIVE FINANCIAL INSTRUMENTS We transact business in various foreign countries and are therefore exposed to foreign currency exchange rate risk inherent in revenues, costs, andmonetary assets and liabilities denominated in non-functional currencies. We have entered into foreign currency exchange forward contract and currencyswap derivative instruments to selectively protect against volatility in the value of non-functional currency denominated monetary assets and liabilities,and of future cash flows caused by changes in foreign currency exchange rates. We do not designate these derivative instruments as hedginginstruments under the accounting standards for derivatives and hedging. Accordingly, these instruments are recorded at fair value as a derivative asset orliability on the balance sheet with their corresponding change in fair value recognized in 'Foreign currency transaction (gains) losses, net' in ourconsolidated statements of operations. For purposes of the cash flow statement, we classify the cash flows at settlement from undesignated instrumentsin the same category as the cash flows from the related hedged items, generally within 'Cash provided by operating activities'. See Note 6—Fair ValueMeasurements for further details regarding the fair values of the corresponding derivative assets and liabilities. The following table summarizes the notional amounts of the outstanding foreign currency exchange contracts at December 31, 2013 and 2012. Thenotional amounts of the derivative financial instruments shown below are denominated in their U.S. dollar equivalents and represent the amount of allcontracts of the foreign currency specified. These notional values do not necessarily represent amountsF-23Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)exchanged by the parties and, therefore, are not a direct measure of our exposure to the foreign currency exchange risks. The following table presents the amounts affecting the consolidated statements of operations from derivative instruments for the years endedDecember 31, 2013, 2012 and 2011: The account 'Foreign currency transaction gains (losses), net' on the consolidated statements of operations includes both realized and unrealizedgains/losses from underlying foreign currency activity and derivative contracts. These gains and losses are reported on a net basis. For the year endedDecember 31, 2013, the net loss recognized of $4.7 million recorded on the consolidated statements of operations is comprised of a $17.7 million netloss associated with exposure from day-to-day business transactions in various foreign currencies partially offset by a $13.0 million net gain associatedwith our derivative instruments. For the year ended December 31, 2012, the net loss recognized of $2.5 million recorded on the consolidated statementsof operations is comprised of a $9.7 million net loss associated with exposure from day-to-day business transactions in various foreign currenciespartially offset by aF-24 December 31, ($ thousands) 2013 2012 Foreign currency exchange forward contracts by currency: Japanese Yen $68,707 $112,500 Euro 38,577 5,159 Singapore Dollar 28,225 — Mexican Peso 18,350 11,400 Russian Ruble 17,588 — Pound Sterling 15,487 8,742 South Korean Won 12,100 — Australian Dollar 4,941 4,178 New Taiwan Dollar 3,463 — Canadian Dollar 3,428 — South African Rand 3,076 — Indian Rupee 2,150 — Hong Kong Dollar 1,844 — Swedish Krona 1,615 — New Zealand Dollar 943 1,137 Total notional value, net $220,494 $143,116 Latest maturity date December 2015 December 2015 Year Ended December 31, Location of Gain (Loss) Recognized in Income onDerivatives($ thousands) 2013 2012 2011Derivatives not designated as hedginginstruments: Foreign currency exchange forwards $(13,002)$(7,200)$540 Foreign currency transaction (gains)losses, netTable of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)$7.2 million net gain associated with our derivative instruments. For the year ended December 31, 2011, the net gain recognized of $4.9 millionrecorded on the consolidated statements of operations is comprised of a $5.4 million net gain associated with exposure from day-to-day businesstransactions in various foreign currencies partially offset by a $0.5 million net loss associated with our derivative instruments.8. REVOLVING CREDIT FACILITY & BANK BORROWINGSRevolving Credit Facility On September 25, 2009, we entered into a Revolving Credit and Security Agreement, as amended, with the lenders named therein and PNC Bank,National Association ("PNC"), as a lender and administrative agent for the lenders. On December 16, 2011, we entered into our first amendment to theRevolving Credit and Security Agreement (the "Amended and Restated Credit Agreement"). On December 27, 2013, we entered into the Third Amendment to Amended and Restated Credit Agreement (the "Third Amendment"), pursuant towhich certain terms of the Amended and Restated Credit Agreement were amended. The Third Amendment, among other things, (i) allows for thepayment of dividends on the Series A Convertible Preferred Stock ("Series A Preferred Stock"), (ii) permits the Company to have greater flexibility torepurchase its Common Stock, (iii) decreases the maximum leverage ratio from 3.50 to 1.00 to 3.25 to 1.00, and (iv) amends certain definitions of thefinancial covenants to become more favorable to the Company. See Note 17—Subsequent Events for further details regarding the payment of dividendson the Series A Preferred Stock. The Credit Agreement enables us to borrow up to $100.0 million, with the ability to increase commitments to up to $125.0 million subject tocertain conditions, and is currently set to mature on December 16, 2017. The Credit Agreement is available for working capital, capital expenditures,permitted acquisitions, reimbursement of drawings under letters of credit, and permitted dividends, distributions, purchases, redemptions andretirements of equity interests. Borrowings under the Credit Agreement are secured by all of our assets including all receivables, equipment, generalintangibles, inventory, investment property, subsidiary stock and intellectual property. Borrowings under the Credit Agreement bear interest at a variablerate. For domestic rate loans, the interest rate is equal to the highest of (i) the daily federal funds open rate as quoted by ICAP North America, Inc. plus0.5%, (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% to 1.00% based oncertain 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 certainconditions. The Credit Agreement requires monthly interest payments with respect to domestic rate loans and at the end of each interest period withrespect to LIBOR rate loans. The Credit Agreement further provides for a limit on the issuance of letters of credit to a maximum of $20.0 million. TheCredit Agreement contains provisions requiring us to maintain compliance with certain restrictive and financial covenants. As of December 31, 2013 and 2012, we had no outstanding borrowings under the Credit Agreement. As of each of December 31, 2013 and 2012,we had had issued and outstanding letters of credit of $7.2 million, which were reserved against the borrowing base under the terms of the CreditAgreement. During the years ended December 31, 2013, 2012 and 2011, we capitalized $0.1 million, $0.5 million and $0.4 million, respectively, in feesand third party costs which were incurred inF-25Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)8. REVOLVING CREDIT FACILITY & BANK BORROWINGS (Continued)connection with the Credit Agreement, as deferred financing costs. As of December 31, 2013, we were in compliance with all restrictive financial andother covenants under the Credit Agreement.Long-term Bank Borrowings On December 10, 2012, we entered into a Master Installment Payment Agreement ("Master IPA") with PNC in which PNC finances theCompany's 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 ourimplementation of a new enterprise resource planning ("ERP") system which began in October 2012 and is estimated to continue through late 2014. Theterms of the agreement consist of variable interest rates and payment terms based on amounts borrowed and timing of activity throughout theimplementation of the ERP system. As of December 31, 2013 and 2012, we had $16.8 million and $6.6 million, respectively, of long-term debt outstanding under five and oneseparate notes payable, respectively, of which $5.1 million and $2.0 million, respectively, represent current installments. As of December 31, 2013, thenotes bear interest rates ranging from 2.45% to 2.79% and maturities ranging from September 2016 to September 2017. As this debt arrangementrelates solely to the construction and implementation of an ERP system for use by the entity, all interest expense incurred under the arrangement hasbeen capitalized to the consolidated balance sheets until the assets are ready for intended use and will be amortized over the useful life of the softwareupon that date. During the year ended December 31, 2013, we capitalized $0.3 million in interest expense related to this debt arrangement to theconsolidated balance sheets. During the year ended December 31, 2012, we recorded no capitalized interest related to this debt arrangement to theconsolidated balance sheets. Interest rates and payment terms are subject to changes as further financing occurs under the Master IPA. The aggregate maturities of long-term bank borrowings at December 31, 2013 are as follows (in thousands):9. EQUITYEquity Incentive Plans On August 15, 2005, we adopted the 2005 Equity Incentive Plan (the "2005 Plan"), which permitted the issuance of up to 14.0 million commonshares in connection with the grant of non-qualified stock options, incentive stock options, and restricted stock to eligible employees, consultants andmembers of our board of directors. As of December 31, 2013 and 2012, 0.7 million andF-26Fiscal years ending December 31, 2014 $5,135 2015 5,271 2016 4,765 2017 1,607 2018 — Thereafter — Total principal debt maturities $16,778 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. EQUITY (Continued)0.9 million stock options, respectively, were outstanding under the 2005 Plan. Following the adoption of the 2007 Equity Incentive Plan (the "2007Plan"), described below, no additional grants were made under the 2005 Plan. On July 9, 2007, we adopted and on June 28, 2011 we amended the 2007 Plan which increased the allowable number of shares of our commonstock reserved for issuance under the 2007 Plan from 9.0 million to 15.3 million (subject to adjustment for future stock splits, stock dividends andsimilar changes in our capitalization) in connection with the grant of non-qualified stock options, incentive stock options, restricted stock, restrictedstock units, stock appreciation rights, performance units, common stock or any other share-based award to eligible employees, consultants and membersof our board of directors. As of December 31, 2013 and 2012, 3.6 million and 3.5 million shares of common stock, respectively, were issuable underthe 2007 Plan pursuant to outstanding stock options and RSUs. As of December 31, 2013, 4.4 million shares were available for future issuance underthe 2007 Plan. Restricted stock awards and units generally vest annually on a straight-line basis over three or four years depending on the terms of the awardagreement.Stock Option Activity The following table summarizes stock option activity for the years ended December 31, 2013, 2012 and 2011:F-27 Shares WeightedAverageExercisePrice WeightedAverageRemainingContractualLife(Years) AggregateIntrinsicValue($ thousands) 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 Granted 177,000 15.62 Exercised (333,395) 6.84 Forfeited or expired (360,139) 18.18 Outstanding at December 31, 2013 2,105,152 $13.34 4.86 $10,790 Exercisable at December 31, 2013 1,732,398 $12.56 4.21 $10,621 Vested and expected to vest at December 31, 2013 2,019,478 $13.22 4.72 $10,745 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. EQUITY (Continued) During the years ended December 31, 2013, 2012 and 2011, options issued were valued using the Black Scholes option pricing model using thefollowing assumptions: The weighted average fair value of options granted during the years ended December 31, 2013, 2012 and 2011 was approximately $7.33, $7.76and $9.19, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $2.8 million,$6.9 million and $27.3 million, respectively. During the years ended December 31, 2013 and 2012, we received $2.3 million and $3.7 million in cash inconnection with the exercise of stock options with no income tax benefit due to our use of Accounting Standard Codification 740—'Income Taxes'(with-and-without approach) ("ASC 740") ordering for purposes of determining when excess benefits have been realized (see Note 11—IncomeTaxes). The total grant date fair value of stock options vested during the years ended December 31, 2013, 2012 and 2011 was $1.2 million, $2.8 millionand $2.7 million, respectively. As of December 31, 2013, we had $2.6 million of total unrecognized share-based compensation expense related to unvested options, net ofexpected forfeitures, which is expected to be amortized over the remaining weighted average period of 2.3 years. Stock options under both the 2005 Plan and the 2007 Plan generally vest ratably over four years with the first year vesting on a "cliff" basisfollowed by monthly vesting for the remaining three years.Restricted Stock Awards and Units From time to time, we grant restricted stock awards (RSAs) and restricted stock units (RSUs) to our employees. Unvested RSAs have the samerights as those of common shares including voting rights and non-forfeitable dividend rights. However, ownership of unvested RSAs cannot betransferred until they are vested. An unvested RSU is a contractual right to receive a share of common stock only upon its vesting. RSUs have dividendequivalent rights which accrue over the term of the award and are paid if and when the RSUs vest, but they have no voting rights. We typically grant time-based RSUs and performance-based RSUs. Time-based RSUs are typically granted on an annual basis to certain non-executive employees and vest in three annual installments on a straight-line basis beginning one year after the grant date. During the years endedDecember 31, 2013, 2012 and 2011, the board of directors approved grants of 0.4 million, 0.4 million and 0.2 million of RSUs to certain non-executives. Performance-based RSUs are typically granted on an annual basis to certain executive employees and consist of a time-based andperformance-based component. TheF-28 Year Ended December 31, 2013 2012 2011 Expected volatility 50 - 64% 50 - 70% 50 - 60%Dividend yield — — — Risk-free interest rate 0.81% - 1.62% 0.62% - 1.20% 0.87% - 2.31%Expected life (in years) 4.00 4.00 - 4.27 4.35 - 4.89 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. EQUITY (Continued)following represents the vesting schedule of performance-based RSUs granted during the years ended December 31, 2013, 2012 and 2011: During the years ended December 31, 2013, 2012 and 2011, the board of directors approved the grant of 0.9 million, 0.4 million and 0.4 million,respectively, of RSUs or RSAs to certain executives as part of a performance incentive program. The following table summarizes RSA and RSU activity during the years ended December 31, 2013, 2012 and 2011:F-29Time Vested RSUs(50% of Award) Performance Vested RSUs (50% of Award)Vest in 3 annual installmentsbeginning one year after the dateof grant Performance Goal Potential Award Further Time Vesting Achievement of at least 70% of atwo-year cumulative earnings pershare performance goal Executive may earn from 50% to200% of the target number ofRSUs based on the level ofachievement of the performancegoal Earned RSUs vest 50% uponsatisfaction of performance goaland 50% one year later Restricted Stock Awards Restricted Stock Units Shares WeightedAverageGrant DateFair Value Units WeightedAverageGrant DateFair Value Unvested at December 31, 2010 953,423 $8.54 116,400 $— Granted 118,520 19.10 651,791 24.89 Vested (352,150)(1) 6.19 (21,150)(1) 17.25 Forfeited (148,618) 9.67 (35,061) 15.41 Unvested 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)(1) 9.22 (133,555)(1) 23.25 Forfeited (42,700) 13.25 (174,323) 20.64 Unvested at December 31, 2012 355,509 13.37 1,414,661 20.61 Granted 21,590 16.56 1,637,114 14.96 Vested (89,006)(1) 14.81 (329,542)(1) 21.52 Forfeited (77,603) 12.46 (756,566) 14.71 Unvested at December 31, 2013 210,490 $13.43 1,965,667 $16.50 (1)The RSAs vested during the years ended December 31, 2013, 2012 and 2011 consisted entirely of time-based awards. TheRSUs vested during the years ended December 31, 2013 consisted of 52,288 performance-based awards and 277,254 time-basedawards. The RSUs vested during the years ended December 31, 2012 and 2011 consisted entirely of time-based awards.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. EQUITY (Continued) The total grant date fair value of RSAs vested during the years ended December 31, 2013, 2012 and 2011 was $1.3 million, $1.8 million and$2.2 million, respectively. At December 31, 2013, we had $1.0 million of total unrecognized share-based compensation expense related to non-vestedrestricted stock awards, net of expected forfeitures, of which $0.5 million is related to performance-based awards and $0.5 million is time-based awards.The unvested RSAs are expected to be amortized over the remaining weighted average period of 0.52 years, which consists of a remaining weightedaverage period of 0.45 years related to performance-based awards and a remaining weighted average period of 0.64 years related to time-based awards. The total grant date fair value of RSUs vested during the years ended December 31, 2013, 2012 and 2011 was $7.1 million, $3.1 million, and$0.4 million, respectively. At December 31, 2013, we had $15.6 million of total unrecognized share-based compensation expense related to unvestedrestricted stock units, net of expected forfeitures, of which $5.8 million is related to performance-based awards and $9.8 million is time-based awards.The unvested RSUs are expected to be amortized over the remaining weighted average period of 1.75 years, which consists of a remaining weightedaverage period of 1.77 years related to performance-based awards and a remaining weighted average period of 1.73 years related to time-based awards.Share-based Compensation During the years ended December 31, 2013, 2012 and 2011, we recorded $12.5 million, $11.3 million $8.6 million, respectively, of pre-tax share-based compensation expense of which $0.7 million, $0.0 million, and $0.0 million, respectively, related solely to the construction and implementation ofour ERP system for use by the entity was capitalized to the consolidated balance sheets until assets are ready for intended use and will be amortized overthe useful life of the software upon that date.Separation Agreements On December 27, 2013, John McCarvel resigned from his position as President, Chief Executive Officer (CEO) and director of the Companyeffective upon the earlier to occur of (i) April 30, 2014 or (ii) the Board's appointment of his successor as CEO. Also on December 27, 2013, theCompany and Mr. McCarvel entered into a separation agreement providing that the Company will pay Mr. McCarvel (i) a $1.1 million separationpayment on the first regularly scheduled payroll date after the effectiveness of his resignation and (ii) a $1.0 million separation payment on the firstanniversary of the effectiveness of his resignation. In accordance with ASC 420—Exit or Disposal Cost Obligations, the Company will recognize firstand second installment payments of $1.1 million and $1.0 million ratably from December 27, 2013 through April 30, 2014. If the separation date occursprior to April 30, 2014 due to the appointment of a new CEO by the board of directors, the Company will consider the entire $2.1 million incurred andwill expense the remaining portion on that date. Mr. McCarvel will also be entitled to receive any amount earned pursuant to the Company's 2013annual incentive program, in such form and at such time as is provided under the terms of such program. Mr. McCarvel also agreed to continue in a consulting capacity with the Company at his regular salary through April 30, 2014 if his successor isappointed prior to such date. Subject to continued service, Mr. McCarvel will be entitled to continued vesting through April 30, 2014 of the unvestedportion of his existing restricted stock and restricted stock unit awards. Pursuant to the separationF-30Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. EQUITY (Continued)agreement, unvested share awards that are expected to vest through April 30, 2014 amounted to 58,840 shares. Additionally, pursuant to the terms ofthe separation agreement, Mr. McCarvel forfeited 388,745 share awards not expected to vest through April 30, 2014. The separation payments areconditioned upon the effectiveness of Mr. McCarvel's release of claims in favor of the Company and his compliance with the non-competition, non-solicitation and confidentiality covenants contained in the separation agreement.10. ALLOWANCES The changes in the allowance for doubtful accounts and reserve for sales returns and allowances for the years ended December 31, 2013, 2012 and2011, are as follows:F-31($ thousands) Balance atBeginning of Year Charged to costsand expenses Reversals andWrite-offs Balance at End ofYear Year ended December 31,2011: Allowance for doubtfulaccounts $4,642 $(383)$(579)$3,680 Reserve for sales returnsand allowances 5,607 9,965 (3,744) 11,828 Year ended December 31,2012: Allowance for doubtfulaccounts 3,680 2,166 (2,405) 3,441 Reserve for sales returnsand allowances 11,828 5,111 (7,065) 9,874 Year ended December 31,2013: Allowance for doubtfulaccounts $3,441 $1,930 $(1,715)$3,656 Reserve for sales returnsand allowances 9,874 13,888 (16,905) 6,857 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11. INCOME TAXES The following table sets forth income before taxes and the expense for income taxes for the years ended December 31, 2013, 2012 and 2011: The following table sets forth income reconciliations of the statutory federal income tax rate to our actual rates based on income or loss beforeincome taxes as of December 31, 2013, 2012 and 2011:F-32 December 31, ($ thousands) 2013 2012 2011 Income (loss) before taxes: U.S. $(7,818)$12,060 $(12,057)Foreign 67,777 133,488 148,747 Total income before taxes 59,959 145,548 136,690 Income tax expense: Current income taxes U.S. federal 3,311 (6,364) 4,798 U.S. state 355 597 165 Foreign 22,337 22,953 19,758 Total current income taxes 26,003 17,186 24,721 Deferred income taxes: U.S. federal 14,968 (3,981) (2,338)U.S. state 3,639 (4,016) — Foreign 4,929 5,016 1,519 Total deferred income taxes 23,536 (2,981) (819) Total income tax expense $49,539 $14,205 $23,902 December 31, ($ thousands) 2013 2012 2011 Federal income tax rate 35.0% 35.0% 35.0%State income tax rate, net of federal benefit (0.6) (2.7) 0.3 Foreign income tax rate differential (47.9) (25.0) (30.3)Non-deductible / Non-taxable items 3.4 4.6 3.2 Change in valuation allowance 35.6 (8.4) 3.6 U.S. tax on foreign earnings 38.2 2.0 — Uncertain tax positions 6.8 3.5 8.7 Audit settlements 5.1 — — Non-deductible write-off of intercompany debt 1.9 — — Non-deductible impairment 3.5 — — Other 1.6 0.8 (3.0) Effective income tax rate 82.6% 9.8% 17.5% Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11. INCOME TAXES (Continued) The following table sets forth deferred income tax assets and liabilities as of December 31, 2013 and 2012: We do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis in our investments in foreign subsidiaries thatare essentially permanent in duration. In general, it is our practice and intention to reinvest the earnings of our foreign subsidiaries in those operations.Generally, the earnings of our foreign subsidiaries become subject to U.S. taxation upon the remittance of dividends and under certain othercircumstances. Exceptions may be made on a year-by-year basis to repatriate current year earnings of certain foreign subsidiaries based on cash needs inthe U.S. As of December 31, 2013, we have provided for deferred U.S. income tax of $16.1 million on $76.6 million of foreign subsidiary earnings.No withholding tax is due with respect to the repatriation of these earnings to the U.S. and none has been provided for. At December 31, 2013, U.S. income and foreign withholding taxes have not been provided on for approximately $474.2 million of unremittedearnings of subsidiaries operating outside of the U.S. These earnings are estimated to represent the excess of the financial reporting over the tax basis inourF-33 December 31, ($ thousands) 2013 2012 Current deferred tax assets: Accrued expenses $13,108 $12,934 Unrealized loss on foreign currency 10 2,026 Other 1,364 8 Valuation allowance (5,139) (3,492) Total current deferred tax assets $9,343 $11,476 Current deferred tax liabilities: Unremitted earnings of foreign subsidiary $(16,102)$(7,596) Total current deferred tax liabilities. $(16,102)$(7,596) Non-current deferred tax assets: Stock compensation expense $9,652 $8,865 Long-term accrued expenses 3,811 3,067 Net operating loss and charitable contribution carryovers 24,517 23,255 Intangible assets 895 — Property and equipment 8,527 8,994 Future uncertain tax position offset 1,804 3,780 Unrealized loss on foreign currency 639 921 Foreign tax credit 8,524 5,392 Other 1,755 1,767 Valuation allowance (41,745) (22,406) Total non-current deferred tax assets $18,379 $33,635 Non-current deferred tax liabilities: Intangible assets $— $(779) Total non-current deferred tax liabilities $— $(779) Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11. INCOME TAXES (Continued)investments in those subsidiaries. These earnings, which are considered to be indefinitely reinvested, would become subject to U.S. income tax if theywere remitted to the U.S. The amount of unrecognized deferred U.S. income tax liability on the unremitted earnings has not been determined because thehypothetical calculation is not practicable. We have deferred tax assets related to certain deductible temporary differences in various tax jurisdictions for which we have recorded a valuationallowance of $46.9 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 thesedeferred tax assets. The significant components of the deferred tax assets for which a valuation allowance has been applied consist of net operatinglosses in certain tax jurisdictions for which management believes there is not sufficient positive evidence that such net operating losses will be realizedagainst future income and book expenses not deductible for tax purposes in the current year such as inventory impairment reserves, equitycompensation and unrealized foreign exchange loss that would increase such net operating losses in the same jurisdictions. These temporary differencesare amounts which arose in jurisdictions where (i) current losses exist, (ii) such losses are in excess of any loss carryback potential, (iii) any taxplanning strategies exist with which to overcome such losses are cost prohibitive and (iv) no profits are projected for the following year. For thesereasons it is determined that it is more likely than not that these deferred tax assets will not be realized and a valuation allowance has been provided withrespect to these deferred tax assets. At December 31, 2013, we had U.S. federal net operating loss carryforwards of $1.0 million, state net operating loss carryforwards of$96.5 million, charitable contribution carryforwards of $20.4 million and foreign tax credits of $4.0 million which will expire at various dates between2014 and 2034. We do not believe that it is more likely than not that the benefit from certain federal and state net operating losses, and charitablecontribution carryforwards will be realized. Consequently, we have a valuation allowance of $12.1 million on the deferred tax assets relating to these taxattributes. At December 31, 2013, we have a foreign deferred tax asset of $16.0 million reflecting the benefit of $50.4 million in foreign net operating losscarryforwards, 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 losscarryforwards will be realized. Consequently, we have provided a valuation allowance of $14.5 million on the deferred tax assets relating to theseforeign net operating loss carryforwards. We had approximately $11.6 million in net deferred tax assets at December 31, 2013. Approximately $7.6 million of the net deferred tax assetswere located in foreign jurisdictions for which a sufficient history and expected future profits indicated that it is more likely than not that such deferredtax assets will be realized. Pre-tax profit of approximately $40.3 million is required to realize the net deferred tax assets. At December 31, 2013, approximately $1.8 million of net deferred tax assets consists of deferred tax assets related to estimated liabilities foruncertain tax positions that would be realized if such liabilities are actually incurred. The deferred tax assets represent primarily the reduction in taxexpense that would occur upon an increase of intercompany royalty expense by various taxing authorities. Approximately $6.4 million of taxableincome would have to be recognized to realize these deferred tax assets. As a result of certain accounting realization requirements, the table of deferred tax assets and liabilities shown above does not include certaindeferred tax assets at December 31, 2013 that aroseF-34Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11. INCOME TAXES (Continued)directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by$11.5 million if and when such deferred tax assets are ultimately realized. We use ASC 740 with-and-without 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 endedDecember 31, 2013, 2012 and 2011: Unrecognized tax benefits of $31.6 million, $31.9 million, and $44.5 million at December 31, 2013, 2012 and 2011, respectively, if recognized,would reduce our annual effective tax rate offset by deferred tax assets recorded for uncertain tax positions. Interest and penalties related to income tax liabilities are included in income tax expense in the consolidated statement of operations. As ofDecember 31, 2013, 2012 and 2011, we recorded approximately $0.6 million, $0.6 million, and $1.0 million, respectively, of penalties and interestwhich resulted in a cumulative accrued balance of penalties and interest of $5.0 million, $4.4 million, and $3.9 million at December 31, 2013, 2012 and2011, respectively. Unrecognized tax benefits consist primarily of tax positions related to intercompany transfer pricing in multiple international jurisdictions. Thegross increase for tax positions in current and prior periods in 2013 of $4.3 million primarily includes specific transfer pricing exposures in variousjurisdictions. We believe that it is reasonably possible that a decrease of approximately $11.3 million in unrecognized tax benefits will occur in the nexttwelve months. Only a portion of this amount will be recognized in our consolidated statements of operations due to balance sheet offsets. We do notbelieve we can reasonably estimate the effect of unrecognized tax benefits on our consolidated statements of operations. The following table sets forth the remaining tax years subject to examination for the major jurisdictions where we conduct business as ofDecember 31, 2013:F-35($ thousands) 2013 2012 2011 Unrecognized tax benefit—January 1 $31,900 $44,537 $33,042 Gross increases—tax positions in prior period 572 — 8,332 Gross decreases—tax positions in prior period (2,086) (425) — Gross increases—tax positions in current period 3,743 4,310 4,689 Settlements (2,291) (16,260) (427)Lapse of statute of limitations (222) (262) (1,099) Unrecognized tax benefit—December 31 $31,616 $31,900 $44,537 Netherlands 2007 to 2013 Canada 2007 to 2013 Japan 2007 to 2013 China 2007 to 2013 Singapore 2009 to 2013 United States 2010 to 2013 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11. INCOME TAXES (Continued) State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impactof any federal changes remains subject to examination by various state jurisdictions for a period up to two years after formal notification to the states.12. EARNINGS PER SHARE The following table illustrates the basic and diluted earnings per share ("EPS") computations for the years ended December 31, 2013, 2012 and2011. See Note 1—Organization & Summary of Significant Accounting Policies for additional detail regarding our EPS calculations. For the years ended December 31, 2013, 2012 and 2011, 1.0 million, 1.4 million, and 1.1 million options and RSUs, respectively, were notincluded in the calculation of diluted EPS as their effect would have been anti-dilutive.Stock Repurchase Plan Authorizations We continue to evaluate options to maximize the returns on our cash and maintain an appropriate capital structure, including, among otheralternatives, repurchases of our common stock. On December 26, 2013, the Board approved the repurchase of up to $350.0 million of our common stock. This authorization effectively replacedthe Company's previous stock repurchase authorizations. The number, price, structure and timing of the repurchases, if any, will be at the Company'ssole discretion and future repurchases will be evaluated by the Company depending on market conditions, liquidity needs and other factors. Sharerepurchases may be made in the open market or in privately negotiated transactions. The repurchase authorization does not have an expiration date anddoes not oblige us to acquire any particular amount of our common stock. The Board may suspend, modify or terminate the repurchase program at anytime without prior notice.F-36 Year Ended December 31, ($ thousands, except share and per share data) 2013 2012 2011 Numerator Net income attributable to common stockholders $10,420 $131,343 $112,788 Less: income allocated to participating securities (36) (645) (1,014) Net income attributable to common stockholders—basic and diluted $10,384 $130,698 $111,774 Denominator Weighted average common shares outstanding—basic 87,988,798 89,571,105 88,317,898 Plus: dilutive effect of stock options and unvested restricted stockunits 1,100,675 1,017,311 1,663,484 Weighted average common shares outstanding—diluted 89,089,473 90,588,416 89,981,382 Net income attributable per common share: Basic $0.12 $1.46 $1.27 Diluted $0.12 $1.44 $1.24 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. EARNINGS PER SHARE (Continued) During the three months ended December 31, 2013, we did not repurchase any shares associated with a publicly-announced repurchase plan.During the year ended December 31, 2013, we repurchased approximately 0.8 million shares at an average price of $14.99 for an aggregate price ofapproximately $12.5 million excluding related commission charges, under a publicly-announced repurchase plan. As of December 31, 2013, subject to certain restrictions on repurchases under our revolving credit facility, we had $350.0 million of our commonshares available for repurchase under previously announced repurchase authorizations.13. COMMITMENTS AND CONTINGENCIESRental Commitments and Contingencies We rent space for our retail stores, offices, warehouses, vehicles, and equipment under operating leases expiring at various dates through 2033.Certain leases contain rent escalation clauses (step rents) that require additional rental amounts in the later years of the term. Rent expense for leases withstep rents or rent holidays is recognized on a straight-line basis over the lease term beginning on the lease inception date. Deferred rent is included in theconsolidated balance sheets in 'Accrued expenses and other current liabilities.' Future minimum annual rental commitments under non-cancelable operating leases for each of the five succeeding years as of December 31, 2013,are as follows (in thousands):F-37Fiscal years ending December 31, 2014 $83,831 2015 67,722 2016 51,939 2017 40,090 2018 32,222 Thereafter 136,630 Total minimum lease payments(1) $412,434 (1)Minimum lease payments have not been reduced by minimum sublease rentals of $0.4 million due in the future undernon-cancelable subleases. They also do not include contingent rentals which may be paid under certain retail leases on abasis of percentage of sales in excess of stipulated amounts.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)13. COMMITMENTS AND CONTINGENCIES (Continued) The following table summarizes the composition of rent expense under operating leases for the years ended December 31, 2013, 2012 and 2011(in thousands):Purchase Commitments As of December 31, 2013, we had purchase commitments with certain third party manufacturers for $172.3 million. As of December 31, 2012, wehad purchase commitments with certain third party manufacturers for $152.8 million, of which $5.9 million was for yet-to-be-received finished productwhere title passes to us upon receipt. In February 2011, we renewed and amended our supply agreement with Finproject S.r.l. which provides us the exclusive right to purchase certainraw materials used to manufacture our products. The agreement also provides that we meet minimum purchase requirements to maintain exclusivitythroughout the term of the agreement, which expires December 31, 2014. Historically, the minimum purchase requirements have not been onerous andwe do not expect them to become onerous in the future. Depending on the material purchased, pricing is either based on contracted price or is subject toquarterly reviews and fluctuates based on order volume, currency fluctuations and raw material prices. Pursuant to the agreement, we guarantee thepayment for certain third party manufacturer purchases of these raw materials up to a maximum potential amount of €3.5 million (approximately$4.8 million as of December 31, 2013), through a letter of credit that was issued to Finproject S.r.l.Government Tax Audits We are regularly subject to, and are currently undergoing, audits by tax authorities in the United States and several foreign jurisdictions for priortax years. In April 2013, the State of Sao Paulo, Brazil government ("Brazil") assessed sales taxes, interest and penalties for the period April 2009 to May2011. We had previously tendered these taxes using Brazil obligations purchased at a discount from third parties. On May 22, 2013, we applied foramnesty in order to receive a significant reduction in penalties and interest, agreed to amend our 2009 through 2012 tax returns to remove the Brazilobligations, and agreed to settle the assessment in cash to Brazil. In June 2013, cash payment was made to Brazil, in full satisfaction of the Brazilassessment. Brazil is making court-ordered payments to holders of the Brazil obligations along with accrued interest. The Company anticipates that theBrazil obligations (plus accrued interest) will be paid by Brazil inF-38 Fiscal years ending December 31, 2013 2012 2011 Minimum rentals(1) $101,721 $84,671 $68,675 Contingent rentals 18,178 16,519 13,639 Less: Sublease rentals (646) (619) (573) Total rent expense $119,253 $100,571 $81,741 (1)Minimum rentals include all lease payments as well as fixed and variable common area maintenance ("CAM"), parkingand storage fees, which were approximately $9.7 million, $8.5 million and $8.6 million during the years endedDecember 31, 2013, 2012 and 2011, respectively.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)13. COMMITMENTS AND CONTINGENCIES (Continued)accordance with the court-orders. The Company is carrying the Brazil obligations at the original discounted cost to the Company and intends to hold theBrazil obligations until paid by Brazil. The net impact of the above is a $6.1 million charge to operating income recorded during the year endedDecember 31, 2013, and the carrying balance of the Brazil obligations as of December 31, 2013 is $3.5 million, which is recorded in 'Other assets' onthe consolidated balance sheets. The Company is currently undergoing a tax audit in Canada. We recently received a notice of proposed adjustment on certain transfer pricing itemsfrom the Canadian tax authorities, which includes penalties and interest. The proposed adjustment, along with penalties and interest, is currently beingreviewed by the Canada Transfer Pricing Review Committee with a decision expected by the end of the first quarter in 2014. We intend to defend ourposition through litigation if necessary; however, the final outcome of tax audits and related litigation, including the assessment of potentially significantpenalties and interest, is inherently uncertain and could be materially different than that reflected in our historical income tax provisions and accruals andcould have a material adverse impact on our financial position, results of operations or cash flows. See Note 15—Legal Proceedings for further details regarding potential loss contingencies related to government tax audits and other current legalproceedings.14. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION During the first quarter of 2013, we adjusted our operating segment structure for internal reports reviewed by the chief operating decision maker("CODM") by presenting Japan separate from the Asia Pacific segment. This change was made due to recurring amounts of substantial businessactivity as well as the macroeconomic environment within Japan, which resulted in the need for a regular review of Japan operating results bymanagement and the CODM in order to better evaluate performance and allocate resources for the consolidated business. Segment information for allperiods presented has been reclassified to conform to the fiscal 2013 presentation. As a result of the changes discussed above, we have four reportable operating segments based on the geographic nature of our operations:Americas, Asia Pacific, Japan and Europe. We also have an "Other businesses" category which aggregates insignificant operating segments that do notmeet the reportable segment threshold and represent manufacturing operations located in Mexico, Italy and Asia. The composition of our reportableoperating segments is consistent with that used by our 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 as well asintersegment sales. Revenues of the "Other businesses" category are primarily made up of intersegment sales. The remaining revenues for the "Otherbusinesses" represent non-footwear product sales to external customers. Intersegment sales are not included in the measurement of segment operatingincome or regularly reviewed by the CODM and are eliminated when deriving total consolidated revenues. The primary financial measure utilized by the CODM to evaluate performance and allocate resources is segment operating income. Segmentperformance evaluation is based primarily on segment results without allocating corporate expenses, or indirect general, administrative and otherexpenses. Segment profits or losses of our reportable operating segments include adjustments to eliminate intersegment profit or losses on intersegmentsales. As such, reconciling items for segment operating income represent unallocated corporate and other expenses as well as intersegment eliminations.Segment assets consist of cash and cash equivalents, accounts receivable and inventory as these balances are regularly reviewed by the CODM.F-39Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)14. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued) The following tables set forth information related to our reportable operating business segments as of and for the years ended December 31, 2013,2012 and 2011 Year Ended December 31, ($ thousands) 2013 2012 2011 Revenues: Americas $498,552 $495,852 $448,077 Asia Pacific 342,752 292,846 226,961 Japan 134,863 164,565 154,805 Europe 216,259 169,464 170,869 Total segment revenues 1,192,426 1,122,727 1,000,712 Other businesses 254 574 191 Total consolidated revenues $1,192,680 $1,123,301 $1,000,903 Operating income: Americas $61,894(1)$85,538(1)$70,532 Asia Pacific 80,693(2) 74,535 52,872 Japan 37,560(3) 66,293 71,046 Europe 16,192 21,678 37,106 Total segment operating income 196,339 248,044 231,556 Reconciliation of total segment operating income to income beforeincome taxes: Other businesses (20,811) (10,805) (14,128)Intersegment eliminations 61 60 66 Unallocated corporate and other(4) (112,494) (91,125) (86,415) Total consolidated operating income 63,095 146,174 131,079 Foreign currency transaction (gains) losses, net 4,678 2,500 (4,886)Interest income (2,432) (1,697) (957)Interest expense 1,016 837 853 Other income, net (126) (1,014) (621) Income before income taxes $59,959 $145,548 $136,690 Depreciation and amortization: Americas $10,384 $9,849 $9,203 Asia Pacific 5,032 4,869 3,764 Japan 1,454 2,053 2,320 Europe 5,108 3,116 2,584 Total segment depreciation and amortization 21,978 19,887 17,871 Other businesses 8,002 7,003 11,657 Unallocated corporate and other(4) 11,526 9,804 7,735 Total consolidated depreciation and amortization $41,506 $36,694 $37,263 F-40 (1)Includes $3.9 million and $1.4 million for the years ended December 31, 2013 and 2012, respectively, of asset impairmentcharges related to 23 and four underperforming retail locations, respectively. (2)Includes $0.2 million for the year ended December 31, 2013 of asset impairment charges related to two underperforming retaillocations.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)14. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued) The following table sets forth asset information related to our reportable operating business segments as of December 31, 2013 and December 31,2012:F-41(3)Includes $6.6 million for the year ended December 31, 2013 of asset impairment charges related to 35 underperforming retaillocations. (4)Includes a corporate component consisting primarily of corporate support and administrative functions, costs associated withshare-based compensation, research and development, brand marketing, legal, depreciation and amortization of corporate andother assets not allocated to operating segments and costs of the same nature related to certain corporate holding companies.($ thousands) December 31,2013 December 31,2012 Assets: Americas $139,855 $143,236 Asia Pacific 177,343 170,426 Japan 51,155 111,785 Europe 137,701 85,756 Total segment current assets 506,054 511,203 Other businesses 14,093 14,489 Unallocated corporate and other(1) 63,743 25,738 Deferred tax assets, net 4,440 6,284 Income tax receivable 10,630 5,613 Other receivables 11,942 24,821 Prepaid expenses and other current assets 29,175 24,967 Total current assets 640,077 613,115 Property and equipment, net 86,971 82,241 Intangible assets, net 74,822 59,931 Deferred tax assets, net 19,628 34,112 Other assets 53,661 40,239 Total consolidated assets $875,159 $829,638 (1)Corporate assets primarily consist of cash and equivalents.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)14. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued) There were no customers who represented 10% or more of consolidated revenues during the years ended December 31, 2013, 2012 and 2011. Thefollowing table sets forth certain geographical and other information regarding our revenues during the years ended December 31, 2013, 2012 and2011: The following table sets forth geographical information regarding our property and equipment assets as of December 31, 2013 and 2012:15. LEGAL PROCEEDINGS We and certain current and former officers and directors have been named as defendants in complaints filed by investors in the United StatesDistrict Court for the District of Colorado. The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter.These actions were consolidated and, in September 2008, the district court appointed a lead plaintiff and counsel. An amended consolidated complaintwas filed in December 2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act on behalf of aclass of all persons who purchased our common stock between April 2, 2007 and April 14, 2008 (the "Class Period"). The amended complaint alsoadded our independent auditor as a defendant. The amended complaint alleges that, during the Class Period, the defendants made false and misleadingpublic statements about us and our business and prospects and, as a result, the market price of our commonF-42 Year Ended December 31, ($ thousands) 2013 2012 2011 Product: Footwear $1,155,377 $1,076,210 $956,816 Other 37,303 47,091 44,087 Total revenues $1,192,680 $1,123,301 $1,000,903 Location: United States $401,948 $396,121 $355,560 International 790,732 727,180 645,343 Total revenues $1,192,680 $1,123,301 $1,000,903 Foreign country revenues in excess of 10% of totalrevenues: Japan $134,863 $164,565 $154,805 December 31, ($ thousands) 2013 2012 Location: United States $56,262 $47,587 International 30,709 34,654 Total long-lived assets(1) $86,971 $82,241 (1)Not more than 10% of our long-lived assets resided in any individual foreign country in 2013 or 2012.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)15. LEGAL PROCEEDINGS (Continued)stock was artificially inflated. The amended complaint also claims that certain current and former officers and directors traded in our common stock onthe basis of material non-public information. The amended complaint seeks compensatory damages on behalf of the alleged class in an unspecifiedamount, including interest, and also added attorneys' fees and costs of litigation. On February 28, 2011, the District Court granted motions to dismissfiled by the defendants and dismissed all claims. A final judgment was thereafter entered. Plaintiffs subsequently appealed to the United States Court ofAppeals for the Tenth Circuit. We and those current and former officers and directors named as defendants have entered into a Stipulation of Settlementwith the plaintiffs that would, if approved by the United States District Court for the District of Colorado, resolve all claims asserted against us by theplaintiffs on behalf of the putative class, and plaintiffs' appeal would be dismissed. Our independent auditor is not a party to the Stipulation ofSettlement. The Stipulation of Settlement received preliminary approval from the District Court on August 28, 2013. It remains subject to customaryconditions, including final court approval following notice to stockholders. On February 13, 2014 a final settlement hearing took place and the partiesare awaiting a ruling in conjunction with the same. 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 Courtof Justice, Queen's Bench Division, Royal Courts of Justice in London, United Kingdom ("UK"). Spectrum acted as an agent for Crocs products in theUK from 2005 until Crocs Europe terminated the relationship on July 3, 2008 due to Spectrum's breach of its duty to act in good faith towards CrocsEurope. Spectrum alleges that Crocs Europe unlawfully terminated the agency relationship and failed to pay certain sales commissions. A trial on theliability, not quantum (compensation and damages), was held at the High Court in London from November 30, 2011 to December 5, 2011. OnDecember 16, 2011, the High Court of Justice issued a judgment that found that although Spectrum's actions were a breach of its duty to act in goodfaith towards Crocs Europe the breach was not sufficiently severe to justify termination. We believe that the trial judge erred in his findings andsubsequently appealed the judgment. On October 30, 2012, the Court of Appeal handed down its judgment confirming the trial judge's findings. Wesubmitted a request to the Supreme Court seeking permission to appeal. On April 24, 2013 the Supreme Court declined to grant permission to appeal.Given that to date the legal proceedings in this case have only addressed liability, there have been no findings in relation to the amount of compensationor damages other than with respect to legal fees. Under English law, the prevailing party is entitled to reimbursement of reasonable legal fees incurred inthe proceedings. The trial of liability and quantum were split by the Court in the interests of case management. The alleged quantum of damages has notbeen fully pleaded out and will be assessed as part of the forthcoming damages phase. A trial and judgment on damages is expected in approximately12 months. We are currently subject to an audit by U.S. Customs & Border Protection ("CBP") in respect of the period from 2006 to 2010. In the course ofthe audit, we identified certain valuation errors and tendered approximately $1.4 million in additional duties. Subsequently, we identified additional valueerrors which will require the payment of additional duties totaling approximately $0.7 million. The exact amount of this additional tender is subject toverification by CBP. In October 2013, CBP issued an audit report to which we filed comments and objections. CBP has projected unpaid duties totalingapproximately $12.4 million in connection with various classification errors during the period underF-43Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)15. LEGAL PROCEEDINGS (Continued)review. We have responded that these projections are erroneous and provided arguments that demonstrate the amount due in connection with this matteris considerably less than the amount projected. CBP is currently reviewing this response. It is not possible at this time to predict whether our argumentswill be successful in eliminating or reducing the amount in dispute. At this time, it is not possible to determine when a formal notice of claim will bereceived from CBP. Likewise, it is not possible to predict whether CBP may seek to assert a claim for penalties in addition to any unpaid duties. Mexico's Federal Tax Authority ("SAT") audited the period from January 2006 to July 2011. There were two phases to the audit, the first forcapital equipment and finished goods and the second for raw materials. The first phase was completed and no major discrepancies were noted by theSAT. On January 9, 2013, Crocs received a notice for the second phase in which the SAT issued a tax assessment (taxes and penalties) of roughly280.0 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. With the help of local counsel we filed an appeal by the deadline of March 15, 2013. We haveargued that the amount due in connection with the matter, if any, is substantially less than that proposed by the SAT. In connection with the appeal, theSAT required us to post an appeal surety bond in the amount of roughly 321.0 million pesos (approximately $26.0 million), which amount reflectsestimated additional penalties and interest if we are not successful on our appeal. This amount will be adjusted on an annual basis. We are currentlyawaiting a ruling from 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, 2013, we have accrued a total of $11.8 million relating to these litigation matters and other disputes. We estimate that theultimate resolution of these litigation matters and other disputes could result in a loss that is reasonably possible between $0 and $10.6 million in theaggregate, in excess of the amount accrued. Although we are subject to other litigation from time to time in the ordinary course of business, including employment, intellectual property andproduct liability claims, we are not party to any other pending legal proceedings that we believe will have a material adverse impact on our business,financial position, results of operations or cash flows.16. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL INFORMATIONF-44 2013 ($ thousands, except per share data) Quarter EndedMarch 31 Quarter EndedJune 30 Quarter EndedSeptember 30 Quarter EndedDecember 31 Revenues $311,656 $363,827 $288,524 $228,673 Gross profit 165,849 200,867 153,581 102,901 Asset impairment charges — 202 — 10,747 Income (loss) from operations 37,650 50,419 17,907 (42,881)Net income (loss) $28,961 $35,356 $13,036 $(66,933)Basic income (loss) per common share $0.33 $0.40 $0.15 $(0.76)Diluted income (loss) per common share $0.33 $0.40 $0.15 $(0.76)Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)16. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (Continued) During the three months ended December 31, 2013, we recorded the following charges that affect the comparability of information betweenperiods:•Tax expenses of $26.8 million related to our cash repatriation activities as well as a valuation allowance adjustment. See Note 11—Income Taxes for further discussions regarding these charges. •Retail asset impairment charges of $10.4 million for certain underperforming locations in our Americas, Asia Pacific and Europesegments as well as $0.3 million in goodwill impairment charges. See Note 3—Property & Equipment and Note 4—Goodwill &Intangible Assets for further discussions regarding these charges. •Legal contingency accruals of $5.7 million recorded in selling, general and administrative expenses. See Note 15—Legal Proceedings forfurther discussions regarding these charges. •Inventory write-down charges of $3.4 million related to obsolete inventory including raw materials, footwear and accessories. SeeNote 2—Inventories for further discussions regarding these charges. •Professional services fees of $1.1 million associated with our recent investment agreement with Blackstone and cash repatriationactivities. See Note 17—Subsequent Events for further discussions regarding these charges.17. SUBSEQUENT EVENTS Accounting Standards Update No. 2010-09 to ASC Topic 855, Subsequent Events, requires the Company to disclose the date through whichsubsequent events have been evaluated. The Company has evaluated subsequent events through the date the financial statements were issued, and hasdetermined there are no other subsequent events to be reported, other than as follows:Issuance of Series A Convertible Preferred Stock to Blackstone On January 27, 2014, we issued to Blackstone, and certain of its permitted transferees, 200,000 shares of our Series A Preferred Stock for anaggregate purchase price of $198.0 million, or $990 per share, pursuant to an Investment Agreement between us and Blackstone, dated December 28,2013 (as amended, the "Investment Agreement"). In connection with the issuance of the Series A Preferred Stock (the "Closing") and pursuant to theInvestment Agreement, we paid Blackstone a closing fee of $2.0 million and reimbursed Blackstone's transaction fees and expenses of approximately$4.0 million.F-45 2012 ($ thousands, except per share data) Quarter EndedMarch 31 Quarter EndedJune 30 Quarter EndedSeptember 30 Quarter EndedDecember 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)Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)17. SUBSEQUENT EVENTS (Continued) Prior to the Closing, we filed with the Secretary of State of the State of Delaware a Certificate of Designations of Series A Convertible PreferredStock (the "Certificate of Designations") creating the Series A Preferred Stock and establishing the designations, preferences, and other rights of theSeries A Preferred Stock. The Certificate of Designations became effective upon filing. The Series A Preferred Stock ranks senior to our common stockwith respect to dividend rights and rights on liquidation, winding-up and dissolution. The Series A Preferred Stock has a stated value of $1,000 pershare, and holders of Series A Preferred Stock are entitled to cumulative dividends payable quarterly in cash at a rate of 6% per annum. If we fail tomake timely dividend payments, the dividend rate will increase to 8% per annum until such time as all accrued but unpaid dividends have been paid infull. Holders of Series A Preferred Stock are entitled to receive dividends declared or paid on our common stock and are entitled to vote together withthe holders of our common stock as a single class, in each case, on an as-converted basis. Holders of Series A Preferred Stock have certain limitedspecial approval rights, including with respect to the issuance of pari passu or senior equity securities of the Company. The Series A Preferred Stock is convertible at the option of the holders at any time after the Closing into shares of common stock at an impliedconversion price of $14.50 per share, subject to adjustment. At our election, all or a portion of the Series A Preferred Stock will be convertible into therelevant number of shares of common stock on or after the third anniversary of the Closing, if the closing price of the common stock equals or exceeds$29.00 for 20 consecutive trading days. The conversion rate is subject to customary anti-dilution and other adjustments subject to certain share caps andother restrictions. At any time after the eighth anniversary of the Closing, we will have the right to redeem and the holders of the Series A Preferred Stock will havethe right to require us to repurchase, all or any portion of the Series A Preferred Stock at 100% of the stated value thereof plus all accrued but unpaiddividends. Upon certain change of control events involving us, the holders can require us to repurchase the Series A Preferred Stock at 101% of thestated value thereof plus all accrued but unpaid dividends. The Investment Agreement grants Blackstone certain rights to designate directors to serve on our Board. For so long as Blackstone and itspermitted transferees (i) beneficially own at least 95% of the Series A Preferred Stock or the as-converted common stock purchased pursuant to theInvestment Agreement or (ii) maintain beneficial ownership of at least 12.5% of the our outstanding common stock (the "Two-Director Threshold"),Blackstone will have the right to designate for nomination two directors to our Board. For so long as Blackstone and its permitted transfereesbeneficially own shares of Series A Preferred Stock or the as-converted common stock purchased pursuant to the Investment Agreement that representless than the Two-Director Threshold but more than 25% of the number of shares of the as-converted common stock purchased pursuant to theInvestment Agreement, Blackstone will have the right to designate for nomination one director to our Board. The directors designated by Blackstone areentitled to serve on Board committees, subject to applicable law and stock exchange rules, and one of such directors must be appointed to the newly-formed committee tasked with identifying a new chief executive officer to fill the vacancy resulting from Mr. McCarvel's resignation. Pursuant to the Investment Agreement, Blackstone is subject to certain standstill restrictions which restrict Blackstone from acquiring more than25% of our outstanding common stock until the date on which Blackstone is no longer entitled to designate any directors to the Board. In addition,subject to certain customary exceptions, Blackstone is restricted from transferring the Series A Preferred StockF-46Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)17. SUBSEQUENT EVENTS (Continued)until the second anniversary of the Closing and, for so long as any Series A Preferred Stock is outstanding, may not transfer the Series A PreferredStock to certain of our competitors (as defined in the Investment Agreement) or holders of 25% or more of our common stock. Blackstone also hascertain preemptive rights and information rights under the Investment Agreement, which are subject to certain conditions.Registration Rights Agreement On January 27, 2014, we and the Blackstone Purchasers entered into a Registration Rights Agreement (the "Registration Rights Agreement"),pursuant to which we have agreed to provide to the Blackstone Purchasers certain customary demand and piggyback registration rights in respect of theshares of Series A Preferred Stock and any shares of common stock issued upon conversion of the Series A Preferred Stock. The Registration RightsAgreement contains customary terms and conditions, including certain customary indemnification obligations.Director Resignations and Appointments of New Directors On January 24, 2014, Stephen Cannon and Jeffrey Margolis resigned from the Board, effective upon the Closing. Neither Mr. Cannon's norMr. Margolis's decision to resign was the result of any disagreement with us on any matter relating to our operations, policies or practices. Effective upon the Closing, the Board appointed Prakash Melwani to serve as a Class III director and Gregg Ribatt to serve as a Class I director tofill the vacancies on the Board resulting from the resignations of Messrs. Cannon and Margolis. Messrs. Melwani and Ribatt were designated byBlackstone for election to the Board in accordance with the terms of the Investment Agreement.F-47Exhibit 21List of SubsidiariesName State/Country of organization or incorporation4246519 Canada Inc. CanadaBite, Inc. ColoradoColorado Footwear C.V. NetherlandsCrocs Argentina S.r.l. ArgentinaCrocs Asia Pte. Ltd. SingaporeCrocs Australia Pty. Ltd AustraliaCrocs Belgium NV BelgiumCrocs BH LLC Bosnia-HerzegovinaCrocs Brasil Comercio de Calcados Ltda. BrazilCrocs Canada, Inc. CanadaCrocs Chile Ltda. ChileCrocs CIS RussiaCrocs Europe B.V. NetherlandsCrocs Europe Stores SL SpainCrocs Footwear & Accessories (Shanghai) Co. Ltd. ChinaCrocs Foundation, Inc. ColoradoCrocs France S.A.R.L. FranceCrocs General Partner, LLC United StatesCrocs Germany Gmbh GermanyCrocs Gulf JV UAECrocs Hong Kong Ltd. Hong KongCrocs India Private Limited IndiaCrocs India Retail Limited IndiaCrocs Industrial (Hong Kong) Co. Ltd. Hong Kong Crocs Industrial (Shenzhen) Co. Ltd. ChinaCrocs Italy SRL ItalyCrocs Japan GK JapanCrocs Korea Pte Ltd. KoreaCrocs Malaysia Sdn Bhd MalaysiaCrocs Marine, Ltd. CaymanCrocs Mexico S.de.R.L. de CV MexicoCrocs Mexico Trading Company MexicoCrocs Middle East UAEList of SubsidiariesName State/Country of organization or incorporationCrocs New Zealand Limited New ZealandCrocs NL Latin America Holdings BV NetherlandsCrocs Nordic Oy FinlandCrocs Portugal PortugalCrocs Puerto Rico, Inc. Puerto RicoCrocs Retail, Inc. ColoradoCrocs Servicios S.de.R.L. de CV MexicoCrocs Shanghai Co. Ltd ChinaCrocs Singapore Pte. Ltd. SingaporeCrocs South Africa South AfricaCrocs Stores AB SwedenCrocs Stores Ireland IrelandCrocs Stores Oy FinlandCrocs Stores B.V. NetherlandsCrocs Trading (Shanghai) Co. Ltd. ChinaCrocs UK Limited United KingdomCrocs US Latin America Holdings LLC United StatesExo 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 StatesShanghai Shengyiguan ChinaWestern Brands Holding Company, Inc. ColoradoWestern Brands Netherland Holding CV NetherlandsExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No. 333-159412 on Form S-3 and Registration Statement Nos. 333-132312, 333-144705, and 333-176696 on Forms S-8 of our reports dated February 25, 2014 relating to the consolidated financial statements ofCrocs, Inc. and subsidiaries 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 the year ended December 31, 2013./s/ Deloitte & Touche LLPDenver, ColoradoFebruary 25, 2014EXHIBIT 31.1SECTION 302 CERTIFICATION I, John P. McCarvel, certify that:1.I have reviewed this annual report on Form 10-K of Crocs, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: February 25, 2014 /s/ JOHN P. MCCARVELJohn P. McCarvelPresident and Chief Executive OfficerEXHIBIT 31.2SECTION 302 CERTIFICATION I, Jeffrey J. Lasher, certify that:1.I have reviewed this annual report on Form 10-K of Crocs, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant's auditors and the audit committee of the registrant's board of directors or (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: February 25, 2014 /s/ JEFFREY J. LASHERJeffrey J. LasherSenior Vice President—Finance, Chief Financial OfficerEXHIBIT 32CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, Chief Executive Officer and Chief Financial Officer of Crocs, Inc. (the "Company"), hereby certify, pursuant to 18 U.S.C.§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:(1)The Annual Report on Form 10-K of the Company for the year ended December 31, 2013 ("Form 10-K") fully complies with therequirements of Section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), and (2)The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations ofthe Company for the period covered by this Form 10-K. A signed original of this written statement required by Section 906 has been provided to Crocs, Inc. and will be retained by Crocs, Inc. andfurnished to the Securities and Exchange Commission or its staff upon request.Date: February 25, 2014 /s/ JOHN P. MCCARVELJohn P. McCarvelPresident and Chief Executive Officer /s/ JEFFREY J. LASHERJeffrey J. LasherSenior Vice President—Finance, Chief Financial Officer

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