Crocs
Annual Report 2014

Plain-text annual report

Use these links to rapidly review the documentTABLE OF CONTENTS TABLE OF CONTENTS 2Table of Contents UNITED 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. EmployerIdentification No.)7477 East Dry Creek ParkwayNiwot, Colorado 80503(303) 848-7000(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)Securities registered pursuant to Section 12(b) of the Act:Title of each class: Name of each exchange on which registered:Common Stock, par value $0.001 per share The NASDAQ Global Select 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 ý 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 ý Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý 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 not be contained, to the best of the registrant's knowledge, indefinitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K. ý Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer","accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Indicate by check mark whether the registrant is shell company (as defined in Rule 12b-2 of the Act). Yes o No ýý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the fiscal year ended December 31, 2014oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the transition period from to Large accelerated filer ý Accelerated filer o Non-accelerated filer o(do not check if asmaller reporting company) Smaller reporting company o The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2014 was $1.3 billion. For the purpose of the foregoing calculation only, all directors andexecutive officers of the registrant and owners of more than 10% of the registrant's common stock are assumed to be affiliates of the registrant. This determination of affiliate status is not necessarily conclusivefor any other purpose. The number of shares of the registrant's common stock outstanding as of January 30, 2015 was 77,834,494.DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates certain information by reference from the registrant's proxy statement for the 2015 annual meeting of stockholders to be filed no later than 120 days after the end of the registrant'sfiscal year ended December 31, 2014. Table of Contents Special Note Regarding Forward-Looking Statements Statements in this Form 10-K and in documents incorporated by reference herein (or otherwise made by us or on our behalf) may contain "forward-looking 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 future expectationsand other matters that do not relate strictly to historical facts and are based on certain assumptions of our management. These statements, which expressmanagement'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 orvariations. Forward-looking statements are subject to risks, uncertainties and other factors which may cause actual results to differ materially from futureresults expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation, those described in the section titled "Risk Factors" (Item 1A. of this annual report on 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-looking statements to reflectevents or circumstances after the date of such statements.Table of Contents Crocs, Inc.Table of Contents to the Annual Report on Form 10-KFor the Year Ended December 31, 2014 1PART I Item 1. Business 2 Item 1A. Risk Factors 13 Item 1B. Unresolved Staff Comments 26 Item 2. Properties 27 Item 3. Legal Proceedings 27 Item 4. Mine Safety Disclosures 28 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 29 Item 6. Selected Financial Data 32 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 33 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 63 Item 8. Financial Statements and Supplementary Data 65 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 65 Item 9A. Controls and Procedures 65 PART III Item 10. Directors, Executive Officers and Corporate Governance 69 Item 11. Executive Compensation 69 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 69 Item 13. Certain Relationships and Related Transactions, and Director Independence 70 Item 14. Principal Accountant Fees and Services 70 PART IV Item 15. Exhibits and Financial Statement Schedules 70 Signatures 75 Table of Contents PART 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 be the global leader inthe sale of molded footwear featuring fun, comfort, color and functionality. Our products include footwear and accessories that utilize our proprietary closed-cell resin, called Croslite. The use of this unique material enables us to produce innovative, lightweight, non-marking, and odor-resistant footwear. Wecurrently sell our products in more than 90 countries through domestic and international retailers and distributors and directly to end-user consumers throughour company-operated retail stores, outlets, webstores and kiosks. 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 and CrocsClassic designs, we have expanded our Croslite products to include a variety of new styles and products and have further extended our product reach throughthe acquisition of brand platforms such as Jibbitz, LLC ("Jibbitz") and Ocean Minded, Inc. ("Ocean Minded"). Going forward, we intend to focus our footwearproduct lines on our core molded footwear heritage, as well as develop new innovative casual lifestyle footwear collections. We intend to streamline ourproduct portfolio, eliminate non-core product development and explore strategic alternatives for non-core programs such as our golf line and our OceanMinded brand, as well as our apparel and accessories business. The broad appeal of our footwear has allowed us to market our products to a wide range of distribution channels, including family footwear stores,department stores and traditional footwear retailers as well as a variety of specialty and independent retail channels and the internet. We intend to drivecohesive global brand positioning from region-to-region and year-to-year in order to establish more powerful consumer connections and deliver moreconsistent product designs. This strategy will be accomplished through developing powerful product stories supported with effective and consistent globalmarketing campaigns. Finally, we intend to increase our working market spend, which we define as funds that put marketing messages in front of consumers. As a global company, we have significant revenues and costs denominated in currencies other than the U.S. Dollar. Sales in international markets inforeign currencies are expected to continue to represent a substantial portion of our revenues. Likewise, we expect our subsidiaries with functional currenciesother than the U.S. Dollar will continue to represent a substantial portion of our overall gross margin and related expenses. Accordingly, changes in foreigncurrency exchange rates could materially affect revenues and costs or the comparability of revenues and costs from period to period as a result of the impactof foreign currency translation adjustments 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 a widevariety of footwear products, some of which includes sandals, sneakers, mules, flats and boots, which are made of materials like leather and textile fabrics aswell as Croslite. Footwear sales made up 97.6%, 96.9% and 95.8% of total revenues for the years ended December 31, 2014, 2013 and 2012, respectively.During the years ended December 31, 2014, 2013 and 2012, approximately 73.5%, 71.1% and 75.3%, respectively, of unit sales consisted of2Table of Contentsproducts geared toward adults compared to 26.5%, 28.9% and 24.7%, respectively, of unit sales of products geared toward children. 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 the foot andincreases comfort. Croslite is a closed-cell resin material which is water resistant, virtually odor free and allows many of our footwear styles to be cleanedsimply with water. As we have expanded our product offering, we have incorporated traditional materials such as textile fabric and leather into many newstyles; however, we continue to utilize the Croslite material for the foot bed, sole and other key structural components for many of these styles. We strive to provide our global consumer with a year-round product assortment featuring comfort, fun, casual styling, color and innovation. Ourcollections are designed to meet the needs of the family by focusing on their key wearing occasions. Our goal is to deliver world-class product assortments forthe family with all of the comfort features and benefits Crocs is known for. We have been discontinuing non-core programs in order to focus on growing ourcore-molded heritage category while developing more compelling casual footwear platforms. Our products are divided into three product offerings: Core,Casual Lifestyle and Active.Core ProductsAt the heart of our brand resides the Classic, our first and most iconic style for adults and kids that embodies our innovation in molding and design,delivers all-day comfort, and has established a new category in the footwear marketplace. The unique look and feel of the Classic can be experiencedthroughout our entire product line due to the design and application of our proprietary material Croslite. We have expanded our core molded productline, introduced in 2002, with the addition of dual density technology, warm lined styles, seasonal flips and slides. Licensed style partnerships fromDisney, Marvel, Sanrio, Nickelodeon and Warner Bros., among others, provide popularity to our kids' core line along with our kids-only productinnovations including lights, color-change materials and interactive elements.In addition, we have extended our licensing partnerships to brand partnerships artists such as Jon Burgerman, as well as stylist Patricia Field.Invigorating our core product assortment is a key focus for growth and we will expand our reach with new styling, 'built just for her' silhouettes andlots of great color and graphic treatments. New Citilane and Bump It programs merge "retro" sports styling with classic Crocs looks for a fresh and funlook for men, women, boys and girls. Our core molded products are available to all channels of distribution and span both stylish and active wearingoccasions for the entire family.Casual Lifestyle ProductsOur Casual Lifestyle Category showcases collections designed for the family around casual and stylish wearing occasions with a relaxed and funpoint of view. This category is primarily designed for our consumers shopping in footwear, specialty/independent retailers, department stores and ourown direct-to-consumer channel.Active ProductsOur 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.3Table of ContentsAccessories In addition to our footwear brands, we own the Jibbitz brand, a unique accessory product-line with colorful snap-on charms specifically suited for Crocsshoes. We acquired Jibbitz in December 2006 and have expanded the product line to include a wide variety of charms in varying shapes and sizes, withdesigns such as flowers, sports gear, seasonal and holiday designs, animals, symbols, letters and rhinestones. Crocs licensing agreements also extend toJibbitz, which allows Jibbitz to create designs bearing logos and emblems of Disney, Nickelodeon and Sanrio, among others. Jibbitz designs allow Crocsconsumers to personalize their footwear to creatively express their individuality. Sales from Jibbitz designs made up 1.5%, 2.8% and 3.5% of total revenuesfor the years ended December 31, 2014, 2013 and 2012, 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. At the regional ormarket level, campaigns are initiated using a mix of digital, social, and traditional media outlets that align with local marketplaces and target consumerdynamics. This strategy allows for relevant cross-channel input coordinated through our global brand objectives to drive an aligned global marketing andbrand strategy. We have three primary sales channels: wholesale, retail and internet (discussed at a more detailed level below). Our marketing efforts are aimed towarddriving business to both our wholesale partners and our company-operated retail and internet stores. Our marketing efforts in the wholesale and retailchannels are focused on visual product merchandising with alignment on key stories, activation materials and creative materials. Retail stores provide aunique opportunity to engage with customers in a three-dimensional manner. Strong emphasis is placed on making the store experience a meaningful andmemorable showcase of our larger assortment of casual lifestyle footwear and key new product launches. Our marketing, merchandising, and visualmerchandising departments work closely together to ensure the store environment and merchandise are aligned to support key seasonal product offeringswhile promoting the larger product lines and iconic product collections.Wholesale Channel During the years ended December 31, 2014, 2013 and 2012, approximately 55.7%, 56.5% and 57.5% of net revenues, respectively, were derived fromsales through the wholesale channel which consists of sales to distributors and third-party retailers. Wholesale customers include national and regional retailchains, department stores, sporting goods stores, independent footwear retailers and family footwear retailers, such as Academy, Rack Room Shoes, FamousFootwear, Kohl's, DSW, Shoe Carnival, Dick's Sporting Goods, Nordstrom, Xebio and Murasaki Sports, as well as on-line retailers such as Amazon andZappos. No single customer accounted for 10% or more of our revenues for any of the years ended December 31, 2014, 2013 and 2012. We use third-party distributors in select markets where we believe such arrangements are preferable to direct sales. These third-party distributors purchaseproducts pursuant to a price list and are granted the right to resell the products in a defined territory, usually a country or group of countries. Our typicaldistribution agreements have terms of one to four years, are generally terminable upon 30 days prior notice and have minimum sales requirements. Many ofour agreements allow us to accept returns from wholesale customers at our discretion for defective products, quality issues and shipment errors on anexception basis or, for certain wholesale customers, and to extend pricing discounts in lieu of defective product returns. We also may accept returns from ourwholesale4Table of Contentscustomers, on an exception basis, for the purpose of stock re-balancing to ensure that our products are merchandised in the proper assortments. Additionally,we may provide markdown allowances to key wholesale customers to facilitate in-channel product markdowns where sell-through is less than anticipated.Consumer Direct 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, 2014, 2013 and 2012, approximately 35.5%, 35.0% and 33.4%, respectively, of our net revenues werederived from sales through our retail channel. We operate our retail channel through three integrated platforms: full-service retail locations,outlet locations, and kiosk/store-in-store locations. Our three types of store platforms enable us to organically promote the breadth of ourproduct in high-traffic, highly visible locations. Our strategy for expanding our global retail business is to increase our market share in adisciplined manner, by selectively opening additional stores in new and existing markets, as well as increasing sales in existing stores, tosupport our long-term strategic growth objective to further build Crocs into the leading casual lifestyle footwear brand in the world. We willcontinue to moderate the pace of our retail expansion in 2015 with a focus on outlet and kiosk locations and consolidating and enhancing theprofitability of existing locations. We halted the expansion of our retail channel and have begun to focus on the long-term profitability ofcurrent locations. We opened 70 company-operated stores during the year ended December 31, 2014, half of which were outlet or lowinvestment kiosk/store-in-store locations, and closed 104 company-operated stores, 20 of which were identified in the initial restructuringplan. As store growth will vary in new and existing markets due to many factors, including maturity of the market and brand recognition, weperiodically evaluate the fixed assets and leasehold improvements related to our retail locations 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 at retailpricing. In addition, our full retail locations enable us to interact with our customers on a personal level in order to guarantee a satisfyingshopping experience as well as to obtain key retail metrics to better fulfill customer demands. On average, the optimal space for our retaillocations is between approximately 1,500 and 1,800 square feet, depending on the geographical vicinity of the property, and typically locatedin high-traffic shopping malls or districts. During the year ended December 31, 2014, we closed 56 stores and opened 40 new stores, includinga three-story flagship location with approximately 4,500 square feet of selling space in a 13,600 square foot building located on 34th Street inNew York. As of December 31, 2014, 2013, and 2012, we operated 311, 327 and 287 global full retail stores, respectively.•Outlet LocationsOur company-operated outlet locations allow us to sell discontinued and overstock merchandise directly to consumers at discounted prices.We additionally sell full priced products in certain of our outlet stores. Outlet locations follow a similar size model as our full retail stores;however, they are generally located within outlet shopping locations. During the year ended December 31,5Table of Contents2014, we closed 18 locations and opened 22 new locations. As of December 31, 2014, 2013 and 2012, we operated 174, 170 and 129 globaloutlet 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 of retailspace, and limited initial capital investment, we believe that kiosks can be an effective outlet for marketing our products. As part of our overallretail strategy, we continue to close certain kiosks/store-in-store locations, as we believe our full retail and outlet locations allow us to bettermerchandise the full extent and depth of our product line. During the year ended December 31, 2014, we closed 30 locations and opened eightnew locations. As of December 31, 2014, 2013 and 2012, we operated 100, 122 and 121 global kiosks and store-in-stores, respectively.6Table of Contents The following table illustrates the net growth in 2014 with respect to the number of our company-operated retail locations by reportable operatingsegment and country:Internet Channel As of December 31, 2014, we offered our products through 12 company-operated internet webstores worldwide. During the years ended December 31,2014, 2013 and 2012, approximately 8.8%, 8.5% and 9.1%, respectively, of our net revenues were derived from sales through our internet channel. Ourinternet presence enables us to have increased access to our customers and provides us with an opportunity to educate them about our products and brand.During the year ended December 31, 2014, we decreased our global company-operated e-commerce sites to 12 in order to focus our internet strategy in ourprincipal geographical locations. We continue to expand our web-based marketing7Company-operated retail locations: December 31,2013 Opened Closed December 31,2014 Americas U.S. 186 16 (17) 185 Canada 13 — — 13 Brazil 8 — (4) 4 Puerto Rico 7 — — 7 Argentina 2 — (1) 1 Total Americas 216 16 (22) 210 Asia Pacific Korea 76 10 (3) 83 Taiwan 58 5 (58) 5 China 38 8 (3) 43 Hong Kong 21 6 (4) 23 Singapore 15 3 18 Australia 11 3 (1) 13 United Arab Emirates (UAE) 9 2 (1) 10 South Africa 8 1 — 9 Total Asia Pacific 236 38 (70) 204 Japan 49 6 (1) 54 Europe Russia 36 6 (3) 39 Germany 20 1 (1) 20 Great Britain 17 — (2) 15 France 14 2 (2) 14 Netherlands 9 — (2) 7 Finland 7 — (1) 6 Spain 6 — — 6 Belgium 3 — — 3 Italy 2 1 — 3 Sweden 2 — — 2 Ireland 1 — — 1 Portugal 1 — — 1 Total Europe 118 10 (11) 117 Total company-operated retail locations 619 70 (104) 585 Table of Contentsefforts to increase consumer awareness of our full product range and have begun expanding the implementation of locally executed internet web stores at theregional level.Business Segments and Geographic Information For 2014 and 2013, we had four reportable operating segments based on the geographic nature of our operations: Americas, Asia Pacific, Japan andEurope. We also have an "Other businesses" category which aggregates insignificant operating segments that do not meet the reportable segment thresholdand represents manufacturing operations located in Mexico, Italy and Asia. The composition of our reportable operating segments is consistent with that usedby our Chief Operating Decision Maker ("CODM") to evaluate performance and allocate resources. See additional discussion of our segments includingresults of operations and assets by segment in Note 16 in the accompanying notes to the consolidated financial statements.Americas The Americas segment consists of revenues and expenses related primarily to product sales in the North and South America geographic regions. Regionalwholesale channel customers consist of a broad range of family footwear, sporting goods and department stores as well as specialty retailers and distributors.The regional retail channel sells directly to the consumer through 210 company-operated store locations as well as through webstores. During the years endedDecember 31, 2014, 2013 and 2012, revenues from the Americas segment constituted approximately 40.9%, 41.9% and 44.1% of our consolidated revenues,respectively. Specifically, revenues from the United States constituted approximately 36.3%, 33.7% and 35.3% of our consolidated revenues, respectively,for the years ended December 31, 2014, 2013 and 2012.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 wholesale channelwe have established in the Americas segment. We also sell products directly to the consumer through 204 company-operated stores as well as through ourwebstores. During the years ended December 31, 2014, 2013 and 2012, revenues from the Asia segment constituted 29.3%, 28.7% and 26.1% of ourconsolidated revenues, respectively.Japan The Japan segment consists of revenues and expenses related to product sales in Japan. The Japan wholesale channel consists of sales to a broad range ofretailers similar to the wholesale channel we have established in the Americas segment. The regional retail channel sells directly to the consumer through 54company-operated store locations as well as through webstores. During the years ended December 31, 2014, 2013 and 2012, revenues from the Japan segmentconstituted approximately 10.3%, 11.3% and 14.7% 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 segment wholesalechannel customers consist of a broad range of retailers, similar to the wholesale channel we have established in the Americas segment. We also sell ourproducts directly to the consumer through 117 company-operated stores as well as through our webstores. During the years ended December 31, 2014, 2013and 2012, revenues from the Europe segment constituted 19.5%, 18.1% and 15.1% of our consolidated revenues, respectively.8Table of ContentsDistribution 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 to marketand lower operating costs. During the year ended December 31, 2014, we stored our raw material and finished goods inventories in company-operatedwarehouse and distribution facilities located in the United States, Mexico, the Netherlands, Japan, Finland, South Africa, Russia and Italy. We also utilizedistribution centers which are operated by third parties located in the United States, China, Japan, Hong Kong, Australia, Korea, Singapore, India, Taiwan, theUnited Arab Emirates, Russia, Brazil, Argentina, Chile, Puerto Rico and Italy. Throughout 2014, we continued to engage in efforts to consolidate our globalwarehouse and distribution facilities to maintain a lean cost structure. As of December 31, 2014, our company-operated warehouse and distribution facilitiesprovided us with approximately 1.0 million square feet and our third-party operated distribution facilities provided us with approximately 0.4 million squarefeet. We also ship a portion of our products directly to our customers from our internal and third-party manufacturers. We are actively pursuing initiativesaimed at shipping more of our product directly to our customers in an effort to lower future cost of sales.Raw Materials "Croslite", our branded proprietary closed-cell resin, is the primary raw material used in the majority of our footwear and some of our accessories. Crosliteis soft and durable and allows our material to be non-marking in addition to being extremely lightweight. We continue to invest in research and developmentin 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 chemical manufacturers,together with certain other production inputs such as color dyes. At this time, we have identified multiple suppliers that produce the elastomer resins used inthe Croslite material. We may, however, in the future identify and utilize materials produced by other suppliers as an alternative to the elastomer resins wecurrently use in the production of our proprietary material. All of the other raw materials that we use to produce the Croslite products are readily available forpurchase from multiple suppliers. Since our inception, we have substantially increased the number of footwear products that we offer. Many of our new products are constructed usingleather, textile fabrics or other non-Croslite materials. We, or our third-party manufacturers, obtain these materials from a number of third-party sources andwe believe these materials are broadly available. We also outsource the compounding of the Croslite material and continue to purchase a portion of ourcompounded 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 identify inthe 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 and marketing staff,production and supply managers and certain of our retail customers to further refine our products to meet the particular needs of our target market. Wecontinually strive to improve our development function so we can bring products to market quickly and reduce costs while maintaining product quality. Wespent $16.7 million, $15.4 million and $12.0 million in research, design and development activities for the years ended December 31, 2014, 2013 and 2012,respectively.9Table of ContentsManufacturing and Sourcing Our strategy is to maintain a flexible, globally diversified, low-cost manufacturing base. We currently have company-operated production facilities inMexico and Italy. We also contract with third-party manufacturers to produce certain of our footwear styles or provide support to our internal productionprocesses. We believe that our internal manufacturing capabilities enable us to rapidly make changes to production, providing us with the flexibility toquickly respond to orders for high demand models and colors throughout the year, while outsourcing allows us to capitalize on the efficiencies and costbenefits of using contracted manufacturing services. We believe this strategy will continue to minimize our production costs, increase overall operatingefficiencies and shorten production and development times. In the years ended December 31, 2014, 2013 and 2012, we manufactured approximately 13.9%, 15.1% and 21.1%, respectively, of our footwear productsinternally. We sourced the remaining footwear production from multiple third-party manufacturers primarily in China, Vietnam, Eastern Europe and SouthAmerica. During the years ended December 31, 2014, 2013 and 2012, our largest third-party manufacturer in China produced approximately 27.5%, 28.0%and 31.7%, respectively, of our footwear unit volume. We do not have written supply agreements with our primary third-party 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 complete protection. Weown or license the material trademarks used in connection with the marketing, distribution and sale of all of our products, both domestically andinternationally, in most countries where our products are currently either sold or manufactured. Our major trademarks include the Crocs logo and the Crocsword mark, both of which are registered or pending registration in the U.S., the European Union, Japan, Taiwan, China and Canada among other places. Wealso have registrations or pending trademark applications for the marks Jibbitz, Jibbitz Logo, YOU by Crocs, YOU by Crocs Logo, Ocean Minded, Tail Logo,Bite, Bite Logo, Crocband, Crocs Tone and Crocs Littles, "Croslite" and the Croslite logo, as well as other marks in various countries around the world. In the U.S., our patents are generally in effect for up to 20 years from the date of the filing of the patent application. Our trademarks registered within andoutside of the U.S. are generally valid as long as they are in use and their registrations are properly maintained and have not been found to become generic.We believe our trademarks are crucial to the successful marketing and sale of our products. We will continue to strategically register, both domestically andinternationally, the trademarks and copyrights we utilize today and those we develop in the future. We will also continue to aggressively police our patents,trademarks and copyrights and 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. Croslitematerial is manufactured through a process that combines a number of components in various proportions to achieve the properties for which our products areknown. We use multiple suppliers to source these components but protect the formula by using exclusive supply agreements for key components,confidentiality agreements with our third-party processors and by requiring our employees to execute confidentiality agreements concerning the protectionof our confidential information. Other than our third-party processors, we are unaware of any third party using our formula in the production of shoes. Webelieve the comfort and utility of our products depend on the properties achieved from the compounding of Croslite material and constitute a keycompetitive advantage for us, and we intend to continue to vigorously protect this trade secret.10Table of Contents 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 products and toassist law enforcement agencies. Our sales representatives and distributors are also educated on our patents, pending patents, trademarks and trade dress toassist in preventing potentially infringing products from obtaining retail shelf space. The laws of certain countries do not protect intellectual property rightsto the same extent or in the same manner as do the laws of the U.S., and, therefore, we may have difficulty obtaining legal protection for our intellectualproperty 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 first andfourth quarters are typically less than revenues generated during our second and third quarters, when the northern hemisphere is experiencing warmerweather. We continue to expand our product line to include more winter oriented styles to mitigate some of the seasonality of our revenues. Our quarterlyresults of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of new model introductions or generaleconomic or consumer conditions. Accordingly, results of operations and cash flows for any one quarter are not necessarily indicative of results to beexpected for any other quarter or for any other 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, representorders scheduled to be shipped at a future date. We refer to these unfilled orders as backlog, which can be canceled by our customers at any time prior toshipment. Backlog only relates to wholesale and distributor orders for the next season and current season fill-in orders and excludes potential sales in ourretail and internet channels. Backlog as of a particular date is affected by a number of factors, including seasonality, manufacturing schedule and the timingof product shipments. Further, the mix of future and immediate delivery orders can vary significantly period over period. Backlog also is affected by thetiming of customers' orders and product availability. Due to these factors and our recent system conversion and business model changes around the globe, webelieve that backlog is an imprecise indicator of future revenues that may be achieved in a fiscal period and cannot be relied upon.Foreign Currency Fluctuations on Revenues and Operating Income (Loss) As a global company, we have significant revenues, costs, assets, liabilities and intercompany balances denominated in currencies other than the U.S.Dollar. Accordingly, any amounts recorded in foreign currencies are translated into U.S. Dollars for consolidated financial reporting and are impacted byforeign currency fluctuations. While we enter into foreign currency exchange forward contracts as economic cash flow hedges to reduce our exposure tochanges in exchange rates, the volatility of foreign currency exchange rates is dependent on many factors that cannot be forecasted with reliable accuracyand our forward contracts may not prove effective in reducing our exposures.Competition The global casual, athletic and fashion footwear markets are highly competitive. Although we believe that we do not compete directly with any singlecompany with respect to the entire spectrum of our products, we believe portions of our wholesale business compete with companies such as, but not limitedto, Deckers Outdoor Corp., Skechers USA Inc., Steve Madden, Ltd., Wolverine World Wide, Inc. and VF Corporation. Our company-operated retail locationsalso compete with footwear11Table of Contentsretailers 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, greaterdistribution capabilities, stronger brand recognition and greater marketing resources than we have. Furthermore, we face competition from new players whohave been attracted to the market with imitation products similar to ours as the result of the unique design and success of our footwear products.Employees As of December 31, 2014, we had approximately 4,900 full-time, part-time and seasonal employees, of which approximately 3,000 were engaged inretail-related functions. Less than 1% of our employees 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 asa Delaware corporation in June 2005. In February 2006, we completed our initial public offering and trading of our common stock on NASDAQ 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, ourcurrent 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 Exchange Act of 1934,as amended (the "Exchange Act"). Copies of any of these documents will be provided in print to any stockholder who submits a request in writing toIntegrated Corporate Relations, 761 Main Avenue, Norwalk, CT 06851.12Table of Contents ITEM 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 risks have thepotential to materially adversely affect our business, results of operations, cash flows, 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 of thefollowing 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 assess theimpact of all such risk factors on our business.Uncertainty about current and future 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 orders for ourproducts in response to tighter credit, decreased cash availability and weakened consumer confidence. Our financial success is sensitive to changes in generaleconomic conditions, both globally and in specific markets, that may adversely affect the demand for our products including recessionary economic cycles,higher interest borrowing rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumerdebt levels, higher tax rates and other changes in tax laws or other economic factors. For example, in 2014, we experienced difficulty in our Asia Pacificsegment primarily due to decreased performance in our China business which resulted in delayed payments of receivables. In 2014 and 2013, we alsoexperienced volatility in sales in our Japan segment due to the continued adverse macroeconomic conditions in that country. In addition, in 2013, ourAmericas segment experienced volatility in sales due to adverse macroeconomic conditions and overall weakness in consumer confidence. If globaleconomic and financial market conditions deteriorate or remain weak for an extended period of time, the following factors could have a material adverseeffect on our business, operating results, cash flows and financial condition:•Slower consumer spending may result in our inability to maintain or increase our sales to new and existing customers, reduced orders or ordercancellations from wholesale accounts that are directly impacted by fluctuations in the broader economy, increased difficulty regardinginventory 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 the retailsegment. •We conduct operations in several different countries and therefore, are exposed to fluctuations in foreign currency exchange rates relative tothe U.S. Dollar. Transactional and translational foreign currency risk exposure could have a material impact on our reported financial resultsand 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 facility andderivative transactions. If credit pressures or other financial difficulties result in insolvency for these parties, it could adversely impact ourestimated reserves, our ability to obtain future financing and our financial results. •If our wholesale customers experience diminished liquidity, we may experience a reduction in product orders, an increase in customer ordercancellations and/or the need to extend customer13Table of Contentspayment terms which could lead to higher accounts receivable balances, reduced cash flows, greater expense associated with collection effortsand increased bad debt expense.•If our manufacturers or other parties in our supply chain experience diminished liquidity, they may not meet their obligations to us, and wemay experience the inability to meet customer product demands in a timely manner.Foreign currency fluctuations could have a material adverse effect on our results of operations and financial condition. As a global company, we have significant revenues, costs, assets, liabilities and intercompany balances denominated in currencies other than the U.S.Dollar. We pay the majority of expenses attributable to our foreign operations in the functional currency of the country in which such operations areconducted and pay the majority of our overseas third-party manufacturers in U.S. Dollars. Our ability to sell our products in foreign markets and the U.S.Dollar value of the sales made in foreign currencies can be significantly influenced by foreign currency fluctuations. A decrease in the value of foreigncurrencies relative to the U.S. Dollar could result in lower revenues, product price pressures and increased losses from currency exchange rates. Price increasescaused by currency exchange rate fluctuations could make our products less competitive or have an adverse effect on our profitability as most of ourpurchases from third-party suppliers are denominated in U.S. Dollars. Currency exchange rate fluctuations could also disrupt the business of the third-partymanufacturers that 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. Dollars forconsolidated financial reporting are affected by foreign currency fluctuations. For example, in general, only approximately 35% of our revenues aregenerated in the U.S. Dollar, compared to approximately 70% of our expense structure that is incurred in the U.S. Dollar, which can negatively impact grossmargins. Additionally in 2014, we experienced a decrease of $8.6 million in revenue in our Japan segment related to foreign currency translation losses as aresult of decreases in the value of the Japanese Yen compared to the U.S. Dollar. While we enter into foreign currency exchange forward contracts as economic cash flow hedges to reduce our exposure to changes in exchange rates, thevolatility of foreign currency exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy and our forward contracts may notprove effective in reducing our exposures.We face significant competition. The footwear industry is highly competitive. Continued growth in the market for casual footwear has encouraged the entry of new competitors into themarketplace and has increased competition from established companies. Our competitors include most major athletic and non-athletic 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 operating history,greater distribution capabilities, stronger brand recognition and spend substantially more than we do on product marketing. Our competitors' greater financialresources and capabilities in these areas may enable them to better withstand periodic downturns in the footwear industry and general economic conditions,compete more effectively on the basis of price and production and more quickly develop new products. Additionally, some of our competitors are offeringproducts that are substantially similar, in design and materials, to Crocs branded footwear. In addition, access to offshore manufacturing is also making iteasier for new companies to enter the markets in which we compete. If we fail to compete successfully in the future, our sales and profits may decline, we maylose market14Table of Contentsshare, our financial condition may deteriorate and the market price of our common stock is likely to fall.Our business relies significantly on the use of information technology, and any material disruption to operational technology or failure to protect theintegrity 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, and those ofour third-party service providers, may be vulnerable to information security breaches, acts of vandalism, computer viruses and interruption or loss of valuablebusiness data. Any disruption to these systems or networks could result in product fulfillment delays, key personnel being unable to perform duties orcommunicate throughout the organization, loss of retail and internet sales, significant costs for data restoration and other adverse impacts on our business andreputation. Over the last several years, we have implemented numerous information systems designed to support various areas of our business, including warehousemanagement, order management, retail point-of-sale and internet point-of-sale as well as various interfaces between these systems and supporting back officesystems. In addition, we are currently in the process of implementing a customized and fully-integrated global accounting, operations and finance enterpriseresource planning system, or ERP system, which is expected to launch in early 2015. 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 of thesesystems 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. Hackers and data thieves are increasingly sophisticated and operate large-scale andcomplex automated attacks. Any breach of our network may result in the loss of valuable business data, misappropriation of our consumers' or employees'personal information, or a disruption of our business. Despite our existing security procedures and controls, if our network was compromised, it could giverise to unwanted media attention, materially damage our customer relationships, harm our business, reputation, results of operations, cash flows and financialcondition, result in fines or lawsuits, and may increase the costs we incur to protect against such information security breaches, such as increased investmentin technology, the costs of compliance with consumer protection laws and costs resulting from consumer fraud.We may be unable to successfully execute our long-term growth strategy, maintain or grow our current revenue and profit levels or accurately forecastgeographic demand and supply for our products. Our ability to maintain our revenue and profit levels or to grow in the future depends on, among other things, the continued success of our efforts tomaintain our brand image, our ability to bring compelling and profit 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; •our ability to focus on relevant product innovation and profitable new growth platforms while maintaining demand for our current offerings;15Table of Contents•our ability to effectively manage our retail stores (including closures of existing stores) while meeting operational and financial targets at theretail store level; •accurately forecasting the global demand for our products and the timely execution of supply chain strategies to deliver product around theglobe 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 successfully execute our current restructuring plans and changes in strategy; •our ability to consolidate our network to leverage resources and simplify our fulfillment process; and •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, our businessmay fail to grow, our brand may suffer and our results of operations and cash flows may be adversely impacted.There can be no assurance that the strategic plans we have begun to implement will be successful. In July 2014, we announced strategic plans for long-term improvement and growth of our business, which is comprised of four key initiatives:(1) streamlining the global product and marketing portfolio, (2) reducing direct investment in smaller geographic markets, (3) creating a more efficientorganizational structure including reducing duplicative and excess overhead which will also enhance the decision making process, and (4) closing orconverting approximately 75 to 100 retail locations around the world. The initial charges for the strategic plan were incurred in the first quarter of 2014 andare expected to continue through 2015. During 2014, we closed 20 retail locations which were identified in the initial restructuring plan, and closed 84 otherretail locations, offset by 70 new retail locations opened. Such plans may take more time or more expenditures to execute than initially envisioned;specifically there may be delays in identifying and closing under-performing retail locations due to lease termination negotiations, etc. In addition, inDecember 2014, we announced the appointment of our new Chief Executive Officer effective January 28, 2015, which could change or delay our plans. Wealso have an evolving retail strategy to increase the profitability of our business. While these strategic plans, along with other steps to be taken by our new Chief Executive Officer, are intended to improve and grow our business, therecan be no assurance that this will be the case, or that additional steps or material accounting charges will not be required. If additional steps are required,there can be no assurance that they will be properly implemented or will be successful. The implementation of our new strategy may take a significantamount of time and resources to implement, and may not impact our financial condition, results of operations and cash flows in the short term, or at all.We conduct significant business activity outside the U.S. which exposes us to risks of international commerce. A significant portion of our revenues is from foreign sales. Our ability to maintain the current level of operations in our existing international markets issubject to risks associated with international sales operations as well as the difficulties associated with promoting products in unfamiliar cultures. In additionto foreign manufacturing, we operate retail stores and sell our products to retailers outside of16Table of Contentsthe U.S. Foreign manufacturing and sales activities are subject to numerous risks, including tariffs, anti-dumping fines, import and export controls, and othernon-tariff barriers such as quotas and local content rules; delays associated with the manufacture, transportation and delivery of products; increasedtransportation costs due to distance, energy prices, or other factors; delays in the transportation and delivery of goods due to increased security concerns;restrictions on the transfer of funds; restrictions, due to privacy laws, on the handling and transfer of consumer and other personal information; changes ingovernmental policies and regulations; political unrest, changes in law, terrorism, or war, any of which can interrupt commerce; 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 compliancewith these laws; expropriation and nationalization; difficulties in managing foreign operations effectively and efficiently from the U.S.; difficulties inunderstanding and complying with local laws, regulations and customs in foreign jurisdictions; longer accounts receivable patterns and difficulties incollecting foreign accounts receivables; difficulties in enforcing contractual and intellectual property rights; and increased accounting and internal controlexpenses. In addition, we are subject to customs laws and regulations with respect to our export and import activity which are complex and vary within legaljurisdictions in which we operate. We cannot assure that there will be no control failure around customs enforcement despite the precautions we take. We arecurrently subject to audits by various customs authorities including the U.S. and Mexico. Any failure to comply with customs laws and regulations could bediscovered during a U.S. or foreign government customs audit, or customs authorities may disagree with our tariff treatments, and such actions could result insubstantial fines and penalties, which could have an adverse effect on our financial position and results of operations.Our success depends substantially on the value of our brands and failure to strengthen and preserve their value, either through our actions or those of ourbusiness 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, particularly outsideof the U.S., where the Crocs brand is less well-known and perceived differently, we believe we must timely and appropriately respond to changing consumerdemand and leverage the value of our brands across all sales channels. We may have difficulty managing our brand image across markets and internationalborders as certain consumers may perceive our brand image to be outdated and one-dimensional prior to purchasing our products. Brand value is based inpart on consumer perceptions on a variety of subjective qualities. In the past, several footwear companies including ours have experienced periods of rapidgrowth in revenues and earnings followed by periods of declining sales and losses. Our business has been and may be similarly affected in the future.Business incidents, such as perceived product safety issues, whether isolated or recurring, that erode consumer trust, particularly if the incidents receiveconsiderable publicity or result in litigation, can significantly reduce brand value and have a negative impact on our financial results. Consumer demand forour products and our brand equity could diminish significantly if we fail to preserve the quality of our products, are perceived to act in an unethical orsocially irresponsible manner, fail to comply with laws and regulations or fail to deliver a consistently positive consumer experience in each of our markets.Additionally, counterfeit reproductions of our products or other infringement of our intellectual property rights, including from unauthorized uses of ourtrademarks by third parties could harm our brand and adversely impact our business.Opening and operating additional retail locations, which require substantial financial commitments and fixed costs, are subject to numerous risks, anddeclines in revenue of such retail locations could adversely affect our profitability. Although we have halted the expansion of our retail sales channel during 2014, we intend to continue to open outlet or low-investment kiosk/store-in-store locations. Our ability to open new17Table of Contentslocations successfully depends on our ability to identify suitable store locations, negotiate acceptable lease terms, hire, train and retain store personnel andsatisfy the fashion preferences in new geographic areas. Many of our retail locations 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 store closuresby other retailers may lead to mall vacancies and reduced foot traffic. Reduced customer traffic could reduce sales of existing retail stores or hinder our abilityto open retail stores in new markets, which could negatively affect our operating results and cash flows. In addition, some of our retail stores and kiosksoccupy street locations that are heavily dependent on customer traffic generated by tourism. Any substantial decrease in tourism resulting from an economicslowdown, political, social or military events or otherwise, is likely to adversely affect sales in our existing stores and kiosks, particularly those with streetlocations. 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 be unable to reduce suchfixed costs and avoid losses or negative cash flows.We may be required to record impairments of long-lived assets relating to our retail operations. The testing of our retail stores' long-lived assets for impairment requires us to make significant estimates about our future performance and cash flowsthat are inherently uncertain. These estimates can be affected by numerous factors, including changes in economic conditions, our results of operations, andcompetitive conditions in the industry. Due to the high fixed cost structure associated with our retail operations, negative cash flows or the closure of a storecould result in write downs of inventory, impairment of leasehold improvements, impairment losses on other long-lived assets, severance costs, significantlease termination costs or the loss of working capital, which could adversely impact our financial position, results of operations or cash flows. For example,during 2014, we recorded impairments relating to retail stores of $8.8 million, and these impairment charges may increase as we evaluate our retailoperations. The recording of additional impairments in the future may have a material adverse impact on our financial results.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 and seniormanagement can adversely impact our stock price, our results of operations and our client relationships and may make recruiting for future managementpositions more difficult or may require us to offer more generous executive compensation packages to attract top executives. Changes in other keymanagement positions may temporarily affect our financial performance and results of operations as new management becomes familiar with our business. Inrecent years, we have experienced management turnover. Our future success depends on our ability to identify, attract and retain qualified personnel on atimely basis. In addition, we must successfully integrate any newly hired management personnel within our organization in order to achieve our operatingobjectives. In late 2013, our President and CEO, John McCarvel, announced his resignation from the Company effective in April 2014. In May 2014, AndrewRees was appointed as President of the Company and interim CEO with principal responsibilities for the Crocs brand, and effective in January 2015, GreggRibatt was appointed as our Chief Executive Officer. The key initiatives directed by these executives may take time to implement and yield positive results,if at all. If our new executives do not perform up to expectations, we may experience declines in our financial performance and/or delays in our long-termgrowth strategy. 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 two18Table of Contentspersonnel may be the primary knowledge base for business operations in a geographic region. The loss of key international personnel can adversely impactour 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, eitherof which could adversely affect our business. The footwear industry is subject to cyclical variations, consolidation, contraction and closings, as well as fashion trends, rapid changes in consumerpreferences, the effects of weather, general economic conditions and other factors affecting demand and possibly impairing our brand image. In addition,sales to our wholesale customers are generally subject to rights of cancellation and rescheduling by the customer. These factors make it difficult to forecastconsumer demand. If we overestimate demand for our products, we may be forced to liquidate excess inventories at discounted prices resulting in lower grossmargins. Conversely, if we underestimate consumer demand, we could have inventory shortages which can result in lower sales, delays in shipments tocustomers, strains on our relationships with customers and diminished brand loyalty. A decline in demand for our products, or any failure on our part tosatisfy increased demand for our products, could adversely affect our business and results of operations. In addition, an inability to accurately forecastconsumer demand could cause our revenue and earnings guidance to differ materially from our financial results.Expanding our footwear product line may be difficult and expensive. If we are unable to successfully continue such expansion, our brand may be adverselyaffected and we may not be able to maintain or grow our current revenue and profit levels. To successfully expand our footwear product line, we must anticipate, understand and react to the rapidly changing tastes of consumers and provideappealing merchandise in a timely manner. New footwear models that we introduce may not be successful with consumers or our brand may fall out of favorwith consumers. If we are unable to anticipate, identify, or react appropriately to changes in consumer preferences, our revenues may decrease, our brandimage may suffer, our operating performance may decline and we may not be able to execute our growth plans. In producing new footwear models, we may encounter difficulties that we did not anticipate during the product development stage. Our developmentschedules 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 toefficiently manufacture new products in quantities sufficient to support retail and wholesale distribution, we may not be able to recover our investment in thedevelopment of new styles and product lines and we would continue to be subject to the risks inherent to having a limited product line. Even if we developand manufacture new footwear products that consumers find appealing, the ultimate success of a new style may depend on our pricing. We have a limitedhistory of introducing new products in certain target markets; as such, we may set the prices of new styles too high for the market to bear or we may notprovide the appropriate level of marketing in order to educate the market and potential consumers about our new products. Achieving market acceptance willrequire us to exert substantial product development and marketing efforts, which could result in a material increase in our selling, general and administrativeexpenses and there can be no assurance that we will have the resources necessary to undertake such efforts effectively or that such efforts will be successful.Failure to gain market acceptance for new products could impede our ability to maintain or grow current revenue levels, reduce profits, adversely affect theimage of our brands, erode our competitive position and result in long-term harm to our business.Our quarterly revenues and operating results are subject to fluctuation as a result of a variety of factors, including seasonal variations, which couldincrease the volatility of the price of our common stock. Sales of our products are subject to seasonal variations and are sensitive to weather conditions. As a significant portion of our revenues are attributable tofootwear styles that are more suitable for fair19Table of Contentsweather and are derived from sales in the northern hemisphere, we typically experience our highest sales activity during the second and third quarters of thecalendar year, when there is fair weather in the northern hemisphere. While we continue to create new footwear styles that are more suitable for cold weather,the effects of favorable or unfavorable weather on sales can be significant enough to affect our quarterly results which could adversely affect our commonstock price. Quarterly results may also fluctuate as a result of other factors, including new style introductions, general economic conditions or changes inconsumer preferences. Results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year and revenues forany particular period may fluctuate. This could lead to results outside 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 the majority of our footwear products in 2014. 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 with othercompanies for the production capacity of our third-party manufacturers, and we do not exert direct control over the manufacturers' operations. As such, wehave experienced at times, delays or inabilities to fulfill customer demand and orders, particularly in China. We cannot guarantee that any third-partymanufacturer 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 with us atany time or seek to increase the prices they charge us. As a result, we are not assured of an uninterrupted supply of products of an acceptable quality and pricefrom our third-party manufacturers. Foreign manufacturing is subject to additional risks, including transportation delays and interruptions, work stoppages,political instability, expropriation, nationalization, foreign currency fluctuations, changing economic conditions, changes in governmental policies and theimposition of tariffs, import and export controls and other non-tariff barriers. We may not be able to offset any interruption or decrease in supply of ourproducts by increasing production in our internal manufacturing facilities due to capacity constraints, and we may not be able to substitute suitablealternative third-party manufacturers in a timely manner or at acceptable prices. Any disruption in the supply of products from our third-party manufacturersmay harm our business and could result in a loss of sales and an increase in production costs, which would adversely affect our results of operations. Inaddition, manufacturing delays or unexpected demand for our products may require us to use faster, more expensive transportation methods, such as aircraft,which could adversely affect our profit margins. The cost of fuel is a significant component in transportation costs. Increases in the price of petroleumproducts can adversely affect our profit margins. In addition, because a large portion of our footwear products is manufactured in China and Vietnam, the possibility of adverse changes in trade 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 financial results.We manufacture a portion of our products which causes us to incur greater fixed costs. Any difficulties or disruptions in our manufacturing operationscould adversely affect our sales and results of operations. We produce a portion of our footwear products at our internal manufacturing facilities in Mexico and Italy. Ownership of these facilities adds fixed coststo our cost structure which are not as easily scalable as variable costs. In addition, the manufacture of our products from the Croslite material requires the useof a complex process and we may experience difficulty in producing footwear that20Table of Contentsmeets our high quality control standards. We will be required to absorb the costs of manufacturing and disposing of products that do not meet our qualitystandards. Any increases in our manufacturing costs could adversely impact our profit margins. Furthermore, our manufacturing capabilities are subject tomany of the same risks and challenges faced by our third-party manufacturers, including our ability to scale our production capabilities to meet the needs ofour customers. Our manufacturing may also be disrupted for reasons beyond our control, including work stoppages, fires, earthquakes, floods or other naturaldisasters. Any disruption to our manufacturing operations will hinder our ability to deliver products to our customers in a timely manner and could have amaterial and adverse effect on our business, results of operations and cash flows.Our third-party manufacturing operations must comply with labor, trade and other laws; failure to do so may adversely affect us. We require our third-party manufacturers to meet our quality control standards and footwear industry standards for working conditions and other matters,including compliance with applicable labor, environmental and other laws; however, we do not control our third-party manufacturers or their respective laborpractices. A failure by any of our third-party manufacturers to adhere to quality standards or labor, environmental and other laws could cause us to incuradditional costs for our products, generate negative publicity, damage our reputation and the value of our brand and discourage customers from buying ourproducts. We also require our third-party manufacturers to meet certain product safety standards. A failure by any of our third-party manufacturers to adhere tosuch product 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 of U.S. orforeign laws or regulations could include inadequate record keeping of our imported products, misstatements or errors as to the origin, quota category,classification, marketing or valuation of our imported products, fraudulent visas or labor violations. The effects of these factors could render our conduct ofbusiness in a particular country undesirable or impractical and have a negative impact on our operating results. We cannot predict whether additional U.S. orforeign customs quotas, duties, taxes or other changes or restrictions will be imposed upon the importation of foreign produced products in the future or whateffect 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 covenants thatlimit our flexibility. A breach of those covenants may cause us to be in default under the facility, and our lenders could foreclose on our assets. 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 aminimum fixed charge coverage ratio on a quarterly basis. A failure to maintain current revenue levels or an inability to control costs or capital expenditurescould negatively impact our ability to meet these financial covenants. If we breach such covenants or any of the restrictive covenants described below, thelenders could either refuse to lend funds to us or accelerate the repayment of any outstanding borrowings under the revolving credit facility. We may nothave sufficient assets to repay such indebtedness upon a default. If we are unable to repay the indebtedness, the lenders could initiate a bankruptcyproceeding or collection proceedings with respect to our assets, all of which secure our indebtedness under the revolving credit facility. The credit agreement also contains certain restrictive covenants that limit and in some circumstances prohibit, our ability to, among other things incuradditional debt, sell, lease or transfer our assets, pay dividends on our common stock, make capital expenditures and investments, guarantee21Table of Contentsdebt or 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, withstandthe current or future downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that mayarise, any of which could place us at a competitive disadvantage relative to our competitors.Our financial success may be limited to the strength of our relationships with our wholesale customers and to the success of such wholesale customers. Our financial success is related to the willingness of our current and prospective wholesale customers to carry our products. We do not have long termcontracts with any of our wholesale customers. Sales to our wholesale customers are generally on an order-by-order basis and are subject to rights ofcancellation and rescheduling by the customer. If we cannot fill our customers' orders in a timely manner, the sales of our products and our relationships withthose customers may suffer. Alternatively, if our customers experience diminished liquidity or other financial issues, we may experience a reduction inproduct orders, an increase in customer order cancellations and/or the need to extend customer payment terms which could lead to higher accounts receivablebalances, reduced cash flows, greater expense associated with collection efforts and increased bad debt expense. Specifically, we recorded a reserve fordoubtful accounts of approximately $11.5 million in our Asia Pacific segment for the year ended December 31, 2014 primarily as a result of delayedpayments from our partner stores in China and Southeast Asia. Additional problems with our wholesale customers, including continued payment delays inthe Asia Pacific segment or other segments from regional wholesale partners may have a material adverse effect on our product sales, financial condition,results of operations and our ability to grow our product line.We depend on a limited number of suppliers for key production materials, and any disruption in the supply of such materials could interrupt productmanufacturing 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. If thesuppliers we rely on for elastomer resins were to cease production of these materials, we may not be able to obtain suitable substitute materials in time toavoid interruption of our production cycle. We are also subject to market issues related to supply and demand for our raw materials. We may have to paysubstantially higher prices in the future for the elastomer resins or any substitute materials we use, which would increase our production costs and could havea significantly adverse impact on our profit margins and results of operations. If we are unable to obtain suitable elastomer resins or if we are unable toprocure sufficient quantities of the Croslite material, we may not be able to meet our production requirements in a timely manner or may need to modify ourproduct characteristics resulting in less favorable market acceptance which could result in lost potential sales, delays in shipments to customers, strainedrelationships 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, damage our brandimage and adversely affect our business. We utilize trademarks, trade names, copyrights, trade secrets, issued and pending patents and trade dress and designs on nearly all of our products. Webelieve that having distinctive marks that are readily identifiable is important to our brand, our success and our competitive position. The laws of somecountries, for example, China, do not protect intellectual property rights to the same extent as do U.S. laws. We frequently discover products that arecounterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging another22Table of Contentsparty's products on the basis of trademark or design or utility patent infringement, particularly in some foreign countries, or if we are required to change ourname or use a different logo, continued sales of such competing products by third parties could harm our brand and adversely impact our business, financialcondition, revenues and results of operations by resulting in the shift of consumer preference away from our products. If our brands are associated withinferior counterfeit reproductions, the integrity and reputation of our brands could be adversely affected. Furthermore, our efforts to enforce our intellectualproperty rights are typically met with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights. We may facesignificant expenses and liability in connection with the protection of our intellectual property, and if we are unable to successfully protect our rights orresolve 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 unpatented proprietaryinformation may be ineffective or insufficient to prevent unauthorized use or disclosure of such trade secrets and information. A party to one of theseagreements may breach the agreement and we may not have adequate remedies for such breach. As a result, our trade secrets, confidential information andother unpatented proprietary rights and information may become known to others, including our competitors. Furthermore, our competitors or others mayindependently 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 consequential risks ofholding cash abroad could adversely affect our financial condition and results of operations. We have substantial cash requirements in the U.S., but the majority of our cash is generated and held abroad. We generally consider unremitted earningsof subsidiaries operating outside of the U.S. to be indefinitely reinvested and it is not our current intent to change this position. Cash held outside of the U.S.is primarily used for the ongoing operations of the business in the locations in which the cash is held. Most of the cash held outside of the U.S. could berepatriated to the U.S., but under current law, would be subject to U.S. federal and state income taxes, less applicable foreign tax credits. In some countries,repatriation of certain foreign balances is restricted by local laws and could have adverse tax consequences if we were to move the cash to another country.Certain countries, including China, may have monetary laws which may limit our ability to utilize cash resources in those countries for operations in othercountries. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and may adversely affect ourliquidity. Since repatriation of such cash is subject to limitations and may be subject to significant taxation, we cannot be certain that we will be able torepatriate such cash on favorable terms or in a timely manner. If we incur operating losses on a continued basis and require cash that is held in internationalaccounts for use in our U.S. operations, a failure to repatriate such cash in a timely and cost-effective manner could adversely affect our business, financialcondition 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, wecannot accurately predict the ultimate outcome of any such proceedings. We are currently involved in several, potentially adverse legal proceedings. For adetailed discussion of our current legal proceedings, see Item 3. Legal Proceedings in23Table of ContentsPart I of this Form 10-K. An unfavorable outcome in any of these proceedings or any future legal proceedings could have an adverse impact on our business,financial condition and results of operations. In addition, any significant litigation in the future, regardless of its merits, could divert management's attentionfrom our operations and result in substantial legal fees. In the past, securities class action litigation has been brought against us. If our stock price is volatile,we may become involved in this type of litigation in the future. Any litigation could result in substantial costs and a diversion of management's attention andresources 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 opinions and areoften different from management's estimates or expectations of our business. If our operating results are below the estimates or expectations of public marketanalysts and investors, our stock price could decline.Changes in tax laws and unanticipated tax liabilities and the results of tax audits or litigation could adversely affect our effective income tax rate andprofitability. We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate in the future could be adverselyaffected by a number of factors, including changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferredtax assets and liabilities, changes in tax laws, the outcome of income tax audits in various jurisdictions around the world and any repatriation 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 the adequacy of our tax provision,which is subject to significant discretion and we could face significant adverse impact if our assumptions are incorrect and/or face significant cost to defendour practices from international and U.S. tax authorities. We are regularly subject to, and are currently undergoing, audits by tax authorities in the UnitedStates and foreign jurisdictions for prior tax years. Please refer to Item 3. Legal Proceedings in Part I of this Form 10-K as well as Note 15—Commitments andContingencies in the accompanying notes to the consolidated financial statements for additional details regarding current tax audits. Although we believeour tax estimates are reasonable and we intend to defend our positions through litigation if necessary, the final outcome of tax audits and related litigation isinherently uncertain and could be materially different than that reflected in our historical income tax provisions and accruals. Moreover, we could be subjectto assessments of substantial additional taxes and/or fines or penalties relating to ongoing or future audits. The adverse resolution of any audits or litigationcould have an adverse effect on our financial position and results of operations.We are required to pay regular dividends on the Series A Convertible Preferred Stock, par value $0.001 per share ("Series A Preferred Stock") issued toBlackstone Capital Partners VI L.P. ("Blackstone") in 2014, which ranks senior to our common stock, and we may be required under certaincircumstances to repurchase the outstanding shares of Series A Preferred Stock; such obligations could adversely affect our liquidity and financialcondition. The Series A Preferred Stock ranks senior to our common stock with respect to dividend rights, and holders of Series A Preferred Stock are entitled tocumulative dividends payable quarterly in cash at a rate of 6% per annum of the stated value of $1,000 per share. These regular cash dividends on ourSeries A Preferred Stock are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year. If we fail to make timely dividend payments,the dividend rate will increase to 8% per annum until such time as all accrued but unpaid dividends have been paid in full. In addition, the holders of ourSeries A Preferred Stock have certain redemption rights, including upon certain change24Table of Contentsin control events involving us, which, if exercised, could require us to repurchase all of the outstanding shares of Series A Preferred Stock at 100% or more ofthe stated value of the shares, plus all accrued but unpaid dividends. Our obligations to pay regular dividends to the holders of our Series A Preferred Stock orany required repurchase of the outstanding shares of Series A Preferred Stock could impact our liquidity and reduce the amount of cash flows available forworking capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of Series APreferred Stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on ourfinancial 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 our retailoperations, which require substantial cash investment and management attention. We believe cost effective investments are essential to business growth andprofitability; however, significant investments are subject to typical risks and uncertainties inherent in acquiring or expanding a business. The failure of anysignificant investment to provide the returns or profitability we expect or the failure to integrate newly acquired businesses could have a material adverseeffect 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. or abroad, andthe consequences and effects thereof, including energy shortages and public health issues, could disrupt our operations or the operations of our vendors andother suppliers, or result in economic instability that may negatively impact our operating results and financial condition.The issuance of 200,000 shares of our Series A Preferred Stock to Blackstone in 2014 and certain of its permitted transferees reduces the relative votingpower of holders of our common stock, may dilute the ownership of such holders, and may adversely affect the market price of our common 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 of ourcommon stock outstanding as of December 31, 2014, the Blackstone Purchasers collectively own Series A Preferred Stock convertible into approximately14.9% of our common stock. As holders of our Series A Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our commonstock as a single class on all matters submitted to a vote of our common stock holders, the issuance of the Series A Preferred Stock to the BlackstonePurchasers has effectively reduced 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 common stock, andany sales in the public market of the common stock issuable upon conversion of the Series A Preferred Stock could adversely affect prevailing market pricesof our common stock. We have granted the Blackstone Purchasers registration rights in respect of the shares of Series A Preferred Stock and any shares ofcommon stock issued upon conversion of the Series A Preferred Stock. These registration rights would facilitate the resale of such securities into the publicmarket, and any such resale would increase the number of shares of our common stock available for public trading. Sales by the Blackstone Purchasers of asubstantial number of shares of25Table of Contentsour common stock in the public market, or the perception that such sales 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 December 31, 2014, the shares of Series A Preferred Stock owned by the Blackstone Purchasers represent approximately 14.9% of the voting rightsof our common stock, on an as-converted basis, so the Blackstone Purchasers will have the ability to significantly influence the outcome of any mattersubmitted for the vote of our stockholders. In addition, the Certificate of Designations of the Series A Preferred Stock grants certain consent rights to theholders of Series A Preferred Stock in respect of certain actions by the Company, including the issuance of pari passu or senior equity securities of theCompany, certain amendments to our certificate of incorporation or bylaws, any increase in the size of our Board of Directors (the "Board") above eightmembers, the payment of certain distributions to our stockholders, and the incurrence or refinancing of a certain level of indebtedness. The BlackstonePurchasers may 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 other equityinvestments, even though such transactions might involve risks to us. Blackstone and its affiliates are in the business of making or advising on investmentsin companies, including businesses that may directly or indirectly compete with certain portions of our business. They may also pursue acquisitionopportunities 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 and itspermitted transferees (i) beneficially own at least 95% of the Series A Preferred Stock or the as-converted common stock purchased pursuant to the InvestmentAgreement or (ii) maintain beneficial ownership of at least 12.5% of our outstanding common stock (the "Two-Director Threshold"), Blackstone will have theright to designate for nomination two directors to our Board. For so long as Blackstone and its permitted transferees beneficially own shares of Series APreferred Stock or the as-converted common stock purchased pursuant to the Investment Agreement that represent less than the Two-Director Threshold butmore than 25% of the number of shares of the as-converted common stock purchased pursuant to the Investment Agreement, Blackstone will have the right todesignate for nomination one director to our Board. The directors designated by Blackstone are entitled to serve on Board committees, subject to applicablelaw and stock exchange rules, and one of such directors, Gregg Ribatt, has been recently appointed to be our new Chief Executive Officer.Our restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could discourage a third party fromacquiring 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, orprevent 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 of us. Anydelay or prevention of a change of control or change in management that stockholders might otherwise consider to be favorable could cause the market priceof our common stock to decline. ITEM 1B. Unresolved Staff Comments None.26Table of Contents ITEM 2. Properties Our principal executive and administrative offices are located at 7477 East Dry Creek Parkway, Niwot, Colorado. We lease, rather than own, all of ourdomestic and international facilities. We currently enter into short-term and long-term leases for kiosk, manufacturing, office, outlet, retail, and warehousespace. The terms of our leases include fixed monthly rents and/or contingent rents based on percentage of revenues for certain of our retail locations, andexpire 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, HongKong, Australia, Korea, China, the United Arab Emirates, India and Europe. We also lease more than 580 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 were named as defendants in complaints filed by investors in the United States District Court forthe District of Colorado. The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter. These actions wereconsolidated and, in September 2008, the district court appointed a lead plaintiff and counsel. An amended consolidated complaint was filed in December2008. The amended complaint purported to state claims under Sections 10(b), 20(a), and 20A of the Exchange Act on behalf of a class of all persons whopurchased our common stock between April 2, 2007 and April 14, 2008 (the "Class Period"). The amended complaint also added our independent auditor as adefendant. The amended complaint alleged that, during the Class Period, the defendants made false and misleading public statements about us and ourbusiness and prospects and, as a result, the market price of our common stock was artificially inflated. The amended complaint also claimed that certaincurrent and former officers and directors traded in our common stock on the basis of material non-public information. The amended complaint soughtcompensatory damages on behalf of the alleged class in an unspecified amount, including interest, and also sought attorneys' fees and costs of litigation. OnFebruary 28, 2011, the District Court granted motions to dismiss filed by the defendants and dismissed all claims. A final27Location Reportable Operating Segment(s)that Use this Property Use ApproximateSquare Feet Leon, Mexico Americas, Asia Pacific, Japan,Europe Manufacturing/warehouse/offices 421,000 Ontario, California Americas Warehouse 399,000 Rotterdam, the Netherlands Europe Warehouse 174,000 Niwot, Colorado Americas Corporate headquarters andregional offices 160,000 Narita, Japan(1) Asia Pacific, Japan Warehouse 156,000 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 Boston, Massachusetts Americas Global Commercial Center 16,000 Tokyo, Japan Japan Regional offices 13,000 (1)The warehouse facilities in this location are fully or partially subleased.Table of Contentsjudgment was thereafter entered. Plaintiffs subsequently appealed to the United States Court of Appeals for the Tenth Circuit. We and those current andformer officers and directors named as defendants entered into a Stipulation of Settlement with the plaintiffs to resolve all claims asserted against us by theplaintiffs on behalf of the putative class. Our independent auditor was not a party to the Stipulation of Settlement. The Stipulation of Settlement receivedpreliminary approval from the District Court on August 28, 2013. On September 18, 2014, the District Court entered an order of final approval of thesettlement and, on September 19, 2014, the District Court entered final judgment dismissing the action against us and those current and former officers anddirectors named as defendants in its entirety with prejudice. The full settlement amount has been paid by our insurers. Since no notice of appeal was filedduring the appeal period, this action is now terminated as to Crocs and its affiliated individuals. Crocs considers this matter closed. We are currently subject to an audit by U.S. Customs & Border Protection ("CBP") in respect of the period from 2006 to 2010. In October 2013, CBPissued the final audit report. In that report CBP projects that unpaid duties totaling approximately $12.4 million are due for the period under review andrecommends collection of the duties due. We responded that these projections are erroneous and provided arguments that demonstrate the amount due inconnection with this matter is considerably less than the projection. Additionally, on December 12, 2014, we made an offer to settle CBP's potential claimsand tendered $3.5 million. At this time, it is not possible to determine how long it will take CBP to evaluate our offer or to predict whether our offer will beaccepted. Likewise, if a settlement cannot be reached, it is not possible to predict with any certainty whether CBP will seek to assert a claim for penalties inaddition to any unpaid duties, but such an assertion is a possibility. Mexico's Federal Tax Authority ("SAT") has audited the company's records regarding imports and exports during the period from January 2006 to July2011. There were two phases to the audit, the first for capital equipment and finished goods and the second for raw materials. The first phase was completedand no major discrepancies were noted by the SAT. On January 9, 2013, Crocs received a notice for the second phase in which the SAT issued a taxassessment (taxes and penalties) of roughly 280.0 million pesos (approximately $22.0 million) based on the value of all of Crocs' imported raw materialsduring 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 bythe 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 theSAT. In connection with the appeal, the SAT required us to post an appeal surety bond in the amount of roughly 321.0 million pesos (approximately$26.0 million), which amount reflects estimated additional penalties and interest if we are not successful on our appeal. This amount will be adjusted on anannual basis. On November 27, 2014, the Superior Chamber of the Federal Tax Court ruled in favor of Crocs and annulled the tax assessment and thecorresponding penalty. Crocs anticipates that the SAT will appeal this ruling. It is not possible at this time to predict the outcome of this matter or reasonablyestimate any potential loss. Crocs is currently subject to an audit by the Brazilian Federal Tax Authorities related to imports of footwear from China between 2010-2014. OnJanuary 13, 2015 Crocs was notified about the issuance of assessments totaling roughly $5.25 million for the period January 2010 through May 2011. Crocshas disputed these assessments and asserted defenses to the claims. On February 25, 2015 Crocs received additional assessments totaling roughly$11.54 million related to the remainder of the audit period. Crocs is in the process of reviewing these assessments, however, it expects to contest and filedefenses to these claims as well. It is not possible at this time to predict the outcome of this matter. Although we are subject to other litigation from time to time in the ordinary course of business, including employment, intellectual property and productliability claims, we are not party to any other pending legal proceedings that we believe would reasonably have a material adverse impact on our business,financial position, results of operations or cash flows. ITEM 4. Mine Safety Disclosures None.28Table of Contents PART 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 following tableshows 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 Composite Index andthe Dow Jones U.S. Footwear Index from December 31, 2009 through December 31, 2014. The graph assumes an investment of $100 on December 31, 2009and assumes the reinvestment of all dividends and other distributions.29Fiscal Year 2014 Three Months Ended High Low March 31, 2014 $16.88 $14.41 June 30, 2014 $15.78 $14.15 September 30, 2014 $16.83 $12.25 December 31, 2014 $13.47 $11.33 Fiscal 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 Table of Contents Comparison 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 does notencompass all of our competitors or all of our product categories and lines of business. The Dow Jones U.S. Footwear Index consists of Crocs, Inc., NIKE, Inc.,Deckers Outdoor Corp., Iconix Brand Group, Inc., Skechers U.S.A., Inc. Steven Madden Ltd. and Wolverine World Wide, Inc., among other companies. AsCrocs, Inc. is part of the Dow Jones U.S. Footwear Index, the price and returns of our stock have an effect on this index. The Nasdaq Composite Index is amarket capitalization-weighted index and consists of more than 3,000 common equities, including Crocs, Inc. The stock performance shown on theperformance graph above is not necessarily indicative of future performance. We do not make or endorse any predictions as to future stock performance.Holders The approximate number of stockholders of record of our common stock was 90 as of January 30, 2015.Dividends We have never declared or paid cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in theforeseeable future. Our financing arrangements contain certain restrictions on our ability to pay cash dividends on our common stock. In addition, theCertificate of Designations governing the Series A Convertible Preferred Stock that we issued in January 2014 restricts us from declaring and paying certaindividends on our common stock if we fail to pay all accumulated and unpaid regular dividends and/or declared and unpaid participating dividends to whichthe preferred holders are entitled. Any future determination to declare cash dividends on our common stock will be made at the discretion of our Board ofDirectors (the "Board"), subject to30 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 Crocs, Inc. $100.00 $297.74 $256.87 $250.26 $276.87 $217.22 Dow Jones USFootwear Index 100.00 130.93 145.60 152.57 234.13 272.40 NasdaqCompositeIndex 100.00 116.91 114.81 133.07 184.06 208.71 Table of Contentscompliance with covenants under any then-existing financing agreements and the terms of the Certificate of Designations.Purchases of Equity Securities by the Issuer31Period Total Numberof Shares(or Units)Purchased AveragePrice Paidper Share(or Unit) Total Number ofShares (or Units)Purchased as Part ofPublicly AnnouncedPlans orPrograms(1) Approximate DollarValue of Shares thatMay Yet BePurchased Under the PlanPrograms (in thousands) October 1, 2014 -October 31,2014 669,988 $11.99 669,988 $249,710 November 1, 2014- November 30,2014 2,324,788 12.36 2,324,788 220,972 December 1, 2014- December 31,2014 1,501,411 12.58 1,501,411 202,089 Total 4,496,187 $12.38 4,496,187 $202,089 (1)On December 26, 2013, the board of directors approved the repurchase of up to $350.0 million of our common stock, which wasannounced on December 30, 2013. This authorization replaced our previous stock repurchase authorizations. During the three monthsended December 31, 2014, we repurchased approximately 4.5 million shares at a weighted-average price of $12.38 for an aggregateprice of approximately $55.7 million excluding related commission charges, under our publicly-announced repurchase plan. Duringthe year ended December 31, 2014, we repurchased approximately 10.6 million shares at a weighted-average price of $13.75 for anaggregate price of approximately $145.6 million excluding related commission charges, under our publicly-announced repurchaseplan. As of December 31, 2014, approximately $202.1 million of shares remained available for repurchase under our share repurchaseauthorization. The number, price, structure and timing of the repurchases, if any, will be at our sole discretion and future repurchaseswill be evaluated by us depending on market conditions, liquidity needs and other factors. Share repurchases may be made in the openmarket or in privately negotiated transactions. The repurchase authorization does not have an expiration date and does not oblige usto acquire any particular amount of our common stock. The board of directors may suspend, modify or terminate the repurchaseprogram at any time without prior notice.Table of Contents ITEM 6. Selected Financial Data The following table presents selected historical financial data for each of our last five fiscal years. The information in this table should be read inconjunction with the consolidated financial statements and accompanying notes and with Management's Discussion and Analysis of Financial Conditionsand Results of Operations included in Item 7 of this Form 10-K. 32 Financial History ($ thousands, except share and per share data) 2014 2013 2012 2011 2010 Year Ended December 31, Revenues $1,198,223 $1,192,680 $1,123,301 $1,000,903 $789,695 Cost of sales 603,893 569,482 515,324 464,493 364,631 Restructuring charges 3,985 — — — 1,300 Gross profit 590,345 623,198 607,977 536,410 423,764 Gross margin % 49.3% 52.3% 54.1% 53.6% 53.7%Selling, general and administrativeexpenses 565,712 549,154 460,393 404,803 342,961 Selling, general and administrativeexpenses as a % of revenues 47.2% 46.0% 41.0% 40.4% 43.4%Restructuring charges 20,532 — — — 2,539 Asset impairment charges 8,827 10,949 1,410 528 141 Income (loss) from operations (4,726) 63,095 146,174 131,079 78,123 Income (loss) before income taxes (8,549) 59,959 145,548 136,690 80,792 Income tax (benefit) expense (3,623) 49,539 14,205 23,902 13,066 Net income (loss) (4,926) 10,420 131,343 112,788 67,726 Dividends on Series A convertiblepreferred shares 11,301 — — — — Dividend equivalents on Series Aconvertible preferred shares relatedto redemption value accretion andbeneficial conversion feature 2,735 — — — — Net income (loss) attributable tocommon stockholders $(18,962)$10,420 $131,343 $112,788 $67,726 Income (loss) per common share: Basic $(0.22)$0.12 $1.46 $1.27 $0.78 Diluted $(0.22)$0.12 $1.44 $1.24 $0.76 Weighted average common shares: Basic 85,140,181 87,988,798 89,571,105 88,317,898 85,482,055 Diluted 85,140,181 89,089,473 90,588,416 89,981,382 87,595,618 Cash (used in) provided by operatingactivities $(11,651)$83,464 $128,356 $142,376 $104,274 Cash used in investing activities $(57,992)$(69,758)$(65,943)$(41,664)$(42,078)Cash provided by (used in) financingactivities $23,431 $(1,161)$(16,625)$8,917 $5,245 Financial History ($ thousands) 2014 2013 2012 2011 2010 As of December 31, Cash and cash equivalents $267,512 $317,144 $294,348 $257,587 $145,583 Inventories $171,012 $162,341 $164,804 $129,627 $121,155 Working capital $441,523 $453,149 $455,177 $370,040 $243,252 Total assets $806,931 $875,159 $829,638 $695,453 $549,481 Long term obligations $27,849 $63,487 $54,300 $48,370 $35,613 Total stockholders' equity $452,518 $624,744 $617,400 $491,780 $376,106 Table of Contents ITEM 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 andchildren. We strive to be the global leader in the sale of molded footwear featuring fun, comfort, color and functionality. Our products include footwear andaccessories that utilize our 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 distributorsand directly to end-user consumers through our company-operated retail stores, outlets, webstores and kiosks. Since the initial introduction and popularity of the Beach and Crocs Classic designs, we have expanded our Croslite products to include a variety of newstyles and products and have further extended our product reach through the acquisition of brand platforms. Going forward, we intend to focus our footwearproduct lines on our core molded footwear heritage, as well as develop new innovative casual lifestyle footwear collections. We intend to streamline ourproduct portfolio, eliminate non-core product development and explore strategic alternatives for non-core programs such as our golf line and our OceanMinded brand, as well as our apparel and accessories business. The broad appeal of our footwear has allowed us to market our products to a wide range of distribution channels, including family footwear stores,department stores, sporting goods and traditional footwear retailers as well as a variety of specialty and independent retail channels and the internet. Weintend to drive cohesive global brand positioning from region-to-region and year-to-year to create a more clear and consistent product portfolio and message,resulting in a more powerful consumer connections to the brand. This strategy will be accomplished through developing powerful product stories supportedwith effective and consistent global marketing campaigns. Finally, we intend to increase our working market spend, which we define as funds that putmarketing messages in front of consumers. As a global company, we have significant revenues and costs denominated in currencies other than the U.S. Dollar. Sales in international markets inforeign currencies are expected to continue to represent a substantial portion of our revenues. Likewise, we expect that 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, changesin foreign currency exchange rates could materially affect revenues and costs or the comparability of revenues and costs from period to period as a result ofthe impact of foreign currency translation adjustments into our reporting currency.Use of Non-GAAP Financial Measures In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America ("U.S. GAAP"), wepresent current period "adjusted selling, general and administrative expenses", which is a non-GAAP financial measure, within this Management's Discussionand Analysis. Adjusted results exclude the impact of items that management believes affect the comparability or underlying business trends in ourconsolidated financial statements in the periods presented. We also present certain information related to our current period results of operations in this Item 7 through "constant currency", which is a non-GAAPfinancial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under U.S. GAAP. Constantcurrency represents current period results that have been restated using prior year average foreign exchange rates for the comparative period to enhance thevisibility of the underlying business trends excluding the impact of foreign currency exchange rate fluctuations.33Table of Contents Management uses adjusted results to assist in comparing business trends from period to period on a consistent basis without regard to the impact of non-GAAP adjustments in communications with the Board, 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 providing bettercomparability between reporting periods because they provide an additional tool to evaluate our performance without regard to non-GAAP adjustments thatmay not be indicative of overall business trends. We believe they also provide a better baseline for analyzing trends in our operations. We do not suggest thatinvestors should consider these non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.Please refer to our 'Results of Operations' within this section for a reconciliation of adjusted selling, general and administrative expenses to GAAP selling,general and administrative expenses.Recent Events Gregg Ribatt was appointed the Company's Chief Executive Officer, effective January 28, 2015. In connection with his appointment as Chief ExecutiveOfficer, he will also serve as the Company's principal executive officer, succeeding the Company's acting principal executive officer, Andrew Rees. Mr. Reeswill continue in his role as President of the Company.2014 Financial Highlights During the year ended December 31, 2014, we experienced relatively flat revenue growth of 0.5%. Unfavorable exchange rates driven by a stronger U.S.Dollar reduced revenue by $15.6 million on a constant-currency basis. We experienced a $7.8 million, or 1.9%, increase in retail channel revenues despite netstore closures of 34 worldwide since December 31, 2013, but an overall decrease of 3.7% in comparable store sales compared to prior year. Additionally, salesfrom the internet channel increased 3.9% in 2014 compared to 2013. This was offset by a 0.9% aggregate decline in wholesale sales during 2014. Specifically, we experienced strong revenue results in our Europe wholesale channel and retail channels and our Asia Pacific retail and internet channels.We experienced lower than expected growth in our Asia Pacific segment primarily due to decreased performance in our China business as a result of increaseddistributor inventory levels and lower replenishment orders. On a constant-currency basis, our Japan segment experienced lower revenues of $2.8 million andan operating loss of $9.4 million as a result of continuing macroeconomic turmoil related to the lingering decline of the Japanese Yen. The following are significant developments in our businesses during the year ended December 31, 2014:•Revenues increased $5.5 million, or 0.5%, to $1.2 billion compared to the same period in 2013. Revenue growth was predominately driven bya 2.5% increase in global footwear unit sales partially offset by a 1.7% decrease in global average footwear unit selling price which wasprimarily a result of foreign currency translation adjustments and liquidation of discontinued products. •Gross profit decreased $32.9 million, or 5.3%, to $590.3 million and gross margin percentage decreased 298 basis points to 49.3% comparedto 2013. The decline in gross margin percentage is primarily driven by the evolution of our product assortment and foreign currencytranslation adjustments, as only approximately 35% of our revenues were earned in the U.S. Dollar, compared to approximately 80% of costsof sales that were incurred in the U.S. Dollar. In addition, we experienced unit sales volume difficulty in our Americas market, lower thanexpected unit sales in our China market leading to decreased gross margins as average margins in China are typically higher than the globalaverage, increased shipping costs globally and a34Table of Contents$11.5 million write-down and/or disposals of obsolete inventory, $4.0 million of which was reported in 'Restructuring charges' in cost of salesrelated to the elimination of our golf product line.•Selling, general and administrative expenses increased $16.6 million, or 3.0%, to $565.7 million compared to the same period in 2013.Selling, general and administrative expenses increased predominately due to an increase of $10.2 million in bad debt expense associated withdelayed payments from distributors in China and Southeast Asia. In addition, we experienced an increase of $24.8 million in expenses that webelieve to be non-indicative of our underlying business trends including reorganizational charges as a result of transition activities, additionaloperating expenses related to our ERP implementation and charges related to litigation settlements. •We incurred $24.5 million in restructuring charges as a result of our strategic plans for long-term improvement and growth of the business.These charges included severance costs related to executive management and employees, retail store closure costs and a write-down ofobsolete inventory related to an exited business lines. •We incurred $8.8 million in retail asset impairment charges related to certain underperforming retail locations in our Americas, Europe andAsia Pacific segments that were unlikely to generate sufficient cash flows to fully recover the carrying value of the stores' assets over theirremaining economic life. •Net income (loss) attributable to common stockholders decreased $29.4 million, or 282.0%, to a net loss of $19.0 million compared to netincome of $10.4 million for 2013. Net loss per share was $0.22 during the year ended December 31, 2014 compared to net income per share of$0.12 during the year ended December 31, 2013. These decreases are primarily the result of certain special charges such as restructuring andasset impairment charges as well as dividends declared on our Series A Preferred Stock and dividend equivalents as a result of the investmentfrom Blackstone Capital Partners VI L.P. ("Blackstone"), which contributed a decrease of $14.0 million in net income attributable to commonstockholders. •We slowed the expansion of our retail channel and have begun to focus on the long-term profitability of current locations. We opened 70company-operated stores during the year ended December 31, 2014, half of which were outlet or low investment kiosk/store-in-store locations,and closed 104 company-operated stores, 20 of which were identified in the initial restructuring plan. •We continue to fund the implementation of our customized and fully integrated operations, accounting, and finance ERP system. During2014, we successfully launched the ERP in Australia, New Zealand and Japan, and in early 2015, we continued the implementation globally.We believe the introduction of the new ERP system to our current environment will allow for seamless and high-quality data across theCompany. As of December 31, 2014, total costs to date related to the ERP implementation were $88.3 million, of which $70.7 million hasbeen capitalized and $17.6 million has been expensed. As of December 31, 2014, we had $11.6 million in outstanding borrowings related tothe ERP system under a Master Installment Payment Agreement ("Master IPA") with PNC Equipment Finance, LLC ("PNC Equipment"). •We repurchased approximately 10.6 million shares at an average price of $13.75 per share for a total value of $145.6 million, excludingrelated commission charges.Future Outlook During 2014, we announced strategic plans for long-term improvement and growth of the business. These plans comprised four key initiatives including:(1) streamlining the global product and marketing portfolio, (2) reducing direct investment in smaller geographic markets, (3) creating a more efficient35Table of Contentsorganizational structure including reducing duplicative and excess overhead which will also enhance the decision making process, and (4) closing orconverting approximately 75 to 100 Crocs branded retail stores around the world. During 2014, we executed several initiatives to accomplish our strategicplans, such as a reduction in workforce and the closure of 104 stores (20 of which were identified in the initial restructuring plan) and will continue toexecute our strategy during 2015. First, we intend to focus on our core molded footwear heritage, as well as develop innovative new casual lifestyle footwear platforms. We intend tostreamline the product portfolio, eliminate non-core product development and will explore strategic alternatives for the non-core products and brands. Weexpect more centralized product line control will also result in a reduction of the SKU proliferation that has occurred over the past few years, a moresimplified and efficient supply chain and a reduction in overall product line costs and inventory levels. Further, we intend to drive cohesive global brand positioning from region-to-region and year-to-year to create a clearer and consistent product portfolioand message, resulting in a more powerful consumer connection to the brand. We intend to accomplish this strategy through developing powerful productstories supported with effective consistent and clear marketing. Finally, during 2015 we intend to increase our working market spend, which we define asfunds that put marketing messages in front of consumers. We have been discontinuing non-core programs in order to focus on growing our core-molded heritage categories while developing more compellingcasual footwear platforms. We have discontinued our Crocs Golf products as well as gear and apparel, and closed Ocean Minded as an independent brand. Weare currently focusing on products and product stories for Fall/Holiday 2015. Second, we are refining our business model around the world, prioritizing direct investment in larger-scale geographies to focus our resources on thebiggest opportunities, moving away from direct investment in the retail and wholesale businesses in smaller markets and transferring significant commercialresponsibilities to distributors and third-party agents. These re-alignments are already underway in Brazil, Taiwan and other markets around the globe.Further, we intend to expand engagement with leading wholesale accounts in select markets to drive sales growth, optimize product placement and enhancebrand reputation. Third, we have reorganized key business functions to improve efficiency and have eliminated approximately185 global positions of which the majorityoccurred on July 21, 2014, reducing structural complexity, size and cost. In addition, we opened our Global Commercial Center in the Boston area in late2014, housing key merchandising, marketing and retail executives. The Boston location was selected in order to attract experienced senior footwear andbusiness development management talent. The Global Commercial Center in Boston will join the Product Creation and Global Shared Services Center inNiwot, Colorado, the cornerstone of support for Crocs' global business. We intend to strengthen our Regional Commercial Centers in the Netherlands,Singapore and Japan with responsibility for managing Crocs' global business. We have made multiple organizational changes including the appointment of Andrew Rees as President of the Company and interim CEO during 2014,and the subsequent appointment of Gregg Ribatt as Chief Executive Officer effective in early 2015, the hiring of Michelle Poole, as Senior Vice President ofGlobal Product Creation and Merchandising, and Bob Munroe, as the new General Manager of our Americas segment. Additionally, we hired David Thomsonas SVP, General Manager of Asia/Africa and Middle East, commencing May 1, 2015. We are excited to enrich our team as we focus on the future andpotential growth opportunities of the Crocs brand. Fourth, we plan to rationalize under-performing business units, in order to re-align cost structure and place greater focus on assets and operations withhigher profit potential. During the year ended December 31, 2014, we closed 104 company-operated stores (20 of which were identified in the initial36Table of Contentsrestructuring plan). We plan to continue to close approximately 65 stores during 2015. The impact of these closures and conversions is expected to reduceannual revenue by approximately $8 million, with an insignificant impact on future operating income during 2015. Overall, we undertook a comprehensive strategic review of the business and its operations globally, and identified four key areas of opportunity in thebusiness: products, geographies, organization and channels. These plans prioritize earnings growth and our focus on becoming the leading brand in casuallifestyle footwear.Results of OperationsComparison of the Years Ended December 31, 2014 to 2013 Revenues. During the year ended December 31, 2014, revenues remained relatively flat, increasing $5.5 million, or 0.5%, compared to 2013 primarilydue to an increase of 1.4 million, or 2.5%, in global footwear unit sales primarily driven by improved year-over-year performance in our wholesale andinternet channels. This increase was partially offset by a decrease of $0.35 per unit, or 1.7%, in average footwear selling price.37 Year Ended December 31, ($ thousands, except per share data andaverage footwear selling price) 2014 2013 $ % Revenues $1,198,223 $1,192,680 $5,543 0.5%Cost of sales 603,893 569,482 34,411 6.0 Restructuring charges 3,985 — 3,985 * Gross profit 590,345 623,198 (32,853) (5.3)Selling, general and administrative expenses 565,712 549,154 16,558 3.0 Restructuring charges 20,532 — 20,532 * Asset impairment charges 8,827 10,949 (2,122) (19.4)Income (loss) from operations (4,726) 63,095 (67,821) (107.5)Foreign currency transaction losses, net 4,885 4,678 207 4.4 Interest income (1,664) (2,432) 768 (31.6)Interest expense 806 1,016 (210) (20.7)Other income, net (204) (126) (78) 61.9 Income (loss) before income taxes (8,549) 59,959 (68,508) (114.3)Income tax expense (benefit) (3,623) 49,539 (53,162) (107.3)Net income (loss) $(4,926)$10,420 $(15,346) (147.3)%Dividends on Series A convertible preferred shares 11,301 — 11,301 * Dividend equivalents on Series A convertible preferred sharesrelated to redemption value accretion and beneficial conversionfeature 2,735 — 2,735 * Net income (loss) attributable to common stockholders $(18,962)$10,420 $(29,382) (282.0)%Net income (loss) per common share: Basic $(0.22)$0.12 $(0.34) (283.3)%Diluted $(0.22)$0.12 $(0.34) (283.3)%Gross margin 49.3% 52.3% (298)bps (5.7)%Operating margin (0.4)% 5.3% (568)bps (107.5)%Footwear unit sales 55,700 54,326 1,374 2.5%Average footwear selling price $20.92 $21.27 $(0.35) (1.7)%Table of Contents For the year ended December 31, 2014, revenues from our wholesale channel decreased $6.2 million, or 0.9%, compared to 2013, which was primarilydriven by lower unit sales in our Americas and Japan segments, decreased performance in our China business as a result of increased distributor inventorylevels and lower replenishment orders and lower average selling price in Europe and Japan. These decreases were partially offset by a 19.2% increase in unitsales in Europe primarily driven by product volume expansion through new wholesale doors and continued support from existing customers. For the year ended December 31, 2014, revenues from our retail channel increased $7.8 million, or 1.9%, compared to 2013, which was primarily drivenby a 3.8% increase in footwear unit sales, primarily attributable to the Americas and Japan segments. This increase was partially offset by lower averageselling prices in those segments. Additionally, we experienced an overall decrease of 3.7% in comparable store sales compared to the prior year. During theyear ended December 31, 2014, we opened 70 and closed 104 company-operated stores. We plan to continue to moderate the pace of our retail expansion in2015 with a focus on outlet and kiosk locations and consolidating and enhancing the profitability of existing locations. For the year ended December 31, 2014, revenues from our internet channel increased $3.9 million, or 3.9%, compared to 2013, which was primarilydriven by increased internet sales in our Asia Pacific segment partially offset by a decrease in internet sales in our Europe segment and lower average sellingprices in all segments except Europe. Our internet sales totaled approximately 8.8% and 8.5% of our consolidated net sales during the years endedDecember 31, 2014 and 2013, respectively. We continue to benefit from our online presence through webstores worldwide enabling us to have increasedaccess to our customers in a low cost, attractive manner and providing us with an opportunity to educate them about our products and brand. During the yearended December 31, 2014, we decreased our global company-operated e-commerce sites 12 in order to focus our internet strategy in our principalgeographical locations.38Table of Contents The following table summarizes our total revenue by channel for the years ended December 31, 2014 and 2013: The table below illustrates the overall growth in the number of our company-operated retail locations by type of store and reportable operating segmentas of December 31, 2014 and 2013:39 Year EndedDecember 31, Change ConstantCurrencyChange(1) ($ thousands) 2014 2013 $ % $ % Channel revenues: Wholesale: Americas $228,615 $239,104 $(10,489) (4.4)%$(7,286) (3.0)%Asia Pacific 210,924 212,761 (1,837) (0.9) (449) (0.2)Japan 79,686 90,426 (10,740) (11.9) (5,176) (5.7)Europe 147,561 131,215 16,346 12.5 16,189 12.3 Other businesses 794 254 540 212.6 533 209.8 Total Wholesale 667,580 673,760 (6,180) (0.9) 3,811 0.6 Consumer-direct: Retail: Americas 206,053 202,925 3,128 1.5 4,552 2.2 Asia Pacific 123,597 120,020 3,577 3.0 2,768 2.3 Japan 35,867 36,566 (699) (1.9) 1,745 4.8 Europe 60,309 58,507 1,802 3.1 3,240 5.5 Total Retail 425,826 418,018 7,808 1.9 12,305 2.9 Internet: Americas 55,247 56,523 (1,276) (2.3) (960) (1.7)Asia Pacific 15,928 9,971 5,957 59.7 6,208 62.3 Japan 7,908 7,871 37 0.5 659 8.4 Europe 25,734 26,537 (803) (3.0) (868) (3.3)Total Internet 104,817 100,902 3,915 3.9 5,039 5.0 Total revenues: $1,198,223 $1,192,680 $5,543 0.5%$21,155 1.8%(1)Reflects year over year change as if the current period results were in "constant currency," which is a non-GAAP financial measure. See"Use of Non-GAAP Financial Measures" above for more information.Company-operated retail locations: December 31,2013 Opened Closed December 31,2014 Type: Kiosk/Store in Store 122 8 (30) 100 Retail Stores 327 40 (56) 311 Outlet Stores 170 22 (18) 174 Total 619 70 (104) 585 Operating segment: Americas 216 16 (22) 210 Asia Pacific 236 38 (70) 204 Japan 49 6 (1) 54 Europe 118 10 (11) 117 Total 619 70 (104) 585 Table of Contents The table below sets forth our comparable store sales by reportable operating segment for the year ended December 31, 2014 as compared to the sameperiod in 2013: Impact on Revenues due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translate revenues fromour functional currencies to our reporting currency during the year ended December 31, 2014 decreased our revenues by $15.6 million compared to 2013. Gross profit. During the year ended December 31, 2014, gross profit decreased $32.9 million, or 5.3%, compared to 2013, which was primarilyattributable to a $34.4 million, or 6.0%, increase in cost of sales, excluding restructuring, partially offset by a 0.5% increase in revenue. Gross marginpercentage decreased 298 basis points compared to the same period in 2013. The decline in gross margin percentage is primarily driven by an increase inobsolete inventory of $8.1 million for the year ended December 31, 2014 compared to 2013 primarily driven by inventory obsolescence in China,$4.0 million of costs related to restructuring and the evolution of our product assortment and is consistent with our product strategy. In addition, weexperienced unit sales volume difficulty in our Americas market, lower than expected unit sales in our China market leading to decreased gross margins, asaverage margins in China are typically higher than the global average, and increased shipping costs globally. Impact on Gross Profit due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translate revenuesand costs of sales from our functional currencies to our reporting currency during the year ended December 31, 2014 decreased our gross profit by$9.2 million compared to 2013. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $16.6 million, or 3.0%, during the year endedDecember 31, 2014 compared to the same period in 2013. As a percentage of revenue, selling, general and administrative expenses increased 117 basis pointsto 47.2% from 46.0% during the year ended December 31, 2014 compared to 2013. This increase was predominately due to year over year increases of$16.7 million in professional fees and other outside services, $10.2 million increases in bad debt expense, primarily related to delayed payments fromdistributors in China and Southeast Asia, and an increase of $7.2 million related to40Comparable store sales(1) Constant CurrencyYear EndedDecember 31, 2014(2) Constant CurrencyYear EndedDecember 31, 2013(2) Americas (4.4)% (5.8)%Asia Pacific (4.6) 6.9 Japan (4.8) (15.0)Europe 0.7 2.4 Global (3.7)% (2.7)%(1)Comparable store status is determined on a monthly basis. Comparable store sales begin in the thirteenth month of a store's operation.Stores in which selling square footage has changed more than 15% as a result of a remodel, expansion or reduction are excluded untilthe thirteenth month in which they have comparable prior year sales. Temporarily closed stores are excluded from the comparablestore sales calculation during the month of closure. Location closures in excess of three months are excluded until the thirteenthmonth post re-opening. Comparable store sales exclude the impact of our internet channel revenues and are calculated on a currencyneutral basis using historical annual average currency rates. (2)Reflects quarter over quarter change as if the current period results were in "constant currency," which is a non-GAAP financialmeasure. See "Use of Non-GAAP Financial Measures" above for more information.Table of Contentsrising rental rates and repairs and maintenance for retail locations. We have slowed the expansion of our retail channel in order to focus on the long-termprofitability of existing locations and we have closed 104 company-operated locations between December 31, 2013 and December 31, 2014. These increaseswere partially offset by a decrease of approximately $5.4 million related to the reduction in headcount, $2.7 million related to travel reductions and othercost saving and mitigation initiatives. In addition to these fluctuations, we have identified certain selling, general and administrative expenses that affect the comparability or underlyingbusiness trends in our consolidated financial statements. The following table summarizes these expenses as well as details the additional drivers of theincrease above by reconciling our GAAP selling, general and administrative expenses to non-GAAP selling, general and administrative expenses: 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, 2014, negativelyimpacted, or increased, selling, general and administrative expenses by approximately $6.0 million compared to 2013. Restructuring Charges. We recorded $24.5 million in restructuring charges during the year ended December 31, 2014. These restructuring chargesarose primarily as a result of our strategic plans for long-term improvement and growth of the business. Restructuring charges for the year ended December 31,2014 consisted of:•$12.5 million in severance costs, of which $3.7 million was related to the termination of executive management and $3.6 million was relatedto the reductions in workforce announced on July 21, 2014; •$7.8 million in other restructuring costs primarily related to the write-off of long-lived assets associated with the exiting of retail locations andobsolete inventory; and •$4.2 million in contract termination costs primarily related to the early termination of operating leases and sponsorship agreements.41 Year EndedDecember 31, Selling, general and administrative expenses reconciliation: 2014 2013 GAAP selling, general and administrative expenses $565,712 $549,154 New ERP implementation(1) (13,268) (8,893)Reorganization charges(2) (8,872) (466)Legal settlement(3) (2,646) (5,714)Brazil tax credits(4) — (6,094)Non-GAAP selling, general and administrative expenses $540,926 $527,987 (1)This represents operating expenses related to the implementation of our new ERP system and the add-back of accelerateddepreciation and amortization on tangible and intangible items related to our current ERP system and supporting platformsthat will no longer be utilized once the implementation of a new ERP is complete. (2)This relates to bonuses, consulting fees and other expenses related to recent restructuring activities and our investmentagreement with Blackstone. (3)This represents legal settlement expenses. (4)This represents a net expense related to the resolution of a statutory tax audit in Brazil.Table of Contents Asset Impairment Charges. We recorded $8.8 million in asset impairment charges during the year ended December 31, 2014, a decrease of $2.1 millioncompared to 2013, related to certain underperforming retail locations in our Americas, Europe and Asia Pacific segments that were unlikely to generatesufficient cash flows to fully recover the carrying value of the stores' assets over their remaining economic life. Foreign Currency Transaction Losses. The line item entitled foreign currency transaction losses, net is comprised of foreign currency gains and lossesfrom the re-measurement and settlement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreigncurrency derivative instruments. During the year ended December 31, 2014, losses on foreign currency transactions increased $0.2 million, or 4.4%, ascompared to 2013. Income tax expense. During the year ended December 31, 2014, we recognized a benefit from income tax of $3.6 million compared to an expense of$49.5 million in 2013. Our effective tax rate decreased primarily due to the release of certain unrecognized tax benefits as the result of settling the Company'saudits with the Canada Revenue Agency and the Internal Revenue Service. Our effective tax rate for the year ended December 31, 2014 differs from thefederal U.S. statutory rate primarily because of the release of certain unrecognized tax benefits as well as differences between income tax rates between U.S.and foreign jurisdictions.Comparison 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 dueto an increase of 4.4 million, or 8.8%, in global footwear unit sales. This increase was partially offset by a decrease of $0.28 per unit, or 1.3%, in averagefootwear selling price.42 Year Ended December 31, Change ($ thousands, except per share data and 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 Contents For the year ended December 31, 2013, revenues from our wholesale channel increased $27.9 million, or 4.3%, compared to 2012, which was primarilydriven by increased wholesale demand in our Asia Pacific, Europe and Americas segments partially offset by decreased wholesale sales in our Japan segment.These increases were driven by strong commitments from current wholesale customers and global distributors in emerging markets specifically in our AsiaPacific and Europe regions. We faced challenges in our Americas segment due to lower than anticipated at-once sales as a result of accounts remaining leanon inventory and in our Japan segment due to continued macroeconomic pressure on consumer spending and unfavorable exchange rates between theJapanese 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 by thedisciplined expansion of our global retail presence, which included the opening of 82 company-operated stores (net of store closures) during the year. Thisincrease was driven by a global balance as we realized retail revenue growth in all four segments on a constant currency basis. Partially offsetting thisincrease was a global decrease in comparable store sales of 2.7% on a constant currency basis which is primarily the result of global weakness in consumerconfidence, particularly in the Americas and Japan, as lingering effects of recessionary traffic and spending continued to impact retail markets. For the year ended December 31, 2013, revenues from our internet channel decreased $1.7 million, or 1.7%, compared to 2012, which was primarilydriven by decreased internet sales in Americas and Japan partially offset by increased internet sales in Europe and Asia Pacific. Our internet sales totaledapproximately 8.5% and 9.1% of our consolidated net sales in 2013 and 2012, respectively. Impact on Revenues due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translate revenues fromour functional currencies to our reporting currency during the year ended December 31, 2013 decreased our revenues by $29.1 million compared to 2012.The majority of this decrease was related to the decrease in value of the Japanese Yen compared to the U.S. Dollar due to the political and macroeconomicenvironment in Japan.43 Table of Contents The following table summarizes our total revenue by channel for the years ended December 31, 2013 and 2012: The table below illustrates the overall growth in the number of our company-operated retail locations by type of store and reportable operating segmentas of December 31, 2013 and 2012:44 Year Ended December 31, Change ConstantCurrencyChange(1) ($ 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 financial measure. See"Non-GAAP Financial Measures" above for more information.Company-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 Table of Contents 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, or10.5%, increase in cost of sales. Gross margin percentage decreased 180 basis points compared to 2012. The decline in gross margin percentage is primarilydriven by the evolution of our product assortment and is consistent with our product strategy. Product cost inflation also contributed to the decline in grossmargin percentage, but was mostly offset by internal cost savings initiatives. Impact on Gross Profit due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translate revenuesand costs of sales from our functional currencies to our reporting currency during the year ended December 31, 2013 decreased our gross profit 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 thepolitical and macroeconomic environment in Japan. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $88.8 million, or 19.3%, during the year endedDecember 31, 2013 compared to 2012. We continue to focus our operating expense increases around the long-term growth of the Company and are currentlyundergoing several long-term strategic projects including global retail expansion and the implementation of our ERP system, which resulted in selling,general and administrative charges as well as capitalized expenditures. The increase in selling, general and administrative expenses is primarily 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-operated stores(net of store closures) during the year. This increase includes $23.5 million of additional building expenses such as rent and maintenance fees,$11.4 million in additional labor expenses and $3.2 million in depreciation and amortization;45Comparable 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 or reductionare excluded until the thirteenth month in which they have comparable prior year sales. Temporarily closed stores areexcluded from the comparable store sales calculation during the month of closure. Location closures in excess of three monthsare excluded until the thirteenth month post re-opening. Comparable store sales growth is calculated on a currency neutralbasis 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-GAAP financialmeasure. See "Non-GAAP Financial Measures" below for more information.Table of Contents(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 to theresolution 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, contractlabor and other outside services. This increase includes $3.5 million of additional non-recurring charges related to on-going litigation and$1.1 million of additional non-recurring fees related to our recent investment agreement with Blackstone, which includes professional servicefees 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 and agencyservices in order to help drive demand; and (vi)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 continued 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 decrease invalue of the Japanese Yen compared to the U.S. Dollar due to the political and macroeconomic environment in Japan. Asset Impairments. We periodically evaluate all of our long-lived assets for impairment when events or circumstances would indicate the carryingvalue of a long-lived asset may not be fully recoverable. In addition, we assess goodwill for impairment annually on the last day of the fourth quarter, or morefrequently if events and circumstances indicate impairment may have occurred. Asset impairments increased $9.5 million during the year endedDecember 31, 2013 compared to 2012 primarily due to $10.6 million of long-lived asset impairment charges during the year ended December 31, 2013related to 60 underperforming retail locations in the Americas, Asia Pacific and Europe segments that we concluded were unlikely to generate sufficient cashflows to fully recover the carrying value of the stores' assets over their remaining economic life. In addition, we recorded $0.3 million of goodwill impairmentduring the year ended December 31, 2013 related to our Crocs Benelux B.V. business, which we purchased in July 2012. Foreign Currency Transaction Losses. The line item entitled 'Foreign currency transaction losses, net' is comprised of foreign currency gains andlosses from the re-measurement and settlement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreigncurrency derivative instruments. During the year ended December 31, 2013, losses on foreign currency transactions increased $2.2 million, or 87.1%,compared to 2012. This increase is primarily related to an $8.0 million increase in net losses associated with exposure from day-to-day business transactionsin various foreign currencies compared to 2012. This difference was partially offset by a $5.8 million increase in net gains associated with our derivativeinstruments and our ability to hedge foreign currency fluctuations through undesignated forward instruments compared to 2012.46Table of Contents Income tax expense. During the year ended December 31, 2013, income tax expense increased $35.3 million resulting in a 72.9% increase in effectivetax rate compared to 2012, which was primarily the result of valuation allowances being recorded on net deferred tax assets in tax jurisdictions where webelieve it is not more likely than not that those benefits will be realized and tax associated with our cash repatriation activities. Our effective tax rate of82.6% for the year ended December 31, 2013 differs from the federal U.S. statutory rate primarily because the result of valuation allowances being recordedon net deferred tax assets in tax jurisdictions where we believe it is not more likely than not that those benefits will be realized and tax associated with ourcash repatriation activities.Presentation of Reportable Segments For 2014, 2013 and 2012, we had four reportable operating segments based on the geographic nature of our operations: Americas, Asia Pacific, Japan andEurope. We also have an "Other businesses" category which aggregates insignificant operating segments that do not meet the reportable threshold andrepresent manufacturing operations located in Mexico, Italy and Asia. The composition of our reportable operating segments is consistent with that used byour Chief Operating Decision Maker ("CODM") to evaluate performance and allocate resources. During the first quarter of 2013, we adjusted our operating segment structure for internal reports reviewed by the CODM by presenting Japan separatefrom the Asia Pacific segment. This change was made due to the volatility of the Japanese yen and the macroeconomic environment within Japan as well asnegative sales growth compared to the rest of the Asia Pacific segment, which resulted in the need for a regular review of the operating results of Japan bymanagement and the CODM in order to better evaluate performance and allocate resources for the consolidated business. Results from operations for the yearended December 31, 2012 was restated for this change. Subsequent to December 31, 2014, we have determined that for fiscal 2015, our internal reports reviewed by the CODM will revert back to include Japanin the Asia Pacific segment. This change is to align reporting to our new strategic model and management structure, as Japan and Asia Pacific will bemanaged and analyzed as one operating segment by management and the CODM, to better allocate resources. Therefore, there will be three reportableoperating segments for 2015. 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 operating incomeor 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. Segment performanceevaluation is based primarily on segment results without allocating corporate expenses, or indirect general, administrative and other expenses. Segmentprofits or losses of our reportable operating segments include adjustments to eliminate intersegment profit or losses on intersegment sales. As such,reconciling items for segment operating income represent unallocated corporate and other expenses as well as intersegment eliminations. Segment assetsconsist of cash and cash equivalents, accounts receivable and inventory as these balances are regularly reviewed by the CODM.47Table of ContentsComparison of the Years Ended December 31, 2014 and 2013 by Segment The following table sets forth information related to our reportable operating business segments for the years ended December 31, 2014 and 2013:48 Year Ended December 31, Change Constant CurrencyChange(4) ($ thousands) 2014 2013 $ % $ % Revenues: Americas $489,915 $498,552 $(8,637) (1.7)%$(3,694) (0.7)%Asia Pacific 350,449 342,752 7,697 2.2 8,527 2.5 Japan 123,461 134,863 (11,402) (8.5) (2,772) (2.1)Europe 233,604 216,259 17,345 8.0 18,561 8.6 Total segmentrevenues 1,197,429 1,192,426 5,003 0.4 20,622 1.7 Otherbusinesses 794 254 540 212.6 533 209.8 Totalconsolidatedrevenues $1,198,223 $1,192,680 $5,543 0.5%$21,155 1.8%Operatingincome(loss): Americas $48,347 $61,894 $(13,547) (21.9)%$(13,944) (22.5)%Asia Pacific 47,753 80,693 (32,940) (40.8) (29,446) (36.5)Japan 27,382 37,560 (10,178) (27.1) (9,409) (25.1)Europe 24,517 16,192 8,325 51.4 7,021 43.4 Total segmentoperatingincome 147,999 196,339 (48,340) (24.6) (45,778) (23.3)Otherbusinesses(1) (19,400) (20,811) 1,411 (6.8) 1,504 (7.2)Intersegmenteliminations (1,498) 61 (1,559) (2555.7) (1,559) (2,555.7)Unallocatedcorporateand other(2) (131,827) (112,494) (19,332) 17.2 (13,500) 12.0 Totalconsolidatedoperatingincome (loss)(3) $(4,726)$63,095 $(67,821) (107.5)%$(59,333) (94.0)%Foreigncurrencytransactionlosses, net 4,885 4,678 207 4.4 Interest income (1,664) (2,432) 768 (31.6) Interestexpense 806 1,016 (210) (20.7) Other income,net (204) (126) (78) 61.9 Income beforeincome taxes $(8,549)$59,959 $(68,508) (114.3)% (1)During the year ended December 31, 2014, operating losses of Other businesses decreased $1.4 million compared to 2013, primarilydue to a $1.5 million increase in gross margin offset by a $0.1 million increase in selling, general and administrative expenses. (2)Includes a corporate component consisting primarily of corporate support and administrative functions, costs associated with share-based compensation, research and development, brand marketing, legal, depreciation on corporate and other assets not allocated tooperating segments and costs of the same nature of certain corporate holding companies. For the year ended December 31, 2014,Unallocated corporate and other operating losses increased $19.3 million compared to the same period in 2013, primarily due to$8.9 million restructuring charges related to the termination of certain employees and executives and a write-off of obsolete inventoryrelated to an exited business line and an $8.1 million increase in selling, general and administrative expenses primarily related to theimplementation of our ERP system and our investment agreement with Blackstone partially offset by cost savings in variablecompensation.Table of Contents Americas Operating Segment. During the year ended December 31, 2014, revenues from our Americas segment decreased $8.6 million, or 1.7%,compared to 2013 primarily due to a 3.2% decrease in footwear units sold and a $4.9 million unfavorable impact from foreign currency fluctuations driven byweakening of the Brazilian Real against the U.S. Dollar. This decrease was partially offset by a 2.2% increase in average footwear unit selling price. Duringthe year ended December 31, 2014, revenue declines for the region were realized primarily in the wholesale channel which decreased $10.5 million, or 4.4%,and in the internet channel which decreased $1.3 million, or 2.3%, compared to 2013. The decrease in wholesale channel revenue was predominately drivenby a mix of lower than anticipated at-once orders as a result of accounts remaining lean on inventory in the first half of the year and a decline in activity inour Latin and South American markets partially offset by an increase in activity in the United States. The decrease in internet channel revenue waspredominately driven by a decrease in average footwear selling price partially offset by an increase in footwear unit sales and increased conversion andtraffic. Partially offsetting this decrease was a $3.1 million, or 1.5%, increase in retail channel revenues, which is primarily the result of higher unit sales.Comparable store sales decreased 4.4% due to the impact of foreign currency translation adjustments into our reporting currency. During the year ended December 31, 2014, segment operating income decreased $13.5 million, or 21.9%, compared to 2013 primarily related to:(i)a decrease in segment gross margins of $13.2 million, or 5.3%, primarily related to higher material costs and an increase of $1.2 million ofinventory written off related to obsolete inventory including raw materials, footwear and other accessories; (ii)$4.3 million in restructuring charges related to the reorganization of our business in Brazil, severance costs in the United States and aninventory write-down related to an exited business line; and (iii)Partially offsetting these negative impacts to operating income was a decrease of $2.8 million, or 1.6%, in selling, general and administrativeexpenses as a result of lower marketing expenses partially offset by higher rent and maintenance fees. Asia Pacific Operating Segment. During the year ended December 31, 2014, revenues from our Asia Pacific segment increased $7.7 million, or 2.2%,compared to 2013 primarily due to a 1.2% increase in footwear units sold and a 1.5% increase in average footwear selling price. This increase was partiallyoffset by a $0.8 million unfavorable impact from foreign currency fluctuations. During the year ended December 31, 2014, we realized revenue growth of59.7% in the region in the internet channels compared to 2013. Partially offsetting these increases was a decrease of $1.9 million, or 0.9%, in the wholesalechannel revenues, primarily due to a decrease in third and fourth quarter performance in our China business as a result of increased distributor inventorylevels and lower replenishment orders. Our direct-to-consumer channel revenues increased $3.6 million, or 3.0%, primarily due to increased traffic during theyear and the addition of 38 company-operated stores since December 31, 2013 as we focus on high-traffic, outlet locations partially offset by a 4.6% decreasein comparable store sales. The closure of 70 underperforming company-operated stores and temporary locations since December 31, 2013 did not have anunfavorable impact on revenues.49(3)Please refer to our Results of Operations to reconcile total consolidated operating income to net income as segment information doesnot 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 financial measure. See"Use of Non-GAAP Financial Measures" above for more information. Table of Contents During the year ended December 31, 2014, segment operating income decreased $32.9 million, or 40.8%, compared to 2013 primarily related to:(i)an increase of $15.7 million, or 12.6%, in selling, general and administrative expenses due to an increase in reserves for doubtful accounts as aresult of delayed payments from distributors in China and Southeast Asia and an increase in sales expenses, that was partially offset by areduction of employee expenses related to the reduction of retail locations; (ii)a decrease in segment gross margins of $10.1 million, or 4.9%, primarily related to an increase of $4.0 million of inventory written off relatedto obsolete inventory including raw materials, footwear and other accessories; (iii)$6.8 million in restructuring charges related to severance and store closure costs; (iv)a $3.5 million unfavorable impact from foreign currency fluctuations primarily related to costs of sales; and (v)a $2.6 million increase in retail asset impairment charges related to the long-lived assets. Japan Operating Segment. During the year ended December 31, 2014, revenues from our Japan segment decreased $11.4 million, or 8.5%, compared to2013 primarily due to a 11.7% decrease in average footwear selling price and a $8.6 million unfavorable impact from foreign currency fluctuations that waspartially offset by a 1.1% increase in footwear units sold. During the year ended December 31, 2014, we realized revenue declines primarily in the wholesalechannel which decreased $10.7 million, or 11.9%, compared to 2013. This decrease was mainly due to a soft wholesale market and slow sell-through ofinventory as a result of macroeconomic declines leading to lower average footwear selling prices. In addition, our direct-to-consumer channel revenuesslightly decreased $0.7 million, or 1.9%, compared to 2013 primarily due to a 4.8% decrease in comparable stores sales which was partially offset by theaddition of five retail locations (net of store closures) since December 31, 2013. During the year ended December 31, 2014, segment operating incomedecreased $10.2 million, or 27.1%, compared to the same period in 2013 primarily related to:(i)a decrease in segment gross margins of $11.7 million, or 15.6%, primarily related to higher material costs as a result of product costs being tiedto the U.S. Dollar; (ii)a $0.8 million unfavorable impact from foreign currency fluctuations primarily related to revenue; and (iii)Partially offsetting these negative impacts to operating income was a decrease of $1.7 million, or 4.5%, in selling, general and administrativeexpenses. Europe Operating Segment. During the year ended December 31, 2014, revenues from our Europe segment increased $17.3 million, or 8.0%, comparedto 2013 primarily due to a 15.1% increase in footwear units sold, which was partially offset by a 8.8% decrease in average footwear unit selling price. Thiscontrasting increase in average footwear units sold and decrease in average footwear unit selling price is primarily related to discounting on certain productsduring the first half of the year in our wholesale channel. In addition to sales metrics, our Europe segment realized a $1.2 million unfavorable impact fromforeign currency fluctuations driven by the weakening of the Russian Ruble against the U.S. Dollar. During the year ended December 31, 2014, we realizedrevenue growth in the region in the wholesale and retail channels compared to 2013. Our wholesale channel revenue increased $16.3 million, or 12.5%,primarily due to the expansion in our number of wholesale doors and strong sales performance throughout the region. Our direct-to-consumer channelrevenues increased $1.8 million, or 3.1%, primarily due to the 0.7% increase in comparable store sales and a 4.3% increase50Table of Contentsin the average footwear unit selling price. During the year ended December 31, 2014, segment operating income increased $8.3 million, or 51.4%, comparedto 2013 primarily related to:(i)a decrease to asset impairments of $4.9 million; (ii)a decrease of 4.4 million, or 4.8%, in selling, general and administrative expenses; (iii)an increase in gross margin of $3.0 million, or 2.6%; and (iv)a $3.9 million restructuring charge related to severance and store closures, which partially offset the above increases.Comparison of the Years Ended December 31, 2013 and 2012 by Segment The following tables set forth information related to our reportable operating business segments for the years ended December 31, 2013 and 2012:51 Year Ended December 31, Change Constant CurrencyChange(4) ($ 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 Other businesses 254 574 (320) (55.7) (325) (56.6)Total consolidatedrevenues $1,192,680 $1,123,301 $69,379 6.2%$98,488 8.8%Operating income(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 segmentoperating income 196,339 248,044 (51,705) (20.8) (44,628) (18.0)Other businesses(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 Total consolidatedoperatingincome(3) $63,095 $146,174 $(83,079) (56.8)%$(75,625) (51.7)%Foreign currencytransaction 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 beforeincome 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, primarilydue to a $9.7 million decrease in gross margin as a result of increased cost of sales and a $0.3 million increase in selling, general andadministrative expenses. (2)Includes a corporate component consisting primarily of corporate support and administrative functions, costs associated with share-based compensation, research and development, brandTable of Contents Americas Operating Segment. During the year ended December 31, 2013, revenues from our Americas segment increased $2.7 million, or 0.5%,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 in footwear unitssold and $3.8 million unfavorable impact from foreign currency fluctuations driven by weakening of the Brazilian Real against the U.S. Dollar. During theyear 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 thewholesale channel which increased $3.1 million, or 1.3% compared to 2012. The increase in retail channel revenue is predominately driven by thedisciplined expansion of our retail presence, which included the opening of 17 company-operated stores (net of closures) during the year. Despite theadvancement of our retail presence in the Americas segment and increased retail channel revenues, we experienced a decrease in comparable store sales of5.8% on a constant currency basis. This decrease was primarily the result of weakness in consumer confidence in the region as lingering effects ofrecessionary traffic and spending continue to impact retail markets. Despite the slight increase in wholesale channel revenues on a year-over-year basis, wefaced challenges in the region due to lower than anticipated at-once sales as a result of wholesale accounts remaining lean on inventory. In addition, we wereimpacted by economic and market conditions in Latin America as our revenue was constrained due to import restrictions and lower market demand. Theseincreases in retail and wholesale channel revenues during the year ended December 31, 2013 were partially offset by our internet channel which decreased$6.6 million, or 10.5%, compared to 2012. This decrease was attributable to decreased internet traffic and conversion rates throughout the year. During theyear ended December 31, 2013, segment operating income decreased $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 retail channel,increased marketing efforts and a non-recurring net expense of $6.1 million related to the resolution of a statutory tax audit in Brazil; (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.52marketing, legal, depreciation on corporate and other assets not allocated to operating segments and costs of the same nature of certaincorporate holding companies. For the year ended December 31, 2013, operating losses of Unallocated corporate and other expensesincreased $21.4 million compared to 2012, primarily due to a $23.0 million increase in selling, general and administrative costs as aresult of increased labor charges including variable and stock compensation as well as the normalization of 2012 headcount increasesand increased professional services expenses related to the implementation of our ERP system. This increase of selling, general andadministrative expenses was partially offset by a $1.6 million decrease in cost of sales primarily related to decreases in variableoverhead and freight expenses.(3)Please refer to our Results of Operations to reconcile total consolidated operating income to net income as segment information doesnot 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 financial measure. See"Non-GAAP Financial Measures" above for more information.Table of Contents 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 favorableimpact from foreign currency fluctuations. Although our leading footwear model in terms of sales in the Asia Pacific region continues to be our traditionalclog, the increase in footwear units sold and average footwear selling price was driven mainly through other footwear styles such as our mary-jane, flip-flopand loafer. During the year ended December 31, 2013, we realized revenue growth for the region in all three channels compared to 2012. Our wholesalechannel revenue increased $31.8 million, or 17.6%, primarily due to the expansion of our wholesale doors and the continued support from existingcustomers. Our direct-to-consumer channel revenues increased $18.1 million, or 16.2%, primarily due to our continued focus on and the disciplinedexpansion of our retail channel as we opened 35 company-operated stores (net of store closures) during the year combined with an increase in comparablestore sales of 6.9% on a constant currency basis. During the year ended December 31, 2013, segment operating income increased $6.2 million, or 8.3%,compared to 2012 driven predominately by the revenue increases noted above and a $0.7 million favorable impact from foreign 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 retail channel,increased salaries and wages as we added approximately 40 full-time employees to our growing Asia Pacific business and increased marketingefforts; (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%, comparedto 2012 primarily due to $30.2 million unfavorable impact from foreign currency fluctuations as a result of recent decreases in the value of the Japanese Yento the U.S. Dollar stemming from political and macroeconomic challenges in the region, which led to a 21.0% decrease in footwear selling price. Thisdecrease was partially offset by a 4.8% increase in footwear units sold. During the year ended December 31, 2013, revenue underperformance was realizedprimarily in the wholesale channel which decreased $27.0 million, or 23.0%, compared to 2012. This decrease was mainly due to a soft wholesale market andslow sell-through of inventory as a result of macroeconomic declines. Our direct-to-consumer channel revenues decreased $2.7 million, or 5.8%, primarilydue to a decrease in comparable store sales growth of 15.0% on a constant currency basis. Despite current macroeconomic conditions in Japan, we continue toexpand our retail channel in the region as we opened nine company-operated stores (net of store closures) during the year in anticipation of an economicrecovery. During the year ended December 31, 2013, segment operating income decreased $28.7 million, or 43.3%, compared to 2012 driven predominatelyby a the revenue decreases noted above, a $8.4 million unfavorable impact from foreign currency fluctuations and a decrease in segment gross margins of12.6%, 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 fluctuations driven bystrengthening of the Euro against the U.S. Dollar. This increase was partially offset by a 9.9% decrease in average footwear selling price. Our traditional clogcontinues to generate the majority of our footwear sales in Europe, making up approximately 70.3% of total footwear unit sales during the year; however, wedid experience marked improvement in the sales of other footwear models during the year including boots and flip-flops. During the year endedDecember 31, 2013, we realized revenue growth53Table of Contentsfor the region in all three channels compared to 2012 as we experienced noticeable improvement in the macroeconomic environment in Europe. Our retailchannel revenue increased $23.5 million, or 66.9%, primarily due to our continued focus on and the disciplined expansion of our retail channel as we opened21 company-operated stores (net of store closures) during the year combined with an increase in comparable store sales growth of 2.4% on a constantcurrency basis. Our wholesale channel revenue increased $20.3 million, or 18.3%, primarily due to the expansion in our number of wholesale doors leadingto improved backlog sales and at-once orders. Our internet channel revenue increased $3.1 million, or 13.1%, primarily due to increased internet traffic andour promotional focus. During the year ended December 31, 2013, segment operating income decreased $5.5 million, or 25.3%, compared to 2012 drivenpredominately 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 retail channeland 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.Liquidity and Capital ResourcesCash Flows and Working Capital During the year ended December 31, 2014, cash and cash equivalents decreased $49.6 million, or 15.6%, to $267.5 million compared to $317.1 millionat December 31, 2013. The primary driver of this decrease is the repurchase of $145.9 million of our common stock associated with Board authorizedrepurchases including related commission charges under our publicly-announced repurchase plan, strategic reinvestments into the business including$46.9 million in capital spend primarily related to our ERP system implementation, dividend payments of $11.3 million on our Series A Preferred Stock, ofwhich $3.1 million was recorded as dividends payable and prepaid dividends as of December 31, 2014, and debt payments, including principal and interest,of $5.5 million related to long-term bank borrowings. Partially offsetting these decreases was the $182.2 million in net cash proceeds from our sale of ourSeries A Preferred Stock. Cash used by operations was $11.7 million for the year ended December 31, 2014 compared to cash provided by operations of $83.5 million for the yearended December 31, 2013. This decrease was primarily driven by the change in working capital accounts year over year which accounted for $66.4 million ofour cash used by operating activities. During the year ended December 31, 2014, we paid $33.7 million in cash related to taxes that were accrued for as ofDecember 31, 2013, which accounted for half of this change.Working Capital As of December 31, 2014, accounts receivable decreased $3.2 million compared to December 31, 2013. During the year ended December 31, 2014, werecorded a reserve for doubtful accounts of $11.5 million in our Asia Pacific segment primarily as a result of delayed payments from our partner stores inChina and Southeast Asia. Inventory increased $8.7 million primarily due to increased finished goods, offset by the write-off of obsolete inventory and adecrease in raw materials. As of December 31, 2014, other long-term assets decreased by approximately $27.7 million primarily due to54Table of Contentsthe decrease in derivative instruments recorded on our balance sheet, as no such instruments were outstanding as of December 31, 2014. As of December 31, 2014, accounts payable decreased $14.5 million compared to December 31, 2013. As a result of the January 2015 implementation ofour new ERP system, we accelerated payments of our outstanding payables in late 2014 to accommodate the transition. Accrued liabilities decreased$16.9 million compared to December 31, 2013 primarily due to lower accrued legal fees, customer deposits and sales taxes payable. These decreases wereoffset by the accrual of $3.1 million of dividends payable related to the Series A preferred stock. We anticipate our cash flows from operations will be sufficient to meet the ongoing needs of our business for the next twelve months. In order to provideadditional liquidity in the future and to help support our strategic goals, we have a revolving credit facility with a syndicate of lenders, including PNC Bank,National Association ("PNC") as lead lender, which currently provides us with up to $100.0 million in borrowing capacity and matures in December 2017(see Revolving Credit Facility 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, whereby we sold them200,000 shares of the Company's Series A Preferred Stock for $182.2 million of net proceeds. The Series A Preferred Stock has a par value $0.001 per share,with an aggregate stated value of $200.0 million, or $1,000 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 and dissolution.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 any dividends declaredor paid on our common stock and are entitled to vote together with the holders of common stock on an as-converted basis. As of December 31, 2014, accrueddividends were $3.1 million, which were paid to Blackstone on January 2, 2015. The Series A Preferred Stock has several conversion features as well as redemption rights. The conversion rate is subject to customary anti-dilution andother adjustments subject to certain share caps and other restrictions. As of December 31, 2014, the Blackstone investment, on an as converted to commonstock basis, represented approximately 14.9% of our outstanding common stock. We intend to continue to use the net proceeds, as well as excess cash, tofund the repurchase of our common stock pursuant to the $350.0 million stock repurchase authorization approved by the Board discussed further below. Webelieve this investment provides an opportunity to drive shareholder value and refine the strategic direction of the business.Stock Repurchase Plan Authorizations We continue to evaluate options to maximize the returns on our cash and to 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, subject to certain restrictions on repurchasesunder our revolving credit facility. This replaced all of our existing stock repurchase authorizations. The number, price, structure and timing of therepurchases will be at our sole discretion and future repurchases will be evaluated by us depending on market conditions, liquidity needs and other factors.Share repurchases may be made in the open market or in privately negotiated transactions. The repurchase authorization does not have an55Table of Contentsexpiration date and does not oblige us to acquire any particular amount of our common stock. The Board may suspend, modify or terminate the repurchaseprogram at any time without prior notice. During the year ended December 31, 2014, we repurchased approximately 10.6 million shares at an average price of $13.75 for an aggregate price ofapproximately $145.6 million excluding related commission charges, under a publicly-announced repurchase plan. As of December 31, 2014, subject to certain restrictions on repurchases under our revolving credit facility, we had $202.1 million of our common sharesavailable for repurchase under the 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, we entered into an Amended and Restated CreditAgreement (as amended, the "Credit Agreement"), and on December 27, 2013, we entered into the Third Amendment to Amended and Restated CreditAgreement (the "Third Amendment"). The Third Amendment, among other things, (i) allowed for the payment of dividends on the Series A ConvertiblePreferred Stock ("Series A Preferred Stock"), (ii) permitted the Company to have greater flexibility to repurchase its Common Stock, (iii) decreased themaximum leverage ratio from 3.50 to 1.00 to 3.25 to 1.00, and (iv) amended certain definitions of the financial covenants to become more favorable to theCompany. See Note 14—Series A Preferred Stock for further details regarding the payment of dividends on the Series A Preferred Stock. On March 27, 2014,we entered into the Fourth Amendment to Amended and Restated Credit Agreement (the "Fourth Amendment"). The Fourth Amendment primarily (i) alteredthe minimum fixed charge coverage ratio from 1.25 to 1.00 to a scaled quarterly ratio of 1.15 to 1.00 in the first and second quarters of 2014, 1.20 to 1.00 inthe third quarter of 2014, and (ii) amended certain definitions of the financial covenants to become more favorable to us. On September 26, 2014, we entered into the Fifth Amendment to Amended and Restated Credit Agreement (the "Fifth Amendment"), pursuant to whichcertain terms of the Credit Agreement were amended. The Fifth Amendment primarily (i) extended the minimum fixed charge coverage ratio of 1.15 to 1.00through the second quarter of 2015 and will return to 1.25 to 1.00 for each quarter thereafter, and (ii) amended certain definitions of the financial covenantsto become more favorable to us. 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 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 prime rateand (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. For LIBOR rateloans, the interest rate is equal to a LIBOR rate plus a margin ranging from 1.25% to 2.00% based on certain conditions. The Credit Agreement requiresmonthly interest payments with respect to domestic rate loans and at the end of each interest period with respect to LIBOR rate loans. The Credit Agreementfurther provides for a limit on the issuance of letters of credit to a maximum of $20.0 million. The Credit56Table of ContentsAgreement contains provisions requiring us to maintain compliance with certain restrictive and financial covenants. As of December 31, 2014 and 2013, we had no outstanding borrowings under the Credit Agreement. As of December 31, 2014 and 2013, we had issuedand outstanding letters of credit of $1.8 million and $7.2 million, respectively, which were reserved against the borrowing base under the terms of the CreditAgreement. During the years ended December 31, 2014, 2013 and 2012, we capitalized $0.1 million, $0.1 million and $0.5 million, respectively, in fees andthird party costs which were incurred in connection with the Credit Agreement, as deferred financing costs. As of December 31, 2014, we were in compliancewith 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 whichPNC will finance the Company's purchase of software and services, which may include but are not limited to third-party costs to design, install andimplement software systems, and associated hardware described in the schedules defined within the Master IPA. This agreement was entered into to financethe recent implementation of a new enterprise resource planning ("ERP") system which began in October 2012 and is estimated to continue through early2015. The terms 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, 2014 and 2013, we had $11.6 million and $16.8 million, respectively, of long-term debt outstanding under five separate notespayable, of which $5.3 million and $5.1 million, respectively, represent current installments. As of December 31, 2014, the notes bear interest rates rangingfrom 2.45% to 2.79% and maturities ranging from September 2016 to September 2017. As this debt arrangement relates solely to the construction andimplementation of an ERP system for our use, all interest expense incurred under the arrangement has been capitalized to the consolidated balance sheetsuntil the assets are ready for their intended use and will be amortized over the useful life of the software starting on that date. During the year endedDecember 31, 2014 and 2013, we capitalized $0.4 million and $0.3 million, respectively, 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.Capital Assets During the year ended December 31, 2014, net capital assets acquired, inclusive of intangible assets, were $57.0 million compared to $68.8 millionduring the same period in 2013. The increase is primarily due to decreased capital spend in our retail channel as we begin to close or convert locationspartially offset by a large increase in the capitalization of our ERP implementation costs. We have entered into various operating leases that require cash payments on a specified schedule. Over the next five years we are committed to makepayments of approximately $241.6 million related to our operating leases. We plan to continue to enter into operating leases related to our retail stores;however, we plan to reduce our overall retail footprint in 2015. We also continuously evaluate cost reduction opportunities. Our evaluation of cost reductionopportunities includes assessments of sponsorship contracts, operating lease contracts and other contracts that require future minimum payments resulting infixed operating costs. Any changes to these contracts may require early termination fees or other charges that could result in significant cash expenditures.57Table of ContentsRepatriation of Cash As we are a global business, we have cash balances which are located in various countries and are denominated in various currencies. Fluctuations inforeign currency exchange rates impact our results of operations and cash positions. Future fluctuations in foreign currencies may have a material impact onour cash flows and capital resources. Cash balances held in foreign countries may have additional restrictions and covenants associated with them whichcould adversely impact our liquidity and our 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 has approved aforeign cash repatriation strategy. As part of this strategy, we repatriated approximately $106.0 million during the year ended December 31, 2014 for whichincome taxes have already been accrued or paid. Further cash repatriation will depend on future cash requirements in the U.S. We maintain approximately$65.8 million of foreign earnings for which tax has previously been provided, and which has not been repatriated at this time. Most of the cash balances held outside of the U.S. could be repatriated to the U.S., but under current law, would be subject to U.S. federal and stateincome taxes less applicable foreign tax credits. In some countries, repatriation of certain foreign balances is restricted by local laws and could have adversetax consequences if we were to move the cash to another country. Certain countries have monetary laws which may limit our ability to utilize cash resourcesin those countries for operations in other countries. These limitations may affect our ability to fully utilize our cash resources for needs in the U.S. or othercountries and could adversely affect our liquidity. As of December 31, 2014, we held $247.6 million of our total $267.5 million in cash in internationallocations. This cash is primarily used for the ongoing operations of the business in the locations in which the cash is held. Of the $247.6 million,$10.8 million could potentially be restricted, as described above. If the remaining $236.8 million were to be immediately repatriated to the U.S., we would berequired to incur approximately $39.0 million in taxes that were not previously provided for in our consolidated statement of operations.Contractual Obligations In December 2011, we renewed and amended our supply agreement with Finproject S.p.A. (formerly known as Finproject s.r.l.), which provides us theexclusive right to purchase certain raw materials used to manufacture our products. The agreement also provides that we meet minimum purchaserequirements to maintain exclusivity throughout the term of the agreement, which expires December 31, 2016. Historically, the minimum purchaserequirements have not been onerous and we do not expect them to become onerous in the future. Depending on the material purchased, pricing was eitherbased on contracted price or was subject to quarterly reviews and fluctuates based on order volume, currency fluctuations and raw material prices. Pursuant tothe agreement, we guarantee the payment for certain third-party manufacturer purchases of these raw materials up to a maximum potential amount of€3.5 million (approximately $4.3 million as of December 31, 2014), through a letter of credit that was issued to Finproject S.p.A. During 2015, we currently estimate additional restructuring costs related to store closures and changes in organizational structure of approximately$5 million to $20 million, but can make no assurance that actual costs will not differ, as our restructuring plans are not yet complete.58Table of Contents The following table summarizes aggregate information about our significant contractual cash obligations as of December 31, 2014:59 Payments due by period ($ thousands) Total Less than1 year 1 - 3years 3 - 5years More than5 years Operating lease obligations(1) $356,693 $78,724 $99,133 $63,770 $115,066 Inventory purchase obligations with third-partymanufacturers(2) 202,289 202,289 — — — Dividends payable(3) 87,766 11,900 24,000 24,000 27,866 Other contracts(4) 37,176 13,620 21,494 2,062 — Debt obligations(5)(9) 12,034 5,739 6,295 — — Minimum licensing royalties(6) 5,346 2,748 1,755 843 — Estimated liability for uncertain tax positions(7) 813 — 813 — — Capital lease obligations(8)(9) 33 27 5 1 — Total $702,150 $315,047 $153,495 $90,676 $142,932 (1)Our operating lease obligations consist of leases for retail stores, offices, warehouses, vehicles, and equipment expiring at variousdates through 2033. This balance represents the minimum cash commitment under contract to various third parties for operating leaseobligations including the effect of rent escalation clauses and deferred rent and minimum sublease rentals due in the future under non-cancelable subleases. This balance does not include certain contingent rent clauses that may require additional rental amounts basedon sales volume, inventories, etc. as these amounts are not determinable for future periods. (2)Our inventory purchase obligations with third party manufacturers consist of open purchase orders for footwear products and includean immaterial amount of purchase commitments with certain third-party manufacturers for yet-to-be-received finished product wheretitle passes to us upon receipt. All purchase obligations with third party manufacturers are expected to be paid within one year. (3)Dividends payable are associated with our Series A Preferred Stock at a rate of 6.0% of the stated value of the stock. The amountsrepresent expected dividend payments over the eight year redemption accretion period. (4)Other contracts consist of various agreements with third-party providers. (5)We have entered into an agreement with PNC to finance the purchase of software and services related to the implementation of ournew ERP system, which began in October 2012 and is expected to continue into early 2015. Our current debt obligations consist offive separate notes issued under the agreement, which bear interest rates ranging from 2.45% to 2.79% and maturities ranging fromSeptember 2016 to September 2017. We will continue to finance the ERP implementation on an as needed basis through thisagreement. 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 and copyrights inthe production of our footwear, apparel and accessories. Royalty obligations are based on minimum guarantees under contract;however, may include additional royalty obligations based on sales volume that are not determinable for future periods. (7)Our estimated liability for uncertain tax positions are unrecognized tax benefits taken in our income tax return that would reduce oureffective tax rate, if recognized. As of December 31, 2014, we had gross unrecognized tax benefits recorded in non-current liabilitiesof $8.4 million andTable of ContentsOff-Balance Sheet Arrangements We had no material off-balance sheet arrangements as of December 31, 2014.Critical Accounting Policies and EstimatesGeneral Our discussion and analysis of financial condition and results of operations, outside of discussions regarding constant currency and non-GAAP financialmeasures, is based on the consolidated financial statements which have been prepared in accordance with GAAP. The preparation of these financialstatements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financialstatements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an on-goingbasis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the resultsof which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates under different assumptions or conditions. The following discussion pertains to accounting policies management believes aremost critical to the portrayal of our financial condition and results of operations as well as the accounting policies that management considers subjective. Reserves for Uncollectible Accounts Receivable. We make ongoing estimates related to the collectability of our accounts receivable and maintain areserve for estimated losses resulting from the inability of our customers to make required payments. Our estimates are based on a variety of factors, includingthe length of time receivables are past due, economic trends and conditions affecting our customer base, significant non-recurring events and historical write-off experience. Specific provisions are recorded for individual receivables when we become aware of a customer's inability or unwillingness to meet itsfinancial obligations. Because we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accountsmay differ from our estimates and we may experience changes in the amount of reserves we recognize for accounts receivable that we deem uncollectible. Ifthe financial condition of some of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In theevent we determine that a smaller or larger reserve is appropriate, we would record a credit or a charge to selling, general and administrative expenses in theperiod in which we made such a determination. Sales Returns, Allowances and Discounts. We record reductions to revenue for estimated customer returns, allowances and discounts. Our estimatedsales returns and allowances are based on customer return history and actual outstanding returns yet to be received. Provisions for customer specific discountsbased on contractual obligations with certain major customers are recorded as reductions to60an additional $0.8 million in gross interest and penalties. We released $4.9 million of interest due to settlements of prior yearpositions, lapse of statute of limitations and change in uncertainty. Of the $8.4 million, we expect approximately $0.8 million to bepaid within less than a year. Of the remaining $7.6 million uncertain tax liabilities, we are unable to make a reasonable estimate of thetiming of payments in individual years and therefore, such amounts are not included in the contractual obligation table above.(8)Our capital lease obligations consist of leases for office equipment expiring at various dates through 2016. This balance represents theminimum cash commitment under contract to various third-parties for capital lease obligations. (9)Amounts include anticipated interest payments.Table of Contentsnet sales. We may accept returns from our wholesale and distributor customers on an exception basis at the sole discretion of management for the purpose ofstock re-balancing, to ensure that our products are merchandised in the proper assortments. Additionally, at the sole discretion of management, we mayprovide markdown allowances to key wholesale and distributor customers to facilitate the "in-channel" markdown of products where we have experiencedless than anticipated sell-through. We also record reductions to revenue for estimated customer credits as a result of price mark-downs in certain markets.Fluctuations in our estimates for sales returns, allowances and discounts may be caused by many factors, including, but not limited to, fluctuations in oursales revenue and changes in demand for our products. Our judgment in determining these estimates is impacted by various factors including customeracceptance of our new styles, customer inventory levels, shipping delays or errors, known or suspected product defects, the seasonal nature of our productsand macroeconomic factors affecting our customers. Because we cannot predict or control certain of these factors, the actual amounts of customer returns andallowances may differ from our estimates. Inventory Valuation. Inventories are valued at the lower of cost or market. Inventory cost is determined using the moving average cost method. At leastannually, or more frequently if events and circumstances indicate fair value is less than carrying value, we evaluate our inventory for possible impairmentusing standard categories to classify inventory based on the degree to which we believe that the products may need to be discounted below cost to sell withina reasonable period. We base inventory fair value on several subjective and unobservable assumptions including estimated future demand and marketconditions and other observable factors such as current sell-through of our products, recent changes in demand for our product, shifting demand between theproducts we offer, global and regional economic conditions, historical experience selling through liquidation and "off-price" channels and the amount ofinventory on hand. If the estimated inventory fair value is less than its carrying value, the carrying value is adjusted to market value and the resultingimpairment charge is recorded in cost of sales on the consolidated statements of operations. The ultimate results achieved in selling excess and discontinuedproducts in future periods may differ significantly from management's fair value estimates. See Note 2—Inventories in the accompanying notes to theconsolidated financial statements for additional information regarding inventory. Impairment of Long-Lived Assets. We test long-lived assets to be held and used for impairment when events or circumstances indicate the carryingvalue of a long-lived asset may not be fully recoverable. Events that may indicate the impairment of a long-lived asset (or asset group, as defined below)include: (i) a significant decrease in its market price, (ii) a significant adverse change in the extent or manner in which it is being used or in its physicalcondition, (iii) a significant adverse change in legal factors or business climate that could affect its value, including an adverse action or assessment by aregulator, (iv) an accumulation of costs significantly in excess of the amount originally expected for its acquisition or construction, (v) its current periodoperating or cash flow losses combined with historical operating or cash flow losses or a forecast of its cash flows demonstrate continuing losses associatedwith its use, and (vi) a current expectation that, more likely than not, it will be sold or otherwise disposed of significantly before the end of its previouslyestimated useful life. If such facts indicate a potential impairment of a long-lived asset (or asset group), we assess the recoverability by determining if itscarrying value exceeds the sum of its projected undiscounted cash flows expected from its use and eventual disposition over its remaining economic life. Ifthe asset is not supported on an undiscounted cash flow basis, the amount of impairment is measured as the difference between its carrying value and its fairvalue. Assets held for sale are reported at the lower of the carrying amount or fair value less costs to sell. Fair value is determined by independent third-partyappraisals, the net present value of expected cash flows, or other valuation techniques as appropriate. Assets to be abandoned or from which no further benefitis expected are written down to zero at the time that the determination is made and the assets are removed entirely from service.61Table of Contents An asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets andliabilities. For assets involved in our retail business, our asset group is at the retail store level. Our estimates of future cash flows over the remaining useful lifeof the asset group are based on management's operating budgets and forecasts. These budgets and forecasts take into consideration inputs from our regionalmanagement related to growth rates, pricing, new markets and other factors expected to affect the business, as well as management's forecasts for inventory,receivables, capital spending, and other cash needs. These considerations and expectations are inherently uncertain, and estimates included in our operatingforecasts beyond a three to six month future period are extremely subjective. Accordingly, actual cash flows may differ significantly from our estimated futurecash flows. Impairment charges are driven by, among other things, changes in our strategic operational and financial decisions, global and regional economicconditions, demand for our product and other corporate initiatives which may eliminate or significantly decrease the realization of future benefits from ourlong-lived assets and result in impairment charges in future periods. Significant impairment charges recognized during a reporting period could have anadverse effect on our reported financial results. Share-based Compensation. We estimate the fair value of our stock option awards using a Black Scholes valuation model, the inputs of which requirevarious assumptions including the expected volatility of our stock price and the expected life of the option. The expected volatility assumptions are derivedusing our historical stock price volatility and the historical volatilities of competitors whose shares are traded in the public markets. These assumptionsreflect our best estimates, however; they involve inherent uncertainties based on market conditions generally outside of our control. If factors change and weuse a different methodology for deriving the Black Scholes assumptions, our share- based compensation expense may differ materially in the future from thatrecorded in the current period. Additionally, we make certain estimates about the number of awards which will be made under performance based incentiveplans. As a result, if other assumptions or estimates had been used, share-based compensation expense could have been materially impacted. Furthermore, ifwe use different assumptions in future periods, share-based compensation expense could be materially impacted in future periods. See Note 10—Equity in theaccompanying notes to the consolidated financial statements for additional information regarding our share-based compensation. Provisions for Contingencies and Legal Proceedings. We estimate our provision for general contingencies, including potential losses in relation to taxand customs matters and legal proceedings, based on an assessment of the probability of the contingency and accrue if information available indicates that itis probable that a liability has been incurred. When it has been determined that a liability has been incurred, and information available indicates that theestimated amount of loss can be reasonably estimated and/or is within a range of amounts, that amount is accrued for in the consolidated financial statements. Income Taxes. We account for income taxes using the asset and liability method which requires the recognition of deferred tax assets and liabilities forthe expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets and liabilities. We provide forincome taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-step approach for recognizing andmeasuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. The impact of anuncertain tax position that is more likely than not of being sustained upon examination by the relevant taxing authority must be recognized at the largestamount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihoodof being sustained. Interest expense is recognized on the full amount of deferred benefits for uncertain tax positions. While the validity of any tax position isa62Table of Contentsmatter 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 which weoperate. Significant judgment is required in determining our annual tax expense and in evaluating our tax positions. Tax laws require items to be included inour tax returns at different times than when these items are reflected in the consolidated financial statements. As a result, the annual tax rate reflected in ourconsolidated financial statements is different than that reported in our tax return (our cash tax rate). Some of these differences are permanent, such as expensesthat are not deductible in our tax return, and some differences reverse over time, such as depreciation expense. These timing differences create deferred taxassets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assetsand liabilities. The tax rates used to determine deferred tax assets or liabilities are the enacted tax rates in effect for the year in which the differences areexpected to reverse. Based on an evaluation of all available information, we recognize future tax benefits, such as net operating loss carryforwards, to theextent 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 both historicaland projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and theavailability of tax planning strategies. A valuation allowance is required to be established unless management determines that it is more likely than not thatwe will ultimately realize the tax benefit associated with a deferred tax asset. Undistributed earnings of a subsidiary are accounted for as a temporarydifference, except that deferred tax liabilities are not recorded for undistributed earnings of a foreign subsidiary that are deemed to be indefinitely reinvestedin the foreign jurisdiction. We have operated under a specific plan for reinvestment of undistributed earnings of our foreign subsidiaries which demonstratesthat such earnings will be indefinitely reinvested in the applicable tax jurisdictions. Should we change our plans, we would be required to record a significantamount of deferred tax liabilities. We recognize interest and penalties related to unrecognized tax benefits within the "Income tax expense" line in theaccompanying consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the consolidatedbalance sheets. See Note 12—Income Taxes in the accompanying notes to the consolidated financial statements for additional information regarding ourincome taxes. Recent Accounting Pronouncements. See Note 1—Organization and Summary of Significant Accounting Policies in the accompanying notes to theconsolidated 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 financial instruments. Inaddition to the revolving credit facility, we have incurred short- and long-term indebtedness related to the implementation of our ERP system. Borrowingsunder these debt instruments bear fixed interest rates and therefore, do not have the potential for market risk. 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) thedaily 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%, in each case thereis an additional margin ranging from 0.25% to 1.00% based on certain conditions. For63Table of ContentsLIBOR 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. Borrowings under therevolving credit facility are therefore subject to risk based upon prevailing market interest rates. Interest rates fluctuate as a result of many factors, includinggovernmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control. Asof December 31, 2014, there were no borrowings under the revolving credit facility. During the year ended December 31, 2013, the maximum daily amountborrowed under the revolving credit facility was $5.0 million and the average daily amount of borrowings outstanding was $0.1 million. If the prevailingmarket interest rates relative to these borrowings increased by 10% during the year ended December 31, 2013, our interest expense would not have increasedmaterially. We additionally hold cash equivalents including certificate of deposits, time deposits and money market funds. Interest income generated from thesecash equivalents will fluctuate with the general level of interest rates. As of December, 2014, we held $23.3 million in cash equivalents subject to variableinterest rates. If the prevailing market interest rates relative to these investments increased or decreased by10% during the year ended December 31, 2014,interest income would have increased or decreased by approximately $0.1 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 of expensesattributable to our foreign operations in the functional currency of the country in which such operations are conducted and pay the majority of our overseasthird-party manufacturers in U.S. Dollars. Our ability to sell our products in foreign markets and the U.S. Dollar value of the sales made in foreign currenciescan be significantly influenced by foreign currency fluctuations. Fluctuations in the value of foreign currencies relative to the U.S. Dollar could result indownward price pressure for our products and increase losses from currency exchange rates. An increase or decrease of 1% in value of the U.S. Dollar relativeto foreign currencies would have increased or decreased loss before taxes during the year ended December 31, 2014 by approximately $2.1 million. Thevolatility of the applicable exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy. In the event our foreign sales andpurchases increase and are denominated in currencies other than the U.S. Dollar, our operating results may be affected by fluctuations in the exchange rate ofcurrencies we receive for such sales. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for a discussionof the impact of foreign exchange rate variances experienced during the years ended December 31, 2014 and 2013. 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 and currencyswap derivative instruments to selectively protect against volatility in the value of non-functional currency denominated monetary assets and liabilities, andof 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, 2014 and 2013. 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 amounts64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) and 15d-15(e) under the Exchange Act, as of December 31, 2014 (the "Evaluation Date"). Based on this evaluation, our Chief Executive Officer and Chief FinancialOfficer concluded that as of the Evaluation Date, our disclosure controls and procedures were effective such that the information relating to us, including ourconsolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission ("SEC") reports (i) is recorded, processed, summarized andreported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.65 December 31, ($ thousands) 2014 2013 Foreign currency exchange forward contracts by currency: Euro $134,755 $38,577 Singapore Dollar 61,887 28,225 Japanese Yen 44,533 68,707 British Pound Sterling 17,230 15,487 South Korean Won 14,590 12,100 Mexican Peso 13,180 18,350 Australian Dollar 7,913 4,941 Chinese Yuan Renminbi 5,376 — South African Rand 4,355 3,076 Indian Rupee 3,356 2,150 New Taiwan Dollar 3,229 3,463 Canadian Dollar 3,005 3,428 Swedish Krona 1,918 1,615 Russian Ruble 1,838 17,588 Norwegian Krone 917 — Hong Kong Dollar 814 1,844 New Zealand Dollar 743 943 Total notional value, net $319,639 $220,494 Latest maturity date January 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 Act Rules 13a-15(f) and 15d-15(f). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014, using the criteria setforth in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2014. Deloitte & Touche LLP, our independent registered public accounting firm, has issued a report on our internal control over financial reporting, which isincluded herein.Changes in Internal Control Over Financial 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.66Table of Contents REPORT 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, 2014, based on criteriaestablished in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. TheCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying "Management's Annual Report on Internal Control Over Financial Reporting". Ourresponsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures aswe 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 personnel toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of managementand directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or dispositionof 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 management overrideof controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because ofchanges 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, 2014, based onthe criteria established in Internal Control—Integrated Framework (2013) 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 consolidated financialstatements as of and for the year ended67Table of ContentsDecember 31, 2014 of the Company and our report dated March 2, 2015 expressed an unqualified opinion on those financial statements./s/ Deloitte & Touche LLPDenver, ColoradoMarch 2, 201568Table of Contents PART III ITEM 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2015 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after December 31, 2014.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, principalaccounting officer and controller. A copy of our business code of conduct and ethics policy is available on our website: www.crocs.com. We are required todisclose certain changes to, or waivers from, our code of ethics for our senior financial officers. We intend to use our website as a method of disseminating anychange to, or waiver from, our business code of conduct and ethics policy as permitted by applicable SEC rules. ITEM 11. Executive Compensation The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2015 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after December 31, 2014. 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 2015 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after December 31, 2014, with the exception of those items listed below.Securities Authorized for Issuance under Equity Compensation Plans As shown in the table below, we reserved 3.7 million shares of common stock for future issuance pursuant to exercise of outstanding awards under equitycompensation plans as of December 31, 2014.69Plan 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 by stockholders(1) 3,701,089 $13.52 3,721,112 Equity compensation plans not approved by stockholders — — — Total 3,701,089 $13.52 3,721,112 (1)On July 9, 2007, at the annual stockholders' meeting, our stockholders approved the 2007 Equity Incentive Plan (the "2007 Plan"),which previously had been approved by our Board of Directors (the "Board") 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 dividends andsimilar changes in our capitalization. On April 27, 2005, our Board adopted the 2005 Equity Incentive Plan (the "2005 Plan"). OnJanuary 10, 2006, our BoardTable of Contents ITEM 13. Certain Relationships and Related Transactions and Director Independence The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2015 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after December 31, 2014. 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 2015 Annual Meeting of Stockholdersto be filed with the SEC within 120 days after December 31, 2014. PART 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 consolidatedfinancial statements or notes thereto.70amended the 2005 Plan to increase the number of shares of our common stock available for issuance under the 2005 Plan from11.7 million shares to 14.0 million shares. Following the adoption of the 2007 Plan, no additional grants were made under the 2005Plan.(2)The weighted-average exercise price of outstanding options pertains only to 1.7 million shares issuable on the exercise of outstandingoptions and rights. Table of Contents(3) Exhibit list71ExhibitNumber 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)). 3.2 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). 3.3 Amended and Restated Bylaws of Crocs, Inc. (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.'sRegistration Statement on Form S-8, filed on March 9, 2006 (File No. 333-132312)). 3.4 Certificate of Designations of Series A Convertible Preferred Stock of Crocs, Inc. (incorporated herein 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, filed onAugust 15, 2005 (File No. 333-127526)). 10.2*Crocs, Inc. 2005 Equity Incentive Plan (the "2005 Plan") (incorporated herein by reference to Exhibit 10.2 toCrocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 10.3*Amendment No. 1 to the 2005 Plan (incorporated herein by reference to Exhibit 10.2.2 to Crocs, Inc.'sRegistration Statement on Form S-1/A, filed on January 19, 2006 (File No. 333-127526)). 10.4*Form of Notice of Grant of Stock Option under the 2005 Plan (incorporated herein by reference to Exhibit 10.3to 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 (incorporated hereinby reference to Exhibit 10.4 to Crocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (FileNo. 333-127526)). 10.6*Form of Stock Purchase Agreement under the 2005 Plan (incorporated herein by reference to Exhibit 10.5 toCrocs, Inc.'s Registration Statement on Form S-1, filed on August 15, 2005 (File No. 333-127526)). 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 Contents72ExhibitNumber 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. Amended and Restated 2007 Senior Executive Deferred Compensation Plan (incorporated herein byreference to Exhibit 10.15 to Crocs, Inc.'s Annual Report on Form 10-K, filed on March 17, 2009). 10.12*2008 Cash Incentive Plan (As Amended and Restated Effective June 4, 2012) (incorporated herein by referenceto Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on June 7, 2012). 10.13*Crocs, Inc. 2007 Equity Incentive Plan (As Amended and Restated) (the "2007 Plan") (incorporated herein byreference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on July 1, 2011). 10.14*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). 10.15*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). 10.16*Form of Non-Statutory Stock Option Agreement for Non-Employee Directors under the 2007 Plan (incorporatedherein by reference to Exhibit 10.3 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on November 14, 2007). 10.17*Form of Restricted Stock Unit Agreement under the 2007 Plan (incorporated herein by reference to Exhibit 10.2to Crocs, Inc.'s Current Report on Form 8-K, filed on July 1, 2011). 10.18*Employment Agreement, dated May 18, 2009, between Crocs, Inc. and Daniel P. Hart (incorporated herein byreference to Exhibit 10.1 to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on August 5, 2010). 10.19 Amended and Restated Credit Agreement, dated December 16, 2011, among Crocs, Inc., Crocs Retail, Inc.,Ocean Minded, Inc., Jibbitz, LLC, Bite, Inc., the lenders named therein and PNC Bank, National Association, asa lender and administrative agent for the lenders (the "Amended and Restated Credit Agreement") (incorporatedherein by reference to Crocs, Inc.'s Current Report on Form 8-K, filed on December 19, 2011). 10.20 First Amendment to the Amended and Restated Credit Agreement, dated December 10, 2012, 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 Crocs, Inc.'sCurrent Report on Form 8-K, filed on December 11, 2012).Table of Contents73ExhibitNumber Description 10.21 Second Amendment to Amended and Restated Credit Agreement, dated June 12, 2013, among Crocs, Inc., CrocsRetail, Inc., Ocean Minded, Inc., Jibbitz, LLC, Bite, Inc., the lenders named therein and PNC Bank, NationalAssociation, as a lender and administrative agent (incorporated herein by reference to Exhibit 10.2 toCrocs, Inc.'s Quarterly Report on Form 10-Q, filed on July 30, 2013). 10.22 Third Amendment to Amended and Restated Credit Agreement, dated December 27, 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 10.1 toCrocs, Inc.'s Current Report on Form 8-K, filed on December 30, 2013). 10.23 Fourth Amendment to Amended and Restated Credit Agreement, dated March 27, 2014, 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 10.2 toCrocs, Inc.'s Quarterly Report on Form 10-Q, filed on May 1, 2014). 10.24 Fifth Amendment to Amended and Restated Credit Agreement, dated September 26, 2014, 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 10.2 toCrocs, Inc.'s Quarterly Report on Form 10-Q, filed on October 29, 2014). 10.25 Master Installment Payment Agreement, dated December 10, 2012, among Crocs, Inc. the lender named thereinand PNC Bank National Association, as a lender and administrative agent (incorporated herein by reference toExhibit 10.24 to Crocs, Inc.'s Annual Report on Form 10-K, filed on February 25, 2013). 10.26*Crocs, Inc. Change of Control Plan (as Amended and Restated) (incorporated herein by reference to Exhibit 10.1to Crocs, Inc.'s Quarterly Report on Form 10-Q, filed on May 1, 2014). 10.27 Investment Agreement, dated December 28, 2013, between Crocs, Inc. and Blackstone Capital Partners VI L.P.(incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed onDecember 30, 2013). 10.28 First Amendment to Investment Agreement, dated January 27, 2014, between Crocs, Inc. and Blackstone CapitalPartners VI L.P. (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 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 Current Report onForm 8-K, filed on December 30, 2013). 10.31*Form of Severance Agreement (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.'s Quarterly Reporton Form 10-Q, filed on July 30, 2014). 10.32*Employment Offer Letter, dated May 13, 2014, between Crocs, Inc. and Andrew Rees (incorporated herein byreference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on May 14, 2014).Table of Contents74ExhibitNumber Description 10.33 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). 10.34*Employment Offer Letter, dated December 15, 2014, between Crocs, Inc. and Gregg Ribatt (incorporated hereinby reference to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed on December 15, 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. 32†Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 asadopted 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 Contents SIGNATURES 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 signed on itsbehalf by the undersigned, thereunto duly authorized, as of March 2, 2015. 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.75 CROCS, INC.a Delaware Corporation By: /s/ GREGG RIBATT Name: Gregg Ribatt Title: Chief Executive OfficerSignature Title Date /s/ GREGG RIBATTGregg Ribatt Chief Executive Officer and Director March 2, 2015/s/ JEFFREY J. LASHERJeffrey J. Lasher Senior Vice President—Finance, ChiefFinancial Officer March 2, 2015/s/ RAYMOND D. CROGHANRaymond D. Croghan Director March 2, 2015/s/ RONALD L. FRASCHRonald L. Frasch Director March 2, 2015/s/ JASON GIORDANOJason Giordano Director March 2, 2015/s/ PETER A. JACOBIPeter A. Jacobi Director March 2, 2015/s/ PRAKASH A. MELWANIPrakash A. Melwani Director March 2, 2015Table of Contents76Signature Title Date /s/ THOMAS J. SMACHThomas J. Smach Chairman of the Board March 2, 2015/s/ DOREEN A. WRIGHTDoreen A. Wright Director March 2, 2015 Table of ContentsINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTSF-1Financial Statements: Report of Independent Registered Public Accounting Firm F-2 Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012 F-3 Consolidated Statements of Comprehensive Income (Loss) as of December 31, 2014, 2013 and 2012 F-4 Consolidated Balance Sheets as of December 31, 2014 and 2013 F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2014, 2013 and 2012 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012 F-7 Notes to Consolidated Financial Statements F-8 Table of Contents REPORT 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, 2014 and 2013 andthe related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the periodended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thefinancial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Crocs, Inc. and subsidiaries as ofDecember 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, inconformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2014, based on thecriteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commissionand our report dated March 2, 2015 expressed an unqualified opinion on the Company's internal control over financial reporting./s/ Deloitte & Touche LLPDenver, ColoradoMarch 2, 2015F-2Table of Contents CROCS, 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) 2014 2013 2012 Revenues $1,198,223 $1,192,680 $1,123,301 Cost of sales 603,893 569,482 515,324 Restructuring charges (Note 6) 3,985 — — Gross profit 590,345 623,198 607,977 Selling, general and administrative expenses 565,712 549,154 460,393 Restructuring charges (Note 6) 20,532 — — Asset impairment charges (Note 3) 8,827 10,949 1,410 Income (loss) from operations (4,726) 63,095 146,174 Foreign currency transaction losses, net 4,885 4,678 2,500 Interest income (1,664) (2,432) (1,697)Interest expense 806 1,016 837 Other income, net (204) (126) (1,014)Income (loss) before income taxes (8,549) 59,959 145,548 Income tax (benefit) expense (3,623) 49,539 14,205 Net income (loss) $(4,926)$10,420 $131,343 Dividends on Series A convertible preferred stock (Note 14) 11,301 — — Dividend equivalents on Series A convertible preferred stock related toredemption value accretion and beneficial conversion feature (Note 14) 2,735 — — Net income (loss) attributable to common stockholders $(18,962)$10,420 $131,343 Net income (loss) per common share (Note 13): Basic $(0.22)$0.12 $1.46 Diluted $(0.22)$0.12 $1.44 Table of Contents CROCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) The accompanying notes are an integral part of these consolidated financial statements.F-4 Year Ended December 31, ($ thousands) 2014 2013 2012 Net income (loss) $(4,926)$10,420 $131,343 Other comprehensive income (loss): Foreign currency translation (33,004) (5,335) 5,525 Reclassification of cumulative foreign exchange translation adjustments to netincome, net of tax of $0, $(3) and $7, respectively — 299 (658)Total comprehensive income (loss) $(37,930)$5,384 $136,210 Table of Contents CROCS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS The accompanying notes are an integral part of these consolidated financial statements.F-5 December 31, ($ thousands, except number of shares) 2014 2013 ASSETS Current assets: Cash and cash equivalents $267,512 $317,144 Accounts receivable, net of allowances of $32,392 and $10,513, respectively 101,217 104,405 Inventories 171,012 162,341 Deferred tax assets, net 4,190 4,440 Income tax receivable 9,332 10,630 Other receivables 11,989 11,942 Prepaid expenses and other current assets 30,156 29,175 Total current assets 595,408 640,077 Property and equipment, net 68,288 86,971 Intangible assets, net 97,337 72,314 Goodwill 2,044 2,508 Deferred tax assets, net 17,886 19,628 Other assets 25,968 53,661 Total assets $806,931 $875,159 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $42,923 $57,450 Accrued expenses and other current liabilities 80,216 97,111 Deferred tax liabilities, net 11,869 11,199 Accrued restructuring 4,511 — Income taxes payable 9,078 15,992 Current portion of long-term borrowings and capital lease obligations 5,288 5,176 Total current liabilities 153,885 186,928 Long-term income tax payable 8,843 36,616 Long-term borrowings and capital lease obligations 6,381 11,670 Long-term accrued restructuring 348 — Other liabilities 12,277 15,201 Total liabilities 181,734 250,415 Commitments and contingencies (Note 15) Series A convertible preferred stock, par value $0.001 per share, 1,000,000 shares authorized,200,000 shares issued and outstanding, redemption amount and liquidation preference of$203,067 and $0 as of December 31, 2014 and 2013, respectively (Note 14) 172,679 — Stockholders' equity: Preferred stock, par value $0.001 per share, 4,000,000 shares authorized, none outstanding — — Common stock, par value $0.001 per share, 250,000,000 shares authorized, 92,325,201 and78,516,566 shares issued and outstanding, respectively, as of December 31, 2014 and91,662,656 and 88,450,203 shares issued and outstanding, respectively, as of December 31,2013 92 92 Treasury stock, at cost, 13,808,635 and 3,212,453 shares as of December 31, 2014 and 2013,respectively (200,424) (55,964)Additional paid-in capital 345,732 321,532 Retained earnings 325,470 344,432 Accumulated other comprehensive income (loss) (18,352) 14,652 Total stockholders' equity 452,518 624,744 Total liabilities, commitments and contingencies and stockholders' equity $806,931 $875,159 Table of Contents CROCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Treasury Stock AccumulatedOtherComprehensiveIncome TotalStockHolders'Equity AdditionalPaid inCapital RetainedEarnings ($ and shares in thousands) Shares Amount Shares Amount BALANCE—January 1,2012 89,807 $90 499 $(19,759)$293,959 $202,669 $14,821 $491,780 Amortization of stockcompensation — — — — 11,764 — — 11,764 Forfeitures (43) — — — (493) — — (493)Exercises of stockoptions and issuanceof restricted stockawards 783 1 (29) 1,112 2,593 — — 3,706 Repurchase of commonstock for taxwithholding — — 30 (493) — — — (493)Purchase of treasurystock (1,884) — 1,884 (25,074) — — — (25,074)Net income — — — — — 131,343 — 131,343 Foreign currencytranslation — — — — — — 5,525 5,525 Reclassification ofcumulative foreignexchange translationadjustments to netincome — — — — — — (658) (658)BALANCE—December 31, 2012 88,663 $91 2,384 $(44,214)$307,823 $334,012 $19,688 $617,400 Amortization of stockcompensation — — — — 14,483 — — 14,483 Forfeitures (78) — — — (2,014) — — (2,014)Exercises of stockoptions and issuanceof restricted stockawards 715 1 (22) 1,039 1,240 — — 2,280 Repurchase of commonstock for taxwithholding (16) — 16 (256) — — — (256)Purchase of treasurystock (834) — 834 (12,533) — — — (12,533)Net income — — — — — 10,420 — 10,420 Foreign currencytranslation — — — — — — (5,335) (5,335)Reclassification ofcumulative foreignexchange translationadjustments to netincome — — — — — — 299 299 BALANCE—December 31, 2013 88,450 $92 3,212 $(55,964)$321,532 $344,432 $14,652 $624,744 Amortization of stockcompensation — — — — 14,896 — — 14,896 Forfeitures (144) — — — (2,129) — — (2,129)Exercises of stockoptions and issuanceof restricted stockawards 853 — (46) 2,185 (843) — — 1,342 Repurchase of commonstock for taxwithholding (53) — 53 (787) — — — (787)Purchase of treasurystock (10,590) — 10,590 (145,858) — — — (145,858)Dividends—Series Apreferred stock — — — — — (11,301) — (11,301)Accretion—Series Apreferred stock — — — — — (2,735) — (2,735) The accompanying notes are an integral part of these consolidated financial statements.F-6Adjustment forbeneficial conversionfeature of Series Apreferred stock — — — — 12,276 — — 12,276 Net loss — — — — — (4,926) — (4,926)Foreign currencytranslation — — — — — — (33,004) (33,004)BALANCE—December 31, 2014 78,516 $92 13,809 $(200,424)$345,732 $325,470 $(18,352)$452,518 Table of Contents CROCS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS The accompanying notes are an integral part of these consolidated financial statements.F-7 Year Ended December 31, ($ thousands) 2014 2013 2012 Cash flows from operating activities: Net income (loss) $(4,926)$10,420 $131,343 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 37,413 41,506 36,694 Unrealized (gain) loss on foreign exchange, net (11,100) (6,420) 13,928 Deferred income taxes 829 23,536 (2,981)Asset impairment charges 8,827 10,949 1,410 Provision for doubtful accounts, net 12,087 1,930 2,166 Share-based compensation 12,503 11,871 11,321 Inventory write-down charges 7,490 3,419 — Non-cash restructuring charges 6,413 — — Other non-cash items 534 1,193 1,725 Changes in operating assets and liabilities: Accounts receivable (15,288) (17,166) (9,475)Inventories (31,251) (5,274) (35,493)Prepaid expenses and other assets 21,698 (4,225) (25,490)Accounts payable (12,106) (5,740) 99 Accrued expenses and other liabilities (15,824) 14,256 8,016 Accrued restructuring 4,859 — — Income taxes (33,809) 3,209 (4,907)Cash provided by (used in) operating activities (11,651) 83,464 128,356 Cash flows from investing activities: Cash paid for purchases of property and equipment (15,991) (40,424) (39,762)Proceeds from disposal of property and equipment 236 250 2,216 Cash paid for intangible assets (41,035) (28,404) (21,074)Business acquisitions, net of cash — — (5,169)Restricted cash (1,202) (1,180) (2,154)Cash used in investing activities (57,992) (69,758) (65,943)Cash flows from financing activities: Proceeds from preferred stock offering, net of issuance costs of $15.8 million and $0.0 million, respectively 182,220 — — Dividends—Series A preferred stock (8,234) — — Proceeds from bank borrowings — 23,375 96,086 Repayment of bank borrowings and capital lease obligations (5,177) (13,160) (90,625)Deferred debt issuance costs (75) (100) (225)Deferred offering costs — (767) — Issuances of common stock 1,342 2,280 3,706 Purchase of treasury stock (145,858) (12,533) (25,074)Repurchase of common stock for tax withholding (787) (256) (493)Cash provided by (used in) financing activities 23,431 (1,161) (16,625)Effect of exchange rate changes on cash (3,420) 10,251 (9,027)Net increase in cash and cash equivalents (49,632) 22,796 36,761 Cash and cash equivalents—beginning of period 317,144 294,348 257,587 Cash and cash equivalents—end of period $267,512 $317,144 $294,348 Supplemental disclosure of cash flow information—cash paid during the period for: Interest, net of capitalized interest $616 $693 $619 Income taxes $33,655 $20,274 $29,385 Supplemental disclosure of non-cash investing and financing activities: Assets acquired under capitalized leases $— $61 $34 Accrued purchases of property and equipment $771 $2,165 $2,368 Accrued purchases of intangibles $2,988 $4,742 $768 Intrinsic value of beneficial conversion feature—Series A preferred stock $12,276 $— $— Accrued dividends $3,067 $— $— Accretion of dividend equivalents $2,735 $— $— Table of Contents CROCS, 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 accounting principlesgenerally accepted in the United States of America ("U.S. GAAP"). The consolidated financial statements include the accounts of our wholly-ownedsubsidiaries as well as variable interest entities ("VIE") for which we are the primary beneficiary after the elimination of intercompany accounts andtransactions. The primary beneficiary of a VIE is the entity that has (i) the power to direct the activities of the VIE that most significantly impact the VIE'seconomic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits fromthe VIE that could potentially be significant to the VIE. In April 2011, we and an unrelated third party formed Crocs Gulf, LLC ("Crocs Gulf") for the purpose of selling our products in the United Arab Emirates.We have determined that Crocs Gulf is a VIE for which we are the primary beneficiary due to our variable interest in Crocs Gulf's equity and because wecurrently control all of the VIE's business activities and will absorb all of its expected residual returns and expected losses. All voting and dividend rightshave been assigned to us. As of December 31, 2014 and 2013, the consolidated financial statements included $3.3 million and $2.4 million in total assets ofCrocs Gulf, respectively, which primarily consisted of cash and cash equivalents, inventory, property and equipment. The total assets as of December 31,2014 and 2013 were partially offset by $0.4 million and $0.2 million in total liabilities, respectively, which primarily consisted of accounts payable andaccrued expenses, excluding liabilities related to the support provided by us. Noncontrolling Interests—As of December 31, 2014, all of our subsidiaries were, in substance, wholly owned. Concentrations of Risk—We are exposed to concentrations of risks in the following categories: Cash and cash equivalents—Our cash and cash equivalents are maintained in several different financial institutions in amounts that typically exceedU.S. federally insured limits or in financial institutions in international jurisdictions where insurance is not provided and restrictions may exist. As we are a global business, we have cash and cash equivalent balances which are located in various countries and are denominated in variouscurrencies. Most of the cash balances held outside of the U.S. could be repatriated to the U.S., but under current law, would be subject to U.S. federal and stateincome taxes less applicable foreign tax credits. In some countries, repatriation of certain foreign balances is restricted by local laws and could have adversetax consequences if we were to move the cash to another country. Certain countries, including China, have monetary laws which may limit our ability toutilize cash resources in those countries for operations in other countries. These limitations may affect our ability to fully utilize our cash and cash equivalentresources for needs in the U.S. or other countries and could adversely affect our liquidity. As of December 31, 2014, we held $247.6 million of our total$267.5 million in cash in international locations. This cash is primarily used for the ongoing operations of the business in the locations in which the cash isheld. Of theF-8Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)$247.6 million held in international locations, $10.8 million could potentially be restricted, as described above. On January 27, 2014, we issued to Blackstone Capital Partners VI L.P. ("Blackstone"), and certain of its permitted transferees (together with 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 ofrelated expenses) all of which is held in the U.S. See Note 14—Series A Preferred Stock for further detail regarding the investment agreement. Accounts receivable—We have not experienced significant losses in such accounts in prior years, however, as of December 31, 2014, we recorded areserve for doubtful accounts of $11.5 million in our Asia Pacific segment primarily as a result of delayed payments from our partner stores in China andSoutheast Asia and a reserve for rebates on a consolidated basis of $11.6 million primarily related to our Asia Pacific region. As of December 31, 2013, ourreserve for doubtful accounts was $3.7 million and the rebates reserve was $1.4 million. Generally, we consider any concentration of credit risk related toaccounts receivable to be mitigated by our credit policy, the insignificance of outstanding balances owed by each individual customer at any point in timeand the geographic dispersion of our customers. See Note 11—Allowances for further detail. Manufacturing sources—We rely on a limited source of internal and external manufacturers. Establishing a replacement source could require significantadditional time and expense. Suppliers of certain raw materials—We source the elastomer resins that constitute the primary raw materials used in compounding Croslite, which weuse to produce our footwear products, from multiple suppliers. If the suppliers we rely on for elastomer resins were to cease production of these materials, wemay not be able to obtain suitable substitute materials in time to avoid interruption of our production cycle, if at all. We may also have to pay materiallyhigher prices in the future for the elastomer resins or any substitute materials we use, which would increase our production costs and could have a materiallyadverse impact on our margins and results of operations. Management Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments andassumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expensesduring the reporting period. Management believes that the estimates, judgments and assumptions made when accounting for items and matters such as, butnot limited to, the allowance for doubtful accounts, customer rebates, sales returns, impairment assessments and charges, recoverability of assets (includingdeferred tax assets), uncertain tax positions, share-based compensation expense, the assessment of lower of cost or market on inventory, useful lives assignedto long-lived assets, depreciation and provisions for contingencies are reasonable based on information available at the time they are made. Management alsomakes estimates in the assessments of potential losses in relation to tax and customs matters and threatened or pending legal proceedings (see Note 15—Commitments & Contingencies and Note 17—Legal Proceedings). Actual results could materially differ from these estimates. For matters not related toincome taxes, if a loss is considered probable and the amount can be reasonably estimated, we recognize an expense for the estimated loss. If there is thepotential to recover a portion of the estimated loss from a third party, we make a separate assessment of recoverability and reduce the estimated loss ifrecovery is deemed probable.F-9Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accumulated Other Comprehensive Income—Activity within our accumulated other comprehensive income ("AOCI") balance consists solely of gainsand losses resulting from the translation of foreign subsidiary financial statements to our reporting currency. Foreign currency translation resulting in changesto other comprehensive income and related reclassification adjustments are presented net of tax effects on the consolidated statements of othercomprehensive 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 between marketparticipants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value,we consider the principal or most advantageous market in which a hypothetical sale or transfer would take place and consider assumptions that marketparticipants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. The fair value hierarchy is made up of three levels of inputs which may be used to measure fair value: Level 1—observable inputs such as quoted prices for identical instruments in active markets; Level 2—observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in marketsthat 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 fair valuemeasurements within the fair value hierarchy based upon the lowest level of the most significant inputs used to determine such fair value measurement. Cash equivalents primarily include time deposits and certificates of deposit with original maturities of three months or less. Time deposits andcertificates of deposit included in cash equivalents are valued at amortized cost, which approximates fair value. These investments have been classified as aLevel 1 measurement. Derivative financial instruments are required to be recorded at their fair value, on a recurring basis. The fair values of any derivative instruments, shouldwe enter into them, would be determined using a discounted cash flow valuation model. The significant inputs used in the model are readily available inpublic markets or can be derived from observable market transactions, and therefore, have been classified as Level 2. These inputs include the applicableexchange rates and forward 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. Inventories and long-lived assets such as property and equipment and intangible assets are also not required to be carried at fair value on a recurringbasis. For a discussion of inventory estimated fairF-10Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)value see "Inventory Valuation" below. However, when determining impairment losses, the fair values of property and equipment and intangibles must bedetermined. For such determination, we generally use either an income approach with inputs that are mainly unobservable, such as expected future cashflows, or a market approach using observable inputs such as replacement cost or third-party appraisals, as appropriate. Estimated future cash flows are basedon management's operating budgets and forecasts which take into consideration both observable and unobservable inputs including growth rates, pricing,new markets and other factors expected to affect the business, as well as management's forecasts for inventory, receivables, capital spending, and other cashneeds. We consider this type of estimate to be classified as a Level 3 measurement. See Note 7—Fair Value Measurements for further discussion related to fairvalue measurements. Cash and Cash Equivalents—Cash and cash equivalents represent cash and short-term, highly liquid investments with maturities of three months or lessat the date of purchase. We consider receivables from credit card companies to be cash equivalents, if expected to be received within five days. Accounts Receivable—Accounts receivable represent amounts due from customers. Accounts receivable are recorded at invoiced amounts, net ofreserves and allowances, are not collateralized and do not bear interest. We use our best estimate to determine the required allowance for doubtful accountsbased on a variety of factors, including the length of time receivables are past due, economic trends and conditions affecting our customer base, significantnon-recurring events and historical non-collection experience. Specific provisions are recorded for individual receivables when we become aware of acustomer's inability to meet its financial obligations. See Note 11—Allowances for further discussion related to provisions for doubtful accounts and salereturns 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 leastannually, or more frequently if events and circumstances indicate fair value is less than carrying value, we evaluate our inventory for possible impairmentusing standard categories to classify inventory based on the degree to which we believe that the products may need to be discounted below cost to sell withina reasonable period. We base inventory fair value on several subjective assumptions including estimated future demand and market conditions, as well asother observable factors such as current sell-through of our products, recent changes in demand for our products, global and regional economic conditions,historical experience selling through liquidation and price discounted channels and the amount of inventory on hand. If the estimated inventory fair value isless than its carrying value, the carrying value is adjusted to market value and the resulting impairment charge is recorded in 'Cost of sales' on theconsolidated 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-line methodbased on the estimated useful lives ranging from two to five years. Leasehold improvements are stated at cost and amortized on the straight-line basis overtheir estimated economic useful lives or the lease term, whichever is shorter. Depreciation of manufacturing assets is included in cost of sales on theconsolidated statements of operations. Depreciation related to corporate, non-product and non-manufacturing assets is included in 'Selling, general andadministrative expenses' on the consolidated statements of operations. Impairment of Long-Lived Assets—Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate thecarrying value of a long-lived asset may not beF-11Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)fully recoverable. Events that may indicate the impairment of a long-lived asset (or asset group, as defined below) include (i) a significant decrease in itsmarket price, (ii) a significant adverse change in the extent or manner in which it is being used or in its physical condition, (iii) a significant adverse changein legal factors or business climate that could affect its value, including an adverse action or assessment by a regulator, (iv) an accumulation of costssignificantly in excess of the amount originally expected for its acquisition or construction, (v) its current period operating or cash flow losses combined withhistorical operating or cash flow losses or a forecast of its cash flows demonstrate continuing losses associated with its use, and (vi) a current expectation that,more likely than not, it will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. If such facts indicate apotential impairment of a long-lived asset (or asset group), we assess the recoverability by determining if its carrying value exceeds the sum of its projectedundiscounted cash flows from its use and eventual disposition over its remaining economic life. If the asset is not supported on an undiscounted cash flowbasis, the amount of impairment is measured as the difference between its carrying value and its estimated fair value. Assets held for sale are reported at thelower of the carrying amount or fair value less costs to sell. Assets to be abandoned or from which no further benefit is expected are written down to zero atthe time that the determination is made and the assets are removed entirely from service. An asset group is the lowest level of assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets andliabilities. For assets involved in our retail business, our asset group is at the retail store level. See Note 3—Property and Equipment for a discussion ofimpairment losses recorded during the periods presented. Intangible Assets—Intangible assets that are determined to have finite lives are amortized over their useful lives on a straight-line basis. Customerrelationships are amortized on a straight-line basis or an accelerated basis. Indefinite lived intangible assets, such as trade names, are not amortized and areevaluated for impairment at least annually and when circumstances imply possible impairment. Amortization of manufacturing intangible assets is included in cost of sales on the consolidated statements of operations. Amortization related tocorporate, non-product and non-manufacturing assets such as our global information systems is included in selling, general and administrative expenses onthe consolidated statements of operations. The following table sets forth our definite lived intangible assets and the periods over which they are amortized. Capitalized Software—We capitalize certain internal and external software acquisition and development costs, including the costs of employees andcontractors devoting time to the software development projects and external direct costs for materials and services. Initial costs associated with internally-developed-and-used software are expensed until it is determined that the project has reached the application development stage. Once in its developmentstage, subsequent additions, modifications or upgrades to an internal-use software project are capitalized to the extent that they add functionality.F-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)Software maintenance 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 impairment of capitalizedsoftware by assessing the substantive service potential of the software, changes, if any, in the extent or manner in which the software is used or is expected tobe used, and the actual cost of software development or modification compared to expected cost. See Note 4—Goodwill and Intangible Assets for furtherdiscussion. Impairment of Intangible Assets—Intangible assets with indefinite lives are evaluated for impairment when events or changes in circumstances indicatethat the carrying value may not be fully recoverable and at least annually. Intangible assets that are determined to have definite lives are amortized over theiruseful lives and are evaluated for impairment only when events or circumstances indicate a carrying value may not be fully recoverable. Recoverability isbased on the estimated future undiscounted cash flows of the asset. If the asset is not supported on an undiscounted cash flow basis, the amount of impairmentis measured as the difference between its carrying value and its estimated fair value. Goodwill—Goodwill represents the excess purchase price paid over the fair value of assets acquired and liabilities assumed in acquisitions. Goodwill isconsidered an indefinite lived asset and therefore is not amortized. The Company assesses goodwill for impairment annually on the last day of the fourthquarter, or more frequently if events and circumstances indicate impairment may have occurred. If the carrying value of goodwill exceeds its implied fairvalue, the Company records an impairment loss equal to the difference. See Note 4—Goodwill and Intangible Assets for discussion of goodwill balances anddiscussion 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 earnings allocationformula that determines earnings per share for common stock and any participating securities according to dividend rights and participation rights inundistributed earnings. Under the two-class method, EPS is computed by dividing the sum of distributed and undistributed earnings attributable to commonstockholders by the weighted-average number of shares of common stock outstanding during the period. A participating security is a security that mayparticipate in undistributed earnings with common stock had those earnings been distributed in any form. Our recently issued Series A convertible preferredstock ("Series A Preferred Stock") represents participating securities as holders of the Series A Preferred Stock are entitled to receive any and all dividendsdeclared or paid on common stock on an as-converted basis. In addition, shares of our non-vested restricted stock awards are considered participatingsecurities as they represent unvested share-based payment awards containing non-forfeitable rights to dividends. As such, these participating securities mustbe included in the computation of EPS pursuant to the two-class method on a pro-rata, as-converted basis. Diluted EPS reflects the potential dilution fromsecurities that could share in our earnings. In addition, the dilutive effect of each participating security is calculated using the more dilutive of the two-classmethod described above, which assumes that the securities remain in their current form, or the if-converted method, which assumes conversion to commonstock as of the beginning of the reporting date. Anti-dilutive securities are excluded from diluted EPS. See Note 13—Earnings Per Share for furtherdiscussion.F-13Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Beneficial conversion feature—The issuance of our Series A Preferred Stock generated a beneficial conversion feature, which arises when a debt orequity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion optionhas an effective strike price that is less than the market price of the underlying stock at the commitment date. We recognized the beneficial conversion featureby allocating the intrinsic value of the conversion option, which is the number of shares of common stock available upon conversion multiplied by thedifference between the effective conversion price per share and the fair value of common stock per share on the commitment date, to additional paid-incapital, resulting in a discount on the Series A Preferred Stock. We are accreting the discount over eight years from the date of issuance through theredemption date. Accretion expense will be recognized as dividend equivalents over the eight year period utilizing the effective interest method. Recognition of Revenues—Revenues are recognized when the customer takes title and assumes risk of loss, collection of related receivables is probable,persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Title passes on shipment or on receipt by the customer dependingon the country in which the sale occurs and the agreement terms with the customer. Allowances for estimated returns and discounts are recognized when therelated revenue is earned. Shipping and Handling Costs and Fees—Shipping and handling costs are expensed as incurred and included in cost of sales. Shipping and handlingfees 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 Company's Board ofDirectors (the "Board") are participants and may be granted stock options, restricted stock and stock performance awards. Awards granted under these plansare fair valued and amortized, net of estimated forfeitures, over the vesting period using the straight-line method. The fair value of stock options is calculatedby using 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-basedcompensation expense may differ materially in the future from that recorded in the current period. Share-based compensation expense associated with ourmanufacturing and retail employees is included in 'Cost of sales' in the consolidated statements of operations. Share-based compensation expense associatedwith selling, marketing and administrative employees is included 'Selling, general and administrative expenses' on the consolidated statements of operations.Share-based compensation directly associated with the construction or implementation of certain long-term projects for internal use are capitalized to theconsolidated balance sheets until assets are ready for intended use and will be amortized over the useful life of the assets upon that date. See Note 10—Equityfor 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 our U.S.payroll and provides employees with tax deferred salary deductions and alternative investment options. The Plan does not provide employees with theoption 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. Our expense related to the matching contributions to the Plan wasF-14Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)$7.1 million, $6.8 million and $5.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. Advertising—Advertising costs are expensed as incurred and production costs are expensed when the advertising is first run. Total advertising,marketing and promotional costs reflected in 'Selling, general, and administrative expenses' on the consolidated statement of operations were $44.7 million,$47.6 million and $39.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. Research and Development—Research and development costs are expensed as incurred. Research and development expenses amounted to$16.7 million, $15.4 million and $12.0 million for the years ended December 31, 2014, 2013 and 2012, 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 statements intoU.S. Dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive income in stockholders' equity. Gains and losses generated by transactions denominated in currencies other than the local functional currencies are reflected in the consolidatedstatement of operations in the period in which they occur and are primarily associated with payables and receivables arising from intercompany transactions. Derivative Foreign Currency Contracts—We are directly and indirectly affected by fluctuations in foreign currency rates which may adversely impactour financial performance. To mitigate the potential impact of foreign currency exchange rate risk, we may employ derivative financial instruments includingforward contracts and option contracts. Forward contracts are agreements to buy or sell a quantity of a currency at a predetermined future date and at apredetermined rate. An option contract is an agreement that conveys the purchaser the right, but not the obligation, to buy or sell a quantity of a currency at apredetermined rate during a period or at a time in the future. These derivative financial instruments are viewed as risk management tools and are not used fortrading or speculative purposes. We recognize derivative financial instruments as either assets or liabilities in the consolidated balance sheets and measurethose instruments at fair value. Changes in the fair value of derivatives not designated or effective as hedges are recorded in 'Foreign currency transaction(gains)/losses, net" in the consolidated statements of operations. We had no derivative instruments that qualified for hedge accounting during any of theperiods presented. See Note 7—Fair Value Measurements and Financial Instruments for further discussion. Income Taxes—Income taxes are accounted for using the asset and liability method which requires the recognition of deferred tax assets and liabilitiesfor the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. We providefor income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We use a two-step approach for recognizing andmeasuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. WeF-15Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)recognize interest and penalties related to income tax matters in income tax expense in the consolidated statement of operations. See Note 12—Income Taxesfor further discussion. Taxes Assessed by Governmental Authorities—Taxes assessed by governmental authorities that are directly imposed on a revenue transaction, includingvalue added tax, are recorded on a net basis and are therefore excluded from sales.Application of Recent Accounting PronouncementsRecently Adopted Accounting PronouncementsDiscontinued Operations In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08: Presentation ofFinancial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals ofComponents of an Entity, which amends the definition of a discontinued operation in ASC 205-20 and requires entities to provide additional disclosuresabout discontinued operations as well as disposal transactions that do not meet the discontinued operations criteria. The FASB issued the ASU to providemore decision-useful information and to make it more difficult for a disposal transaction to qualify as a discontinued operation. Under the previous guidance,the results of operations of a component of an entity were classified as a discontinued operation if all of the following conditions were met:•The component has been disposed of or is classified as held for sale. •The operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of thedisposal transaction. •The entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. The new guidance eliminates the second and third criteria above and instead requires discontinued operations treatment for disposals of a component orgroup of components that represents a strategic shift that has or will have a major impact on an entity's operations or financial results. The ASU also expandsthe scope of ASC 205-20 to disposals of equity method investments and businesses that, upon initial acquisition, qualify as held for sale. In addition, theASU requires entities to reclassify assets and liabilities of a discontinued operation for all comparative periods presented in the statement of financialposition. Before these amendments, ASC 205-20 neither required nor prohibited such presentation. Regarding the statement of cash flows, an entity mustdisclose, in all periods presented, either (1) operating and investing cash flows or (2) depreciation and amortization, capital expenditures, and significantoperating and investing noncash items related to the discontinued operation. This presentation requirement represents a significant change from previousguidance. This ASU is effective prospectively for all disposals or components initially classified as held for sale in periods beginning on or afterDecember 15, 2014. Early adoption is permitted. The adoption of this pronouncement did not have a material impact to the Company's consolidatedfinancial statements.F-16Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Income Taxes In July 2013, the FASB issued ASU No. 2013-11 Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating LossCarryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU No. 2013-11"). This pronouncement provides guidance on financial statementpresentation of an unrecognized tax benefit ("UTB") when a net operating loss ("NOL") carryforward, a similar tax loss or 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 a reduction to a deferred tax asset ("DTA") foran 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 law tosettle 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. Thisamendment does not affect the amounts disclosed in the tabular reconciliation of the total amounts of UTBs because the tabular reconciliation presents grossamounts of UTBs. This pronouncement is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2013. TheCompany adopted this pronouncement on January 1, 2014. The adoption of this pronouncement did not have a material impact to the Company'sconsolidated financial position or results of operations.Recently Issued Accounting PronouncementsGoing Concern On August 27, 2014, the FASB issued ASU 2014-15, which provides guidance on determining when and how reporting entities must disclose goingconcern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability tocontinue as a going concern within one year of the date of issuance of the entity's financial statements (or within one year after the date on which thefinancial statements are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is "substantial doubt about theentity's ability to continue as a going concern." The FASB believes that requiring management to perform the assessment will enhance the timeliness, clarity and consistency of related disclosures andimprove convergence with IFRSs (which emphasize management's responsibility for performing the going concern assessment). However, the time horizonfor the assessment (look-forward period) and the disclosure thresholds under U.S. GAAP and IFRSs will continue to differ. This ASU is effective for annualperiods ending after December 16, 2016, and interim periods thereafter; early adoption is permitted. The Company does not believe that this pronouncementwill have a material impact on our financial statement disclosures.Share-Based Payment On June 19, 2014, the FASB issued ASU 2014-12 in response to the EITF consensus on Issue 13-D. The ASU clarifies that entities should treatperformance targets that can be met after theF-17Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)requisite service period of a share-based payment award as performance conditions that affect vesting. Therefore, an entity would not record compensationexpense related to an award for which transfer to the employee is contingent on the entity's satisfaction of a performance target until it becomes probable thatthe performance target will be met. The ASU does not contain any new disclosure requirements. This ASU is effective for all entities for reporting periods(including interim periods) beginning after December 15, 2015. The Company does not believe that this pronouncement will have a material impact to theCompany's consolidated financial statements.Revenue Recognition In May 2014, the FASB issued their final standard on revenue from contracts with customers. The standard, issued as ASU No. 2014-09: Revenue fromContracts with Customers (Topic 606) by the FASB, outlines a single comprehensive model for entities to use in accounting for revenue arising fromcontracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenuemodel is that "an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration towhich the entity expects to be entitled in exchange for those goods or services." In applying the revenue model to contracts within its scope, an entity:•Identifies the contract(s) with a customer (Step 1) •Identifies the performance obligations in the contract (Step 2) •Determines the transaction price (Step 3) •Allocates the transaction price to the performance obligations in the contract (Step 4) •Recognizes revenue when (or as) the entity satisfies a performance obligation (Step 5) The ASU applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification.Certain of the ASU's provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity'sordinary activities (e.g., sales of property, plant, and equipment, real estate or intangible assets). Existing accounting guidance applicable to these transfershas been amended or superseded. Compared with current U.S. GAAP, the ASU also requires significantly expanded disclosures about revenue recognition. The ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Earlyapplication is not permitted. The Company is currently evaluating the impact that this pronouncement will have on the Company's consolidated financialstatements.F-18Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)2. INVENTORIES The following table summarizes inventories by major classification as of December 31, 2014 and 2013:Inventory Write-down During the year ended December 31, 2014, we recorded approximately $11.5 million of inventory write-down charges related to obsolete inventory witha market value lower than cost, of which $4.0 million was reported in the 'Restructuring charges' included in gross margin with the remaining amountsreported in 'Cost of sales' in the consolidated statements of operations. During the year ended December 31, 2013, we recorded approximately $3.4 million ofinventory write-down charges related to obsolete inventory with a market value lower than cost. These charges were related to certain obsolete raw materials,footwear and accessories in the Americas segment and are reported in 'Cost of sales' in the consolidated statement of operations. We recorded no inventorywrite-down charges for the year ended December 31, 2012.Charitable Contributions During the years ended December 31, 2014, 2013 and 2012, we donated certain inventory items to charitable organizations consisting primarily of endof life units. The contributions made were expensed at their fair value of $0.6 million, $0.6 million and $1.7 million, respectively. Also during the yearsended December 31, 2014, 2013 and 2012, we recognized a gain of $0.2 million, $0.1 million and $0.6 million, respectively, and a net reduction ofinventory of $0.4 million, $0.5 million and $1.1 million, respectively, as the fair value of the inventory contributed exceeded its carrying amount.F-19($ thousands) 2014 2013 Finished goods $167,515 $154,272 Work-in-progress 703 685 Raw materials 2,794 7,384 Inventories $171,012 $162,341 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3. PROPERTY AND EQUIPMENT The following table summarizes property and equipment by major classification as of December 31, 2014 and 2013: During the years ended December 31, 2014, 2013 and 2012, we recorded $23.2 million, $24.3 million and $23.1 million and, respectively, indepreciation expense of which $1.7 million, $2.9 million and $4.6 million, respectively, was recorded in 'Cost of sales', with the remaining amounts recordedin 'Selling, general and administrative expenses' on the consolidated statements of operations. We retired approximately $28.5 million of long-lived assets during the year ended December 31, 2014 primarily related to assets no longer in service orimpaired due to the closure of stores. During the years ended December 31, 2014 and 2013, we retired $1.6 million and $19.5 million of fully depreciatedassets. The fully depreciated assets retired in 2013 were fully depreciated shoe molds related to styles that we no longer intend on manufacturing. As such, wedid not record a gain or loss associated with the disposal and the cost and accumulated depreciation previously classified as machinery and equipment wereremoved from the consolidated balance sheets.Asset Impairments We periodically evaluate all of our long-lived assets for impairment when events or circumstances would indicate the carrying value of a long-lived assetmay not be fully recoverable. During the years ended December 31, 2014, 2013 and 2012, we recorded $8.8 million, $10.6 million and $1.4 million,respectively, in impairment charges related to underperforming retail locations, respectively, that were unlikely to generate sufficient cash flows to fullyrecover the carrying value of the stores' assets overF-20 December 31, ($ thousands) 2014 2013 Machinery and equipment $48,989 $52,003 Leasehold improvements 91,962 93,235 Furniture, fixtures and other 23,818 23,653 Construction-in-progress 3,318 16,231 Property and equipment, gross(1) 168,087 185,122 Less: Accumulated depreciation(2) (99,799) (98,151)Property and equipment, net $68,288 $86,971 (1)Includes $0.2 million and $0.2 million of certain equipment held under capital leases and classified as equipment as of each ofDecember 31, 2014 and 2013, respectively. (2)Includes $0.1 million of accumulated depreciation related to certain equipment held under capital leases, as of each ofDecember 31, 2014 and 2013, which are depreciated using the straight-line method over the lease term. During the year endedDecember 31, 2014, approximately $17.5 million of accumulated depreciation was related to assets that were written off ordisposed.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)3. PROPERTY AND EQUIPMENT (Continued)their remaining economic life. The following table summarizes asset impairment charges by reportable operating segment for the years ended December 31,2014, 2013 and 2012:4. GOODWILL & INTANGIBLE ASSETS The following table summarizes the goodwill and identifiable intangible assets as of December 31, 2014 and 2013:F-21 December 31, 2014 2013 2012 ($ thousands, except store count data) Impairmentcharge Numberofstores Impairmentcharge Numberofstores Impairmentcharge Numberofstores Americas $4,001 36 $3,861 23 $1,410 4 Asia Pacific 2,807 14 185 2 — — Japan — — — — — — Europe 2,019 27 6,565 35 — — Asset impairment charges $8,827 77 $10,611 60 $1,410 4 December 31, 2014 December 31, 2013 ($ thousands) GrossCarryingAmount AccumulatedAmortization NetCarryingAmount GrossCarryingAmount AccumulatedAmortization NetCarryingAmount Capitalizedsoftware $157,615(1)$(62,591)(2)$95,024 $118,940(1)$(49,665)(2)$69,275 Customerrelationships 5,945 (5,798) 147 6,878 (6,439) 439 Patents,copyrights,andtrademarks 6,702 (4,931) 1,771 6,501 (4,272) 2,229 Coretechnology 4,170 (4,170) — 4,548 (4,548) — Other 698 (636) 62 983 (709) 274 Total finitelivedintangibleassets 175,130 (78,126) 97,004 137,850 (65,633) 72,217 Indefinitelivedintangibleassets 333 — 333 97 — 97 Goodwill(3) 2,044 — 2,044 2,508 — 2,508 Goodwillandintangibleassets $177,507 $(78,126)$99,381 $140,455 $(65,633)$74,822 (1)Includes $4.1 million of software held under a capital lease classified as capitalized software as of each of December 31, 2014 and2013. During 2013, we began an implementation of a new enterprise resource planning, ("ERP") system, and in 2014, we continuedthis implementation. Certain costs associated with the new ERP system were capitalized in both periods. The majority of the ERPsystem was placed into service during 2015. (2)Includes $2.5 million and $1.9 million of accumulated amortization of software held under a capital lease as of December 31, 2014and 2013, respectively, which is amortized using the straight-line method over the useful life. (3)Change in goodwill relates entirely to foreign currency translation. Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)4. GOODWILL & INTANGIBLE ASSETS (Continued) During the years ended December 31, 2014, 2013 and 2012, amortization expense recorded for intangible assets with finite lives was $14.2 million,$17.2 million and $13.6 million, respectively, of which $4.9 million, $6.0 million and $4.3 million, respectively, was recorded in 'Cost of sales', with theremaining 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, 2014: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 impairment lossequal to the difference. During the year ended December 31, 2013, we recorded $0.3 million of goodwill impairment related to the retail channel of our CrocsBenelux B.V. business purchased by our Crocs Stores B.V. subsidiary in July 2012. Goodwill and associated impairments are part of our Europe operatingsegment. During the years ended December 31, 2014 and 2012, we did not record any impairments related to goodwill.F-22Fiscal years ending December 31, Amortization($ thousands) 2015 $20,198 2016 19,376 2017 13,825 2018 12,334 2019 10,844 Thereafter 20,427 Total $97,004 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, 2014 and 2013: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. Our assetretirement obligation ("ARO") liabilities are primarily associated with the disposal of property and equipment which we are contractually obligated toremove 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. Weestimate 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 the inception ofthe 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 the estimated fair value of theobligation. The capitalized asset is then depreciated on a straight-line basis over the useful life of the asset. Upon retirement of the ARO liability, anydifference between the actual retirement costs incurred and the previously recorded estimated ARO liability is recognized as a gain or loss in the consolidatedstatements of operations. Our ARO liability as of December 31, 2014 and 2013 was $2.2 million and $2.0 million, respectively.6. RESTRUCTURING ACTIVITIESRestructuring On July 21, 2014, we announced strategic plans for long-term improvement and growth of the business. These plans comprise four key initiativesincluding: (1) streamlining the global product and marketing portfolio, (2) reducing direct investment in smaller geographic markets, (3) creating a moreefficient organizational structure including reducing duplicative and excess overhead which will also enhance the decision making process, and (4) closingor converting approximately 75 to 100 retail locations around the world. The initial effects of these plans were incurred in 2014 and are expected to continuethrough 2015. The Company recorded restructuring charges of $24.5 million during the year ended December 31, 2014, and closed 20 retail locations whichwere identified in the initialF-23 December 31, ($ thousands) 2014 2013 Accrued compensation and benefits $23,824 $26,903 Professional services 16,212 14,128 Fulfillment, freight and duties 12,110 12,565 Sales/use and VAT tax payable 5,897 9,142 Accrued rent and occupancy 9,675 12,198 Customer deposits 3,075 6,940 Dividend payable 3,067 — Accrued legal liabilities 2,150 8,722 Other(1) 4,206 6,513 Total accrued expenses and other current liabilities $80,216 $97,111 (1)The amounts in Other consist of various accrued expenses and no individual item accounted for more than 5% of the totalbalance as of December 31, 2014 or 2013.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)6. RESTRUCTURING ACTIVITIES (Continued)restructuring plan. During 2015, we currently estimate additional restructuring costs related to store closures and changes in organizational structure ofapproximately $5 million to $20 million, but can make no assurance that actual costs will not differ, as our restructuring plans are not yet complete. The following table summarizes our restructuring activity during the years ended December 31, 2014 and 2013: The following table summarizes our total restructuring charges incurred during the years ended December 31, 2014 and 2013 as well as charges incurredto date by reportable segment:F-24 Year EndedDecember 31, ($ thousands) 2014 2013 Severance costs $12,500 $— Lease / contract exit and related costs 4,251 — Other(1) 7,766 — Total restructuring charges $24,517 $— (1)The amounts in 'Other' consist of various asset and inventory impairment charges prompted by the aforementionedrestructuring plan, legal fees and facility maintenance fees. Year EndedDecember 31, ($ thousands) 2014 2013 Americas $4,259 $— Asia Pacific 6,816 — Japan 606 Europe 3,934 — Corporate 8,902 — Total restructuring charges $24,517 $— Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)6. RESTRUCTURING ACTIVITIES (Continued) The following table summarizes our accrued restructuring balance and associated activity from December 31, 2013 through December 31, 2014:Retail Store Closings As mentioned above, the Company plans to close additional retail locations around the globe. As such, we expect to incur certain exit costs specific tostore closures including operating lease termination costs, rent obligations for leased facilities, net of expected sublease income, and other expenses inassociation with this plan, such as severance for retail and non-retail related positions. During the year ended December 31, 2014, we closed 20 company-operated retail locations which were identified in the initial restructuring plan, and were selected for closure by management based on historical andprojected profitability levels, relocation plans, and other factors. As of December 31, 2014, we had a liability of approximately $4.9 million related tolocations to be closed and other reductions in workforce in accrued restructuring on the consolidated balance sheet. No such accrual was made as ofDecember 31, 2013. The calculation of accrued store closing reserves primarily includes future minimum lease payments from the date of closure to the endof the remaining lease term, net of contractual or estimated sublease income. We record the liability at fair value in the period in which the store is closed.7. FAIR VALUE MEASUREMENTSRecurring Fair Value Measurements The following tables summarize the financial instruments required to be measured at fair value on a recurring basis as of December 31, 2014 and 2013.See Note 1—Organization & Summary ofF-25($ thousands) AccruedRestructuring asofDecember 31,2013 Additions Cashpayments Adjustments(1) AccruedRestructuring asofDecember 31,2014 Severance $— $13,287 $(9,329)$(804)$3,154 Lease /contract exitand relatedcosts — 4,252 (2,756) (95) 1,401 Other — 1,352 (1,028) (20) 304 Total accruedrestructuring $— $18,891 $(13,113)$(919)$4,859 (1)Adjustments relate to a reversal of accrued expenses, differences resulting from the translation of the liability balance as of the balancesheet rate and restructuring expense translated at the weighted-average rate of exchange for the applicable period.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)7. FAIR VALUE MEASUREMENTS (Continued)Significant Accounting Policies for additional detail regarding our fair value measurement determinations. Non-Recurring Fair Value Measurements The majority of our non-financial instruments, which include inventories, property and equipment and intangible assets, are not required to be carried atfair value on a recurring basis. However, if certain triggering events occur such that a non-financial instrument is required to be evaluated for impairment andthe carrying value is not recoverable, the carrying value would be adjusted to the lower of its cost or fair value and an impairment charge would be recorded.See Note 2—Inventories, Note 3—Property and Equipment and Note 4—Goodwill & Intangible Assets for discussions on impairment charges recordedduring the periods presented.F-26 Fair Value as of December 31, 2014 ($ thousands) Quoted prices inactive marketsfor identicalassets or liabilities(Level 1) Significantotherobservableinputs(Level 2) Significantunobservableinputs(Level 3) Total Balance Sheet ClassificationCash equivalents $23,326 $— $— $23,326 Cash and cash equivalents andother current assetsDerivative assets: Foreign currency contracts $— $— $— $— Prepaid expenses and othercurrent assetsDerivative liabilities: Foreign currency contracts $— $— $— $— Accrued expense and othercurrent liabilities Fair Value as of December 31, 2013 ($ 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 equivalents andother current assetsDerivative assets: Foreign currency contracts — 13,501 — 13,501 Prepaid expenses and othercurrent assets and other assetsDerivative liabilities: Foreign currency contracts $— $984 $— $984 Accrued expense and othercurrent liabilities Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)8. 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, andof future cash flows caused by changes in foreign currency exchange rates. We do not designate these derivative instruments as hedging instruments underthe accounting standards for derivatives and hedging. Accordingly, these instruments are recorded at fair value as a derivative asset or liability on the balancesheet with their corresponding change in fair value recognized in 'Foreign currency transaction losses, net' in our consolidated statements of operations. Forpurposes of the cash flow statement, we classify the cash flows at settlement from undesignated instruments in the same category as the cash flows from therelated hedged items, generally within 'Cash provided by operating activities.' See Note 7—Fair Value Measurements for further details regarding the fairvalues of the corresponding derivative assets and liabilities. The following table summarizes the notional amounts of the outstanding foreign currency exchange contracts at December 31, 2014 and 2013. 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 amounts exchanged by the parties and, therefore, are not adirect measure of our exposure to the foreign currency exchange risks.F-27 December 31, ($ thousands) 2014 2013 Foreign currency exchange forward contracts by currency: Euro $134,755 $38,577 Singapore Dollar 61,887 28,225 Japanese Yen 44,533 68,707 British Pound Sterling 17,230 15,487 South Korean Won 14,590 12,100 Mexican Peso 13,180 18,350 Australian Dollar 7,913 4,941 Chinese Yuan Renminbi 5,376 — South African Rand 4,355 3,076 Indian Rupee 3,356 2,150 New Taiwan Dollar 3,229 3,463 Canadian Dollar 3,005 3,428 Swedish Krona 1,918 1,615 Russian Ruble 1,838 17,588 Norwegian Krone 917 — Hong Kong Dollar 814 1,844 New Zealand Dollar 743 943 Total notional value, net $319,639 $220,494 Latest maturity date January 2015 December 2015 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)8. DERIVATIVE FINANCIAL INSTRUMENTS (Continued) The following table presents the amounts affecting the consolidated statements of operations from derivative instruments for the years endedDecember 31, 2014, 2013 and 2012: The account 'Foreign currency transaction losses, net' on the consolidated statements of operations includes both realized and unrealized gains/lossesfrom underlying foreign currency activity and derivative contracts. These gains and losses are reported on a net basis. For the year ended December 31, 2014,the net loss recognized of $4.9 million recorded on the consolidated statements of operations is comprised of $3.8 million net loss associated with ourderivative instruments and $1.1 million net loss associated with exposure from day-to-day business transactions in various foreign currencies. For the yearended December 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 associated withour derivative instruments. For the year ended December 31, 2012, the net loss recognized of $2.5 million recorded on the consolidated statements ofoperations is comprised of a $9.7 million net loss associated with exposure from day-to-day business transactions in various foreign currencies partially offsetby a $7.2 million net gain associated with our derivative instruments.9. REVOLVING CREDIT FACILITY & BANK BORROWINGSRevolving Credit Facility On September 25, 2009, we entered into a Revolving Credit and Security Agreement, as amended, with the lenders named therein and PNC Bank,National Association ("PNC"), as a lender and administrative agent for the lenders. On December 16, 2011, we entered into an Amended and Restated CreditAgreement (as amended, the "Credit Agreement"), and on December 27, 2013, we entered into the Third Amendment to Amended and Restated CreditAgreement (the "Third Amendment"). The Third Amendment, among other things, (i) allowed for the payment of dividends on the Series A ConvertiblePreferred Stock ("Series A Preferred Stock"), (ii) permitted the Company to have greater flexibility to repurchase its Common Stock, (iii) decreased themaximum leverage ratio from 3.50 to 1.00 to 3.25 to 1.00, and (iv) amended certain definitions of the financial covenants to become more favorable to theCompany. See Note 14—Series A Preferred Stock for further details regarding the payment of dividends on the Series A Preferred Stock. On March 27, 2014,we entered into the Fourth Amendment to Amended and Restated Credit Agreement (the "Fourth Amendment"). The Fourth Amendment primarily (i) alteredthe minimum fixed charge coverage ratio from 1.25 to 1.00 to a scaled quarterly ratio of 1.15 to 1.00 in the first and second quarters of 2014, 1.20 to 1.00 inthe third quarter of 2014, and (ii) amended certain definitions of the financial covenants to become more favorable to us.F-28 Year Ended December 31, Location of Gain (Loss)Recognized in Income on Derivatives($ thousands) 2014 2013 2012Derivatives not designated as hedginginstruments: Foreign currency exchange forwards $3,788 $(13,002)$(7,200)Foreign currency transaction (gains)losses, netTable of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. REVOLVING CREDIT FACILITY & BANK BORROWINGS (Continued) On September 26, 2014, we entered into the Fifth Amendment to Amended and Restated Credit Agreement (the "Fifth Amendment"), pursuant to whichcertain terms of the Credit Agreement were amended. The Fifth Amendment primarily (i) extended the minimum fixed charge coverage ratio of 1.15 to 1.00through the second quarter of 2015 and will return to 1.25 to 1.00 for each quarter thereafter, and (ii) amended certain definitions of the financial covenantsto become more favorable to us. 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 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 prime rateand (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. For LIBOR rateloans, the interest rate is equal to a LIBOR rate plus a margin ranging from 1.25% to 2.00% based on certain conditions. The Credit Agreement requiresmonthly interest payments with respect to domestic rate loans and at the end of each interest period with respect to LIBOR rate loans. The Credit Agreementfurther provides for a limit on the issuance of letters of credit to a maximum of $20.0 million. The Credit Agreement contains provisions requiring us tomaintain compliance with certain restrictive and financial covenants. As of December 31, 2014 and 2013, we had no outstanding borrowings under the Credit Agreement. As of December 31, 2014 and 2013, we had issuedand outstanding letters of credit of $1.8 million and $7.2 million, respectively, which were reserved against the borrowing base under the terms of the CreditAgreement. During the years ended December 31, 2014, 2013 and 2012, we capitalized $0.1 million, $0.1 million and $0.5 million, respectively, in fees andthird party costs which were incurred in connection with the Credit Agreement, as deferred financing costs. As of December 31, 2014, we were in compliancewith 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 in which PNC finances our purchase ofsoftware and services, which may include but are not limited to third party costs to design, install and implement software systems, and associated hardwaredescribed in the schedules defined within the Master IPA. The Master IPA was entered into to finance our implementation of a new enterprise resourceplanning ("ERP") system, which began in October 2012 and is estimated to continue through early 2015. The terms of each note payable under the MasterIPA consist of variable interest rates and payment terms based on amounts borrowed and timing of activity throughout the implementation of the ERP system. As of December 31, 2014 and 2013, we had $11.6 million and $16.8 million, respectively, of long-term debt outstanding under five separate notespayable, of which $5.3 million and $5.1 million,F-29Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9. REVOLVING CREDIT FACILITY & BANK BORROWINGS (Continued)respectively, represent current installments. As of December 31, 2014, the notes bear interest rates ranging from 2.45% to 2.79% and maturities ranging fromSeptember 2016 to September 2017. As this debt arrangement relates solely to the construction and implementation of an ERP system for use by the entity,all interest expense incurred under the arrangement has been capitalized to the consolidated balance sheets until the assets are ready for intended use and willbe amortized over the useful life of the software upon that date. During the years ended December 31, 2014 and 2013, we capitalized $0.4 million and$0.3 million, respectively, in interest expense related to this debt arrangement to the consolidated balance sheets. Interest rates and payment terms are subjectto changes as further financing occurs under the Master IPA. The aggregate maturities of long-term bank borrowings at December 31, 2014 are as follows (in thousands):10. 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 common shares inconnection with the grant of non-qualified stock options, incentive stock options, and restricted stock to eligible employees, consultants and members of ourBoard. As of December 31, 2014 and 2013, 0.6 million and 0.7 million stock options, respectively, were outstanding under the 2005 Plan. Following theadoption of the 2007 Equity Incentive Plan (the "2007 Plan"), 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 common stockreserved for issuance under the 2007 Plan from 9.0 million to 15.3 million (subject to adjustment for future stock splits, stock dividends and similar changesin our capitalization) in connection with the grant of non-qualified stock options, incentive stock options, restricted stock, restricted stock units, stockappreciation rights, performance units, common stock or any other share-based award to eligible employees, consultants and members of our Board. As ofDecember 31, 2014 and 2013, 3.1 million and 3.6 million shares of common stock, respectively, were issuable under the 2007 Plan pursuant to outstandingstock options and RSUs. As of December 31, 2014, 3.7 million shares were available for future issuance under the 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 award agreement.F-30Fiscal years ending December 31, 2015 $5,271 2016 4,765 2017 1,610 2018 — 2019 — Thereafter — Total principal debt maturities $11,646 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10. EQUITY (Continued)Stock Option Activity The following table summarizes stock option activity for the years ended December 31, 2014, 2013 and 2012: During the years ended December 31, 2014, 2013 and 2012, 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, 2014, 2013, and 2012 was approximately $5.35, $7.33 and$7.76, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $2.7 million,$2.8 million and $6.9 million, respectively. During the years ended December 31, 2014 and 2013, we received $1.3 million and $2.3 million in cash inconnection with the exercise of stock options with no income tax benefit due to our use of Accounting Standard Codification 740—'Income Taxes' (with-and-without approach) ("ASC 740") ordering for purposes of determining when excess benefits have been realized (see Note 12—Income Taxes). The totalgrant date fair value of stock options vestedF-31 Shares WeightedAverageExercisePrice WeightedAverageRemainingContractualLife(Years) AggregateIntrinsicValue($ thousands) 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 Granted 119,000 14.22 Exercised (265,675) 5.05 Forfeited or expired (262,347) 21.02 Outstanding at December 31, 2014 1,696,130 $13.52 3.88 $4,435 Exercisable at December 31, 2014 1,439,175 $13.15 3.15 $4,422 Vested and expected to vest at December 31, 2014 1,629,270 $13.47 3.69 $4,429 Year Ended December 31, 2014 2013 2012 Expected volatility 44% - 50% 50% - 64% 50% - 70% Dividend yield — — — Risk-free interest rate 1.41% - 1.71% 0.81% - 1.62% 0.62% - 1.20% Expected life (in years) 4.00 4.00 4.00 - 4.27 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10. EQUITY (Continued)during the years ended December 31, 2014, 2013 and 2012 was $0.8 million, $1.2 million, $2.8 million, respectively. As of December 31, 2014, we had $1.5 million of total unrecognized share-based compensation expense related to unvested options, net of expectedforfeitures, which is expected to be amortized over the remaining weighted-average period of 2.5 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" basis followed bymonthly 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. RSAs and RSUs generally vest over threeor four years, depending on the terms of the grant. Unvested RSAs have the same rights as those of common shares including voting rights and non-forfeitabledividend rights. However, ownership of unvested RSAs cannot be transferred until they are vested. An unvested RSU is a contractual right to receive a shareof common stock only upon its vesting. RSUs have dividend equivalent rights which accrue over the term of the award and are paid if and when the RSUsvest, 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-executiveemployees and vest in three annual installments on a straight-line basis beginning one year after the grant date. During the years ended December 31, 2014,2013 and 2012, the Board approved grants of 0.3 million, 0.4 million and 0.4 million RSUs to certain non-executives. Performance-based RSUs are typicallygranted on an annual basis to certain executive employees and consist of a time-based and performance-based component. The following represents thevesting schedule of performance-based RSUs granted during the years ended December 31, 2014:F-32 Performance Vested RSUs (50% of Award)Time Vested RSUs (50% of Award) Performance Goals—eachweighted 50% Potential Award Further Time VestingVest in 3 annual installmentsbeginning one year after the date ofgrant Achievement of at least 70% of aone-year cumulative earnings pershare performance goal Executive may earn from 50% to200% of the target number of RSUsbased on the level of achievementof the performance goal Earned RSUs vest 50% uponsatisfaction of performance goaland 50% on the one-yearanniversary of the end of thePerformance Period. Achievement of at least 90% of aone-year revenue performance goal Executive may earn from 50% to200% of the target number of RSUsbased on the level of achievementof the performance goal Earned RSUs vest 50% uponsatisfaction of performance goaland 50% on the one-yearanniversary of the end of thePerformance Period.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10. EQUITY (Continued) The following represents the vesting schedule of performance-based RSUs granted during the years ended December 31, 2013 and 2012: During the years ended December 31, 2014, 2013 and 2012, the Board approved the grant of 0.9 million, 0.9 million and 0.4 million, respectively, RSUsor 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, 2014, 2013 and 2012:F-33 Performance Vested RSUs (50% of Award)Time Vested RSUs (50% of Award) Performance Goal Potential Award Further Time VestingVest in 3 annual installmentsbeginning one year after the date ofgrant Achievement of at least 70% of atwo-year cumulative earnings pershare performance goal Executive may earn from 50% to200% of the target number of RSUsbased on the level of achievementof the performance goal 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, 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 Granted 9,973 15.04 1,749,993 16.05 Vested (68,420)(1) 15.03 (541,888)(1) 17.64 Forfeited (144,555) 12.67 (1,176,301) 16.51 Unvested at December 31, 2014 7,488 $15.61 1,997,471 $15.78 (1)The RSAs vested during the years ended December 31, 2014, 2013 and 2012 consisted entirely of time-based awards. The RSUsvested during the year ended December 31, 2014 consisted of 30,946 performance-based awards and 510,942 time-based awards. TheRSUs vested during the year ended December 31, 2013 consisted of 52,288 performance-based awards and 277,254 time-basedawards. The RSUs vested during the year ended December 31, 2012 consisted entirely of time-based awards.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10. EQUITY (Continued) The total grant date fair value of RSAs vested during the years ended December 31, 2014, 2013 and 2012 was $1.0 million, $1.3 million and$1.8 million, respectively. As of December 31, 2014, we had $0.1 million of total unrecognized share-based compensation expense related to non-vestedrestricted stock awards, net of expected forfeitures, all of which was related to time-based awards. The unvested RSAs are expected to be amortized over theremaining weighted-average period of 0.36 years. The total grant date fair value of RSUs vested during the years ended December 31, 2014, 2013 and 2012 was $9.6 million, $7.1 million and$3.1 million, respectively. As of December 31, 2014, we had $13.0 million of total unrecognized share-based compensation expense related to unvestedrestricted stock units, net of expected forfeitures, of which $6.2 million is related to performance-based awards and $6.8 million is time-based awards. Theunvested RSUs are expected to be amortized over the remaining weighted-average period of 1.49 years, which consists of a remaining weighted-averageperiod of 1.15 years related to performance-based awards and a remaining weighted-average period of 1.78 years related to time-based awards.Share-based Compensation During the years ended December 31, 2014, 2013 and 2012, we recorded $12.7 million, $12.5 million and $11.3 million, respectively, of pre-tax share-based compensation expense of which $0.2 million, $0.7 million and $0.0 million, respectively, related solely to the construction and implementation of ourERP system for use by the entity was capitalized to the consolidated balance sheets until assets are ready for intended use and will be amortized over theuseful 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 Company effectiveApril 30, 2014. Also on December 27, 2013, the Company and Mr. McCarvel entered into a separation agreement providing that the Company will payMr. McCarvel (i) a $1.1 million separation payment on the first regularly scheduled payroll date after the effectiveness of his resignation and (ii) a$1.0 million separation payment on the first anniversary of the effectiveness of his resignation. In accordance with ASC 420—Exit or Disposal CostObligations, the Company recognized the first and second installment payments of $1.1 million and $1.0 million ratably from December 27, 2013 throughApril 30, 2014. Mr. McCarvel was also entitled to receive any amount earned pursuant to the Company's 2013 annual incentive program, in such form and atsuch time as is provided under the terms of such program. Pursuant to the separation agreement, unvested share awards that vested through April 30, 2014 amounted to 58,840 shares. Additionally, pursuant to theterms of the separation agreement, Mr. McCarvel forfeited 388,745 share awards which did not 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.F-34 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)10. EQUITY (Continued)Appointment of President and Interim CEO On May 13, 2014, the Board appointed Andrew Rees as President of the Company with principal responsibilities for the Crocs brand, effective June 9,2014. In addition, the Board appointed Mr. Rees as principal executive officer to serve until such time as the Board appoints a Chief Executive Officer of theCompany, which it did effective January 28, 2015. Upon commencement of his employment, Mr. Rees was granted an RSU award representing to right toreceive shares of our common stock equal to $197,534, based on the closing price of our common stock on the date immediately prior to his start date, whichvests in three annual installments beginning on the first anniversary of his start date, subject to his continued employment with us as of each vesting date. Inaddition, Mr. Rees was granted an RSU award representing the right to receive shares of our common stock equal to $3,500,000, based on a 30 day weighted-average stock price as of May 13, 2014, and such RSU award shall vest based on achievement of certain share price levels before the fourth anniversary of hisstart date, subject to his continued employment with us. For calendar years after 2014, Mr. Rees is also eligible to participate in the Company's long-termincentive plan, with a target grant value of no less than $700,000, except that the target grant value in 2015 shall be $897,534.Appointment of CEO On December 12, 2014, Gregg Ribatt was appointed our Chief Executive Officer, effective January 28, 2015. In connection with his appointment asChief Executive Officer, Mr. Ribatt was granted a sign-on time-vesting RSU award representing the right to receive shares of our common stock equal to$2,000,000, based on a 30-day weighted-average stock price as of December 15, 2014. This time-vesting RSU award will vest in three annual installmentsbeginning on the first anniversary of his start date, subject to his continued employment with us as of each vesting date. In addition, Mr. Ribatt was granted asign-on performance-vesting RSU award, subject to various vesting criteria, representing the right to receive shares of our common stock equal to $6,000,000,based on a 30-day weighted-average stock price as of December 15, 2014. Based on a Monte-Carlo valuation model, the fair value of the RSU wasdetermined to be $2.4 million, or 46.0% of the grant price, which will be expensed on a straight-line basis over a derived service period of 2.5 years,beginning in 2015.11. ALLOWANCES The changes in the allowance for doubtful accounts and reserve for sales returns and allowances for the years ended December 31, 2014, 2013 and 2012,are as follows:F-35($ thousands) Balance atBeginning of Year Charged to costsand expenses Reversals andWrite-offs Balance at Endof Year Year ended December 31, 2014: Allowance for doubtful accounts $3,656 $12,087 $(2,134)$13,609 Reserve for sales returns and allowances 6,857 23,099 (11,173) 18,783 Year ended December 31, 2013: Allowance for doubtful accounts 3,441 1,930 (1,715) 3,656 Reserve for sales returns and allowances 9,874 13,888 (16,905) 6,857 Year ended December 31, 2012: Allowance for doubtful accounts 3,680 $2,166 $(2,405)$3,441 Reserve for sales returns and allowances 11,828 5,111 (7,065) 9,874 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. INCOME TAXES The following table sets forth income before taxes and the expense for income taxes for the years ended December 31, 2014, 2013 and 2012: The following table sets forth income reconciliations of the statutory federal income tax rate to our actual rates based on income or loss before incometaxes for the years ended December 31, 2014, 2013 and 2012:F-36 December 31, ($ thousands) 2014 2013 2012 Income (loss) before taxes: U.S. $(34,622)$(7,818)$12,060 Foreign 26,073 67,777 133,488 Total income (loss) before taxes (8,549) 59,959 145,548 Income tax expense: Current income taxes U.S. federal (12,049) 3,311 (6,364)U.S. state (23) 355 597 Foreign 7,620 22,337 22,953 Total current income taxes (4,452) 26,003 17,186 Deferred income taxes: U.S. federal 400 14,968 (3,981)U.S. state 236 3,639 (4,016)Foreign 193 4,929 5,016 Total deferred income taxes 829 23,536 (2,981)Total income tax expense (benefit) $(3,623)$49,539 $14,205 December 31, ($ thousands) 2014 2013 2012 Federal income tax rate 35.0% 35.0% 35.0%State income tax rate, net of federal benefit (30.4) (0.6) (2.7)Effects of rates different than statutory & rate change (62.2) (47.9) (25.0)Non-deductible / Non-taxable items 115.8 3.4 4.6 Change in valuation allowance (62.8) 35.6 (8.4)U.S. tax on foreign earnings (77.4) 38.2 2.0 Uncertain tax positions 294.4 6.8 3.5 Audit settlements (157.3) 5.1 — Non-deductible write-off of intercompany debt — 1.9 — Non-deductible impairment — 3.5 — Write-off of income tax receivable (18.4) — — Other 5.7 1.6 0.8 Effective income tax rate 42.4% 82.6% 9.8%Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. INCOME TAXES (Continued) The following table sets forth deferred income tax assets and liabilities as of December 31, 2014 and 2013: We do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis in our investments in foreign subsidiaries that areessentially permanent in duration. In general, it is our practice and intention to reinvest the earnings of our foreign subsidiaries in those operations.Generally, the earnings of our foreign subsidiaries become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances.Exceptions may be made on a year-by-year basis to repatriate current year earnings of certain foreign subsidiaries based on cash needs in the U.S. As ofDecember 31, 2014, we have provided for deferred U.S. income tax of $14.2 million on $65.8 million of foreign subsidiary earnings. No withholding tax isdue with respect to the repatriation of these earnings to the U.S. and none has been provided for. As of December 31, 2014, U.S. income and foreign withholding taxes have not been provided on for approximately $450.4 million of unremittedearnings of subsidiaries operating outside of the U.S.F-37 December 31, ($ thousands) 2014 2013 Current deferred tax assets: Accrued expenses $13,217 $13,108 Unrealized loss on foreign currency 342 10 Other — 1,364 Valuation allowance (7,008) (5,139)Total current deferred tax assets $6,551 $9,343 Current deferred tax liabilities: Unremitted earnings of foreign subsidiary $(14,186)$(16,102)Other (44) — Total current deferred tax liabilities. $(14,230)$(16,102)Non-current deferred tax assets: Stock compensation expense $9,760 $9,652 Long-term accrued expenses 6,773 3,811 Net operating loss 20,047 24,517 Intangible assets 1,517 895 Property and equipment 12,097 8,527 Future uncertain tax position offset 445 1,804 Unrealized loss on foreign currency — 639 Foreign tax credit 6,259 8,524 Other 1,207 1,755 Valuation allowance (40,273) (41,745)Total non-current deferred tax assets $17,832 $18,379 Non-current deferred tax liabilities: Intangible assets $— $— Total non-current deferred tax liabilities $— $— Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. INCOME TAXES (Continued)These earnings are estimated to represent the excess of the financial reporting over the tax basis in our investments in those subsidiaries. These earnings,which are considered to be indefinitely reinvested, would become subject to U.S. income tax if they were remitted to the U.S. The amount of unrecognizeddeferred U.S. income tax liability on the unremitted earnings has not been determined because the hypothetical calculation is not practicable. We have deferred tax assets related to certain deductible temporary differences in various tax jurisdictions for which we have recorded a valuationallowance of $47.3 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 operating losses incertain tax jurisdictions for which management believes there is not sufficient positive evidence that such net operating losses will be realized against futureincome and book expenses not deductible for tax purposes in the current year such as inventory impairment reserves, equity compensation and unrealizedforeign exchange loss that would increase such net operating losses in the same jurisdictions. These temporary differences are amounts which arose injurisdictions where (i) current losses exist, (ii) such losses are in excess of any loss carryback potential, (iii) any tax planning strategies exist with which toovercome such losses are cost prohibitive and (iv) no profits are projected for the following year. For these reasons it is determined that it is more likely thannot that these deferred tax assets will not be realized and a valuation allowance has been provided with respect to these deferred tax assets. As of December 31, 2014, we had U.S. federal net operating loss carryforwards of $1.3 million, state net operating loss carryforwards of $109.5 millionand foreign tax credits of $1.1 million which will expire at various dates between 2025 and 2035. We do not believe that it is more likely than not that thebenefit from certain federal and state net operating losses and foreign tax credits will be realized. Consequently, we have a valuation allowance of$6.8 million on the deferred tax assets relating to these tax attributes. As of December 31, 2014, we have a foreign deferred tax asset of $19.5 million reflecting the benefit of $54.2 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 $19.5 million on the deferred tax assets relating to these foreign netoperating loss carryforwards. We had approximately $10.2 million in net deferred tax assets as of December 31, 2014. Approximately $8.2 million of the net deferred tax assets werelocated in foreign jurisdictions for which a sufficient history and expected future profits indicated that it is more likely than not that such deferred tax assetswill be realized. Pre-tax profit of approximately $35.5 million is required to realize the net deferred tax assets. As of December 31, 2014, approximately $0.4 million of net deferred tax assets consists of deferred tax assets related to estimated liabilities for uncertaintax positions that would be realized if such liabilities are actually incurred. The deferred tax assets represent primarily the reduction in tax expense thatwould occur upon an increase of intercompany royalty expense by various taxing authorities. Approximately $2.2 million of taxable income would have tobe recognized to realize these deferred tax assets.F-38Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. INCOME TAXES (Continued) As a result of certain accounting realization requirements, the table of deferred tax assets and liabilities shown above does not include certain deferredtax assets as of December 31, 2014 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financialreporting. Equity will be increased by $16.8 million if and when such deferred tax assets are ultimately realized. We use ASC 740 with-and-without orderingfor purposes of determining when excess tax benefits have been realized. The following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits during the years ended December 31,2014, 2013 and 2012: Unrecognized tax benefits of $8.4 million, $31.6 million and $31.9 million as of December 31, 2014, 2013 and 2012, respectively, if recognized, wouldreduce 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. For the yearsended December 31, 2014, 2013 and 2012, we recorded approximately $0.8 million, $0.6 million and $0.6 million, respectively, of penalties and interest. Wereleased $4.9 million of interest from settlements, lapse of statutes and change in certainty. The cumulative accrued balance of penalties and interest was$0.9 million, $5.0 million and $4.4 million, as of December 31, 2014, 2013 and 2012, respectively. Unrecognized tax benefits consist primarily of tax positions related to intercompany transfer pricing in multiple international jurisdictions. The grossincrease for tax positions in current and prior periods in 2014 of $0.9 million primarily includes specific transfer pricing exposures in various jurisdictions.The gross decrease for tax positions for prior periods in 2014 of $24.1 million are mostly the result of audits in several major jurisdictions including the USand Canada which are effectively settled. Although the timing of the resolution, settlement, and closure of any audits is highly uncertain, it is reasonablypossible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remainingthat are subject to examination, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. The totalamount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $8.4 million.F-39($ thousands) 2014 2013 2012 Unrecognized tax benefit—January 1 $31,616 $31,900 $44,537 Gross increases—tax positions in prior period 7 572 — Gross decreases—tax positions in prior period (3,711) (2,086) (425)Gross increases—tax positions in current period 904 3,743 4,310 Settlements (20,210) (2,291) (16,260)Lapse of statute of limitations (162) (222) (262)Unrecognized tax benefit—December 31 $8,444 $31,616 $31,900 Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)12. INCOME TAXES (Continued) The following table sets forth the remaining tax years subject to examination for the major jurisdictions where we conduct business as of December 31,2014: State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact ofany federal changes remains subject to examination by various state jurisdictions for a period up to two years after formal notification to the states.13. EARNINGS PER SHARE The following table illustrates the basic and diluted earnings (loss) per share ("EPS") computations for the years ended December 31, 2014, 2013 and2012. See Note 1—Organization & Summary of Significant Accounting Policies for additional detail regarding our EPS calculations. For the years ended December 31, 2014, 2013 and 2012, 2.0 million, 1.0 million and 1.4 million options and RSUs, respectively, were not included inthe calculation of diluted EPS as their effect would have been anti-dilutive.F-40Netherlands 2007 to 2014 Canada 2007 to 2014 Japan 2008 to 2014 China 2007 to 2014 Singapore 2009 to 2014 United States 2011 to 2014 Year Ended December 31, ($ thousands, except per share data) 2014 2013 2012 Numerator Net income (loss) attributable to common stockholders $(18,962)$10,420 $131,343 Less: adjustment for income allocated to participating securities — (36) (645)Net income (loss) attributable to common stockholders—basic anddiluted $(18,962)$10,384 $130,698 Denominator Weighted average common shares outstanding—basic 85,140 87,989 89,571 Plus: dilutive effect of stock options and unvested restricted stockunits — 1,100 1,017 Weighted average common shares outstanding—diluted 85,140 89,089 90,588 Net income (loss) attributable per common share: Basic $(0.22)$0.12 $1.46 Diluted $(0.22)$0.12 $1.44  Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)13. EARNINGS PER SHARE (Continued)Stock Repurchase Plan Authorizations We continue to evaluate options to maximize the returns on our cash and maintain an appropriate capital structure, including, among other alternatives,repurchases of our common stock. On December 26, 2013, our Board approved the repurchase of up to $350.0 million of our common stock. This authorization effectively replaced ourprevious stock repurchase authorizations. The number, price, structure and timing of the repurchases will be at our sole discretion and future repurchases willbe evaluated by us depending on market conditions, liquidity needs and other factors. Share repurchases may be made in the open market or in privatelynegotiated transactions. The repurchase authorization does not have an expiration date and does not oblige us to acquire any particular amount of ourcommon stock. Our Board may suspend, modify or terminate the repurchase program at any time without prior notice. During the year ended December 31, 2014, we repurchased approximately 10.6 million shares at a weighted-average price of $13.75 per share for anaggregate price of approximately $145.6 million excluding related commission charges under our publicly-announced repurchase plan. During the yearended December 31, 2013, we repurchased approximately 0.8 million shares at an average price of $14.99 for an aggregate price of approximately$12.5 million excluding related commission charges, under our publicly-announced repurchase plan. As of December 31, 2014, subject to certain restrictions on repurchases under our revolving credit facility, we had $202.1 million of our common sharesavailable for repurchase under previously announced repurchase authorizations.14. SERIES A PREFERRED STOCK On January 27, 2014, we issued to Blackstone, together with the Blackstone Purchasers, 200,000 shares of our Series A Preferred Stock for an aggregatepurchase 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"), we received proceeds of $182.2 million afterdeducting the issuance discount of $2.0 million and direct and incremental expenses of $15.8 million including financial advisory fees, closing costs, legalexpenses and other offering-related expenses.Participation Rights and Dividends The Series A Preferred Stock ranks senior to our common stock with respect to dividend rights and rights on liquidation, winding-up and dissolution.The Series A Preferred Stock has a stated value of $1,000 per share, and holders of Series A Preferred Stock are entitled to cumulative dividends payablequarterly in cash at a rate of 6% per annum. If we fail to make timely dividend payments, the dividend rate will increase to 8% per annum until such time asall accrued but unpaid dividends have been paid in full. Holders of Series A Preferred Stock are entitled to receive dividends declared or paid on our commonstock and are entitled to vote together with the holders of our common stock as a single class, in each case, on an as-converted basis. As of December 31,2014, we have accrued dividends of $3.1 million on the consolidated balance sheets, which were paid in cash to holders of the Series A Preferred Stock onJanuary 2, 2015. Holders of Series A Preferred Stock have certain limitedF-41Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)14. SERIES A PREFERRED STOCK (Continued)special approval rights, including with respect to the issuance of pari passu or senior equity securities of the Company.Conversion Features 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 $29.00for 20 consecutive trading days. The Series A Preferred Stock is convertible into 13,793,100 shares of our common stock based on the conversion rate inplace as of December 31, 2014. The conversion rate is subject to the following customary anti-dilution and other adjustments:1)The occurrence of common stock dividends or distributions, stock splits or combinations, and equity reclassifications. 2)The distribution of rights, options, or warrants to all holders of common stock entitling them to purchase shares of common stock at a price pershare that is less than the closing price of the Company's common stock. 3)Pursuant to a tender offer or exchange offer to purchase outstanding shares of common stock for consideration valued at an amount greaterthan the closing price of the Company's common stock. 4)If the Company distributes evidences of its indebtedness, assets, other property or securities or rights, options or warrants to acquire its CapitalStock. 5)If the Company has any stockholder rights plan in effect with respect to the common stock on the date of conversion, upon conversion of theSeries A Preferred Stock, the holder will also receive (in addition to the common stock pursuant to the conversion) the rights under such rightsplan, unless those rights (a) become exercisable before the conversion of the Series A Preferred Stock, or (b) are separated from the commonstock (each a "Trigger Event"). Upon the occurrence of a Trigger Event, the Series A Preferred Stock conversion rate will be adjusted inaccordance with 1) or 2) described above. 6)If the Company issues shares of common stock (or other instruments convertible into common stock) for valuable consideration, theconversion price is adjusted if (a) the offering price is less than the conversion price and (b) if the offering is at a price less than the fair marketvalue of the Company's common stock on the date of issuance.Redemption Features 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 have theright 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 unpaid dividends.Upon certain change of control events involving us, the holders can require us to repurchase the Series A Preferred Stock at 101% of the stated value thereofplus all accrued but unpaid dividends.F-42Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)14. SERIES A PREFERRED STOCK (Continued) In accordance with FASB ASC Topic 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities, redemptionfeatures which are not solely within the control of the issuer are required to be presented outside of permanent equity on the consolidated balance sheets.Under the Investment Agreement and as noted above, the holder has the option to redeem the Series A Preferred Stock any time after January 27, 2022 orupon a change in control. As such, the Series A Preferred Stock is presented in temporary or mezzanine equity on the consolidated balance sheets and will beaccreted up to the stated redemption value of $203.1 million using an appropriate accretion method over a redemption period of eight years, as this representsthe earliest probable date at which the Series A Preferred Stock will become redeemable.15. 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. Certainleases contain rent escalation clauses (step rents) that require additional rental amounts in the later years of the term. Rent expense for leases with step rents orrent holidays is recognized on a straight-line basis over the lease term beginning on the lease inception date. Deferred rent is included in the consolidatedbalance 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, 2014, are asfollows (in thousands):F-43Fiscal years ending December 31, 2015 $79,087 2016 56,688 2017 42,911 2018 34,473 2019 29,481 Thereafter 115,071 Total minimum lease payments(1) $357,711 (1)Minimum lease payments have not been reduced by minimum sublease rentals of $1.0 million due in the future under non-cancelable subleases. They also do not include contingent rentals which may be paid under certain retail leases on a basis ofpercentage of sales in excess of stipulated amounts.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)15. COMMITMENTS AND CONTINGENCIES (Continued) The following table summarizes the composition of rent expense under operating leases for the years ended December 31, 2014, 2013 and 2012 (inthousands):Purchase Commitments As of December 31, 2014 and 2013, we had firm purchase commitments with certain third-party manufacturers of $202.3 million and $172.3 million,respectively. In December 2011, we renewed and amended our supply agreement with Finproject S.p.A. (formerly known as Finproject s.r.l.), which provides us theexclusive right to purchase certain raw materials used to manufacture our products. The agreement also provides that we meet minimum purchaserequirements to maintain exclusivity throughout the term of the agreement, which expires December 31, 2016. Historically, the minimum purchaserequirements have not been onerous and we do not expect them to become onerous in the future. Depending on the material purchased, pricing was eitherbased on contracted price or was subject to quarterly reviews and fluctuates based on order volume, currency fluctuations and raw material prices. Pursuant tothe agreement, we guarantee the payment for certain third-party manufacturer purchases of these raw materials up to a maximum potential amount of€3.5 million (approximately $4.3 million as of December 31, 2014), through a letter of credit that was issued to Finproject S.p.A.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 prior taxyears. In April 2013, Brazil's State of Sao Paulo, Brazil government ("Brazil") assessed sales taxes, interest and penalties for the period April 2009 to May 2011.We had previously tendered these taxes using Brazil obligations purchased at a discount from third parties. On May 22, 2013, we applied for amnesty inorder to receive a significant reduction in penalties and interest, agreed to amend our 2009 through 2012 tax returns to remove the Brazil obligations, andagreed to settle the assessment in cash to Brazil. In June 2013, cash payment was made to Brazil, in full satisfaction of the Brazil assessment and amended taxreturns. Brazil is making court-ordered payments to holders of the Brazil obligations along with accrued interest. We anticipate that the Brazil obligations(plus accrued interest) will be paid by Brazil in accordance with the court-orders, however, during the year ended December 31, 2014, we reserved the entirecarrying balance of the Brazil obligation. The net impact of the above is aF-44 Year Ended December 31, 2014 2013 2012 Minimum rentals(1) $108,466 $101,721 $84,671 Contingent rentals 16,875 18,178 16,519 Less: Sublease rentals (868) (646) (619)Total rent expense $124,473 $119,253 $100,571 (1)Minimum rentals include all lease payments as well as fixed and variable common area maintenance ("CAM"), parking andstorage fees, which were approximately $9.6 million, $9.7 million and $8.5 million during the years ended December 31,2014, 2013 and 2012, respectively.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)15. COMMITMENTS AND CONTINGENCIES (Continued)$3.5 million charge to operating income recorded during the year ended December 31, 2014. As of December 31, 2013, the carrying balance of the Brazilobligations was $3.5 million, which was recorded in 'Other assets' on the consolidated balance sheets. The net impact of the above is a $6.1 million charge tooperating income recorded during the year ended December 31, 2013. In April 2014, we received a final notice of assessment on transfer pricing items from the Canadian tax authorities, which closed the ongoing audit of ourCanada operations through 2011. The assessment, along with the estimated impact on certain Canadian provinces, was less than the amount of the uncertaintax benefits recorded, and therefore, resulted in a net tax benefit of approximately $2.3 million in the quarter ended June 30, 2014. We have paid theassessment, which included tax and interest for the tax periods through December 31, 2011. See Note 17—Legal Proceedings for further details regarding potential loss contingencies related to government tax audits and other current legalproceedings.16. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION For 2014, 2013 and 2012, we had four reportable operating segments based on the geographic nature of our operations: Americas, Asia Pacific, Japan andEurope. We also have an "Other businesses" category which aggregates insignificant operating segments that do not meet the reportable segment thresholdand represent manufacturing operations located in Mexico, Italy and Asia. The composition of our reportable operating segments is consistent with that usedby our chief operating decision maker, ("CODM") to evaluate performance and allocate resources. During the first quarter of 2013, we adjusted our operating segment structure for internal reports reviewed by the CODM by presenting Japan separatefrom the Asia Pacific segment. This change was made due to the volatility of the Japanese yen and the macroeconomic environment within Japan as well asnegative sales growth compared to the rest of the Asia Pacific segment, which resulted in the need for a regular review of the operating results of Japan bymanagement and the CODM in order to better evaluate performance and allocate resources for the consolidated business. Results from operations for the yearended December 31, 2012 was restated for this change. Subsequent to December 31, 2014, we have determined that for fiscal 2015, our internal reports reviewed by the CODM will revert back to include Japanin the Asia Pacific segment. This change is to align reporting to our new strategic model and management structure, as Japan and Asia Pacific will bemanaged and analyzed as one operating segment by management and the CODM, to better allocate resources. Therefore, there will be three reportableoperating segments for 2015. 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 operating incomeor 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. Segment performanceevaluation is based primarily on segment results without allocating corporate expenses, or indirect general, administrative and other expenses. Segmentprofits or losses of our reportable operating segments include adjustments to eliminate intersegment profit or losses on intersegment sales. As such,reconciling items for segment operating income represent unallocated corporate and other expenses as well as intersegment eliminations. Segment assetsconsist of cash and cash equivalents, accounts receivable and inventory as these balances are regularly reviewed by the CODM.F-45Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)16. 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, 2014, 2013and 2012:F-46 Year Ended December 31, ($ thousands) 2014 2013 2012 Revenues: Americas $489,915 $498,552 $495,852 Asia Pacific 350,449 342,752 292,846 Japan 123,461 134,863 164,565 Europe 233,604 216,259 169,464 Total segment revenues 1,197,429 1,192,426 1,122,727 Other businesses 794 254 574 Total consolidated revenues $1,198,223 $1,192,680 $1,123,301 Operating income: Americas $48,347(1)$61,894(1)$85,538(1)Asia Pacific 47,753(2) 80,693(2) 74,535 Japan 27,382(3) 37,560(3) 66,293 Europe 24,517(4) 16,192 21,678 Total segment operating income 147,999 196,339 248,044 Reconciliation of total segment operating income to income before incometaxes: Other businesses (19,400) (20,811) (10,805)Intersegment eliminations (1,498) 61 60 Unallocated corporate and other(5) (131,827) (112,494) (91,125)Total consolidated operating income (loss) (4,726) 63,095 146,174 Foreign currency transaction gains, net 4,885 4,678 2,500 Interest income (1,664) (2,432) (1,697)Interest expense 806 1,016 837 Other income, net (204) (126) (1,014)Income (loss) before income taxes $(8,549)$59,959 $145,548 Depreciation and amortization: Americas $11,670 $10,384 $9,849 Asia Pacific 5,186 5,032 4,869 Japan 1,538 1,454 2,053 Europe 3,761 5,108 3,116 Total segment depreciation and amortization 22,155 21,978 19,887 Other businesses 5,900 8,002 7,003 Unallocated corporate and other(5) 9,358 11,526 9,804 Total consolidated depreciation and amortization $37,413 $41,506 $36,694 (1)Includes $4.0 million, $3.9 million and $1.4 million for the years ended December 31, 2014, 2013 and 2012, respectively, of assetimpairment charges related to 36, 23 and four underperforming retail locations, respectively. (2)Includes $2.8 million and $0.2 million for the year ended December 31, 2014 and 2013, respectively, of asset impairment chargesrelated to 14 and two underperforming retail locations, respectively.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)16. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued) The following table sets forth asset information related to our reportable operating business segments as of December 31, 2014 and December 31, 2013:F-47(3)Includes $6.6 million for the year ended December 31, 2013 of asset impairment charges related to 35 underperforming retaillocations. (4)Includes $2.0 million for the year ended December 31, 2014 of asset impairment charges related to 27 underperforming retaillocations. (5)Includes a corporate component consisting primarily of corporate support and administrative functions, costs associated with share-based compensation, research and development, brand marketing, legal, restructuring, depreciation and amortization of corporate andother assets not allocated to operating segments and costs of the same nature related to certain corporate holding companies. SeeNote 6—Restructuring for additional details. December 31, ($ thousands) 2014 2013 Assets: Americas $127,077 $139,855 Asia Pacific 166,878 177,343 Japan 34,032 51,155 Europe 166,285 137,701 Total segment current assets 494,272 506,054 Other businesses 18,132 14,093 Unallocated corporate and other(1) 27,337 63,743 Deferred tax assets, net 4,190 4,440 Income tax receivable 9,332 10,630 Other receivables 11,989 11,942 Prepaid expenses and other current assets 30,156 29,175 Total current assets 595,408 640,077 Property and equipment, net 68,288 86,971 Intangible assets, net 97,337 72,314 Goodwill 2,044 2,508 Deferred tax assets, net 17,886 19,628 Other assets 25,968 53,661 Total consolidated assets $806,931 $875,159 (1)Corporate assets primarily consist of cash and equivalents.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)16. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued) There were no customers who represented 10% or more of consolidated revenues during the years ended December 31, 2014, 2013 and 2012. Thefollowing table sets forth certain geographical and other information regarding our revenues during the years ended December 31, 2014, 2013 and 2012: The following table sets forth geographical information regarding our property and equipment assets as of December 31, 2014 and 2013:17. LEGAL PROCEEDINGS We and certain current and former officers and directors were named as defendants in complaints filed by investors in the United States District Court forthe District of Colorado. The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter. These actions wereconsolidated and, in September 2008, the district court appointed a lead plaintiff and counsel. An amended consolidated complaint was filed in December2008. The amended complaint purported to state claims under Sections 10(b), 20(a), and 20A of the Exchange Act on behalf of a class of all persons whopurchased our common stock between April 2, 2007 and April 14, 2008 (the "Class Period"). The amended complaint also added our independent auditor as adefendant. The amended complaint alleged that, during the Class Period, the defendants made false and misleading public statements about us and ourbusiness and prospects and, as a result, the market price of our commonF-48 Year Ended December 31, ($ thousands) 2014 2013 2012 Product: Footwear $1,169,247 $1,155,377 $1,076,210 Other 28,976 37,303 47,091 Total revenues $1,198,223 $1,192,680 $1,123,301 Location: United States $435,154 $401,948 $396,121 International 763,069 790,732 727,180 Total revenues $1,198,223 $1,192,680 $1,123,301 Foreign country revenues in excess of 10% of total revenues: Japan $123,461 $134,863 $164,565 December 31, ($ thousands) 2014 2013 Location: United States $45,046 $56,262 International 23,242 30,709 Total long-lived assets(1) $68,288 $86,971 (1)Not more than 10% of our long-lived assets resided in any individual foreign country in 2014 or 2013.Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)17. LEGAL PROCEEDINGS (Continued)stock was artificially inflated. The amended complaint also claimed that certain current and former officers and directors traded in our common stock on thebasis of material non-public information. The amended complaint sought compensatory damages on behalf of the alleged class in an unspecified amount,including interest, and also sought attorneys' fees and costs of litigation. On February 28, 2011, the District Court granted motions to dismiss filed by thedefendants and dismissed all claims. A final judgment was thereafter entered. Plaintiffs subsequently appealed to the United States Court of Appeals for theTenth Circuit. We and those current and former officers and directors named as defendants entered into a Stipulation of Settlement with the plaintiffs toresolve all claims asserted against us by the plaintiffs on behalf of the putative class. Our independent auditor was not a party to the Stipulation of Settlement.The Stipulation of Settlement received preliminary approval from the District Court on August 28, 2013. On September 18, 2014, the District Court enteredan order of final approval of the settlement and, on September 19, 2014, the District Court entered final judgment dismissing the action against us and thosecurrent and former officers and directors named as defendants in its entirety with prejudice. The full settlement amount has been paid by our insurers. Sinceno notice of appeal was filed during the appeal period, this action is now terminated as to Crocs and its affiliated individuals. Crocs considers this matterclosed. We are currently subject to an audit by U.S. Customs & Border Protection ("CBP") in respect of the period from 2006 to 2010. In October 2013, CBPissued the final audit report. In that report CBP projects that unpaid duties totaling approximately $12.4 million are due for the period under review andrecommends collection of the duties due. We responded that these projections are erroneous and provided arguments that demonstrate the amount due inconnection with this matter is considerably less than the projection. Additionally, on December 12, 2014, we made an offer to settle CBP's potential claimsand tendered $3.5 million. At this time, it is not possible to determine how long it will take CBP to evaluate our offer or to predict whether our offer will beaccepted. Likewise, if a settlement cannot be reached, it is not possible to predict with any certainty whether CBP will seek to assert a claim for penalties inaddition to any unpaid duties, but such an assertion is a possibility. Mexico's Federal Tax Authority ("SAT") has audited the company's records regarding imports and exports during the period from January 2006 to July2011. There were two phases to the audit, the first for capital equipment and finished goods and the second for raw materials. The first phase was completedand no major discrepancies were noted by the SAT. On January 9, 2013, Crocs received a notice for the second phase in which the SAT issued a taxassessment (taxes and penalties) of roughly 280.0 million pesos (approximately $22.0 million) based on the value of all of Crocs' imported raw materialsduring 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 bythe 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 theSAT. In connection with the appeal, the SAT required us to post an appeal surety bond in the amount of roughly 321.0 million pesos (approximately$26.0 million), which amount reflects estimated additional penalties and interest if we are not successful on our appeal. This amount will be adjusted on anannual basis. On November 27, 2014, the Superior Chamber of the Federal Tax Court ruled in favor of Crocs and annulled the tax assessment and thecorresponding penalty. Crocs anticipates that the SAT will appeal this ruling. It is not possible at this time to predict the outcome of this matter or reasonablyestimate any potential loss. Crocs is currently subject to an audit by the Brazilian Federal Tax Authorities related to imports of footwear from China between 2010-2014. OnJanuary 13, 2015 Crocs was notified about the issuance ofF-49Table of ContentsCROCS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)17. LEGAL PROCEEDINGS (Continued)assessments totaling roughly $5.25 million for the period January 2010 through May 2011. Crocs has disputed these assessments and asserted defenses to theclaims. On February 25, 2015, Crocs received additional assessments totaling roughly $11.54 million related to the remainder of the audit period. Crocs is inthe process of reviewing these assessments, however, it expects to contest and file defenses to these claims as well. It is not possible at this time to predict theoutcome of this matter. As of December 31, 2014, we have accrued a total of $5.1 million relating to these litigation matters and other disputes. We estimate that the ultimateresolution of these litigation matters and other disputes could result in a loss that is reasonably possible between $0.0 million and $9.1 million in theaggregate, in excess of the amount accrued. Although we are subject to other litigation from time to time in the ordinary course of business, including employment, intellectual property and productliability claims, we are not party to any other pending legal proceedings that we believe would reasonably have a material adverse impact on our business,financial position, results of operations or cash flows.18. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION F-50 For the Quarter Ended ($ thousands, except per share data) March 31,2014 June 30,2014 September 30,2014 December 31,2014 Revenues $312,429 $376,920 $302,401 $206,473 Gross profit $156,227 $202,571 $155,017 $76,530 Restructuring $2,250 $4,060 $7,585 $6,637 Asset impairment charges $— $3,230 $2,600 $2,997 Income (loss) from operations $16,822 $41,911 $1,113 $(64,572)Net income (loss) $9,124 $23,277 $15,767 $(53,094)Net income (loss) attributable to common stockholders $6,373 $19,523 $12,009 $(56,867)Basic income (loss) per common share $0.06 $0.19 $0.12 $(0.70)Diluted income (loss) per common share $0.06 $0.19 $0.12 $(0.70) For the Quarter Ended ($ thousands, except per share data) March 31,2013 June 30,2013 September 30,2013 December 31,2013 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)18. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (Continued) During the three months ended December 31, 2014, we recorded the following charges that affect the comparability of information between periods:•Inventory write-down charges of $10.0 million related to obsolete inventory including raw materials, footwear and accessories. See Note 2—Inventories for further discussions regarding these charges. During the three months ended December 31, 2013, we recorded the following charges that affect the comparability of information between periods:•Tax expenses of $26.8 million related to our cash repatriation activities as well as a valuation allowance adjustment. See Note 12—IncomeTaxes for further discussions regarding these charges. •Retail asset impairment charges of $10.4 million for certain underperforming locations in our Americas, Asia Pacific and Europe segments aswell as $0.3 million in goodwill impairment charges. See Note 3—Property & Equipment and Note 4—Goodwill & Intangible Assets forfurther discussions regarding these charges. •Legal contingency accruals of $5.7 million recorded in selling, general and administrative expenses. See Note 17—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. See Note 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 repatriation activities. SeeNote 19—Subsequent Events for further discussions regarding these charges.19. SUBSEQUENT EVENTS Accounting Standards Update No. 2010-09 to ASC Topic 855, Subsequent Events, requires the Company to disclose the date through which subsequentevents have been evaluated. The Company has evaluated subsequent events through the date the financial statements were issued, and has determined thereare no other subsequent events to be reported.F-51QuickLinks -- Click here to rapidly navigate through this document Exhibit 21 List of Subsidiaries Name State/Country of organization orincorporation4246519 Canada Inc. CanadaBite, Inc. ColoradoColorado Footwear C.V. NetherlandsCrocs Argentina S.r.l. ArgentinaCrocs Asia Pte. Ltd. SingaporeCrocs Australia Pty. Ltd AustraliaCrocs 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 KongCrocs 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 UAECrocs New Zealand Limited New ZealandCrocs 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 StatesName State/Country of organization orincorporationExo Italia, S.r.l. ItalyFury, Inc. ColoradoHeirs and Grace Pty. Ltd. AustraliaJibbitz, LLC ColoradoOcean Minded, Inc. ColoradoPanama Footwear Distribution S. de R.L. PanamaShanghai Shengyiguan ChinaWestern Brands Holding Company, Inc. ColoradoWestern Brands Netherland Holding CV NetherlandsQuickLinksExhibit 21List of SubsidiariesQuickLinks -- Click here to rapidly navigate through this document Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-132312, 333-144705, and 333-176696 on Forms S-8 of our reportsdated March 2, 2015 relating to the consolidated financial statements of Crocs, Inc. and subsidiaries and the effectiveness of Crocs, Inc.'s internal control overfinancial reporting, appearing in the Annual Report on Form 10-K of Crocs, Inc. for the year ended December 31, 2014.Denver, ColoradoMarch 2, 2015/s/ Deloitte & Touche LLP QuickLinksExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMQuickLinks -- Click here to rapidly navigate through this document EXHIBIT 31.1 SECTION 302 CERTIFICATION I, Gregg Ribatt, 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 defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements 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 most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially 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 theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which 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: March 2, 2015 /s/ GREGG RIBATTGregg RibattChief Executive OfficerQuickLinksEXHIBIT 31.1SECTION 302 CERTIFICATIONQuickLinks -- Click here to rapidly navigate through this document EXHIBIT 31.2 SECTION 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 defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements 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 most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially 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 theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which 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: March 2, 2015 /s/ JEFFREY J. LASHERJeffrey J. LasherSenior Vice President—Finance, Chief Financial OfficerQuickLinksEXHIBIT 31.2SECTION 302 CERTIFICATIONQuickLinks -- Click here to rapidly navigate through this document EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, Chief Executive Officer and Chief Financial Officer of Crocs, Inc. (the "Company"), hereby certify, pursuant to 18 U.S.C. §1350, asadopted 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, 2014 ("Form 10-K") fully complies with the requirementsof Section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), and (2)The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of theCompany for the period covered by this Form 10-K. A signed original of this written statement required by Section 906 has been provided to Crocs, Inc. and will be retained by Crocs, Inc. and furnished tothe Securities and Exchange Commission or its staff upon request.Date: March 2, 2015 /s/ GREGG RIBATTGregg RibattChief Executive Officer /s/ JEFFREY J. LASHERJeffrey J. LasherSenior Vice President—Finance, Chief FinancialOfficerQuickLinksEXHIBIT 32CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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