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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________________________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-51754
________________________________________________________________________________________________________________________________
CROCS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
20-2164234
(I.R.S. Employer Identification No.)
13601 Via Varra
Broomfield, Colorado 80020
(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:
Common Stock, par value $0.001 per share
Trading symbol:
CROX
Name of each exchange on which registered:
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
____________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company,” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2020 was approximately $2.1 billion. For the purpose of the foregoing calculation
only, all directors and executive 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 conclusive for any other purpose.
The number of shares of the registrant’s common stock, par value $0.001 per shares, outstanding as of February 16, 2021 was 65,439,867.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the registrant’s proxy statement for the 2021 annual meeting of stockholders to be filed no later than 120 days after the end of the
registrant’s fiscal year ended December 31, 2020.
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Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). From time to time, we may also provide oral or written forward-looking
statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation
Reform Act of 1995.
Statements that refer to industry trends, projections of our future financial performance, anticipated trends in our business and other characterizations of future
events or circumstances are forward-looking statements. These statements, which express management’s current views concerning future events or results, use
words like “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “future,” “intend,” “plan,” “project,” “strive,” and future or conditional tense verbs
like “could,” “may,” “might,” “should,” “will,” “would,” and similar expressions or variations. Examples of forward-looking statements include, but are not
limited to, statements we make regarding
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our expectations regarding the impact of the novel coronavirus (“COVID-19”) pandemic on our business, financial condition, operating results, capital
expenditures, and liquidity;
our expectations regarding future trends, selling, general and administrative cost savings, expectations, and performance of our business;
our belief that we have sufficient liquidity to fund our business operations during the next twelve months; and
our expectations about the impact of our strategic plans.
Forward-looking statements are subject to risks, uncertainties and other factors, which may cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include,
without limitation, those described in Part I - Item 1A. Risk Factors of this Annual Report on Form 10-K, elsewhere throughout this Annual Report on Form 10-K,
and those described from time to time in our past and future reports filed with the Securities and Exchange Commission (the “SEC”). Caution should be taken not
to place undue reliance on any such forward-looking statements. Moreover, such forward-looking statements speak only as of the date of this Annual Report on
Form 10-K. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
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Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
Crocs, Inc.
Table of Contents to the Annual Report on Form 10-K
For the Year Ended December 31, 2020
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
PART III
Exhibits, Financial Statement Schedule
Form 10-K Summary
PART IV
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ITEM 1. Business
The Company
PART I
Crocs, Inc. and our consolidated subsidiaries (collectively the “Company,” “Crocs,” “we,” “us,” or “our”) are engaged in the design, development, worldwide
marketing, distribution, and sale of casual lifestyle footwear and accessories for women, men, and children. We strive to be the world leader in innovative casual
footwear, combining comfort and style with a value that consumers want. The vast majority of shoes within our collection contain Croslite™ material, a
proprietary, molded footwear technology, delivering extraordinary comfort with each step.
Products
Since we first introduced a single-style clog in six colors in 2002, we have grown to be a world leader of innovative, casual footwear for women, men, and
children. Recognized globally for our unmistakable iconic clog silhouette, we have taken the successful formula of a simple design aesthetic, paired it with modern
comfort, and expanded into a wide variety of casual footwear products including sandals—wedges, flips, and slides—that meet the needs of the whole family. Our
mission of “everyone comfortable in their own shoes” continued in 2020 with the fourth year of our global “Come As You Are™” campaign.
We offer a broad portfolio of all-season products, while remaining true to our core molded footwear heritage. The vast majority of Crocs™ shoes feature
Croslite™ material, a proprietary, revolutionary technology that gives each pair of shoes the soft, comfortable, lightweight, non-marking, and odor-resistant
qualities that our fans know and love.
At the heart of our brand’s DNA are our clogs, sandals, and Jibbitz™ charms. The Classic Clog, our most iconic style for adults and children, embodies our
innovation in molding, simplicity of design, and all-day comfort. The unique feel of the Classic Clog can be experienced throughout the vast majority of our
product line due to the use and design of Croslite™. Sandals are a natural extension of our brand, leveraging our signature molding technology to provide casual,
comfortable footwear for a variety of wearing occasions. Jibbitz™ charms enhance the consumer experience by providing an outlet for customization and
heightening our message of “Come As You Are™.”
We also use Croslite™ material formulations in connection with new material technologies used in our LiteRide™ collection, as we focus on visible comfort
technology. LiteRide™ features comfort-focused, proprietary foam insoles which are soft, lightweight, and resilient.
We strive to provide our global consumers with comfortable, casual, colorful, and innovative footwear styles, with a focus on molded product. Our collections
address many wearing occasions and meet the needs of the entire family. We enjoy licensing partnerships with Disney, including Marvel and Lucasfilm, Universal
Studios, Nintendo, and Warner Bros., among others, which allow us to bring popular global franchises and characters to life on our product in a fun, exciting way.
Environmental, Social, and Governance (“ESG”) Initiatives
As one of the world’s largest footwear companies, we strive to make a positive impact on the global footwear industry and our planet by committing to transparent,
socially conscious, and sustainable business practices.
Through our ESG Program, we expect to continue to advance our sustainable business practices with the goal of consistently delivering products that exceed
customer and consumer expectations. We believe the progress of our ESG efforts is best served by disclosing goals and relevant metrics, and, to this end, we are
aligning our program with the United Nations Sustainable Development Goals (“SDGs”) and the Sustainability Accounting Standards Board (“SASB”) framework
for reporting and disclosure in order to establish specific goals, targets, and policies to enhance our ESG progress.
Environmental
We are committed to reducing our impact on the environment by focusing on sustainability initiatives in our operations and throughout our supply chain and
product lifecycle.
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In 2020, we identified four key areas of focus: (i) incorporating more sustainable product ingredients; (ii) disclosing efforts and progress towards reducing
greenhouse gas (“GHG”) emissions, energy, water consumption, and waste; (iii) transitioning to more environmentally friendly packaging; and (iv) exploring
sustainable solutions for product end of life.
We have also joined the Sustainable Apparel Coalition (“SAC”) for the purpose of baselining and establishing goals across emissions, energy and water use, and
waste reduction/disposal for both our internal brand activities as well as our factory partners. Crocs is also working to align with Science-Based Targets for the
purpose of developing meaningful GHG emissions reduction goals that support the prevention of climate change.
Social
Human Capital
At Crocs, our vision to make “everyone comfortable in their own shoes” starts with our people. As of December 31, 2020, we employed approximately 4,600
employees in the Americas, EMEA, and Asia Pacific. This includes approximately 2,600 employees in our retail stores, 1,000 employees at our corporate/regional
offices, and 1,000 employees at our distribution centers.
We are committed to the health and safety of our employees and customers. In response to COVID-19, our corporate offices, retail stores, and distribution centers
have implemented various elevated safety protocols, in accordance with local guidelines and regulations, including temperature checks, mandatory mask policies,
social distancing, access to hand sanitizer, plexiglass partitions, and enhanced cleaning of the facilities. To support our workforce, we also implemented a
supplemental sick policy for our U.S. workforce with additional hours available for paid time off related to COVID-19.
To ensure that we remain an employer of choice for what we believe is the most talented workforce in the footwear industry, we have implemented initiatives
across our business and geographies to develop leadership capabilities, enable meaningful professional experiences, offer a compelling employee value
proposition, and create a transparent, collaborative culture that “celebrates one-of-a-kinds and stands together with all different kinds.” We are also committed to
an equitable total rewards philosophy as well as pay transparency in all regions.
We are proud of our culture of inclusion, which encompasses regular employee listening, employee-led inclusivity councils, and diversity at all levels. Crocs
strives to create a culture of inclusion where employees can freely contribute equally regardless of gender, age, ethnicity, disability, or sexual orientation. Our Code
of Ethics codifies these values.
Investing in talent is a key component of our human capital strategy. Crocs is committed to identifying and developing the next generation of leadership. We
conduct an annual talent and succession review with our CEO and Board of Directors (“Board”) with a focus on accelerating talent development, strengthening
succession pipelines, and advancing diversity representation for our most critical roles.
We continue to emphasize employee development and training. We have established a culture of learning and development, with robust training at all levels on a
wide range of topics from Leading for Respect and Inclusion, Thriving through Adversity (for instance, during the COVID-19 pandemic), Leading for Innovation,
and Facilitating Team Communication.
Crocs is committed to providing an employee value proposition that is compelling, market-competitive, and performance-based. Our compensation programs,
practices, and policies reflect our commitment. We aim to generally position total direct compensation within a competitive range of the market median, with
differentiation based on tenure, skills, proficiency, and performance to attract and retain key talent.
Our regular employee engagement surveys reflect a highly engaged global workforce, with, among others, high scores returned by employees recommending
“Crocs as a great place to work” and saying “it is easy for people with diverse backgrounds to be accepted.”
Social Capital
At Crocs, we strive to ensure our products are sourced, produced, and delivered to our customers in a manner that upholds international labor and human rights
standards. To this end, we have implemented measures to ensure our supply chain complies with these standards, including utilizing internal and external parties to
conduct both scheduled and unannounced social compliance reviews. We also maintain a factory Social Compliance Code of Conduct and a certification process –
our contracted factories and direct suppliers sign an annual Statement of Compliance, verifying that their operations are in
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compliance with all local laws and customs regarding hiring practices, wages, and working conditions, as well as our Code of Conduct.
We also monitor chemicals and substances in our supply chain for compliance with legal and regulatory requirements consistent with our Restricted Substances
Policy and expect our contracted factories and suppliers to take a proactive stance in eliminating any hazardous chemicals or substances in the manufacture of
Crocs products.
Community
Giving back to the community is extremely important to us. Through our global “Crocs Cares” program, we focus on providing shoes to address human needs,
funds to support those in need, and time to enable our employees to support their local communities. To this end, we have donated over one million pairs of shoes
in the past five years, and in 2020 donated over 860,000 pairs of shoes to frontline healthcare workers and other organizations as part of our “A Free Pair for
Healthcare” program.
Governance
At Crocs, we have strong corporate governance mechanisms in place, along with robust internal controls over our financial reporting framework. We also have
Enterprise Risk Management and Ethics & Compliance program frameworks, with regular updates provided to our Board committees as well as our Board. For our
ESG efforts, Crocs has established an ESG/sustainability management and oversight framework under the direction of our Executive Vice President, Chief Legal
& Risk Officer. The Governance and Nominating Committee of our Board oversees our ESG efforts.
Our commitment to diversity and inclusion is reflected in our Board, comprised of 38% female members as of December 31, 2020. We are continuing efforts to
expand our Board’s diversity.
Sales and Marketing
We run our business across three geographic regions: the Americas, Asia Pacific, and Europe, Middle East, and Africa (“EMEA”), which are discussed in more
detail in “Business Segments and Geographic Information” below. We prioritize five core markets including: (i) the U.S., (ii) Japan, (iii) China, (iv) South Korea,
and (v) Germany. These countries represent key geographies where we believe the greatest opportunities for growth exist. We also concentrate our marketing
efforts on these countries, to increase customer awareness of both our brand and our full product range.
Each season, we focus on presenting a compelling brand story and experience for our new product introductions as well as our on-going core products. We employ
social and digital marketing centered on showcasing our clog and sandal silhouettes and our Jibbitz™ charms. We are growing our clog silhouette with new colors,
graphics, licensed images, embellishments, and accessories, such as Jibbitz™ charms, that allow for personalization. We are expanding our sandal offerings as we
pursue a greater share of a large market that currently has no clear global leader. We are continuing to invest in designer, celebrity, and brand collaborations, as
well as celebrity brand ambassadors to raise consumer engagement with our brand. See Note 1 — Basis of Presentation and Summary of Significant Accounting
Policies in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this
Annual Report on Form 10-K for information on total marketing costs for the year.
Distribution Channels
The broad appeal of our footwear has allowed us to market our products in more than 80 countries through three distribution channels: wholesale, retail, and e-
commerce. Our wholesale channel includes domestic and international multi-brand retailers, mono-branded partner stores, e-tailers, and distributors; our retail
channel consists of company-operated stores; and our e-commerce channel includes company-operated e-commerce sites and third-party marketplaces.
Wholesale Channel
During the years ended December 31, 2020, 2019, and 2018, 50.0%, 53.3%, and 53.1% of revenues, respectively, were derived through our wholesale channel. Our
wholesale channel includes domestic and international, multi-brand, brick-and-mortar retailers, e-tailers, and distributors in certain countries, including partner
store operators. Brick-and-mortar customers typically include family footwear retailers, national and regional retail chains, sporting goods stores, and independent
footwear retailers. In 2020, as a result of the COVID-19 pandemic, many of our wholesale brick-and-mortar retailers were closed for a portion of the year.
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Outside the U.S., we use distributors when we believe such arrangements are economically preferable to direct sales. Distributors purchase products pursuant to a
price list and are granted the right to resell those products in a defined territory, usually a country or group of countries. Our typical distribution agreements have
terms of one to five years and can be terminated or renegotiated if minimum requirements or other terms are not met. In 2020, as a result of the COVID-19
pandemic, many of our distributors’ stores were closed for a portion of the year and in many cases experienced lower traffic due to the decline in tourism.
No single wholesale customer accounted for 10% or more of our total revenues for any of the years ended December 31, 2020, 2019, and 2018.
Retail Channel
During the years ended December 31, 2020, 2019, and 2018, 24.1%, 28.2%, and 30.1%, respectively, of our revenues were derived through our retail channel.
During 2020, as a result of the COVID-19 pandemic, our global retail stores were closed for a portion of the year. However, the vast majority of our stores were
open as of December 31, 2020. We operate our retail channel through three platforms: company-operated full-price retail stores, outlet stores, and store-in-store
locations. With the continued worldwide consumer shift toward e-commerce, we are carefully managing our retail fleet, especially full-priced retail stores. As of
December 31, 2020, we had 351 company-operated stores. See Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations of this Annual Report on Form 10-K for information on store locations by platform.
Full-Price Retail Stores
Our company-operated full-price retail stores allow us to effectively showcase the full extent of our product range to consumers and provide us with the
opportunity to interact with those consumers directly. We believe the optimal location for our full-price retail stores is in high foot-traffic shopping malls or
districts.
Outlet Stores
Our company-operated outlet stores allow us to sell discontinued and overstocked merchandise directly to consumers at discounted prices. We also sell full-priced
products in certain of our outlet stores as well as built-for-outlet products. Outlet stores are generally located within outlet shopping centers.
Store-in-Store Locations
Our company-operated store-in-store locations allow us to market specific product lines, with flexibility to tailor products to consumer preferences in shopping
malls and other high foot-traffic areas. With efficient use of retail space, and limited fixed cost and capital investment, we believe store-in-store locations can be
effective vehicles for selling our products in certain geographic areas.
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Company-Operated Retail Stores
The following table illustrates the net change during 2020 in the number of our company-operated retail stores by reportable operating segment and country:
December 31, 2019
Opened
Closed
December 31, 2020
Americas
United States
Canada
Puerto Rico
Total Americas
Asia Pacific
Korea
China
Japan
Singapore
Australia
Hong Kong
Total Asia Pacific
EMEA
Russia
Germany
France
Austria
The Netherlands
Total EMEA
Total
E-commerce Channel
153
9
3
165
85
23
12
17
7
1
145
30
15
6
4
2
57
367
2
—
—
2
5
1
—
—
1
—
7
2
—
—
—
—
2
11
1
1
—
2
—
6
—
—
8
1
15
6
1
2
1
—
10
27
154
8
3
165
90
18
12
17
—
—
137
26
14
4
3
2
49
351
As of December 31, 2020, we offered our products through 13 company-operated e-commerce sites worldwide and also on third-party marketplaces. During the
years ended December 31, 2020, 2019, and 2018, 25.9%, 18.5%, and 16.8%, respectively, of our revenues were derived through this channel. Our e-commerce
presence facilitates increased access to our consumers and provides us with an opportunity to educate them about our products and brand. We continue to leverage
increasingly sophisticated digital marketing activities to enhance the consumer experience and drive sales, thereby benefiting from the continued migration of
consumers to online shopping.
Business Segments and Geographic Information
We have three reportable operating segments based on the geographic nature of our operations: the Americas, Asia Pacific, and EMEA. See Part II - Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 16 — Operating Segments and Geographic Information in the
accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on
Form 10-K for financial information related to our operating segments.
Raw Materials
Croslite™, our proprietary closed-cell resin brand, incorporates the primary material formulations used in the vast majority of our footwear and some of our
accessories. Our Croslite™ materials are formulated to create soft, comfortable, lightweight, non-marking, and odor-resistant footwear. We continue to invest in
research and development to refine our materials to enhance these properties and develop new properties for specific applications.
Croslite™ is produced by compounding elastomer resins purchased from major chemical manufacturers, together with certain other production inputs such as color
dyes. Multiple suppliers produce the elastomer resins used in the Croslite™ material. In
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the future, we may identify and utilize materials produced by other suppliers as an alternative to, or in addition to, those elastomer resins. All of the other raw
materials that we use to produce the Croslite™ formulations are readily available for purchase from multiple suppliers.
Some of the products we offer are constructed using leather, textile fabrics, or other material formulations, such as those we brand LiteRide™. These materials are
obtained from a number of third-party sources and we believe these materials are also broadly available.
Sourcing
Our strategy is to maintain a flexible, globally-diversified, cost-efficient third-party manufacturing base. We source our inventory production from multiple third-
party manufacturers, primarily in Vietnam and China. During the years ended December 31, 2020, 2019, and 2018, our largest third-party manufacturer, operating
in both Vietnam and China, produced approximately 46%, 38%, and 45%, respectively, and our second largest third-party manufacturer, also operating in both
Vietnam and China, produced approximately 22%, 17%, and 15%, respectively, of our footwear unit volume. We believe that the manufacturing capabilities
required to produce our footwear are broadly available. See the risk factor under “Risks Related to International Operations — We depend solely on third-party
manufacturers located outside of the U.S.” included in Item 1A. Risk Factors of this Annual Report on Form 10-K for information on risks associated with
sourcing.
Distribution and Logistics
We strive to enhance our distribution and logistics network to further streamline our supply chain, increase our speed to market, and lower operating costs. As of
December 31, 2020, we principally stored our finished goods inventory in company-operated warehouses and distribution and logistics facilities located in the U.S.
and the Netherlands, as well as in a leased third-party operated distribution center in Japan. During 2020, we increased throughput as a result of the prior year move
of our U.S. distribution center from Ontario, California to Dayton, Ohio, and we expanded the Ohio campus to further increase our distribution capacity in the
Americas. In 2020, construction began on a new EMEA distribution center in the Netherlands, which is expected to be fully operational in 2021, and we completed
the relocation of our third-party operated Asia Pacific distribution center within Japan. We also utilized third-party operated distribution centers located in China,
Australia, Korea, Singapore, India, Russia, and Brazil. As of December 31, 2020, our company-operated and leased warehouse and distribution facilities provided
us with 1.8 million square feet, and our third-party operated distribution facilities provided us with 0.5 million square feet, with additional area available based on
inventory levels. We also ship directly to certain of our wholesale customers from our third-party manufacturers, and certain distributors pick up orders directly
from our third-party manufacturers.
Intellectual Property and Trademarks
We rely on a combination of trademarks, copyrights, trade secrets, trade dress, and patent protections to establish, protect, and enforce our intellectual property
rights in our product designs, brands, materials, and research and development efforts, although no such methods can afford complete protection. We own or
license the material trademarks used in connection with the marketing, distribution, and sale of all of our products, both domestically and internationally, in most
countries where our products are currently either sold or manufactured. Our major trademarks include the Crocs logo and the Crocs word mark, both of which are
registered or pending registration in the U.S., the European Union, Japan, Taiwan, China, and Canada, among other countries. We also have registrations or
pending trademark applications for other marks and logos 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 filing the patent application. Our trademarks registered within and outside of the
U.S. are generally valid as long as they are in use and their registrations are properly maintained and have not been found to have become generic. We believe our
trademarks and patents are crucial to the successful marketing and sale of our products. We strategically register, both domestically and internationally, the
trademarks and patents covering certain product designs and branding that we utilize today. We 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 used to produce our footwear covered by our trademark Croslite™ and LiteRide™, among others, valuable trade
secrets. The material formulations are manufactured through a process that combines a number of components in various proportions to achieve the properties for
which our products are known. We use multiple suppliers to source these components but protect the formulations by using an exclusive supply agreement for key
components, confidentiality agreements with our third-party processors, and by requiring our employees to execute confidentiality
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agreements concerning the protection of our confidential information. Other than our third-party processors, we are unaware of any third party using our
formulations in the production of footwear. We believe the comfort and utility of our products depend on the properties achieved from the compounding of the
Croslite™ and LiteRide™ materials, which constitutes a key competitive advantage for us, and we intend to continue to vigorously protect these trade secrets.
We also actively combat counterfeiting and other infringements of our brand by monitoring the global marketplace. We use our employees, sales representatives,
distributors, and retailers, as well as outside investigators, attorneys, and customs agents, to police against infringing products by encouraging them to notify us of
any suspect products and to assist law enforcement agencies. Our sales representatives and distributors are also educated on our patents, pending patents,
trademarks, and trade dress to assist in preventing potentially infringing products from obtaining retail shelf space. The laws of certain countries do not protect
intellectual property rights to the same extent or in the same manner as do the laws of the U.S., and, therefore, we may have difficulty obtaining legal protection for
our intellectual property in certain foreign jurisdictions.
Competition
The global casual, athletic, and fashion footwear markets are highly competitive. Although we do not believe that we compete directly with any single company
with respect to the entire spectrum of our products, we believe portions of our wholesale, retail, and e-commerce businesses compete with companies including,
but not limited to: NIKE, Inc., adidas AG, Under Armour, Inc., Deckers Outdoor Corporation, Skechers USA, Inc., Steven Madden, Ltd., Wolverine World
Wide, Inc., and VF Corporation. Our company-operated retail locations and e-commerce sites also compete with some of our wholesale partners.
The principal elements of competition in these markets include brand awareness, product functionality, design, comfort, quality, price, customer service, and
marketing and distribution. We believe that our unique footwear designs, our material formulations, our prices, our product line, and our distribution network
position us well in the marketplace. However, a number of companies in the casual footwear industry have greater financial resources, more comprehensive
product lines, broader market presence, longer standing relationships with wholesalers, longer operating histories, greater distribution capabilities, stronger brand
recognition, and greater marketing resources than we have. See the risk factor under “Risks Related to our Products — We face significant competition” included
in Item 1A. Risk Factors of this Annual Report on Form 10-K for more information.
Available Information
We file with, or furnish to, the SEC reports including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports are available free of charge on our corporate website
(www.crocs.com) as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Copies of any materials we file with the SEC
can be obtained free of charge at www.sec.gov. The foregoing website addresses are provided as inactive textual references only. The information provided on our
website (or any other website referred to in this report) is not part of this report and is not incorporated by reference as part of this Annual Report on Form 10-K.
ITEM 1A. Risk Factors
You should carefully consider the following risk factors and all other information presented within this Annual Report on Form 10-K. The risks set forth below are
those that our management believes are applicable to our business and the industry in which we operate. These risks have the potential to have a material adverse
effect on our business, results of operations, cash flows, financial condition, liquidity, access to sources of financing, or stock price. The risks included here are not
exhaustive and there may be additional risks that are not presently material or known. Because we operate in a very competitive and rapidly changing environment,
new risk factors emerge from time to time and it is not possible for us to predict all risk factors, nor can we assess the impact of all such risk factors on our
business. Please also refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K.
Risks Related to Our Products
Our success depends substantially on the value of our brand; failure to strengthen and preserve this value, either through our actions or those of our business
partners, could have a negative impact on our financial results.
We believe much of our success has been attributable to the strength of the Crocs global brand. To be successful in the future, particularly outside of the U.S.,
where the Crocs global brand may be less well-known or perceived differently, we believe we must timely and appropriately respond to changing consumer
demand and leverage the value of our brand across all sales
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channels. We may have difficulty managing our brand image across markets and international borders as certain consumers may perceive our brand image to be
out of style, outdated, or otherwise undesirable. Maintaining, promoting, and growing our brand will depend on our design and marketing efforts, including product
innovation and quality, advertising and consumer campaigns, as well as our ability to adapt to a rapidly changing media environment, including our reliance on
social media and digital dissemination of advertising campaigns.
In the past, several footwear companies, including ours, have experienced periods of rapid growth in revenues and earnings followed by periods of declining sales
and losses, and our business may be similarly affected in the future. Consumer demand for our products and our brand equity could also diminish significantly if
we fail to preserve the quality of our products, are perceived to act in an unethical or socially irresponsible manner, fail to comply with laws and regulations, or fail
to deliver a consistently positive consumer experience in each of our markets.
Adverse publicity about regulatory or legal action against us, or by us, could also damage our reputation and brand image, undermine consumer confidence in us,
and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations. Negative claims or publicity
involving us, our products, or any of our key employees, endorsers, or business partners could materially damage our reputation and brand image, regardless of
whether such claims are accurate. Social media, which accelerates and potentially amplifies the scope of negative publicity, can accelerate, and increase the impact
of, negative claims. Further, business incidents that erode consumer trust, such as perceived product safety issues, whether isolated or recurring, in particular
incidents that receive considerable publicity or result in litigation, can significantly reduce brand value and have a negative impact on our business and financial
results. Additionally, counterfeit reproductions of our products or other infringement of our intellectual property rights, including unauthorized uses of our
trademarks by third parties, could harm our brand and adversely impact our business.
We face significant competition.
The footwear industry is highly competitive. Our competitors include most major athletic and non-athletic footwear companies and retailers with their own private
label footwear products. A number of our competitors have significantly greater financial resources, 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 on product marketing than we do. Our competitors’ greater financial resources 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, launch more extensive or
diverse product lines, and more quickly develop new and popular products. Continued demand in the market for casual footwear and readily available offshore
manufacturing capacity has also encouraged the entry of new competitors into the marketplace and has increased competition from established companies. Some of
our competitors are offering products that are substantially similar, in design and materials, to our products. If we are unable to compete successfully in the future,
our sales and profits may decline, we may lose market share, our business and financial results may deteriorate, and the market price of our common stock would
likely fall.
Continuing to rationalize our existing product assortment and introducing new products may be difficult and expensive. If we are unable to do so successfully,
our brand may be adversely affected and we may not be able to maintain or grow our current revenue and profit levels.
To successfully continue to refine our footwear product line, we must anticipate, understand, and react to the rapidly changing tastes of consumers and provide
appealing merchandise in a timely manner. New footwear models that we introduce may not be successful with consumers or our brand may fall out of favor with
consumers. If we are unable to anticipate, identify, or react appropriately to changes in consumer preferences, our revenues may decrease, our brand image may
suffer, our operating performance may decline, and we may not be able to execute our growth plans.
In producing new footwear models, we may encounter difficulties that we did not anticipate during the product development stage. If we are not able to efficiently
manufacture new products in quantities sufficient to support wholesale, retail, and e-commerce distribution, we may not be able to recover our investment in the
development of new styles and product lines, and we would continue to be subject to the risks inherent to having a limited product line. Even if we develop and
manufacture new footwear products that consumers find appealing, the ultimate success of a new style may depend on our pricing. We may introduce products that
are not popular, set the prices of new styles too high for the market to bear, or we may not provide the appropriate level of marketing in order to educate the market
and potential consumers about our new products. Achieving market acceptance will require us to exert substantial product development and marketing efforts,
which could result in a material increase in our selling, general and administrative expenses. 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
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products could impede our ability to maintain or grow current revenue levels, reduce profits, adversely affect the image of our brand, erode our competitive
position, and result in long-term harm to our business and financial results.
Failure to adequately protect our trademarks and other intellectual property rights and counterfeiting of our brand could divert sales, damage our brand image
and adversely affect our business.
We utilize trademarks, trade names, copyrights, trade secrets, issued and pending patents and trade dress, and design rights on nearly all of our products. We
believe that having distinctive marks that are readily identifiable trademarks and intellectual property is important to our brand, our success, and our competitive
position. The laws of some countries, for example, China, do not protect intellectual property rights to the same extent as do U.S. laws. We frequently discover
products that are counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging
another party’s products on the basis of trademark or design or utility patent infringement or other infringement, particularly in some foreign countries, or if we are
required to change our name or use a different logo, or it is otherwise found that we infringe on others intellectual property rights, continued sales of such
competing products by third parties could harm our brand or we may be forced to cease selling certain products, which could adversely impact our business,
financial condition, revenues, and results of operations by resulting in the shift of consumer preference away from our products. If our brand is associated with
inferior counterfeit reproductions, the integrity and reputation of our brand could be adversely affected. Furthermore, our efforts to enforce our intellectual property
rights are typically met with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights. We may face significant
expenses and liability in connection with the protection of our intellectual property, and if we are unable to successfully protect our rights or resolve intellectual
property conflicts with others, our business or financial condition could be adversely affected.
We also rely on trade secrets, confidential information, and other unpatented proprietary rights and information related to, among other things, the Croslite™
material formulations and product development, particularly where we do not believe patent protection is appropriate or obtainable. Using third-party
manufacturers and compounding facilities may increase the risk of misappropriation of our trade secrets, confidential information, and other unpatented proprietary
information. The agreements we use in an effort to protect our intellectual property, confidential information, and other unpatented proprietary information may be
ineffective or insufficient to prevent unauthorized use or disclosure of such trade secrets and information. A party to one of these agreements may breach the
agreement, and we may not have adequate remedies for such breach. As a result, our trade secrets, confidential information, and other unpatented proprietary rights
and information may become known to others, including our competitors. Furthermore, our competitors or others may independently develop or discover such
trade secrets and information, which would render them less valuable to us.
Failure to continue to obtain or maintain high-quality endorsers of our products could harm our business.
We establish relationships with both celebrity endorsers and design, celebrity, and brand collaborators to develop, evaluate, and promote our products, as well as
strengthen our brand. In a competitive environment, the costs associated with establishment and retention of these relationships may increase. If we are unable to
maintain current associations and/or to establish new associations in the future, this could adversely affect our brand visibility and strength and result in a negative
impact to financial results. In addition, actions taken by celebrity endorsers and collaborators associated with our products that harm the public image and
reputations of those endorsers and collaborators could also seriously harm our brand image with consumers and, as a result, could have an adverse effect on our
sales and financial condition.
We rely on technical innovation to compete in the market for our products.
Our success relies on continued innovation in both materials and design of footwear, such as our branded Croslite™ and LiteRide™ materials. Research and
development is a key part of our continued success and growth, and we rely on experts to develop and test our materials and products. Croslite™, our branded
proprietary closed-cell resin, is the primary raw material used in the vast majority of our footwear and some of our accessories. Croslite™ is carefully formulated
to create soft, durable, extremely lightweight, and water-resistant footwear that conforms to the shape of the foot and increases comfort. We continue to invest in
research and development in order to refine our materials to enhance these properties and to develop new properties for specific applications. We strive to produce
footwear featuring fun, comfort, color, and functionality. If we fail to introduce technical innovation in our products, consumer demand for our products could
decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems.
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Risks Related to the Economy
The COVID-19 pandemic has had an adverse impact, and may have a future material adverse impact, on our business, operations, liquidity, financial
condition, and results of operations.
In 2020, the COVID-19 pandemic drove global uncertainty and disruption and has spread throughout the geographic regions in which we run our business and
where our suppliers, third-party manufacturers, retail stores, wholesale customers, and consumers are located. The pandemic has had a material impact on our retail
and wholesale channel revenues, predominately in the first half of 2020, and the total impact of the pandemic on us will depend on developments outside of our
control, including, among other factors, the duration and spread of the outbreak, actions that may be taken by governmental authorities to contain the outbreak or
mitigate its impact, including related restrictions on movement and commercial activities, the economic or other impacts on our wholesale partners, the impact on
and recovery time of our supply chain, consequential staffing shortages, manufacturing delays and the uncertainty with respect to the accessibility of additional
liquidity or to the capital markets.
While the vast majority of our company-operated stores, our partner stores, and our wholesale partner stores were open as of December 31, 2020, some may close
again upon additional COVID-19 outbreaks. At this time, we cannot reasonably estimate the length of time of any remaining closures, if further closures will
occur, or if consumers will return to purchasing our products at historical levels in retail locations. The inability to sell our products in our retail or wholesale
channels has had and may continue to have a material adverse effect on our revenues and results of operations.
We also rely upon the facilities of our third-party manufacturers outside of the U.S. to support our business as well as to export our products throughout the world.
As a result of COVID-19 and the measures designed to contain the spread of the virus, our third-party manufacturers may not have the materials, capacity, or
capability to manufacture our products according to our schedule and specifications, which may negatively impact our ability to manage inventories. If our third-
party manufacturers’ operations are curtailed, we may need to seek alternate manufacturing sources, which may be unavailable, more expensive, or face the same
constraints. The possibility of and the duration of any production or supply chain disruption, and related financial impact, if any, cannot be estimated at this time.
Should any production and distribution closures continue for an extended period of time, the impact on our global supply chain could have a material adverse effect
on our results of operations and cash flows. See the risk factor under “Risks Related to International Operations — We depend solely on third-party manufacturers
located outside the U.S.” for more information.
The effects of COVID-19 could affect our ability to successfully operate in many ways, including, but not limited to, the following factors:
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the impact of the pandemic on the economies and financial markets of the countries and regions in which we operate, including a prolonged global
recession, a decline in consumer confidence and spending, or a further increase in unemployment levels, has resulted, and could continue to result, in
consumers having less disposable income and, in turn, decreased sales of our products;
“shelter in place” and other similar mandated or suggested isolation protocols, which have disrupted, and could continue to disrupt, our retail locations,
partner stores, and brick-and-mortar retailers via store closures or reduced operating hours and decreased retail traffic;
difficulty accessing debt and equity on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deterioration in
credit and financing conditions may affect our ability to access capital necessary to operate our business;
our ability, if necessary, to reduce operating costs and conserve cash;
our inability to obtain additional rent and other relief from our landlords if additional retail stores close in response to another outbreak, which may
involve litigation or other disruptions;
the failure of our wholesale customers, to whom we extend credit, to pay amounts owed to us on time, or at all, particularly if such customers are
significantly impacted by COVID-19;
the risk that even after the pandemic has initially subsided, fear of COVID-19 re-occurrence could cause customers to avoid public places where our
stores and those of our wholesale partners are located such as malls and outlets;
operational risk, including, but not limited to, cybersecurity risks as a result of extended remote work arrangements and restrictions on employee travel;
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we may be required to revise certain accounting estimates and judgments such as, but not limited to, those related to the valuation of long-lived assets and
deferred tax assets, which could have a material adverse effect on our financial position and results of operations.
The rapid development and fluidity of the pandemic precludes any prediction as to the ultimate impact of COVID-19. The full extent of the impact and effects of
COVID-19 on our future business, operations, liquidity, financial condition, and results of operations remain uncertain at this time.
Risks Related to Our Supply Chain
If we do not accurately forecast consumer demand, we may have excess inventory to liquidate or have greater difficulty filling our customers’ orders, either of
which could adversely affect our business.
The footwear industry is subject to cyclical variations, consolidation, contraction and closings, as well as fashion trends, rapid changes in consumer preferences,
the effects of weather, general economic conditions, including as a result of the COVID-19 pandemic, and other factors affecting consumer demand. In addition,
purchase orders from our wholesale customers are generally subject to rights of cancellation and rescheduling by the wholesaler. These factors make it difficult to
forecast consumer demand. If we overestimate demand for our products, we may be forced to liquidate excess inventories at discounted prices resulting in losses or
lower gross margins. Conversely, if we underestimate consumer demand, we could have inventory shortages, which can result in lower sales, delays in shipments
to customers, expedited shipping costs, and adversely affect our relationships with our customers and diminish brand loyalty. Excess inventory, or any failure on
our part to satisfy increased demand for our products, could adversely affect our business and financial results.
Our third-party manufacturing operations must comply with labor, trade, and other laws. Failure to do so may adversely affect us.
We require our third-party manufacturers to meet our quality control standards and footwear industry standards for working conditions and other matters, including
compliance with applicable labor, environmental, and other laws; however, we do not control our third-party manufacturers or their respective labor practices. A
failure by any of our third-party manufacturers to adhere to quality standards or labor, environmental, and other laws could cause us to incur additional costs for
our products, generate negative publicity, damage our reputation and the value of our brand, and discourage customers from buying our products. We also require
our third-party manufacturers to meet certain product safety standards. A failure by any of our third-party manufacturers to adhere to such product safety standards
could lead to a product recall, which could result in critical media coverage; harm our business, brand, and reputation; and cause us to incur additional costs.
In addition, if we or our third-party manufacturers violate U.S. or foreign trade laws or regulations, we may be subject to extra duties, significant monetary
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. or foreign 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, and fraudulent visas or labor violations. The effects of these factors could render our conduct of business in a particular
country undesirable or impractical and have a negative impact on our operating results. We cannot predict whether additional U.S. or foreign customs quotas,
duties, taxes other charges, or restrictions will be imposed upon the importation of foreign produced products in the future or what effect such actions could have
on our business or results. See the risk factor under “Risks Related to International Operations — We depend solely on third-party manufacturers located outside
the U.S.” for more information.
We depend on a number of suppliers for key production materials, and any disruption in the supply of such materials could interrupt product manufacturing
and increase product costs.
We depend on a number of sources for the primary materials used to make our footwear. We source the elastomer resins that constitute the primary raw materials
used in compounding our Croslite™ and LiteRide™ formulations, which we use to produce our various footwear products, from multiple suppliers. If the suppliers
we rely on for elastomer resins were to cease production of these materials, we may not be able to obtain suitable substitute materials in time to avoid interruption
of our production schedules. We are also subject to market conditions related to supply and demand for our raw materials and any resulting shortages in supply,
including those that may be caused by the COVID-19 pandemic. We may have to pay substantially higher prices in the future for the elastomer resins or any
substitute materials we use, which would increase our production costs and could have an adverse impact on our product margins. If we are unable to obtain
suitable elastomer resins, or if we are unable to procure sufficient quantities of the materials that go into the Croslite™ and LiteRide™ formulations, we may not be
able to meet our production requirements in a timely manner or may need to modify our product characteristics,
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which could result in less favorable market acceptance, lost potential sales, delays in shipments to customers, strained relationships with customers, and diminished
brand loyalty.
Risks Related to International Operations
Changes in foreign exchange rates, most significantly but not limited to the Euro, Russian Ruble, Brazilian Real, South Korean Won, Japanese Yen, or other
global currencies could have a material adverse effect on our business and financial results.
As a global company, we have significant revenues and costs denominated in currencies other than the U.S. Dollar (“USD”). We are exposed to the risk of losses
resulting from changes in exchange rates on monetary assets and liabilities within our international subsidiaries that are denominated in currencies other than the
subsidiaries’ functional currencies. Likewise, our U.S. companies are also exposed to the risk of losses resulting from changes in exchange rates on monetary
assets and liabilities that are denominated in a currency other than the USD. We have experienced, and will continue to experience, changes in exchange rates,
impacting both our statements of operations and the value of our assets and liabilities denominated in foreign currencies.
Further, our ability to sell our products in foreign markets and the USD value of the sales made in foreign currencies can be significantly influenced by changes in
exchange rates. A decrease in the value of foreign currencies relative to the USD could result in lower revenues, gross margin compression, and increased losses
from currency exchange rates. Foreign exchange rate volatility could also disrupt the business of the third-party manufacturers that produce our products by
making their purchases of raw materials more expensive and more difficult to finance. We pay the majority of our third-party manufacturers, located primarily in
Vietnam and China, in USD. In 2020, we experienced decreases of approximately $5.7 million in our Americas segment revenues, primarily as a result of
decreases in the value of the Brazilian Real relative to the USD, approximately $3.0 million in our Asia Pacific segment revenues as a result of decreases in the
value of Asian currencies relative to the USD, and a decrease of approximately $1.9 million in our EMEA revenues, primarily as a result of decreases in the
Russian Ruble relative to the USD. Strengthening of the USD against Asian and European currencies, and various other global currencies, adversely impacts our
USD reported results due to the impact on foreign currency translation. While we enter into foreign currency exchange forward contracts to reduce our exposure to
changes in exchange rates on monetary assets and liabilities, the volatility of foreign currency exchange rates is dependent on many factors that cannot be
forecasted with reliable accuracy and, as a result, our forward contracts may not prove effective in reducing our exposures.
We conduct significant business activity outside the U.S., which exposes us to risks of international commerce.
A significant portion of our revenues is generated from foreign sales. Our ability to maintain the current level of operations in our existing international markets is
subject to risks associated with international sales operations. We operate retail stores and sell our products to retailers outside of the U.S. and utilize foreign-based
third-party manufacturers. Foreign manufacturing and sales activities are subject to numerous risks, including
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tariffs, anti-dumping fines, import and export controls, and other non-tariff barriers such as quotas and local content rules;
delays associated with the manufacture, transportation, and delivery of products;
increased transportation 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 and potential penalties due to privacy laws on the handling and transfer of consumer and other personal information;
changes in governmental policies and regulations;
political unrest, changes in law, terrorism, natural disasters, public health issues like the COVID-19 pandemic, or war, any of which can interrupt
commerce;
potential violations of U.S. and foreign anti-corruption and anti-bribery laws by our employees, business partners or agents, despite our policies and
procedures relating to compliance with these laws;
expropriation and nationalization;
difficulties in managing foreign operations effectively and efficiently from the U.S.;
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difficulties in understanding and complying with local laws, regulations, and customs in foreign jurisdictions;
longer accounts receivable payment terms and difficulties in collecting foreign accounts receivables;
difficulties in enforcing contractual and intellectual property rights;
greater risk that our business partners do not comply with our policies and procedures relating to labor, health, and safety; and
increased accounting and internal control costs.
In addition, we are subject to customs laws and regulations with respect to our export and import activity, which are complex and vary within legal jurisdictions in
which we operate. We cannot ensure there will be not be a control failure around customs enforcement despite the precautions we take. We are currently subject to
audits by customs authorities. Any failure to comply with customs laws and regulations could be discovered during a U.S. or foreign government customs audit, or
customs authorities may disagree with our tariff treatments, and such actions could result in substantial fines and penalties, which could have an adverse effect on
our business and financial results. In addition, changes to U.S. trade laws may adversely impact our operations. These changes and any changes to the trade laws of
other countries may add additional compliance costs and obligations and subject us to significant fines and penalties for non-compliance. Compliance with these
and other foreign legal regimes may have a material adverse impact on our business and results of operations. For more information, please see the risk factors
under “Risks Related to International Operations — We depend solely on third-party manufacturers located outside the U.S.” and “Risks Specific to Our Company
and Strategy — Our business relies significantly on the use of information technology. A significant disruption to our operational technology or data security
breach could harm our reputation and/or our ability to effectively operate our business.”
Furthermore, as a global company, we are subject to foreign and U.S. laws and regulations designed to combat governmental corruption, including the U.S.
Foreign Corrupt Practices Act and the U.K. Bribery Act. Violations of these laws and regulations could result in fines and penalties; criminal sanctions against us,
our officers, or our employees; prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries; and a
materially negative effect on our brand and our operating results. Although we have implemented policies and procedures designed to ensure compliance with
these foreign and U.S. laws and regulations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, there can be no assurance that our
employees, business partners, or agents will not violate our policies.
We depend solely on third-party manufacturers located outside of the U.S.
All of our footwear products are manufactured by third-party manufacturers, the majority of which are located in Vietnam and China. We depend on the ability of
these manufacturers to finance the production of goods ordered, maintain adequate manufacturing capacity, and meet our quality standards. We compete with other
companies for the production capacity of our third-party manufacturers, and we do not exert direct control over the manufacturers’ operations. As such, from time
to time we have experienced delays or inabilities to fulfill customer demand and orders. During the years ended December 31, 2020, 2019, and 2018, our largest
third-party manufacturer, operating in both Vietnam and China, produced approximately 46%, 38%, and 45%, respectively, and our second largest third-party
manufacturer, also operating in both Vietnam and China, produced approximately 22%, 17%, and 15%, respectively, of our footwear unit volume. We cannot
guarantee that any third-party manufacturer will have sufficient production capacity, meet our production deadlines, or meet our quality standards. Furthermore,
disruption at the facilities of our third-party manufacturing partners as a result of COVID-19, including through the effects of facility closures, reductions in
operating hours, labor shortages, and real-time changes in operating procedures, including additional cleaning and disinfection procedures, could have a material
adverse effect on our supply chain. See the risk factor under “Risks Related to the Economy — The COVID-19 pandemic has had, and may continue to have, a
material adverse impact on our business, operations, liquidity, financial condition, and results of operations.”
Foreign manufacturing is subject to additional risks, including transportation delays and interruptions, including those caused by the COVID-19 pandemic, work
stoppages, political instability, expropriation, nationalization, foreign currency fluctuations, changing economic conditions, changes in governmental policies and
the imposition of tariffs, import and export controls, and other barriers. Because we ceased internal manufacturing in 2018, we can no longer offset any interruption
or decrease in supply of our products by increasing production in internal manufacturing facilities, and we may not be able to substitute suitable alternative third-
party manufacturers in a timely manner or at acceptable prices. Any disruption in the supply of products from our third-party manufacturers may 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. In addition, 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 petroleum products can increase our transportation costs and
adversely affect our product margins.
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In addition, because our footwear products are manufactured outside the U.S., the possibility of adverse changes in trade or political relations between the U.S. and
other countries, political instability, increases in labor costs, changes in international trade agreements and tariffs, adverse weather conditions, or public health
issues, such as the COVID-19 pandemic, could significantly interfere with the production and shipment of our products, which would have a material adverse
effect on our operations and financial results.
We, similar to many other companies with overseas operations, import and sell products in other countries that could be impacted by changes to the trade policies
of the U.S. and foreign countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the
potential to adversely impact our industry and the global demand for our products, and as a result, could have a material adverse effect on our business, financial
condition, and results of operations.
Changes in global economic conditions may adversely affect consumer spending and the financial health of our customers and others 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 our products
in response to tighter credit, decreased cash availability, and weakened consumer confidence. Our financial success is sensitive to changes in general economic
conditions, both globally and in specific markets, that may adversely affect the demand for our products including recessionary economic cycles, higher interest
rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates
and other changes in tax laws, public health issues like the COVID-19 pandemic, or other economic factors. If global economic and financial market conditions
deteriorate, or remain weak, for an extended period of time, the following factors, among others, could have a material adverse effect on our business and financial
results:
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Changes in foreign currency exchange rates relative to the USD could have a material impact on our reported financial results.
Slower consumer spending may result in our inability to maintain or increase our sales to new and existing customers, cause reduced product orders or
product order delays or cancellations from wholesale accounts that are directly impacted by fluctuations in the broader economy, difficulties managing
inventories, higher discounts, and lower product margins.
If consumer demand for our products declines, we may not be able to profitably operate existing retail stores, due to higher fixed costs of the retail
business.
A decrease in credit available to our wholesale or distributor customers, product suppliers and other service providers, or financial institutions that are
counterparties to our Facility (as defined below) or derivative instruments may result in credit pressures, other financial difficulties, or insolvency for
these parties, with a potential adverse impact on our business, our financial results, or our ability to obtain future financing.
If our wholesale customers experience diminished liquidity, we may experience a reduction in product orders, an increase in customer order cancellations,
and/or the need to extend customer payment terms, which could lead to larger balances and delayed collection of our accounts receivable, reduced cash
flows, greater expenses for collection efforts, and increased risk of nonpayment of our accounts receivable.
If our manufacturers or other parties in our supply chain experience diminished liquidity, and as a result are unable to fulfill their obligations to us, we
may be unable to provide our customers with our products in a timely manner, resulting in lost sales opportunities or a deterioration in our customer
relationships.
Risks Specific to Our Company and Strategy
We may be unable to successfully execute our long-term growth strategy, maintain or grow our current revenue and profit levels, or accurately forecast
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 to maintain our
brand image, our ability to bring compelling and profit enhancing footwear offerings to market, our ability to effectively manage or reduce expenses and our ability
to expand within our current distribution channels and increase sales of our products into new locations internationally. We are focusing on our core molded
footwear heritage by
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narrowing our product line with an emphasis on higher margin products, as well as developing innovative new casual lifestyle footwear platforms.
Successfully executing our long-term growth and profitability strategy will depend on many factors, including our ability to
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strengthen and maintain our brand globally;
focus on relevant geographies and markets, product innovation, and profitable growth, while maintaining demand for our current offerings;
effectively manage our company-operated retail stores to meet operational and financial targets at the retail store level;
accurately forecast the global demand for our products, consolidate our distribution and supply chain network to leverage resources, simplify our
fulfillment process, and deliver product around the globe efficiently;
use and protect the Crocs brand and our other intellectual property in new and existing markets and territories;
achieve and maintain a strong competitive position in new and existing markets;
attract and retain qualified wholesalers and distributors, including partner store operators;
maintain and enhance our social digital marketing capabilities and digital commerce capabilities; and
execute multi-channel advertising, marketing, collaboration, and social media campaigns to effectively communicate our message directly to our
consumers and employees.
While these strategies, along with other steps to be taken, are intended to improve and grow our business, there can be no assurance this will be the case or that
additional steps or accrual of additional material expenses or 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.
Our business relies significantly on the use of information technology. A significant disruption to our operational technology or those of our business partners,
a privacy law violation, or a data security breach could harm our reputation and/or our ability to effectively operate our business, and our financial results.
We rely heavily on the use of information technology systems and networks across all business functions, as do our business partners. The future success and
growth of our business depend on streamlined processes made available through information systems, global communications, internet activity, and other network
processes. We rely on third-party information services providers worldwide for many of our information technology functions including network, hardware, and
software configuration. Additionally, we rely on internal networks and information systems and other technology, including the internet and third-party hosted
services, to support a variety of business processes and activities, including procurement and supply chain, manufacturing, distribution, invoicing, and collection of
payments. We use information systems for certain human resource activities and to process our employee benefits, as well as to process financial information for
internal and external reporting purposes and to comply with various reporting, legal, and tax requirements. Furthermore, the importance of such information
technology systems and networks increased in 2020 due to many of our employees working remotely as a result of the COVID-19 pandemic. We also have
outsourced a significant portion of work associated with our finance and accounting, human resources, customer service, and other information technology
functions to third-party service providers. Despite our current security and cybersecurity measures, our systems and those of our third-party service providers may
be vulnerable to information security breaches, acts of vandalism, computer viruses, credit card fraud, phishing, and interruption or loss of valuable business data,
and we have been subject to, and will continue to be subject to, various third-party attacks and phishing scams. Any disruption to these systems or networks could
result in product fulfillment delays, key personnel being unable to perform duties or communicate throughout the organization, loss of sales, significant costs for
data restoration, the inability to interpret data timely to enhance operations, and other adverse impacts on our business and reputation. Denial of service attacks
could also materially adversely affect our business.
We routinely possess sensitive customer and employee information. Hackers and data thieves are increasingly sophisticated and operate large-scale and complex
automated attacks on a daily basis. Any breach of our network may result in the loss of valuable business data, misappropriation of our consumers’ or employees’
personal information, including credit card information, or a disruption of our business. Despite our existing cybersecurity procedures and controls, if our network
is breached, it could give rise to unwanted media attention, materially damage our customer relationships, or harm our business, our reputation, and our financial
results, which could result in fines or lawsuits. The costs we incur to protect against such information security breaches may materially increase, including
increased investment in technology, the costs of compliance with consumer protection laws, and costs resulting from consumer fraud. Our business partners in our
supply chain and
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customer base also rely significantly on information technology. Despite their existing cybersecurity procedures and controls, if their information systems become
compromised, it could, among other things, cause delays in our product fulfillment or reduce our sales, which could harm our business.
In addition, the European Union’s General Data Protection Regulation, the California Consumer Privacy Act, and other similar evolving privacy laws impose
additional obligations on companies regarding the handling of personal data and provide certain individual privacy rights to persons whose data is stored. These
regulations may harm or alter the operations of our e-commerce business, add additional compliance costs and obligations, and subject us to significant fines and
penalties for non-compliance. Compliance with these and other foreign legal regimes and the associated costs may have a material adverse impact on our business
and results of operations.
If our online e-commerce sites, or those of our customers, do not function effectively, our business and financial results could be materially adversely affected.
An increasing amount of our products are sold on our e-commerce sites and third-party e-commerce sites. This shift to e-commerce further accelerated in 2020 as a
result of COVID-19. Any failure on our part or on the part of third parties to provide effective, reliable, user-friendly e-commerce platforms that offer a wide
assortment of our products could place us at a competitive disadvantage, result in the loss of sales, and could have a material adverse impact on our business and
financial results. Our e-commerce business may be particularly vulnerable to cyber threats including unauthorized access and denial of service attacks. Sales in our
e-commerce channel may also divert sales from our retail and wholesale channels.
Our financial success depends in part on the strength of our relationships with, and the success of, our wholesale and distributor customers.
Our financial success is related to the willingness of our current and prospective wholesale and distributor customers to carry our products. We do not have long-
term contracts with most wholesale customers, and sales to these customers are generally on an order-by-order basis and subject to cancellation and rescheduling.
Our contracts with distributors typically have terms of one to five years and can be terminated or renegotiated if minimum requirements or other terms are not met.
If we cannot fill orders in a timely manner, the sales of our products and our relationships may suffer. Alternatively, if our wholesalers or distributors experience
diminished liquidity or other financial issues, we may experience a reduction in product orders, an increase in order cancellations and/or the need to extend
payment terms, which could lead to larger outstanding balances, delays in collections of accounts receivable, increased expenses associated with collection efforts,
increases in bad debt expenses, and reduced cash flows if our collection efforts are unsuccessful. We have recorded material allowances for doubtful accounts in
the past and could do so again in the future. Additionally, in 2020, as a result of the COVID-19 pandemic, we recorded $4.1 million of bad debt expense associated
with global distributors. Future problems with customers may have a material adverse effect on our product sales, financial condition, results of operations, and our
ability to grow our product line.
Operating company-operated retail stores incurs substantial fixed costs. If we are unable to generate sales, operate our retail stores profitably, or otherwise fail
to meet expectations, we may be unable to reduce such fixed costs and avoid losses or negative cash flows.
Opening and operating company-operated retail stores requires substantial financial commitments, including fixed costs, and are subject to numerous risks
including consumer preferences, location, and other factors that we do not control. Declines in revenue and operating performance of our company-operated retail
stores could cause us to record impairment charges and have a material adverse effect on our business and financial results. During 2020, we opened 11 and closed
27 retail stores, and we operated 351 retail stores at December 31, 2020. Additionally, during 2020, as a result of the COVID-19 pandemic, our global retail stores
were closed for a portion of the year.
Many of our company-operated retail stores are located in shopping malls and outlet malls, and our success depends in part on obtaining prominent locations and
the overall ability of the malls to successfully generate and maintain customer traffic. We cannot control the success of individual malls or store closures by other
retailers, which may lead to mall vacancies and reduced customer foot-traffic. In addition, consumer spending and shopping preferences have shifted, and may
continue to further shift, away from brick-and-mortar retail to e-commerce channels, both prior to, and as a result of, the COVID-19 pandemic, which may
contribute to declining foot-traffic in company-operated retail locations. Continued reduced customer foot-traffic could reduce sales at our company-operated retail
stores, including store-in-store locations, or hinder our ability to open retail stores in new markets, which could in turn negatively affect our business and financial
results. Similarly, customer foot-traffic as a result of store closures, reduced operating hours, social distancing restrictions, and/or changes in consumer behavior as
a result of the COVID-19 pandemic could also have a material adverse effect on our business and financial results. In addition, some of our company-operated
retail stores occupy street locations that are heavily dependent on customer traffic generated by tourism.
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Any substantial decrease in tourism, resulting from an economic slowdown, political, terrorism, social, or military events, natural disasters, public health issues
like the COVID-19 pandemic, or otherwise, is likely to adversely affect sales in our existing stores.
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, expansion of existing businesses or operations, and acquisitions of new businesses, which require
substantial cash investment and management attention. We believe cost effective investments are essential to business growth and profitability; however,
significant investments are subject to risks and uncertainties. The failure of any significant investment to provide the returns or profitability we expect, or
implementation issues, or the failure to integrate newly acquired businesses could have a material adverse effect on our financial results and divert management
attention from more profitable business operations.
Specifically, over the last several years, we have implemented numerous information systems designed to support various areas of our business, including a fully-
integrated global accounting, operations, and finance enterprise resource planning system, and warehouse management, order management, and internet point-of-
sale systems, as well as various interfaces between these systems and supporting back office systems. We have also moved to, and subsequently expanded, a new
distribution center in Dayton, Ohio to serve our North American businesses and have planned a new company-operated distribution center in The Netherlands and
new third-party operated distribution center in Japan to serve our EMEA and Asia Pacific businesses, respectively. As our business grows, we may also need to
make further investments in business systems and distribution capabilities. Issues in implementing or integrating new business operations and new systems with
our current operations, failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, issues with transitioning to
or operating our new distribution centers, cost overruns, or a breach in security of these systems could cause delays in product fulfillment and reduced efficiency of
our operations, require significant additional capital investments to remediate, and may have an adverse effect on our business and financial results.
We depend on employees 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 senior management
can adversely impact our stock price, our results of operations, and our client relationships and may make recruiting for future management positions more difficult
or may require us to offer more generous compensation packages to attract top executives. Changes in other key management positions may temporarily affect our
financial performance and results of operations as new management becomes familiar with our business. When we experience management turnover, we must
successfully integrate any newly hired management personnel within our organization in a timely manner in order to achieve our operating objectives. The key
initiatives directed by these executives may take time to implement and yield positive results, and there can be no guarantee they will be successful. If our new
executives do not perform up to expectations, we may experience declines in our financial performance and/or delays or failures in achieving our long-term growth
strategy.
Further, our business depends on our ability to source and distribute products in a timely, efficient, and cost-effective manner. Labor disputes impacting our
suppliers, manufacturers, transportation carriers, or ports pose significant threats to our business, particularly if such disputes result in work slowdowns, lockouts,
strikes or other disruptions during our peak importing, or manufacturing and selling seasons. Any such disruption could result in delayed or canceled orders by
customers, unplanned inventory accumulation or shortages, and increased transportation and labor costs, negatively impacting our results of operations and
financial position.
We are subject to periodic litigation, which could result in unexpected expenditures of time and resources.
From time to time, we initiate litigation or are called upon to defend ourselves against lawsuits relating to our business. Due to the inherent uncertainties of
litigation, we cannot accurately predict the ultimate outcome of any such proceedings. For a detailed discussion of our current material legal proceedings, see Note
17 — Legal Proceedings in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary
Data of this Annual Report on Form 10-K. An unfavorable outcome in any of these proceedings, or any future legal proceedings, could have an adverse impact on
our business and financial results. In addition, any significant litigation in the future, regardless of its merits, could divert management’s attention from 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 and resources that are
needed to successfully run our business.
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Extreme weather conditions, natural disasters, public health issues, or other events outside of our control could negatively impact our operating results and
financial condition.
The effects of climate change, natural disasters such as earthquakes, hurricanes, tsunamis, or other adverse weather and climate conditions, and public health issues
like the COVID-19 pandemic, whether occurring in the U.S. or abroad, and the consequences and effects thereof, including damage to our supply chain,
manufacturing or distribution centers, retail stores, changes in consumer preferences or spending priorities, and energy shortages, have in the past could in the
future harm or disrupt our operations or the operations of our vendors, other suppliers, or customers, or result in economic instability that may negatively impact
our operating results and financial condition. Additionally, certain catastrophes are not covered by our general insurance policies, which could result in significant
unrecoverable losses.
Our restated certificate of incorporation, amended and restated bylaws, and Delaware law contain provisions that could discourage a third party from
acquiring us and consequently decrease the market value of an investment in our stock.
Our restated certificate of incorporation, amended and restated bylaws, and Delaware corporate law each contain provisions that could delay, defer, or prevent a
change in control of us or changes in our management. These provisions could discourage proxy contests and make it more difficult for our stockholders to elect
directors and take other corporate actions, which may prevent a change of control or changes in our management that a stockholder might consider favorable. In
addition, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of us. Any delay or prevention of a change
of control or change in management that stockholders might otherwise consider to be favorable could cause the market price of our common stock to decline.
Financial and Accounting Risks
We may be required to record impairments of long-lived assets or incur other charges relating to our company-operated retail operations.
Impairment testing of our retail stores’ long-lived assets requires us to make estimates about our future performance and cash flows that are inherently uncertain.
These estimates can be affected by numerous factors, including changes in economic conditions, our results of operations, and competitive conditions in the
industry. Due to the fixed-cost structure associated with our retail operations, negative cash flows, or the closure of a store could result in impairment of leasehold
improvements, impairment of right-of-use assets, impairment of other long-lived assets, write-downs of inventory, severance costs, significant lease termination
costs or the loss of working capital, which could adversely impact our business and financial results. Impairment charges may increase as we continue to evaluate
our retail operations. In 2020, we recorded $20.0 million of impairments to our long-lived assets for a retail store in New York City and $1.1 million to our long-
lived assets for our former corporate headquarters. The recording of additional impairments in the future may have a material adverse impact on our business and
financial results.
Our quarterly revenues and operating results are subject to fluctuation as a result of a variety of factors, which could increase the volatility of the price of our
common stock.
Quarterly results may also fluctuate as a result of several factors, including new style introductions, general economic conditions, or changes in consumer
preferences. Results for any one quarter or year are not necessarily indicative of results to be expected for any other quarter or for any year. This could lead to
results outside of analyst and investor expectations, which could increase volatility of our stock price.
Our senior revolving credit facility agreement (as amended to date, the “Credit Agreement”) contains financial covenants that require us to maintain certain
financial measures and ratios and includes restrictive covenants that limit our ability to take certain actions. A breach of any of those restrictive covenants may
cause us to be in default under the Credit Agreement, and our lenders could foreclose on our assets.
Our Credit Agreement requires us to maintain certain financial covenants. A decline in our operating performance could negatively impact our ability to meet these
financial covenants. If we breach any of these restrictive covenants, the lenders could either refuse to lend funds to us or accelerate the repayment of any
outstanding borrowings under the Credit Agreement. We may not have sufficient funds to repay such indebtedness upon a default or be unable to receive a waiver
of the default from the lenders. If we are unable to repay the indebtedness, the lenders could initiate a bankruptcy proceeding or collection proceedings with respect
to our assets, all of which secure our indebtedness under the Credit Agreement.
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The Credit Agreement also contains certain restrictive covenants that limit, and in some circumstances prohibit, our ability to, among other things: incur additional
debt; sell, lease or transfer our assets; pay dividends on our common stock; make capital expenditures and investments; guarantee debt or obligations; create liens;
repurchase our common stock; enter into transactions with our affiliates; and enter into certain merger, consolidation, or other reorganizations transactions. These
restrictions could limit our ability to obtain future financing, make acquisitions or needed capital expenditures, withstand the current or future downturns in our
business, or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise, any of which could place us at a
competitive disadvantage relative to our competitors.
Changes in the method for determining LIBOR and/or the potential replacement of LIBOR could adversely affect our results of operations.
In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is
unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. Our Credit
Agreement states that, should LIBOR cease to exist or should another rate become widely recognized as the benchmark rate for USD loans, a rate substantially
equivalent to the LIBOR rate in effect prior to its replacement, will be used.
At this time, the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions convened by the U.S. Federal Reserve,
has recommended the Secured Overnight Financing Rate (“SOFR”) as a more robust reference rate alternative to U.S. Dollar LIBOR. SOFR is calculated based on
short-term repurchase agreements, backed by Treasury securities. SOFR is observed and backward looking, which stands in contrast with LIBOR under the current
methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a
secured rate backed by government securities, it will be a rate that does not take into account bank credit risk, as is the case with LIBOR. SOFR is therefore likely
to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions. Whether or not SOFR attains market traction as a LIBOR
replacement tool remains in question.
In March 2020, the Financial Accounting Standards Board issued guidance related to reference rate reform to help facilitate the market transition from existing
reference rates to alternative rates. This guidance was available for adoption at the time of its issuance, but we did not adopt it in the year ended December 31,
2020. Further, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates, or any other reforms to
LIBOR that may be enacted in the United Kingdom or elsewhere. Uncertainty as to the nature of such potential changes, alternative reference rates, including
SOFR, or other reforms may adversely affect the trading market for LIBOR-based securities, including ours. Furthermore, if LIBOR ceases to exist or a
replacement rate is used to determine the interest rate on borrowings under our Credit Agreement, our borrowing cost may increase materially. There is currently
no definitive information regarding the future utilization of LIBOR or of any particular replacement rate.
As the future of LIBOR at this time is uncertain, the potential effect of any future changes cannot yet be determined but may have an adverse impact on our interest
expense and, thus, our results of operations.
The risks of maintaining significant cash abroad could adversely affect our cash flows in the U.S., our business, and financial results.
We have substantial cash requirements in the U.S., but a significant portion of our cash is generated and held abroad. We generally consider unremitted earnings of
subsidiaries operating outside 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 be repatriated to
the U.S., and under the U.S. Tax Cuts and Jobs Act (the “Tax Act”), could be repatriated without incurring additional U.S. federal income taxes, although some
states will continue to subject cash repatriations to income tax. 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. 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 our liquidity.
Changes in tax laws and unanticipated tax liabilities and adverse outcomes from tax audits or tax litigation could adversely affect our effective income tax rate
and profitability.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our effective income tax rate in the future could be adversely affected by a number
of factors, including changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities,
changes in tax laws, and the outcome of income tax audits or
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tax litigation in various jurisdictions around the world. We are regularly subject to, and are currently undergoing, audits by tax authorities in the U.S. and foreign
jurisdictions for prior tax years. Please refer to Note 15 — Commitments and Contingencies and Note 17 — Legal Proceedings in the accompanying notes to the
consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional
details regarding current tax audits. The final outcome of tax audits and related litigation is inherently uncertain and could be materially different than that reflected
in our historical income tax provisions and accruals. Moreover, we could be subject to assessments of substantial additional taxes and/or fines or penalties relating
to ongoing or future audits, which could have an adverse effect on our financial position and results of operations. Future changes in domestic or international tax
laws and regulations could also adversely affect our effective tax rate or result in higher income tax liabilities. Recent developments, including U.S. tax reform, the
European Commission’s investigations of local country tax authority rulings and whether those rulings comply with European Union rules on state aid, as well as
the Organization for Economic Co-operation and Development’s project on Base Erosion and Profit Shifting, continue to change long-standing tax principles.
These and any other additional changes could adversely affect our effective tax rate or result in higher cash tax liabilities.
We may fail to meet analyst and investor 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 include information about
our historical financial results as well as their estimates of our future performance. These estimates are based on their own opinions and are often different from
management’s estimates or expectations of our business. If our operating results are below the estimates or expectations of public market analysts and expectations
of our investors, our stock price could decline.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
Our principal executive and administrative offices are located at 13601 Via Varra, Broomfield, Colorado 80020. We lease all of our domestic and international
facilities. We currently enter into short-term and long-term leases for office, warehouse, and retail, including store-in-store, space. The terms of our leases include
fixed monthly rents and/or contingent rents based on percentage of revenues for certain of our retail locations, and expire at various dates through the year 2033.
The general location, use, and approximate size of our principal properties, and the reportable operating segment are given below.
Location
Reportable Operating
Segment
(1)
(1)
Dayton, Ohio
Dordrecht, the Netherlands
Rotterdam, the Netherlands
Narita, Japan
Broomfield, Colorado
Hoofddorp, the Netherlands
Singapore
Westwood, Massachusetts
Americas
EMEA
EMEA
Asia Pacific
Americas
EMEA
Asia Pacific
Americas
Use
Warehouse
Warehouse
Warehouse
Warehouse
Corporate headquarters and regional office
Regional office
Regional office
Global commercial center
Approximate Square
Feet
1,270,000
517,000
284,000
156,000
88,000
29,000
17,000
16,000
(1)
In 2019 and 2020, we entered into a lease agreement and subsequent amendments for a new distribution center in Dordrecht, the Netherlands, which is expected to replace to
our existing distribution center in Rotterdam, the Netherlands in 2021.
Aside from the principal properties listed above, we lease various other offices and distribution centers worldwide to meet our sales and operational needs. We also
lease 351 retail locations worldwide as of December 31, 2020. See Item 1. Business of this Annual Report on Form 10-K for further discussion regarding global
company-operated stores.
ITEM 3. Legal Proceedings
A discussion of legal matters is found in Note 17 — Legal Proceedings in the accompanying notes to the consolidated financial statements included in Part II -
Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
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ITEM 4. Mine Safety Disclosures
Not applicable.
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ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
Market Information
Our common stock is listed on the Nasdaq Global Select Market under the stock symbol “CROX.”
Performance Graph
The following performance graph illustrates a five-year comparison of cumulative total return of our common stock, the Nasdaq Composite Index and the Dow
Jones U.S. Footwear Index from December 31, 2015 through December 31, 2020. The graph assumes an investment of $100.00 on December 31, 2015 and
assumes the reinvestment of all dividends and other distributions.
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 not encompass
all of our competitors or all of our product categories and lines of business. The Dow Jones U.S. Footwear Index includes NIKE, Inc., Deckers Outdoor
Corporation, Skechers U.S.A., Inc., Steven Madden Ltd., and Wolverine World Wide, Inc. The Nasdaq Composite Index is a market capitalization-weighted index
and consists of more than 3,000 common equities, including Crocs, Inc. The stock performance shown on the performance 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 69 as of February 16, 2021.
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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 the foreseeable
future. Our financing arrangements include restrictions on cash dividends paid on our common stock. Any future determination to declare cash dividends on our
common stock will be made at the discretion of our Board, subject to, among other things, our results of operations, financial condition, level of indebtedness,
capital requirements, and compliance with covenants under any then-existing financing agreements.
Purchases of Equity Securities by the Issuer
Period
October 1-31, 2020
November 1-30, 2020
Open market or privately negotiated purchases
(2)
November 2020 ASR
December 1-31, 2020
Total
(3)
Total Number of
Shares Purchased
Average Price
Paid per Share
25,000 $
98,310
1,530,113
—
1,653,423 $
52.55
54.51
81.69
—
79.64
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
(1)
Maximum Dollar
Value of Shares
that May Yet be
Purchased Under
the Plans or
(1)
Programs
25,000 $
468,172,495
98,310
1,530,113
—
1,653,423 $
462,815,330
337,815,330
337,815,330
337,815,330
(1)
(2)
(3)
On February 20, 2018, the Board approved and authorized a program to repurchase up to $500.0 million of our common stock, and on May 5, 2019, the Board approved an
increase to the repurchase authorization of an additional $500.0 million of our common stock. As of December 31, 2020, approximately $337.8 million remained available
for repurchase under our share repurchase authorization. The number, price, structure, and timing of the repurchases, if any, will be at our sole discretion and future
repurchases will be evaluated by us depending on market conditions, liquidity needs, restrictions under our Facility, and other factors. Share repurchases may be made in
the open market or in privately negotiated transactions. The repurchase authorization does not have an expiration date and does not oblige us to acquire any particular
amount of our common stock. The Board may suspend, modify, or terminate the repurchase program at any time without prior notice.
In November 2020, we entered into an accelerated share repurchase arrangement (“ASR”) to repurchase $125.0 million of our common stock. In exchange for an up-front
payment of $125.0 million, the financial institution that was party to the ASR committed to deliver to us shares of our common stock during the ASR’s purchase period,
which ended in January 2021. At the inception of the arrangement, 1.5 million shares were delivered and retired at an average price of $81.69 (note that this average price is
based on a partial share delivery in 2020). Subsequently, the purchase period ended in January 2021, at which time an additional 0.5 million shares were delivered and
retired. The average price paid per share for the complete ASR, which includes shares delivered in January 2021, was $62.76.
The total average price paid per share of $79.64 for the three months ended December 31, 2020 is based on the November 2020 initial share delivery under our ASR (see
footnote (2)). The total average price paid per share for the three months ended December 31, 2020, including the impact of the final ASR share delivery in January 2021,
was $62.25.
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ITEM 6. Selected Financial Data
The following table presents selected historical financial data for each of our last five years. The information in this table should be read in conjunction with our
consolidated financial statements and accompanying notes presented in Item 8. Financial Statements and Supplementary Data and Item 7. Management’s
Discussion and Analysis of Financial Conditions and Results of Operations of this Annual Report on Form 10-K.
Revenues
Cost of sales
Gross profit
Gross margin
Selling, general and administrative expenses
Selling, general and administrative expenses as a
% of revenues
Asset impairments
(1)
Income (loss) from operations
Income (loss) before income taxes
Income tax expense (benefit)
(2)
Net income (loss)
$
$
$
Dividends on Series A convertible preferred
stock
(2)
Dividend equivalents on Series A convertible
preferred stock related to redemption value
accretion and beneficial conversion feature
(3)
Net loss attributable to common stockholders $
Net income (loss) per common share:
Basic
Diluted
Weighted average common shares:
Basic
Diluted
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
(4)
$
$
$
2020
1,385,951
636,003
749,948
54.1 %
514,753
37.1 %
21,071
214,124
206,979
(105,882)
312,861
—
—
312,861
4.64
4.56
67,386
68,544
266,902
(41,762)
(198,038)
$
$
$
$
$
$
$
2019
Year Ended December 31,
2018
(in thousands, except per share data)
2017
$
$
$
$
$
$
$
1,230,593
613,537
617,056
50.1 %
488,407
39.7 %
—
128,649
119,322
(175)
119,497
—
—
119,497
1.70
1.66
70,357
71,771
89,958
(36,236)
(68,638)
$
$
$
$
$
$
$
1,088,205
528,051
560,154
51.5 %
495,028
45.5 %
2,182
62,944
65,157
14,720
50,437
(108,224)
(11,429)
(69,216)
(1.01)
(1.01)
68,421
68,421
114,162
(10,110)
(148,802)
$
$
$
$
$
$
$
1,023,513
506,292
517,221
50.5 %
494,601
48.3 %
5,284
17,336
18,180
7,942
10,238
(12,000)
(3,532)
(5,294)
(0.07)
(0.07)
72,255
72,255
98,264
(11,538)
(65,370)
2016
1,036,273
536,109
500,164
48.3 %
503,174
48.6 %
3,144
(6,154)
(7,213)
(9,281)
(16,494)
(12,000)
(3,244)
(31,738)
(0.43)
(0.43)
73,371
73,371
39,754
(19,856)
(16,443)
(1)
Asset impairments consist of impairments to long-lived assets for retail locations in all years, as well as a $1.1 million write-off for our former corporate headquarters in 2020,
a $1.3 million write-off of supply chain assets in 2018, a $4.8 million write-off of a discontinued project in 2017, and $0.4 million of goodwill impairment in 2016.
(2)
In the three months ended December 31, 2020, we completed an intra-entity transfer of certain intellectual property rights, primarily to align with current and future
international operations. The transfer resulted in a step-up in tax basis of intellectual property rights and a correlated increase in foreign deferred tax assets based on the fair
value of the transferred intellectual property rights. As a result, we recognized a tax benefit of $127.7 million for the year ended December 31, 2020.
(3)
(4)
On December 5, 2018, all issued and outstanding shares of Series A Convertible Preferred Stock (“Series A Preferred”) were repurchased in exchange for cash or converted to
common stock. As a result, amounts reported for the year ended December 31, 2018 include amounts resulting from the repurchase and conversion, in addition to payments
made to induce conversion and accretion of dividend equivalents prior to December 5, 2018.
Cash used in financing activities for the year ended December 31, 2018 reflects the impacts of $183.7 million used to repurchase Series A Preferred in 2018 and $120.0
million of borrowings. Cash used in financing activities also includes approximately $170.8 million, $147.2 million, $63.1 million, and $50.0 million, including
commissions, used to repurchase shares of our common stock during 2020, 2019, 2018, and 2017, respectively. We did not repurchase shares in 2016.
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Table of Contents
Cash and cash equivalents
Inventories
Working capital
Total assets
Long-term liabilities
Total stockholders’ equity
(1)
(1)
(1)
2020
2019
December 31,
2018
(in thousands)
2017
2016
$
135,802 $
175,121
201,257
1,118,723
536,506
290,633
108,253 $
172,028
168,159
738,802
349,674
131,905
123,367 $
124,491
195,807
468,901
134,102
150,308
172,128 $
130,347
268,031
543,695
18,379
185,865
147,565
147,029
276,335
566,390
17,966
220,383
(1)
Prior year amounts have not been recast to reflect adoption of revenue recognition guidance as of January 1, 2018, which impacts ‘Total Assets,’ or adoption of new lease
guidance as of January 1, 2019, which impacts ‘Working capital’, ‘Total assets’, and ‘Long-term liabilities.’
26
Table of Contents
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
Crocs, Inc. and its consolidated subsidiaries (collectively, the “Company,” “Crocs,” “we,” “us,” or “our”) are engaged in the design, development, worldwide
marketing, distribution, and sale of casual lifestyle footwear and accessories for women, men, and children. We strive to be the world leader in innovative casual
footwear for women, men, and children, combining comfort and style with a value that consumers want. The vast majority of shoes within Crocs’ collection
contain Croslite™ material, a proprietary, molded footwear technology, delivering extraordinary comfort with each step. The broad appeal of our footwear has
allowed us to market our products through a wide range of distribution channels. We currently sell our products in more than 80 countries, through three
distribution channels: wholesale, retail, and e-commerce. Our wholesale channel includes domestic and international multi-brand retailers, mono-branded partner
stores, e-tailers, and distributors; our retail channel consists of company-operated stores; and our e-commerce channel includes company-operated e-commerce
sites and third-party marketplaces.
Known or Anticipated Trends
Based on our recent operating results and our assessment of the current operating environment, we anticipate certain trends will continue to impact our future
operating results:
•
•
The COVID-19 pandemic has impacted our business globally in 2020, including through store closures and reduced operating hours, primarily during the
second quarter of the year. Despite this, in 2020, we saw strong sales in e-commerce and strong sell-through in e-tail and wholesale partner sites, as
consumers migrated to online shopping. The vast majority of our 351 company-operated stores were open at December 31, 2020. To ensure the well-
being of our employees and customers, our corporate offices, retail stores, and distribution centers have implemented various elevated safety protocols, in
accordance with local guidelines and regulations, including temperature checks, mandatory mask policies, social distancing, access to hand sanitizer,
plexiglass partitions, and enhanced cleaning of the facilities. Our corporate offices have also actively managed attendance levels in accordance with local
guidelines and regulations, and many of our corporate employees have continued to successfully conduct business virtually. We expect these measures to
continue into 2021 until the population is vaccinated for COVID-19 to such a degree that these measures are no longer necessary.
Digital growth, which was a priority in 2020 and a growing consumer trend, remains a key focus for 2021, along with a focus on clogs, sandals,
personalization, and visible comfort technology, and growth in China, which remains a significant long-term opportunity. Digital sales include sales
through our company-owned website, third-party marketplaces, and e-tailers.
• We expect revenue growth in 2021, primarily driven by our Americas and EMEA segments, and expect to incur costs affecting gross margin for
investments in our distribution center network. Additionally, we plan to be able to continue leveraging SG&A as revenues grows in 2021.
• We were cash flow positive for the year ended December 31, 2020, despite the negative impacts of the global pandemic. As of December 31, 2020, we
have returned to standard payment terms with our customers and vendors after encountering term extension requests from some customers and more
strictly managing accounts payable in the first part of the year. At December 31, 2020, there were $180.0 million of borrowings outstanding on our credit
facility after net repayments of $25.0 million during 2020. Our borrowings may continue to fluctuate as we manage our liquidity needs.
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”), we present
certain information related to our current period results of operations through “constant currency,” which is a non-GAAP financial measure and should be viewed
as a supplement to our results of operations and presentation of reportable segments under U.S. GAAP. Constant currency represents current period results that
have been retranslated using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends
excluding the impact of foreign currency exchange rates on reported amounts.
Management uses constant currency to assist in comparing business trends from period to period on a consistent basis in communications with the Board of
Directors, stockholders, analysts, and investors concerning our financial performance. We believe constant currency is useful to investors and other users of our
consolidated financial statements as an additional tool to
27
Table of Contents
evaluate operating performance and trends. Investors should not consider constant currency in isolation from, or as a substitute for, financial information prepared
in accordance with U.S. GAAP.
2020 Financial and Operational Highlights
Revenues were $1,386.0 million for the year ended December 31, 2020, a 12.6% increase compared to the year ended December 31, 2019. The increase in 2020
revenues compared to 2019 revenues was due to the net effects of: (i) higher sales volumes, which increased revenues by $24.5 million, or 2.0%; (ii) higher
average selling prices as a result of favorable channel mix, reduced discounts and promotions, and increased prices on certain products, which increased revenues
by $141.5 million, or 11.5%; and (iii) unfavorable changes in exchange rates, which decreased revenues by $10.6 million, or 0.9%.
The following were significant developments affecting our businesses and capital structure during the year ended December 31, 2020:
•
Digital sales represented 41.5% of 2020 revenues, compared to 31.1% in 2019. Direct-to-consumer comparable sales grew 39.2% in 2020, compared to 2019.
• We sold 69.1 million pairs of shoes worldwide, an increase from 67.1 million pairs in 2019, despite volume declines as a result of the COVID-19 pandemic.
•
•
Gross margin was 54.1% compared to 50.1% in 2019, an increase of 400 basis points, primarily as a result of fewer promotions, favorable product mix, higher
pricing, and increased sales of charms per shoe.
SG&A was $514.8 million, an increase of $26.3 million, or 5.4%, compared to 2019. As a percent of revenues, SG&A improved 260 basis points to 37.1% of
revenues, as reductions from several actions taken in response to the COVID-19 pandemic, including the elimination of certain temporary and permanent
corporate and regional roles and a reduction in travel and related costs, were offset by higher variable costs associated with higher revenues and costs incurred
as a result of COVID-19, including $9.9 million of inventory donations to frontline healthcare workers and other organizations.
• We recognized $21.1 million in asset impairments, related primarily to a retail store location in New York City.
•
•
•
•
Income from operations was $214.1 million for the year ended December 31, 2020 compared to income from operations of $128.6 million for the year ended
December 31, 2019. Our operating margin rose to 15.4%, compared to 10.5% in 2019.
In December 2020, we completed a series of transactions that included a transfer of certain intellectual property rights among wholly-owned subsidiaries and
resulted in the recognition of a $127.7 million tax benefit.
Net income was $312.9 million compared to $119.5 million in 2019. Diluted net income per common share was $4.56 for the year ended December 31, 2020,
compared to a diluted net income per common share of $1.66 for the year ended December 31, 2019.
During 2020, we repurchased 3.2 million shares of common stock at an aggregate cost of $170.8 million, including a $125.0 million accelerated share
repurchase agreement (“ASR”) in November 2020. For more information on the ASR, refer to Liquidity and Capital Resources, which appears in a
forthcoming subsection within Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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Table of Contents
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
A discussion of our comparison between 2020 and 2019 is presented below. A discussion of the changes in our results of operations between the years ended
December 31, 2019 and December 31, 2018 has been omitted from this Annual Report on Form 10-K but may be found in Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on
February 27, 2020, which is available free of charge on the SEC’s website at www.sec.gov and our corporate website (www.crocs.com).
Year Ended December 31,
2019
2020
2020-2019
(in thousands, except per share data, margin, and average selling price data)
$
2020-2019
$
$ Change
% Change
Favorable (Unfavorable)
Revenues
Cost of sales
Gross profit
Selling, general and administrative expenses
Asset impairments
Income from operations
Foreign currency gains (losses), net
Interest income
Interest expense
Other income, net
Income before income taxes
Income tax benefit
Net income
Net income per common share:
Basic
Diluted
(1)
Gross margin
Operating margin
Selling, general and administrative expenses as a percentage of
(1)
revenues
Footwear unit sales
Average footwear selling price - nominal basis
(2)
$
$
$
$
$
1,385,951
636,003
749,948
514,753
21,071
214,124
(1,128)
215
(6,742)
510
206,979
(105,882)
312,861
$
$
$
$
4.64
4.56
54.1 %
15.4 %
37.1 %
69,087
19.91
(1)
(2)
Changes for gross margin and operating margin are shown in basis points (“bp”).
Average footwear selling price is calculated as footwear and charms revenues divided by footwear units.
29
1,230,593
613,537
617,056
488,407
—
128,649
(1,323)
601
(8,636)
31
119,322
(175)
119,497
$
$
$
$
1.70
1.66
50.1 %
10.5 %
39.7 %
67,051
18.21
155,358
(22,466)
132,892
(26,346)
(21,071)
85,475
195
(386)
1,894
479
87,657
105,707
193,364
2.94
2.90
400 bp
490 bp
260 bp
2,036
1.70
12.6 %
(3.7)%
21.5 %
(5.4)%
(100.0)%
66.4 %
14.7 %
(64.2)%
21.9 %
1,545.2 %
73.5 %
60,404.0 %
161.8 %
172.9 %
174.7 %
8.0 %
46.7 %
6.5 %
3.0 %
9.3 %
Table of Contents
Revenues by Channel
Wholesale:
Americas
Asia Pacific
EMEA
Other businesses
Total wholesale
Retail:
Americas
Asia Pacific
EMEA
Total retail
E-commerce:
Americas
Asia Pacific
EMEA
Total e-commerce
Total revenues
% Change
Constant
Currency %
Change
(1)
Year Ended December 31,
2019
2020
Favorable (Unfavorable)
2020-2019
2020-2019
(in thousands)
$
$
390,930 $
133,416
168,410
163
692,919
249,238
64,789
19,989
334,016
223,445
80,310
55,261
359,016
1,385,951 $
275,284
207,405
173,480
58
656,227
241,694
74,793
30,875
347,362
123,537
65,874
37,593
227,004
1,230,593
42.0 %
(35.7)%
(2.9)%
181.0 %
5.6 %
3.1 %
(13.4)%
(35.3)%
(3.8)%
80.9 %
21.9 %
47.0 %
58.2 %
12.6 %
44.0 %
(34.7) %
(2.0) %
181.0 %
7.0 %
3.1 %
(12.5) %
(33.7) %
(3.5) %
81.0 %
22.2 %
46.8 %
58.3 %
13.5 %
(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” for more information.
The primary drivers of the changes in revenues were:
Volume
Price
(1)
Foreign Exchange
Total
$ Change
% Change
$ Change
% Change
$ Change
% Change
$ Change
% Change
2020 vs. 2019
(in thousands)
Total revenues
$
24,466
2.0 % $
141,467
11.5 % $
(10,575)
(0.9) % $
155,358
12.6 %
(1)
The change due to price is based on the change in average selling price on a constant currency basis (“ASP”).
Revenues. Despite the impact of the COVID-19 pandemic, which had the most significant adverse impact on sales in the first half of the year, revenues increased
for the full year ended December 31, 2020. Sales volumes, which were lower in all regions in the first two quarters of the year, rebounded in the second half of the
year, as retail locations, partner stores, and brick-and-mortar retailers reopened as COVID-19 restrictions were lifted. Increased ASP, especially in the Americas,
was the largest contributor to higher revenues in 2020, as a result of fewer promotions and discounts, higher pricing on certain products, channel mix from higher
sales in our e-commerce channel, which typically sells at a higher price, and increased sales of charms per shoe. Our continued focus on digital commerce, which
was further bolstered by consumer migration to online shopping during the pandemic, led to an increase of 58.2% in e-commerce channel revenues. Currency
fluctuations, primarily in the Brazilian Real, Russian Ruble, and Korean Won, had a negative impact on revenues.
Cost of sales. Cost of sales increased compared to 2019 due to higher average cost per unit on a constant currency basis (“AUC”) of $9.5 million, or 1.5%, due to
increased e-commerce sales, which carry higher freight and fulfillment costs. Additionally, AUC increased as a result of continued investment in our global supply
chain during 2020. Higher sales volume of $18.1 million, or 3.0%, also increased cost of sales, while foreign currency translation resulted in a decrease in cost of
sales of $5.1 million, or 0.8%.
Gross profit. Gross margin was 54.1% compared to 50.1% in 2019, while gross profit increased $132.9 million, or 21.5%. This was primarily a result of net higher
ASP and AUC, which led to an increase of $132.0 million, or 21.4%, due to fewer
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Table of Contents
promotions and discounts, favorable product mix, and higher pricing. Additionally, higher volume increased gross profit by $6.3 million, or 1.0%, while negative
currency fluctuations decreased gross profit by $5.4 million, or 0.9%
Selling, general and administrative expenses. SG&A increased $26.3 million, or 5.4%, during the year ended December 31, 2020 compared to 2019. SG&A was
higher due to inventory donations of $9.9 million to frontline healthcare workers and other organizations, net higher marketing costs of $9.5 million due to higher
variable marketing associated with increased e-commerce sales, and higher bad debt expense of $4.2 million, mostly due to the impacts of COVID-19 on certain
global distributors, and other net increases, including higher variable compensation and sales commissions, of $2.7 million. However, SG&A improved as a
percent of sales by 260 basis points to 37.1% from 39.7% in 2019. This was primarily a result of higher revenues leveraging our fixed cost base, coupled with
several actions taken in response to the COVID-19 pandemic, including the elimination of certain temporary and permanent corporate and regional roles and a
decrease in travel and related costs.
Asset impairment charges. During the year ended December 31, 2020, we incurred $20.0 million in impairment charges to the right-of-use asset and store assets
for a retail location in New York City and $1.1 million in impairment charges to the right-of-use asset for our former corporate headquarters. During the year ended
December 31, 2019, we incurred no impairment charges.
Foreign currency gains (losses), net. Foreign currency gains (losses), net, consists of unrealized and realized foreign currency gains and losses from the
remeasurement and settlement of monetary assets and liabilities denominated in non-functional currencies as well as realized and unrealized gains and losses on
foreign currency derivative instruments. During the year ended December 31, 2020, we recognized realized and unrealized net foreign currency losses of $1.1
million compared to net losses of $1.3 million during the year ended December 31, 2019.
Income tax benefit. During the year ended December 31, 2020, we recognized an income tax benefit of $105.9 million on pre-tax book income of $207.0 million,
representing an effective tax rate of (51.2)%, compared to income tax benefit of $0.2 million on pre-tax book income of $119.3 million in 2019, which represented
an effective tax rate of (0.1)%. During the year ended December 31, 2020, we recognized a foreign deferred income tax benefit as a result of an intra-entity
intellectual property rights transfer, resulting in a lower effective tax rate as compared to 2019. Our effective tax rate has varied dramatically in recent years due to
the intra-entity intellectual property rights transfer, differences in our profitability level and relative operating earnings across multiple jurisdictions. and by
changes in the valuation allowance.
During the three months ended December 31, 2020, we completed an intra-entity transfer of certain intellectual property rights primarily to align with current and
future international operations. The transfer resulted in a step-up in tax basis of intellectual property rights and a correlated increase in foreign deferred tax assets
based on the fair value of the transferred intellectual property rights. We recorded a deferred tax asset of $492.5 million, net of a reserve for uncertain tax positions
of $197.0 million, and further reduced by a valuation allowance of $167.8 million. Based on available objective evidence, management believes that $167.8 million
of the deferred tax asset, to the extent not offset by reserves for uncertain tax positions, is not more-likely-than-not to be realizable as of December 31, 2020 and,
therefore, is offset by a valuation allowance. As such, a net deferred tax asset of $127.7 million was recognized along with a corresponding foreign deferred
income tax benefit.
Our valuation allowances are primarily the result of uncertainties regarding the future realization of tax attributes recorded in various jurisdictions. The
measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that the deferred tax assets will
not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including
the reversal of existing temporary differences, historical and projected operating results, and the availability of prudent and feasible tax planning strategies. In
assessing our valuation allowance as of December 31, 2020, we considered all available evidence, including the magnitude of recent and current operating results,
the duration of statutory carryforward periods, our historical experience utilizing tax attributes prior to their expiration dates, the historical volatility of operating
results of these jurisdictions, and our assessment regarding the sustainability of their profitability. The weight we give to any particular item is, in part, dependent
upon the degree to which it can be objectively verified. Certain jurisdictions for which we have historically recorded significant valuation allowances now have a
sufficient history of sustained profitability as of December 31, 2020. During 2020, valuation allowances recorded against deferred tax assets, not associated with
the intra-entity intellectual property rights transfer, decreased by $20.2 million.
The 2020 impact of changes in valuation allowances to the effective tax rate was an unfavorable impact of $143.0 million, equating to a 69.0% unfavorable impact.
There is also a $4.6 million change in the valuation allowance related to cumulative translation adjustments. We maintain valuation allowances of approximately
$226.7 million as of December 31, 2020, which may be reduced in the future depending upon the achieved profitability of certain jurisdictions as well as the
magnitude of the profitability.
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Table of Contents
In 2017, we began operating under a tax holiday in one of our foreign jurisdictions. This tax holiday is in effect through 2022, and may be extended if certain
additional requirements are met. The tax holiday is conditional based upon meeting certain employment and investment thresholds. The impact of the tax holiday
in 2020 had no impact to tax expense or to our reported earnings per diluted share.
Reportable Operating Segments
The following table sets forth information related to our reportable operating business segments for the years ended December 31, 2020 and 2019.
Revenues:
Americas
Asia Pacific
EMEA
Segment revenues
Other businesses
Total consolidated revenues
Income from operations:
Americas
Asia Pacific
EMEA
Segment income from operations
Reconciliation of segment income from operations to income (loss)
before income taxes:
Other businesses
Unallocated corporate and other
(2)
Total consolidated income from operations
Foreign currency gains (losses), net
Interest income
Interest expense
Other income, net
Income before income taxes
% Change
Constant
Currency %
Change
(1)
Year Ended December 31,
2019
2020
Favorable (Unfavorable)
2020-2019
2020-2019
(in thousands)
35.7 %
(19.2) %
1.5 %
13.5 %
181.0 %
13.5 %
77.4 %
(40.4) %
(8.2) %
33.7 %
$
$
$
$
863,613 $
278,515
243,660
1,385,788
163
1,385,951 $
361,930 $
47,442
63,314
472,686
(56,556)
(202,006)
214,124
(1,128)
215
(6,742)
510
206,979 $
640,515
348,072
241,948
1,230,535
58
1,230,593
204,868
80,645
70,326
355,839
(54,936)
(172,254)
128,649
(1,323)
601
(8,636)
31
119,322
34.8 %
(20.0)%
0.7 %
12.6 %
181.0 %
12.6 %
76.7 %
(41.2)%
(10.0)%
32.8 %
(2.9)%
(17.3)%
66.4 %
14.7 %
(64.2)%
21.9 %
1,545.2 %
73.5 %
(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” for more information.
(2)
“Unallocated corporate and other” includes corporate support and administrative functions, costs associated with share-based compensation, research and development, brand
marketing, legal, and depreciation and amortization of corporate and other assets not allocated to operating segments.
32
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The primary drivers of changes in revenues by operating segment were:
Volume
Price
(1)
Foreign Exchange
Total
$ Change
% Change
$ Change
% Change
$ Change
% Change
$ Change
% Change
2020 vs. 2019
Segment Revenues:
Americas
Asia Pacific
EMEA
Total segment revenues
$
$
104,080
(76,302)
(3,417)
24,361
16.2 % $
(21.9)%
(1.4)%
2.0 % $
124,725
9,704
7,038
141,467
(1)
The change due to price for revenues is based on ASP, as defined earlier in this section.
Americas
(in thousands)
19.5 % $
2.8 %
2.9 %
11.5 % $
(5,707)
(2,959)
(1,909)
(10,575)
(0.9) % $
(0.9) %
(0.8) %
(0.9) % $
223,098
(69,557)
1,712
155,253
34.8 %
(20.0)%
0.7 %
12.6 %
Revenues. The Americas segment had the largest segment revenue growth for the year ended December 31, 2020, with significant increases due to both ASP and
volume, slightly offset by negative currency fluctuations, primarily in the Brazilian Real. E-commerce revenues, which increased 80.9%, and wholesale revenues,
which increased 42.0%, contributed to this growth, while we also saw growth in retail revenues of 3.1%, despite temporary store closures for part of the year as a
result of the COVID-19 pandemic. ASP increased in all channels as a result of less promotional activity, product mix, price increases, and increased sales of
charms per shoe, while higher volumes in our e-commerce and wholesale channels more than offset lower volume in our retail channel. This was in part a result of
COVID-19-related closures that drove a consumer shift to online shopping.
Income from Operations. During the year ended December 31, 2020, income from operations for our Americas segment was $361.9 million, an increase of $157.1
million, or 76.7% from 2019. Gross profit for the year ended December 31, 2020 increased $174.1 million, or 48.9%, and gross margin increased 590 basis points
to 61.4%, compared to the year ended December 31, 2019. Gross profit increased $132.7 million, or 37.3%, due to higher ASP and lower AUC. ASP increased as a
result of channel mix due to higher sales in our e-commerce channel, less promotional activity, and favorable product mix. This was further supplemented by lower
AUC as a result of product mix, partially offset by channel mix and higher distribution center costs from the expansion of our U.S. distribution center. Gross profit
also increased $43.6 million, or 12.2%, due to sales volume. Foreign currency translation decreased gross profit by $2.2 million, or 0.6%.
During the year ended December 31, 2020, SG&A for our Americas segment increased by $17.0 million, or 11.3%, compared to 2019. This was primarily due to
an increase in marketing costs of $10.2 million due to higher variable marketing associated with a higher share of e-commerce sales, $8.3 million of inventory
donations associated with COVID-19, and an increase in other net costs of $3.5 million, in part due to bad debt expense recognized related to the impact of
COVID-19 on our distributors. These increases were offset by a decrease of $5.0 million in compensation expense, primarily due to the temporary closure of, and
reduction of store hours at, our retail stores during the year and the permanent elimination of certain roles in response to COVID-19.
Asia Pacific Operating Segment
Revenues. The decrease in revenues in our Asia Pacific segment was primarily due to lower sales volumes in our wholesale and retail channels, as a result of store
closures, decreased customer traffic, and lack of tourism, all of which were brought about by the pandemic. An increase in e-commerce revenues partially offset
these declines. Foreign currency fluctuations, primarily in the Korean Won, also decreased revenue slightly. Increased ASP, due to channel mix, fewer promotions,
less discounting, and increased sales of charms per shoe, partially offset these declines.
Income from Operations. During the year ended December 31, 2020, income from operations for our Asia Pacific segment was $47.4 million, a decrease of $33.2
million, or 41.2%. Gross profit for the year ended December 31, 2020 decreased $36.0 million, or 19.4%, while gross margin increased 40 basis points to 53.8%,
compared to the year ended December 31, 2019. The decrease in gross profit was largely due to lower volume of $34.1 million, or 18.4%, particularly in our
wholesale channel, as a result of the lack of tourism in our distributors’ markets and temporary closures of our wholesale partners’ brick-and-mortar stores during
the pandemic. Foreign currency fluctuations also decreased gross profit by $1.5 million or 0.8%. Finally, higher
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ASP, net of AUC, of $2.0 million, due to the shift in direct-to-consumer revenues, was offset by a pandemic-related inventory write-off of $2.4 million.
During the year ended December 31, 2020, SG&A for our Asia Pacific segment decreased $2.8 million, or 2.6%, compared to the same period in 2019. This was
due in part to reductions in compensation expense of $3.2 million due to the temporary and permanent elimination of certain roles in response to COVID-19,
facilities expense of $3.2 million as a result of store closures in Australia and Hong Kong and COVID-19 related rent abatements, primarily in Singapore, and
travel and related costs of $2.0 million. These decreases were offset by an increase in SG&A from donations of inventory to frontline healthcare workers and other
organizations of $1.4 million, higher bad debt expense of $1.2 million, in part due to the impact of COVID-19 on distributor partners, an increase in marketing
costs of $1.2 million due to variable marketing associated with a higher share of e-commerce sales, and higher other net costs of $1.8 million.
Europe, Middle East, and Africa Operating Segment
Revenues. The increase in revenues for our EMEA segment compared to the year ended December 31, 2019, was due to increased ASP, primarily in our e-
commerce channel as a result of less discounting, offset in part by lower volumes. E-commerce volume increases of 33.4% were more than offset by retail volume
decreases of 36.4% and wholesale volume decreases of 2.7%, as consumers shifted to online shopping during the pandemic. Negative foreign currency fluctuations
in the Russian Ruble, partially offset by positive fluctuations in the Euro, also reduced revenues.
Income from Operations. During the year ended December 31, 2020, income from operations for our EMEA segment was $63.3 million, a decrease of $7.0
million, or 10.0%. Gross profit for the year ended December 31, 2020 decreased $5.3 million, or 4.4%, and gross margin decreased by 250 basis points to 47.7%
compared to the year ended December 31, 2019. The decrease in our EMEA segment gross profit was due to lower volumes of $3.6 million, or 3.0%, primarily in
our retail channel, and negative foreign currency fluctuations of $1.3 million, or 1.1%. Higher AUC in our wholesale channel due to increased distribution costs at
our EMEA distribution center was mostly offset by higher ASP in our e-commerce channel as a result of fewer promotions and discounts and price increases, for a
total decrease to gross profit of $0.4 million or 0.3%.
During the year ended December 31, 2020, SG&A for our EMEA segment increased $1.7 million, or 3.3%, compared to the same period in 2019, primarily due to
increased marketing cost of $2.5 million as a result of higher variable marketing associated with a higher share of e-commerce sales and increased other net costs
of $0.7 million, offset by a reduction in compensation expense of $1.5 million.
Other Businesses and Unallocated Corporate
During the year ended December 31, 2020, total net costs within ‘Other businesses’ and ‘Unallocated corporate’ increased by $31.4 million, or 13.8%, compared to
the same period in 2019. This increase was primarily due to a $20.0 million impairment to the right-of-use asset and store assets for a retail location in New York
City, a $1.1 million impairment to the right-of-use asset for our former corporate headquarters, higher compensation expense of $13.2 million due to higher
variable compensation and sales commissions associated with higher revenues, and an increase in facilities expense of $3.0 million due to duplicate rent costs
associated with our new corporate headquarters and higher insurance premiums. These higher costs were partially offset by a lower investment in brand marketing
of $4.4 million as a result of COVID-19 and decreases in travel, professional services, and other net costs of $1.5 million.
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Store Locations and Comparable Store Sales
The table below illustrates the overall change in the number of our company-operated retail locations by type of store and reportable operating segment:
December 31, 2019
Opened
Closed
December 31, 2020
Type:
Outlet stores
Retail stores
Store-in-store
Total
Operating segment:
Americas
Asia Pacific
EMEA
Total
193
109
65
367
165
145
57
367
6
4
1
11
2
7
2
11
13
13
1
27
2
15
10
27
186
100
65
351
165
137
49
351
Digital sales, which includes sales through our company-owned website, third-party marketplaces, and e-tailers (which are reported in our wholesale channel), as a
percent of total revenues, by operating segment were:
Digital sales as a percent of total revenues:
Americas
Asia Pacific
EMEA
Global
Comparable retail store sales and direct-to-consumer comparable sales by reportable operating segment are as follows:
Comparable retail store sales
(2)
Americas
Asia Pacific
EMEA
Global
Direct-to-consumer comparable sales (includes retail and e-commerce)
(2)
Americas
Asia Pacific
EMEA
Global
Year Ended December 31,
2019
2020
38.5 %
39.2 %
54.8 %
41.5 %
Constant Currency
Year Ended December 31,
2019
2020
(1)
32.8 %
(1.2)%
(5.4)%
21.2 %
Constant Currency
Year Ended December 31,
2019
2020
(1)
54.4 %
9.6 %
29.7 %
39.2 %
29.5 %
28.1 %
39.9 %
31.1 %
18.8 %
(2.0)%
5.0 %
12.4 %
21.0 %
5.6 %
13.3 %
16.0 %
(1)
Reflects period over period change on a constant currency basis, which is a non-GAAP financial measure. See the “Use of Non-GAAP Financial Measures” section for
additional information.
(2)
Comparable store status is determined on a monthly basis. Comparable store sales includes the revenues of stores that have been in operation for more than twelve months.
Stores in which selling square footage has changed more than 15% as a result of a remodel, expansion, or reduction are excluded until the thirteenth month in which they
have comparable prior year sales. Temporarily closed stores are excluded from the comparable store sales calculation during the month of closure and in the same month in
the following year. Location closures in excess of three months are excluded until the thirteenth month post re-opening. E-commerce revenues are based on same site sales
period over period.
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Liquidity and Capital Resources
Our liquidity position as of December 31, 2020 was:
Cash and cash equivalents
Available borrowings
December 31, 2020
(in thousands)
$
135,802
319,400
As of December 31, 2020, we had $135.8 million in cash and cash equivalents and up to $319.4 million in available borrowings under our Facility (as defined
below), which was amended in March 2020 to provide additional flexibility and borrowing commitments to operate in a business landscape impacted by the
COVID-19 pandemic. We also entered into two revolving credit facility agreements in Asia during 2020, which are discussed in more detail under “Asia
Revolving Credit Facilities” below. Throughout the year, we took several defensive measures to maximize liquidity in response to COVID-19, including reducing
expenses, primarily through the temporary and permanent elimination of certain corporate and regional roles, extending payment terms with vendors, managing
inventory levels by constraining incoming supply and focusing on core product, deferring discretionary capital expenditures, and suspending our share repurchase
and foreign currency exchange derivative programs for a portion of the year. We began to reinvest in the business in the second half of the year and resumed both
our share repurchase and foreign currency exchange derivative programs. We plan to continue to closely monitor our costs and adjust as needed in response to
changes in the market.
As of December 31, 2020, we have largely returned to standard payment terms with our vendors and customers after encountering term extension requests from
some customers, recognizing bad debt expense of $4.1 million in the year ended December 31, 2020 associated with global distributors as a result of the COVID-
19 pandemic, and more strictly managing accounts payable in the first part of the year. Through December 31, 2020, we also received rent concessions from
landlords of $6.0 million, the majority of which were either paid back during the year or are expected to be paid back by the end of 2021.
We believe that our cash flows from operations, our cash and cash equivalents on hand, and available borrowings under our Facility and other financing
agreements will be sufficient to meet our ongoing liquidity needs and capital expenditure requirements for at least the next twelve months. Additional future
financing may be necessary to fund our operations and there can be no assurance that, if needed, we will be able to secure additional debt or equity financing on
terms acceptable to us or at all, especially in light of the market volatility and uncertainty as a result of the COVID-19 outbreak. Although we believe we have
adequate sources of liquidity over the long term, the success of our operations, the global economic outlook, and the pace of sustainable growth in our markets, in
each case, in light of the market volatility and uncertainty as a result of the COVID-19 pandemic, among other factors, could impact our business and liquidity.
Repatriation of Cash
As a global business, we have cash balances in various countries and amounts are denominated in various currencies. Fluctuations in foreign currency exchange
rates impact our results of operations and cash positions. Future fluctuations in foreign currencies may have a material impact on our cash flows and capital
resources. Cash balances held in foreign countries may have additional restrictions and covenants associated with them which could adversely impact our liquidity
and our ability to timely access and transfer cash balances between entities.
All of the cash held outside of the U.S. could be repatriated to the U.S. without incurring additional U.S. federal income taxes. As of December 31, 2020, we held
$71.1 million of our total $135.8 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 is held. None of the $71.1 million held in international locations is limited by local regulations.
Senior Revolving Credit Facility
In July 2019, Crocs, Inc. and certain of its subsidiaries (the “Borrowers”) entered into a Second Amended and Restated Credit Agreement (as amended, the “Credit
Agreement”), with the lenders named therein and PNC Bank, National Association, as a lender and administrative agent for the lenders, which provides for a
revolving credit facility of $500.0 million, which can be increased by an additional $100.0 million subject to certain conditions (the “Facility”). Borrowings under
the Credit Agreement bear interest at a variable rate based on (A) a domestic base rate (defined as the highest of (i) the Federal Funds open rate, plus 0.25%, (ii)
the Prime Rate, and (iii) the Daily LIBOR rate, plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio, or (B) a LIBOR
rate, plus an applicable margin ranging from 1.25% to 1.875% based on
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our leverage ratio. Borrowings under the Credit Agreement are secured by all of the assets of the Borrowers and guaranteed by certain other subsidiaries of the
Borrowers.
The Credit Agreement requires us to maintain a minimum interest coverage ratio of 4.00 to 1.00, and a maximum leverage ratio of (i) 3.50 to 1.00 from the quarter
ended December 31, 2020 to the quarter ended December 31, 2021 and (ii) 3.25 to 1.00 from the quarter ending March 31, 2022 and thereafter (subject to
adjustment in certain circumstances). The Credit Agreement permits (i) stock repurchases subject to certain restrictions, including after giving effect to such stock
repurchases, the maximum leverage ratio does not exceed certain levels; and (ii) certain acquisitions so long as there is borrowing availability under the Credit
Agreement of at least $40.0 million. As of December 31, 2020, we were in compliance with all financial covenants under the Credit Agreement.
As of December 31, 2020, the total commitments available from the lenders under the Facility were $500.0 million. At December 31, 2020, we had $180.0 million
in outstanding borrowings, which are due when the Facility matures in July 2024, and $0.6 million in outstanding letters of credit under the Facility, which reduces
amounts available for borrowing under the Facility. As of December 31, 2020 and 2019, we had $319.4 million and $240.4 million, respectively, of available
borrowing capacity under the Facility. Our borrowings may continue to fluctuate as we manage our liquidity needs.
Asia Revolving Credit Facilities
Our revolving credit facility with China Merchants Bank Company Limited, Shanghai Branch (the “CMBC Facility”) provides up to 30.0 million RMB, or $4.6
million at current exchange rates, and matures in May 2021. For RMB loans under the CMBC Facility, interest is determined at the time of borrowing based on
variable rates in effect at that time.
The revolving credit facility with Citibank (China) Company Limited, Shanghai Branch (the “Citibank Facility”) provides up to an equivalent of $5.0 million and
matures in June 2021. For RMB loans under the Citibank Facility, interest is based on a National Interbank Funding Center 1-year prime rate, plus 65 basis points.
For USD loans under the Citibank Facility, interest is based on a LIBOR rate, plus 1.5%.
We had no borrowings under our Asia revolving facilities during the years ended December 31, 2020 and 2019 or outstanding at December 31, 2020 or 2019.
Consolidated Statements of Cash Flows
Our consolidated statements of cash flows are summarized as follows:
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
Net change in cash, cash equivalents, and restricted cash
Year Ended December 31,
2019
2020
(in thousands)
$ Change
2020-2019
$
$
266,902 $
(41,762)
(198,038)
126
27,228 $
89,958 $
(36,236)
(68,638)
(569)
(15,485) $
176,944
(5,526)
(129,400)
695
42,713
Operating Activities. Our primary source of liquidity is cash provided by operating activities, consisting of net income adjusted for non-cash items and changes in
working capital. Cash provided by operating activities increased $176.9 million for the year ended December 31, 2020 compared to the year ended December 31,
2019. This change was driven by higher net income adjusted for non-cash items of $66.7 million, offset by a net decrease in operating assets and liabilities of
$243.7 million.
Investing Activities. The $5.5 million increase in cash used in investing activities for the year ended December 31, 2020 compared to the year ended December 31,
2019 is primarily due to the relocation of our Corporate headquarters in Broomfield and continued investment in our U.S. distribution center.
Financing Activities. The $129.4 million increase in cash used in financing activities for the year ended December 31, 2020 compared to the year ended
December 31, 2019 resulted primarily from a decrease in borrowings of $110.0 million, net of repayments, on our Facility and an increase of $23.6 million in
repurchases of our common stock, as detailed below. The increase was offset by less cash used in other financing activities of $3.0 million, associated with the
final payment made in
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2019 related to the conversion of our Series A Convertible Preferred Stock that did not recur in the current year, and $1.2 million, primarily due to costs associated
with amending the Credit Agreement that did not recur in the current year.
Stock Repurchases
On February 20, 2018, the Board of Directors approved and authorized a program to repurchase up to $500.0 million of our common stock, and on May 5, 2019,
the Board approved an increase to the repurchase authorization of an additional $500.0 million of our common stock. The number, price, structure, and timing of
the repurchases are at our sole discretion and may be made depending on market conditions, liquidity needs, restrictions under our revolving credit facility, and
other factors. The Board of Directors may suspend, modify, or terminate the program at any time without prior notice. Share repurchases may be made in the open
market or in privately negotiated transactions. The repurchase authorization does not have an expiration date and does not obligate us to acquire any amount of our
common stock. Under Delaware state law, these shares are not retired, and we have the right to resell any of the shares repurchased.
We repurchased 3.2 million shares of our common stock at a cost of $170.8 million, including commissions, during the year ended December 31, 2020. This
includes 1.5 million shares delivered under a $125.0 million November 2020 accelerated share repurchase arrangement (“ASR”). Under the ASR, a financial
institution delivers shares of our common stock during the purchase period in exchange for an up-front payment. The total number of shares ultimately delivered
under the ASR, and therefore the average repurchase price paid per share, is determined based on the volume-weighted average price of our common stock during
the purchase period. The purchase period for this ASR ended in January 2021, at which time an additional 0.5 million shares were delivered. The shares received
are recorded in the periods they are delivered, and the up-front payment is accounted for as a reduction to stockholders’ equity in our consolidated balance sheet in
the period the payment is made.
During the year ended December 31, 2019, we repurchased 6.1 million shares of our common stock at a cost of $147.2 million, including commissions. See Note
10 — Equity in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual
Report on Form 10-K for more information on our repurchases and repurchase authorizations.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of December 31, 2020, other than certain purchase commitments, which are described in Note 15 —
Commitments and Contingencies in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary
Data of this Annual Report on Form 10-K.
Contractual Obligations
The following table summarizes aggregate information about our significant contractual cash obligations as of December 31, 2020:
Total
Less than
1 Year
1 - 3 Years
(in thousands)
3 - 5 Years
More than
5 Years
$
225,273 $
50,559 $
71,579 $
34,803 $
Operating lease obligations
Inventory purchase obligations with third-party
(1)
manufacturers
(3)
(2)
Other contracts
Minimum licensing royalties
Debt obligations
Interest on debt obligations
(5)
(6)
(4)
Total
$
220,800
96,377
722
180,000
13,030
736,202 $
220,800
26,674
697
—
3,650
302,380 $
—
29,122
25
—
7,300
108,026 $
—
18,501
—
180,000
2,080
235,384 $
68,332
—
22,080
—
—
—
90,412
(1)
(2)
Our operating lease obligations consist of leases for real estate, which includes retail, warehouse, distribution center, and office spaces, expiring at various dates through 2033.
This balance represents the minimum cash commitment under contract to various third parties for operating lease obligations.
Our inventory purchase obligations with third-party manufacturers consist of open purchase orders for footwear products and include an immaterial amount of purchase
commitments with certain third-party manufacturers for yet-to-be-received finished product where title passes to us upon receipt. All purchase obligations with third-party
manufacturers are expected to be paid within one year.
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(3)
(4)
Other contracts include $36.1 million of future lease commitments related to our new distribution center in the Netherlands, which is expected to be fully operational in 2021,
and $31.5 million of operating costs related to our new third-party operated distribution center in Japan.
Our minimum licensing royalties consist of usage-based payments for the right to use various licenses, trademarks and copyrights in the production of our footwear 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.
(5)
(6)
Our debt obligations consist of long-term borrowings on our Facility, maturing in July 2024.
Future interest payment obligations, which are estimated by assuming the amounts outstanding under our Facility and the interest rates in effect as of December 31, 2020, will
remain constant into the future. This is only an estimate, as actual amounts borrowed and rates will vary over time, based on a domestic base rate or LIBOR rate, as
described in the “Senior Revolving Credit Facility” section.
Excluded from the table above is a $205.8 million liability for unrecognized tax benefits as of December 31, 2020, as we cannot make a reliable estimate of the
period in which the liability will be settled, if ever.
Critical Accounting Policies and Estimates
General
Our discussion and analysis of financial condition and results of operations, outside of discussions regarding constant currency and non-GAAP financial measures,
is based on the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an on-going basis.
An accounting policy is considered to be critical if it is important to our results of operations, financial condition, and cash flows, and requires significant judgment
and estimates on the part of management in its application. Our estimates are often based on historical experience, complex judgments, assessments of probability,
and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. We believe that the following discussion
represents those accounting policies that are the most critical to the reporting of our financial condition and results of operations. For a discussion of our significant
accounting policies, see Note 1 — Basis of Presentation and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial
statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Reserves for Uncollectible Accounts Receivable, Sales Returns, Allowances, Discounts, and Rebates
We make ongoing estimates related to the collectability of our accounts receivable and maintain a reserve for estimated losses resulting from the inability or
unwillingness of our customers to make required payments. Our estimates are based on a variety of factors, including the length of time receivables are past due,
economic trends and conditions affecting our customer base, significant non-recurring events, 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 its financial obligations. Because we cannot predict future
changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates and we may experience changes
in the amount of reserves we recognize for accounts receivable that we deem uncollectible. If the financial condition of our customers were to deteriorate, resulting
in their inability to make payments, a larger reserve might be required. In the event we determine that a smaller or larger reserve is appropriate, we would record a
credit or a charge, respectively, to ‘Selling, general and administrative expenses’ in our consolidated statement of operations in the period in which we made such a
determination.
Additionally, a significant area of judgment affecting reported revenues and net income involves estimating reserves for sales returns, allowances, discounts, and
rebates, which represent the portion of revenues not expected to be realized. Wholesale revenues are reduced by estimates of returns, allowances, discounts,
contractual discounts to major customers, and rebates. We also may accept returns from our wholesale customers, on an exception basis, to ensure that our products
are merchandised in the proper assortments, and may provide markdown allowances at our sole discretion to key wholesalers and distributors to facilitate sales of
slower moving products. Further, we record reductions to revenues for estimated customer credits as a result of price markdowns in certain markets. Revenues in
our retail and e-commerce channels are also reduced by an estimate of returns.
Our estimated sales returns and allowances are based on customer return history and actual outstanding returns yet to be received. Changes to our estimates for
customer returns, allowances, discounts, and rebates may be caused by many factors, including, but not limited to whether customers accept our new styles,
customer inventory levels, shipping delays or errors, known or suspected product defects, the seasonal nature of our products, and macroeconomic factors affecting
our customers.
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Historically, actual amounts of customer returns, allowances, discounts, and rebates have not differed significantly from our estimates. A hypothetical 1% increase
in our reserves for returns, allowances, discounts, and rebates as of December 31, 2020 would have an immaterial impact on our 2020 revenues.
See Schedule II in Part IV - Item 15. Exhibits, Financial Statement Schedule to the accompanying consolidated financial statements of this Annual Report on Form
10-K for an analysis of the activity in our reserves for uncollectible accounts receivable, sales returns, allowances, and discounts.
Impairment of Long-Lived Assets
Property and equipment along with other long-lived assets are evaluated for impairment periodically whenever events or changes in circumstances indicate that
their carrying values may not be fully recoverable. Testing of long-lived assets for impairment is at the level of an asset group, which is the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities. In our retail business, the asset group for impairment testing is each
individual retail store. In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset
and its eventual disposition, where applicable. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying
value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value. Assets to be disposed of and for which
there is a committed plan of disposal are reported at the lower of carrying value or fair value, less costs to sell.
In determining future cash flows, we take various factors into account, including the remaining useful life of each asset group, forecasted growth rates, pricing,
working capital, capital expenditures, and other cash needs specific to the asset group. Additional considerations when assessing impairment include changes in our
strategic operational and financial decisions, global and regional economic conditions, demand for our product and other corporate initiatives which may eliminate
or significantly decrease the realization of future benefits from our long-lived assets. Since the determination of future cash flows is an estimate of future
performance, future impairments may arise in the event that future cash flows do not meet expectations.
In 2020, we recorded non-cash impairments of $20.0 million to reduce the net carrying value of certain long-lived assets to their estimated fair values for a retail
store in New York City and $1.1 million for our former corporate headquarters. During 2019, we did not record any impairment charges. During 2018, we recorded
non-cash impairment of $2.2 million to reduce the net carrying value of certain long-lived assets to their estimated fair values, including $1.3 million to reduce the
carrying values of certain supply chain assets related to the closure of our Mexico and Italy manufacturing and distribution facilities and $0.9 million related to
underperforming company-operated retail stores. See Note 3 — Property and Equipment, Net in the accompanying notes to the consolidated financial statements
included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information related to long-lived asset
impairments.
Income Taxes
As a result of the Tax Act, we recorded provisional estimates in accordance with GAAP, during 2017 in relation to the revaluation of our net deferred tax assets at
the lower U.S. corporate income tax rate and the additional tax expense associated with the deemed repatriation tax. During the year ended December 31, 2018, we
recorded measurement period adjustments related to the provisional estimates. We have not changed our indefinite reinvestment assertion, and we have elected to
account for the impact of global intangible low tax income (“GILTI”) based on the period cost method. While we consider our accounting for the Tax Act to be
complete, we continue to evaluate new guidance and legislation as it is issued.
During the three months ended December 31, 2020, we completed an intra-entity transfer of certain intellectual property rights primarily to align with current and
future international operations. This transaction was executed using transfer pricing guidelines issued by the relevant taxing authorities. Significant estimates and
assumptions were required to compute the valuation of this transaction. These estimates and assumptions include, but are not limited to, estimated future revenue
growth and discount rates, which by their nature are inherently uncertain therefore may ultimately differ materially from our actual results.
We have recorded certain tax reserves to address potential differences involving our income tax positions. These potential tax liabilities result from the varying
application of statutes, rules, regulations and interpretations by different taxing jurisdictions. While our tax position is not uncertain, because of the significant
estimates used in the value of certain intellectual property rights, our tax reserves contain assumptions based on past experiences and judgments about the
interpretation of statutes, rules and regulations by taxing jurisdictions. It is possible that the costs of the ultimate tax liability or benefit from these matters may be
materially more or less than the amount that we estimated.
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We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax bases of other assets and liabilities. We provide for income taxes at the current
and future enacted tax rates and laws applicable in each taxing jurisdiction. We account for the tax effects of GILTI as a component of income tax expense in the
period the tax arises, to the extent applicable. We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return
and disclosures regarding uncertainties in income tax positions. The impact of an uncertain tax position that is more likely than not to be sustained upon
examination by the relevant taxing authority must be recognized at the largest amount that is more likely than not to be sustained. No portion of an uncertain tax
position will be recognized if the position has less than a 50% likelihood of being sustained. Interest expense is recognized on the full amount of deferred benefits
for uncertain tax positions. While the validity of any tax position is a matter of tax law, the body of statutory, regulatory and interpretive guidance on the
application of the law is complex and often ambiguous. We recognize interest and penalties related to unrecognized tax benefits within the ‘Income tax expense
(benefit)’ line in the accompanying consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the
consolidated balance sheets.
We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable income using both historical and projected
future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning
strategies. A valuation allowance is required unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated
with a deferred tax asset. We determine on a regular basis the amount of undistributed earnings that will be indefinitely reinvested in our non-U.S. operations. This
assessment is based on the cash flow projections and operational and fiscal objectives of each of our U.S. and foreign subsidiaries. Foreign withholding taxes have
not been provided on cumulative undistributed foreign earnings of the non-U.S. subsidiaries as of December 31, 2020, which are considered to be indefinitely
reinvested outside of the U.S.
See Note 13 — Income Taxes in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary
Data of this Annual Report on Form 10-K for further information related to income taxes.
Recent Accounting Pronouncements
See Note 2 — Recent Accounting Pronouncements in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements
and Supplementary Data of this Annual Report on Form 10-K for a description of recently adopted accounting pronouncements, and issued accounting
pronouncements that we believe may have an impact on our consolidated financial statements when adopted.
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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 financing strategies. Our
exposure to market risk includes interest rate fluctuations in connection with our Facility and certain financial instruments.
Borrowings under our Facility bear interest at a variable rate based on a domestic base rate or a LIBOR rate, plus an applicable margin, and are therefore subject to
risk based upon prevailing market interest rates. Interest rates fluctuate as a result of many factors, including governmental monetary and tax policies, domestic and
international economic and political considerations, and other factors that are beyond our control. See the risk factor under “Financial and Accounting Risk —
Changes in the method for determining LIBOR and/or the potential replacement of LIBOR could adversely affect our results of operations” included in Part I -
Item 1A. Risk Factors of this Annual Report on Form 10-K for further information on risks related to our interest rate.
As of December 31, 2020, we had $180.0 million in outstanding borrowings and $0.6 million in outstanding letters of credit under our Facility. As of
December 31, 2019, we had $205.0 million in outstanding borrowings and $4.6 million in outstanding letters of credit under our Facility.
A hypothetical increase of 1% in the interest rate on these borrowings would have increased interest expense by $2.4 million for the year ended December 31,
2020.
Foreign Currency Exchange Risk
Changes in exchange rates have a direct effect on our reported USD consolidated financial statements because we translate the operating results and financial
position of our international subsidiaries to USD using current period exchange rates. Specifically, we translate the statements of operations of our foreign
subsidiaries into the USD reporting currency using exchange rates in effect during each reporting period. As a result, comparisons of reported results between
reporting periods may be impacted significantly due to differences in the exchange rates in effect at the time such exchange rates are used to translate the operating
results of our international subsidiaries.
An increase of 1% of the value of the USD relative to foreign currencies would have decreased our revenues during the year ended December 31, 2020 by
approximately $5.6 million. The volatility of the exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy.
We enter into forward foreign exchange contracts to buy or sell various foreign currencies to selectively protect against volatility in the value of non-functional
currency denominated monetary assets and liabilities. Changes in the fair value of these forward contracts are recognized in earnings in the period that the changes
occur. As of December 31, 2020, the USD notional value of our outstanding foreign currency forward exchange contracts was approximately $119.0 million. The
net fair value of these contracts at December 31, 2020 was a liability of $0.4 million. See Part I - Item 1A. Risk Factors of this Annual Report on Form 10-K for a
discussion of risks to our business and financial results associated with foreign currencies.
We perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our foreign currency forward exchange
contracts. To perform the sensitivity analysis, we assess the risk of changes in fair values from the effect of hypothetical changes in foreign currency exchange
rates. This analysis assumes a like movement by the foreign currencies in our hedge portfolio against the U.S. Dollar. As of December 31, 2020, a 10%
appreciation in the value of the USD would result in a net decrease in the fair value of our derivative portfolio of approximately $0.4 million.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K for a discussion of the
impact of the change in foreign exchange rates on our USD consolidated statement of operations for the years ended December 31, 2020 and 2019.
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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 management, including our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation (pursuant to Rule 13a-15(b) of the Exchange Act) of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act).
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
December 31, 2020, to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures that, by their nature, can only provide reasonable
assurance regarding management’s control objectives.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as such term is defined in Exchange Act Rule
13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become ineffective due to changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Our Chief Executive Officer and Chief Financial Officer, with assistance from other members of management, assessed the
effectiveness of our internal control over financial reporting as of December 31, 2020, based on the framework and criteria established in Internal Control—
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management has
concluded that our internal control over financial reporting was effective as of December 31, 2020.
Our independent registered public accounting firm has audited the effectiveness of our internal control over financial reporting as of December 31, 2020, as stated
in their report, which appears herein.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a through 15(f) and 15(d) through 15(f) under the
Exchange Act) that occurred during the three months ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Crocs, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Crocs, Inc. and subsidiaries (the “Company”) as of December 31, 2020, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial
statements as of and for the year ended December 31, 2020, of the Company and our report dated February 23, 2021, expressed an unqualified opinion on those
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting.” Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to 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 generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Denver, Colorado
February 23, 2021
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ITEM 9B. Other Information
None.
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ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is incorporated herein by reference to our definitive proxy statement for the 2021 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after December 31, 2020.
Code of Ethics
We have a written code of ethics in place that applies to all our employees, including our principal executive officer and principal financial officer. A copy of our
code of ethics is available on our website: www.crocs.com. We are required to disclose certain changes to, or waivers from, that code for our senior financial
officers. We intend to use our website as a method of disseminating any change to, or waiver from, our code of ethics 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 2021 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after December 31, 2020.
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 2021 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after December 31, 2020, with the exception of those items listed below.
Securities Authorized for Issuance under Equity Compensation Plans
As shown in the table below, we reserved 1.8 million shares of common stock for future issuance pursuant to exercise of outstanding awards under equity
compensation plans as of December 31, 2020.
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
(3)
Total
Number of Securities to be
Issued on Exercise of
Outstanding
Options, Warrants, and Rights
(1)
Weighted Average Exercise
Price of Outstanding
Options, Warrants, and
Rights
(2)
Number of Securities
Remaining Available for
Future Issuance Under Plans,
Excluding Securities
Available in First Column
1,819,694 $
—
1,819,694 $
8.29
—
8.29
4,960,140
—
4,960,140
(1)
(2)
(3)
The number of shares outstanding includes restricted stock awards and restricted stock units that were outstanding on December 31, 2020 and assumes target performance for
performance-based equity awards.
The weighted average exercise price of outstanding options pertains to 0.2 million shares issuable on the exercise of outstanding options.
On June 10, 2020, our stockholders approved the Crocs, Inc. 2020 Equity Incentive Plan (the “Plan”). The number of shares of our common stock available for issuance under
the Plan consisted of (i) 3.8 million newly available shares, (ii) 1.4 million shares of our common stock available for issuance under the 2015 Plan as of June 10, 2020, and
(iii) 2015 Plan shares associated with outstanding options or awards that are canceled or forfeited after June 10, 2020. The number of shares authorized for issuance under
the Plan is subject to adjustment for future stock splits, stock dividends and similar changes in our capitalization. The Plan became effective immediately upon stockholder
approval.
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 2021 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after December 31, 2020.
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 2021 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after December 31, 2020.
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ITEM 15. Exhibits, Financial Statement Schedule
(1) Financial Statements
PART IV
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 Schedule
The following consolidated financial statement schedule of Crocs, Inc. and its subsidiaries is filed as a part of this report:
•
Schedule II - Valuation and Qualifying Accounts.
Schedules other than the one listed above are omitted either because they are not required or are inapplicable, or because the information is included in the
consolidated financial statements or related notes.
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(3) Exhibit list
Exhibit
Number
3.1
3.2
3.3
3.4
4.1
4.2
Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 4.1 to Crocs, Inc.’s Registration
Statement on Form S-8, filed on March 9, 2006 (File No. 333-132312)).
Description
Certificate of Amendment to Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 3.1 to
Crocs, Inc.’s Current Report on Form 8-K, filed on July 12, 2007).
Amended and Restated Bylaws of Crocs, Inc. (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Registration Statement on
Form S-8, filed on March 9, 2006 (File No. 333-132312)).
Certificate of Designations of Series A Convertible Preferred Stock of Crocs, Inc. (incorporated herein by reference to Exhibit 3.1 to
Crocs, Inc.’s Current Report on Form 8-K, filed on January 27, 2014).
Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Registration Statement on Form S-
1/A, filed on January 19, 2006 (File No. 333-127526)).
Description of Registrant's Securities (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Annual Report on Form 10-K filed
on February 27, 2020).
10.1
* Crocs, Inc. Amended and Restated 2007 Senior Executive Deferred Compensation Plan (incorporated herein by reference to
Exhibit 10.15 to Crocs, Inc.’s Annual Report on Form 10-K, filed on March 17, 2009).
10.2
10.3
10.4
* Crocs, Inc. 2007 Equity Incentive Plan (As Amended and Restated) (the “2007 Plan”) (incorporated herein by reference to Exhibit 10.1
to Crocs, Inc.’s Current Report on Form 8-K, filed on July 1, 2011).
* Form of Incentive Stock Option Agreement under the 2007 Plan (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s
Quarterly Report on Form 10-Q, filed on November 14, 2007).
* Form of Non-Statutory Option Agreement under the 2007 Plan (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.’s
Quarterly Report on Form 10-Q, filed on November 14, 2007).
10.5
* Form of Non-Statutory Stock Option Agreement for Non-Employee Directors under the 2007 Plan (incorporated herein by reference to
Exhibit 10.3 to Crocs, Inc.’s Quarterly Report on Form 10-Q, filed on November 14, 2007).
10.6
* Form of Restricted Stock Unit Agreement under the 2007 Plan (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.’s Current
Report on Form 8-K, filed on July 1, 2011).
10.7
* Crocs, Inc. 2008 Cash Incentive Plan (As Amended and Restated) (incorporated herein by reference to Exhibit 10.2 to Crocs, Inc.’s
Current Report on Form 8-K, filed on June 7, 2017).
10.8
10.9
10.10
* Crocs, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on
June 9, 2015).
* Andrew Rees Performance-Vested Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to Crocs, Inc.’s Current
Report on Form 8-K, filed on June 13, 2018).
Second Amended and Restated Credit Agreement, dated July 26, 2019, by and among Crocs, Inc., Crocs Retail, LLC, Jibbitz, LLC,
Colorado Footwear C.V., Crocs Europe B.V., the lenders named therein, PNC Capital Markets LLC, as sole bookrunner, cosyndication
agent and joint lead arranger, Citibank, N.A., Bank of America, N.A. and KeyBank National Association, each as joint lead arranger and
co-syndication agent, and PNC Bank, National Association, as a lender and administrative agent (incorporated herein by reference to
Exhibit 10.1 to Crocs, Inc.’s Quarterly Report on Form 10-Q, filed August 1, 2019).
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Exhibit
Number
10.11
10.12
First Amendment to Second Amended and Restated Credit Agreement, dated March 26, 2020, among Crocs, Inc., Crocs Retail, LLC,
Jibbitz, LLC, the lenders named therein, KeyBank National Association, as syndication agent, and PNC Bank, National Association, as
administrative agent (incorporated by reference herein to Exhibit 10.1 to Crocs, Inc.'s Current Report on Form 8-K, filed March 30,
2020).
Description
† Second Amendment to Second Amended and Restated Credit Agreement, dated November 13, 2020, by and among Crocs, Inc., Crocs
Retail, LLC, Jibbitz, LLC, Colorado Footwear C.V., Crocs Europe B.V., the lenders named therein, PNC Capital Markets LLC, as sole
bookrunner, cosyndication agent and joint lead arranger, Citibank, N.A., Bank of America, N.A. and KeyBank National Association,
each as joint lead arranger and co-syndication agent, and PNC Bank, National Association, as a lender and administrative agent.
10.13
* Crocs, Inc. Change of Control Plan (as Amended and Restated) (incorporated herein by reference to Exhibit 10.1 to Crocs, Inc.’s
Current Report on Form 8-K, filed on October 4, 2018).
10.14
* Employment Agreement, dated May 18, 2009, between Crocs, Inc. and Daniel P. Hart (incorporated herein by reference to Exhibit 10.1
to Crocs, Inc.’s Quarterly Report on Form 10-Q, filed on August 5, 2010).
10.15
* Employment Offer Letter, dated May 13, 2014, between Crocs, Inc. and Andrew Rees (incorporated herein by reference to Exhibit 10.1
to Crocs, Inc.’s Current Report on Form 8-K, filed on May 14, 2014).
10.16
* Supplement to Offer Letter, dated February 23, 2017, between Crocs, Inc. and Andrew Rees (incorporated herein by reference to Exhibit
10.2 to Crocs, Inc.’s Current Report on Form 8-K, filed on March 1, 2017).
10.17
10.18
10.19
21
23.1
31.1
* Employment Offer Letter, dated August 1, 2018, between Crocs, Inc. and Anne Mehlman (incorporated herein by reference to
Exhibit 10.1 to Crocs, Inc.’s Quarterly Report on Form 10-Q, filed on August 7, 2018).
* Crocs, Inc. 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on
June 11, 2020).
* Employment Offer Letter dated September 10, 2020 between Crocs, Inc. and Michelle Poole (incorporated herein by reference to
Exhibit 10.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on September 14, 2020).
† Subsidiaries of the registrant.
† Consent of Deloitte & Touche LLP.
† Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as
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 Securities Exchange Act of 1934 as
adopted pursuant to Section 302 of the Sarbanes- Oxley Act.
32
101.INS
+ Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act.
† XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded
within the Inline XBRL document.
101.SCH
† XBRL Taxonomy Extension Schema Document
101.CAL
† XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
† XBRL Taxonomy Extension Definition Linkbase Document
49
Table of Contents
Exhibit
Number
Description
101.LAB
† XBRL Taxonomy Extension Label Linkbase Document
101.PRE
† XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).
* Compensatory plan or arrangement.
† Filed herewith.
+ Furnished herewith.
50
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Item 16. Form 10–K Summary.
None.
51
Table of Contents
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 its behalf by
the undersigned, thereunto duly authorized, as of February 23, 2021.
SIGNATURES
CROCS, INC.
a Delaware Corporation
By:
/s/ ANDREW REES
Name:
Title:
Andrew Rees
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature
Title
Date
/s/ ANDREW REES
Andrew Rees
/s/ ANNE MEHLMAN
Anne Mehlman
/s/ THOMAS J. SMACH
Thomas J. Smach
/s/ IAN M. BICKLEY
Ian M. Bickley
/s/ RONALD L. FRASCH
Ronald L. Frasch
/s/ CHARISSE FORD HUGHES
Charisse Ford Hughes
/s/ BETH J. KAPLAN
Beth J. Kaplan
/s/ DOUGLAS J. TREFF
Douglas J. Treff
/s/ DOREEN A. WRIGHT
Doreen A. Wright
Chief Executive Officer and Director (Principal Executive
Officer)
February 23, 2021
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 23, 2021
Chairman of the Board
February 23, 2021
February 23, 2021
February 23, 2021
February 23, 2021
February 23, 2021
February 23, 2021
February 23, 2021
Director
Director
Director
Director
Director
Director
52
Table of Contents
Financial Statements:
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019, and 2018
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
Schedule II: Valuation and Qualifying Accounts
F- 2
F- 5
F- 6
F- 7
F- 8
F- 9
F- 10
F- 36
F- 1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Crocs, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Crocs, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related
consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31,
2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "consolidated financial statements"). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results
of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted
in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal
control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2021, expressed an unqualified opinion on the Company's internal
control over financial reporting.
Change in Accounting Principle
As discussed in Note 6 to the consolidated financial statements, effective January 1, 2019, due the adoption of FASB ASC Topic 842, Leases, using the modified
retrospective transition approach.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Income Taxes —Intra-entity Intellectual Property Transaction - Valuation of Deferred Tax Asset and Uncertain Tax Positions — Refer to Note 13 to the
consolidated financial statements
Critical Audit Matter Description
The Company recognizes deferred income taxes for tax attributes and for differences between the financial statement and tax basis of assets and liabilities at
enacted statutory tax rates in effect for the years in which the deferred tax liability or asset is expected to be settled or realized. The Company takes a two-step
approach for recognizing and measuring tax benefits taken or
F- 2
Table of Contents
expected to be taken in a return and disclosures regarding uncertainties in income tax positions. The impact of an uncertain tax position that is more likely than not
to be sustained upon examination by the relevant taxing authority must be recognized at the largest amount that is more likely than not to be sustained. No portion
of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained.
In December 2020, the Company completed a series of transactions resulting in changes to their international legal structure, including a transfer of certain
intellectual property rights among wholly-owned subsidiaries to the Netherlands. The transfer resulted in a step-up in tax basis of intellectual property rights and a
corresponding increase in foreign deferred tax assets based on the fair value of the transferred intellectual property rights. The Company recorded a deferred tax
asset of $492.5 million and related uncertain tax positions of $197.0 million.
We identified management’s valuation of the deferred tax asset and related uncertain tax positions resulting from the Company’s transfer of certain intellectual
property to its Netherlands subsidiary as a critical audit matter because of the significant judgments and estimates that were required to be made by management to
properly value the deferred tax asset and uncertain tax positions. The judgments and estimates were related to the Company’s interpretation of related tax laws and
regulations, as well as the use of estimates and assumptions regarding future events.
As a result, we utilized a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when
performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions for the measurement of the deferred tax asset related to the
forecasts of future revenue growth and the selection of the discount rate. We also utilized a high degree of auditor judgment and an increased extent of effort,
including the need to involve our income tax specialists, when performing audit procedures to evaluate whether management’s judgments in interpreting and
applying tax laws and estimates and assumptions regarding future settlement were appropriate in determining the value of the uncertain tax positions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenue growth and discount rate used by management to measure the deferred tax asset and the uncertain
tax position included the following, among others:
• We tested the effectiveness of management’s controls over the determination of the measurement of deferred tax asset, such as controls related to
management’s selection of the discount rate and forecasts of future revenues, and management’s controls over the measurement of the uncertain tax
position, such as controls related to the evaluation of subjective estimates in the amounts to be realized.
• We evaluated the reasonableness of management’s revenue forecasts by comparing to:
– Historical revenue growth rates
– Historical revenue growth rates of peer companies
–
–
–
Internal communications to management and the Board of Directors
Forecasted information included in Company press releases as well as in analyst and industry reports
Expected macroeconomic trends.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate by:
Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation
–
– Developing a range of independent estimates and comparing those to the discount rate selected by management.
• With the assistance of our tax specialists, we evaluated the measurement of uncertain tax positions. Our procedures included the following, among others:
– Reviewed the Company’s analysis of the uncertain tax positions and evaluated the reasonableness of the assumptions and calculations the
Company used to develop the amount of the related uncertain tax positions
– Obtained the Company’s supporting documentation to assess the technical tax merits applicable to Dutch and international transfer pricing
standards, the more-likely-than-not recognition and measurement thresholds and evaluated the application of these relevant tax laws in the
Company’s recognition determination
Evaluated the Company’s measurement of the liability using our knowledge of international, domestic, and local income tax laws, as well as
settlement activity from the relevant income tax authorities.
–
F- 3
Table of Contents
/s/ Deloitte & Touche LLP
Denver, Colorado
February 23, 2021
We have served as the Company’s auditor since 2005.
F- 4
CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Table of Contents
Revenues
Cost of sales
Gross profit
Selling, general and administrative expenses
Asset impairments
Income from operations
Foreign currency gains (losses), net
Interest income
Interest expense
Other income, net
Income before income taxes
Income tax expense (benefit)
Net income
$
$
$
$
2020
Year Ended December 31,
2019
2018
1,385,951 $
636,003
749,948
514,753
21,071
214,124
(1,128)
215
(6,742)
510
206,979
(105,882)
312,861
—
—
312,861 $
4.64 $
4.56 $
67,386
68,544
1,230,593 $
613,537
617,056
488,407
—
128,649
(1,323)
601
(8,636)
31
119,322
(175)
119,497
—
—
119,497 $
1.70 $
1.66 $
70,357
71,771
1,088,205
528,051
560,154
495,028
2,182
62,944
1,318
1,281
(955)
569
65,157
14,720
50,437
(108,224)
(11,429)
(69,216)
(1.01)
(1.01)
68,421
68,421
Dividends on Series A convertible preferred stock
Dividend equivalents on Series A convertible preferred stock related to redemption value
(1)
accretion and beneficial conversion feature
(1)
Net income (loss) attributable to common stockholders
Net income (loss) per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
(1)
On December 5, 2018, all issued and outstanding shares of Series A Convertible Preferred Stock were repurchased in exchange for cash or converted to common stock. As a
result, amounts reported for the year ended December 31, 2018 include amounts resulting from the repurchase and conversion, in addition to dividends, payments to induce
conversion, and accretion of dividend equivalents prior to December 5, 2018.
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income:
Foreign currency gains (losses), net
Reclassification of foreign currency translation loss to income
(1)
Total comprehensive income
Year Ended December 31,
2019
2020
2018
312,861 $
119,497 $
50,437
2,189
(164)
314,886 $
(3,659)
(68)
115,770 $
(6,846)
(4,412)
39,179
$
$
(1)
Represents the reclassification of cumulative foreign currency translation adjustment upon liquidation of foreign subsidiaries during the years ended December 31, 2020 and
2019, and upon closure of manufacturing operations during the year ended December 31, 2018, both of which are presented within ‘Selling, general and administrative
expenses’ in the consolidated statements of operations.
The accompanying notes are an integral part of these consolidated financial statements.
F- 6
Table of Contents
CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value amounts)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash — current
Accounts receivable, net of allowances of $21,093 and $18,797, respectively
Inventories
Income taxes receivable
Other receivables
Prepaid expenses and other assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets, net
Restricted cash
Right-of-use assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other liabilities
Income taxes payable
Current operating lease liabilities
Total current liabilities
Long-term income taxes payable
Long-term borrowings
Long-term operating lease liabilities
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.001 per share, 105.0 million and 104.0 million issued, 65.9 million and 68.2 million
shares outstanding, respectively
Treasury stock, at cost, 39.1 million and 35.8 million shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2020
2019
135,802 $
1,542
149,847
175,121
1,857
10,816
17,856
492,841
57,467
37,636
1,719
350,784
1,929
167,421
8,926
1,118,723 $
112,778 $
126,704
5,038
47,064
291,584
205,974
180,000
146,401
4,131
828,090
108,253
1,500
108,199
172,028
1,341
8,711
25,350
425,382
47,405
47,095
1,578
24,747
2,292
182,228
8,075
738,802
95,754
108,677
4,207
48,585
257,223
4,522
205,000
140,148
4
606,897
105
(688,849)
482,385
553,346
(56,354)
290,633
1,118,723 $
104
(546,208)
495,903
240,485
(58,379)
131,905
738,802
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F- 7
Table of Contents
CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common Stock
Treasury Stock
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss)
Total
Stock-holders'
Equity
Balance at December 31, 2017
Share-based compensation
Exercises of stock options and issuance of
$
68,791
—
(1)
(2)
restricted stock awards
Repurchases of common stock
Series A preferred repurchase
Series A preferred conversion
Series A preferred dividends
(3)
Series A preferred accretion, net
Net income
Other comprehensive loss
Other
Balance at December 31, 2018
Adjustments to beginning retained earnings
(4)
(5)
Share-based compensation
Exercises of stock options and issuance of
restricted stock awards
Repurchases of common stock
Net income
Other comprehensive loss
Balance at December 31, 2019
Share-based compensation
Exercises of stock options and issuance of
restricted stock awards
Repurchases of common stock
Net income
Other comprehensive income
Balance at December 31, 2020
1,238
(3,620)
—
6,897
—
—
—
—
—
73,306
—
—
1,008
(6,082)
—
—
68,232
—
836
(3,212)
—
—
65,856
$
$
$
95
—
1
—
—
7
—
—
—
—
—
103
—
—
1
—
—
—
104
—
1
—
—
—
105
$
25,987
—
(334,312)
—
$
373,045
13,732
$
190,431
—
$
(43,394)
—
$
49
3,620
—
—
—
—
—
—
—
29,656
—
—
58
6,082
—
—
35,796
—
124
3,212
—
—
39,132
$
$
$
(48)
(63,131)
—
—
—
—
—
—
—
(397,491)
—
—
(1,527)
(147,190)
—
—
(546,208)
—
(3,059)
(139,582)
—
—
(688,849)
$
$
$
(725)
—
—
99,993
—
(6,138)
—
—
1,226
481,133
—
14,412
358
—
—
—
495,903
16,361
1,371
(31,250)
—
—
482,385
$
$
$
—
—
(84,224)
—
(24,000)
(11,429)
50,437
—
—
121,215
(227)
—
—
—
119,497
—
240,485
—
—
—
312,861
—
553,346
$
$
$
—
—
—
—
—
—
—
(11,258)
—
(54,652)
—
—
—
—
—
(3,727)
(58,379)
—
—
—
—
2,025
(56,354)
$
$
$
185,865
13,732
(772)
(63,131)
(84,224)
100,000
(24,000)
(17,567)
50,437
(11,258)
1,226
150,308
(227)
14,412
(1,168)
(147,190)
119,497
(3,727)
131,905
16,361
(1,687)
(170,832)
312,861
2,025
290,633
(1)
Represents a repurchase premium, which is the difference between cash paid and the carrying value of 100,000 shares of Series A Convertible Preferred Stock repurchased, including other
costs associated with the transaction.
(2)
(3)
(4)
(5)
Represents the issuance of common stock upon conversion of 100,000 shares of Series A Convertible Preferred Stock.
Represents Series A Convertible Preferred Stock cash dividends declared and paid of $9.0 million, and $15.0 million of payments paid and payable to induce conversion.
Represents total accretion of $17.6 million, net of $6.1 million acquired value of beneficial conversion feature attributable to repurchased Series A Convertible Preferred Stock.
The decrease to beginning retained earnings is as a result of the prior year adoption of new lease accounting standards as of January 1, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
F- 8
Table of Contents
CROCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Year Ended December 31,
2019
2020
2018
$
312,861 $
119,497 $
50,437
Depreciation and amortization
Operating lease cost
Inventory donations
Provision for doubtful accounts, net
Share-based compensation
Unrealized foreign currency loss (gain), net
Loss (gain) on disposals of assets
Asset impairments
Deferred taxes
Other non-cash items
Changes in operating assets and liabilities:
Accounts receivable, net of allowances
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Operating lease liabilities
Income taxes
Cash provided by operating activities
Cash flows from investing activities:
Purchases of property, equipment, and software
Proceeds from disposal of property and equipment
Other
Cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowings
Repayments of borrowings
Series A preferred stock repurchase
Dividends — Series A convertible preferred stock
Repurchases of common stock
Other
(1)
Cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
Net change in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash — beginning of year
Cash, cash equivalents, and restricted cash — end of year
Cash paid for interest
Cash paid for income taxes
27,619
61,583
8,994
5,779
16,361
126
340
21,071
(325,061)
4,841
(47,045)
(13,462)
5,007
23,229
22,358
(61,178)
203,479
266,902
(42,033)
463
(192)
(41,762)
24,213
60,142
109
1,566
14,412
(1,140)
(213)
—
(16,259)
(1,072)
(15,015)
(48,156)
(4,012)
6,032
13,265
(64,313)
902
89,958
(36,576)
616
(276)
(36,236)
210,000
(235,000)
—
—
(170,832)
(2,206)
(198,038)
126
27,228
112,045
139,273 $
315,000
(230,000)
—
(2,985)
(147,190)
(3,463)
(68,638)
(569)
(15,485)
127,530
112,045 $
6,658 $
20,816
7,519 $
16,050
$
$
29,250
—
84
711
13,105
(1,455)
5,019
2,182
959
1,910
(24,623)
(1,987)
9,703
12,953
18,065
—
(2,151)
114,162
(11,979)
1,856
13
(10,110)
120,000
(662)
(183,724)
(21,015)
(63,131)
(270)
(148,802)
(4,775)
(49,525)
177,055
127,530
462
18,633
(1)
Represents $3.0 million paid to induce conversion of Series A Convertible Preferred Stock to common stock during the year ended December 31, 2019 and Series A
Convertible Preferred Stock cash dividends declared and paid of $9.0 million and $12.0 million paid to induce conversion during the year ended December 31, 2018.
The accompanying notes are an integral part of these consolidated financial statements.
F- 9
Table of Contents
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CROCS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unless otherwise noted in this report, any description of the “Company,” “Crocs,” “we,” “us,” or “our” includes Crocs, Inc. and its consolidated subsidiaries within
our reportable operating segments and corporate operations. We are engaged in the design, development, worldwide marketing, distribution, and sale of casual
lifestyle footwear and accessories for women, men, and children. We strive to be the global leader in the sale of molded footwear characterized by functionality,
comfort, color, and lightweight design. Our reportable operating segments include: the Americas, operating in North and South America; Asia Pacific, operating
throughout Asia, Australia, and New Zealand; and Europe, Middle East, and Africa (“EMEA”), operating throughout Europe, Russia, the Middle East, and Africa.
Basis of Presentation and Consolidation
Our consolidated financial statements include our accounts and those of our wholly-owned subsidiaries, and they reflect all adjustments which are necessary for a
fair statement of financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments,
and assumptions. We believe that the estimates, judgments, and assumptions used to determine certain amounts that affect the financial statements are reasonable,
based on information available at the time they are made. Management believes that the estimates, judgments, and assumptions made when accounting for items
and matters such as, but not limited to, the allowance for doubtful accounts, customer rebates, sales returns, impairment assessments and charges, recoverability of
long-lived assets, deferred tax assets, valuation allowances, uncertain tax positions, income tax expense, share-based compensation expense, the assessment of
lower of cost or net realizable value on inventory, useful lives assigned to long-lived assets, and depreciation and amortization, are reasonable based on information
available at the time they are made.
Additionally, we are periodically exposed to various contingencies in the ordinary course of conducting our business, including certain litigation, contractual
disputes, employee relations matters, various tax or other governmental audits, and trademark and intellectual property matters and disputes. We record a liability
for such contingencies to the extent that we conclude their occurrence is probable and the related losses are estimable. If it is reasonably possible that an
unfavorable settlement of a contingency could exceed the established liability, we disclose the estimated impact on our liquidity, financial condition, and results of
operations, if practicable. As the ultimate resolution of contingencies is inherently unpredictable, these assessments can involve a series of complex judgments
about future events including, but not limited to, court rulings, negotiations between affected parties, and governmental actions. As a result, the accounting for loss
contingencies relies heavily on management’s judgment in developing the related estimates and assumptions. See Note 17 — Legal Proceedings for additional
information regarding our contingencies and legal proceedings.
The full impact of COVID-19 is unknown and cannot be reasonably estimated as of the reporting date. However, we have made appropriate accounting estimates
based on the facts and circumstances available as of the reporting date.
To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.
Reclassifications
We have reclassified certain amounts in Note 13 — Income Taxes and on the consolidated statements of cash flows to conform to current period presentation.
Transactions with Affiliates
In 2019, we received services from three affiliates of Blackstone Capital Partners VI L.P. (“Blackstone”). Blackstone and certain of its permitted transferees
beneficially owned 6,899,027 shares of our common stock until Blackstone sold 6,864,545 shares of common stock held directly by Blackstone and its affiliates on
November 4, 2019 in an underwritten public offering. The other 34,482 shares of common stock were held by Gregg S. Ribatt, our former Chief Executive Officer
and former
F- 10
Table of Contents
member of our Board of Directors, which Blackstone may have been deemed to beneficially own, and were sold by Mr. Ribatt in October 2019. We incurred
expenses to Blackstone’s legal counsel of $0.3 million in relation to this transaction.
Certain Blackstone affiliates provide various services to us, including inventory count services, cybersecurity and consulting, and workforce management services.
We incurred expenses for services from these affiliates of $2.2 million during the period of Blackstone’s beneficial ownership in 2019 and $0.8 million in the year
ended December 31, 2018. Expenses related to these services are reported in ‘Selling, general and administrative expenses’ in the consolidated statements of
operations.
Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term, highly-liquid investments with maturities of three months or less at the date of purchase. We report
receivables from credit card companies, if expected to be received within five days, in cash and cash equivalents.
Restricted Cash
Restricted cash primarily consists of funds to secure certain retail store leases, certain customs requirements, and other contractual arrangements.
Accounts Receivable, Net
Accounts receivable are recorded at invoiced amounts, net of reserves and allowances. We reduce the carrying value for estimated uncollectible accounts based on
a variety of factors including the length of time receivables are past due, economic trends and conditions affecting our customer base, and historical collection
experience. Specific provisions are recorded for individual receivables when we become aware of a customer’s inability to meet its financial obligations. We write
off accounts receivable to the reserves when they are deemed uncollectible or, in certain jurisdictions, when legally able to do so. See Schedule II in Item 15.
Exhibits, Financial Statement Schedule of this Annual Report on Form 10-K for more information.
Inventories
Inventories are comprised of finished goods, are stated at the lower of cost or net realizable value, and recognized using the first-in-first-out method of inventory
costing. We estimate the market value of inventory based on an analysis of historical sales trends of our individual product lines, the impact of market trends and
economic conditions, and a forecast of future demand, giving consideration to the value of current orders in-house for future sales of inventory, as well as plans to
sell discontinued or end-of-life inventory through our outlet stores, among other off-price channels. Estimates may differ from actual results due to the quantity,
quality, and mix of products in inventory, consumer and retailer preferences, and market conditions. If the estimated market value is less than its carrying value,
the carrying value is adjusted to the market value, and the difference is recorded in ‘Cost of sales’ in our consolidated statements of operations.
Reserves for the risk of physical loss of inventory are estimated based on historical experience and are adjusted based upon physical inventory counts, and recorded
within ‘Cost of sales’ in our consolidated statements of operations.
Property and Equipment, Net
Property, equipment, furniture, and fixtures are stated at original cost, less accumulated depreciation. Depreciation is provided using the straight-line method over
the estimated useful asset lives. The useful lives are reviewed periodically and range from 2 to 10 years for machinery and equipment and furniture, fixtures and
others. Leasehold improvements are stated at cost and amortized on a straight-line basis over their estimated economic useful lives or the lease term, whichever is
shorter. Costs of enhancements or modifications that substantially extend the capacity or useful life of an asset are capitalized and depreciated accordingly.
Ordinary repairs and maintenance are expensed as incurred. Depreciation of warehouse- and distribution-related assets is included in ‘Cost of sales’ in our
consolidated statements of operations. In 2017 and through the third quarter of 2018, when all manufacturing was transferred to third-party manufacturers, cost of
sales also included depreciation related to manufacturing assets. Depreciation related to retail store, corporate, non-product, and non-manufacturing assets is
included in ‘Selling, general and administrative expenses’ in our consolidated statements of operations. When property is retired or otherwise disposed of, the cost
and accumulated depreciation are removed from our consolidated balance sheets and the resulting gain or loss, if any, is reflected in ‘Income from operations’ in
the consolidated statements of operations.
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Table of Contents
Goodwill and Other Intangible Assets, Net
We evaluate the carrying value of our goodwill and indefinite-lived intangible assets for impairment at the reporting unit level at least annually or when an interim
triggering event has occurred indicating potential impairment. Our annual test is performed as of the last day of our fiscal fourth quarter. We continuously monitor
the performance of our definite-lived intangible assets and evaluate for impairment when evidence exists that certain events or changes in circumstances indicate
that the carrying amount of these assets may not be recoverable. Significant judgments and assumptions are required in such impairment evaluations. Definite-lived
intangible assets are stated at cost, less accumulated amortization. Amortization is recorded using the straight-line method over the estimated lives of the assets.
Direct costs of acquiring or developing internal-use computer software, including costs of employees, are capitalized and classified within intangible assets.
Software maintenance and training costs are expensed in the period incurred. Initial costs associated with internally-developed-and-used software are expensed
until it is determined that the project has reached the application development stage, after which subsequent additions, modifications, or upgrades are capitalized to
the extent that they add functionality. Our capitalized software consists primarily of enterprise resource system software, warehouse management software, and
point of sale software. Amortization for software is provided using the straight-line method over the estimated useful asset lives, which are reviewed periodically
and range from 2 to 8 years. Amortization of capitalized software used in warehouse- and distribution-related activities is included in ‘Cost of sales’ in the
consolidated statements of operations. Through the third quarter of 2018, when all manufacturing was transferred to third-party manufacturers, cost of sales also
included amortization related to capitalized software used in manufacturing. Amortization related to corporate, non-product, and non-manufacturing assets, such as
our global information systems, is included in ‘Selling, general, and administrative expenses’ in the consolidated statements of operations.
Amortization for patents, copyrights, and trademarks is provided using the straight-line method over the estimated useful asset lives, which are reviewed
periodically and range from 7 to 25 years.
Leases
See Note 6 — Leases for a summary of our policy related to the recognition of right-of-use assets, operating lease liabilities, and the related costs.
Derivative Foreign Currency Contracts
We enter into forward foreign currency exchange contracts to mitigate the potential impact of foreign currency exchange rate risk. By policy, we do not enter into
these contracts for trading purposes or speculation. The fair value of these contracts is reported either as an asset or liability in our consolidated balance sheets.
Changes in the fair value of these contracts are recorded in ‘Foreign currency gains (losses), net’ in our consolidated statements of operations. We did not designate
any derivative instruments for hedge accounting during any of the periods presented. See Note 8 — Derivative Financial Instruments for further information.
Other Comprehensive Income
Our foreign subsidiaries use their foreign currency as their functional currency. Functional currency assets and liabilities are translated into U.S. Dollars using
exchange rates in effect at the balance sheet date, and revenues and expenses are translated at average exchange rates during the period. Resulting translation gains
and losses are reported in other comprehensive income (loss), until the substantial disposition of a subsidiary, at which time accumulated translation gains or losses
are reclassified into net income.
Revenue Recognition
See Note 11 — Revenues for a summary of our revenue recognition policy.
Shipping and Handling Costs and Fees
Shipping and handling costs are expensed as incurred and are included in ‘Cost of sales’ in the consolidated statements of operations. Shipping and handling fees
billed to customers are included in revenues.
F- 12
Table of Contents
Taxes Assessed by Governmental Authorities
Taxes assessed by governmental authorities that are directly imposed on a revenue transaction, including value added tax, are recorded on a net basis and are
therefore excluded from revenues.
Cost of Sales
Our cost of sales includes costs incurred to design, produce, procure, and ship our footwear. These costs include our raw materials, both direct and indirect labor,
shipping and handling including freight costs, utilities, maintenance costs, depreciation, packaging, and other warehouse and distribution overhead and costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of labor and outside services, rent expense, bad debt expense, legal costs, amortization of intangible
assets, as well as certain depreciation costs related to corporate and non-product assets and share-based compensation. Selling, general and administrative expenses
also include costs for our marketing and sales organizations, and other functions including finance, legal, human resources, and information technology.
Our selling, general and administrative expenses also include media advertising (television, radio, print, social, digital), tactical advertising (signs, banners, point-
of-sale materials) and promotional costs. Advertising production costs are expensed when the advertising is first run. Advertising communication costs are
expensed in the periods that the communications occur. Certain of our promotional expenses result from payments under endorsement contracts. Endorsement-
related expenses are recognized as performance is received over the term of each endorsement agreement.
Total marketing expenses, inclusive of advertising, production, promotion, and agency expenses, including variable marketing expenses, were $101.0 million,
$83.2 million, and $68.6 million for the years ended December 31, 2020, 2019, and 2018, respectively. Prepaid advertising and promotional endorsement expenses
of $2.0 million and $11.6 million, were included in ‘Prepaid expenses and other assets’ in the consolidated balance sheets at December 31, 2020 and 2019,
respectively.
Research, Design, and Development Expenses
We continue to dedicate resources to product design and development based on opportunities we identify in the marketplace. We incurred expenses of $10.2
million, $11.8 million, and $14.1 million in research, design, and development activities for the years ended December 31, 2020, 2019, and 2018, respectively,
which are expensed as incurred and are reported in ‘Selling, general and administrative expenses’ in the consolidated statements of operations.
Share-Based Compensation
Stock Options
Stock options are granted with exercise prices equal to the fair market value of our common stock on the date of grant. We use the Black-Scholes option-pricing
model to estimate the grant date fair value of stock options, which requires the use of assumptions, including the expected term of the option, expected volatility of
our stock price, our expected dividend yield, and the risk-free interest rate, among others. These assumptions reflect our best estimates; however, they involve
inherent uncertainties including market conditions and employee behavior that are generally outside of our control. We expense all share-based compensation
awarded based on the grant date fair value of the awards using the straight-line method over the requisite service period, adjusted for forfeitures as they occur.
Restricted Stock Awards (“RSAs”) and Restricted Stock Units (“RSUs”)
We grant RSAs, service-condition RSUs, performance-condition RSUs, and market-condition RSUs. The grant date fair values of RSAs, service-condition RSUs,
and performance-condition RSUs are based on the closing market price of our common stock on the grant date; the grant date fair value and derived service period
of market-condition RSUs are estimated using a Monte Carlo simulation valuation model. Our service-condition RSUs vest based on continued service; our
performance-condition RSUs vest based on achievement of multiple weighted performance goals, certification of performance achievement by the Compensation
Committee of the Board of Directors, and continued service; and our market-condition RSUs vest based on the market price of our stock. Compensation expense,
net of forfeitures, is recognized on a straight-line basis over the requisite service period. For performance-condition RSUs, compensation expense is updated for
our expected performance level against
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performance goals at the end of each reporting period, which involves judgment as to the achievement of certain performance metrics.
See Note 12 — Share-Based Compensation for additional information related to share-based compensation.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate the carrying value of a long-lived asset or asset group is
less than the undiscounted cash flows from its use and eventual disposition over its remaining economic life. We assess recoverability by comparing the sum of
projected undiscounted cash flows from the use and eventual disposition over the remaining economic life of a long-lived asset or asset group to its carrying value,
and record a loss from impairment if the carrying value is more than its undiscounted cash flows. For assets involved in Crocs’ retail business, the asset group is at
the retail store level. As retail store performance will vary in new and existing markets due to many factors, including maturity of the market and brand
recognition, we periodically evaluate the fixed assets, leasehold improvements, and right-of-use assets related to our retail locations for impairment. Assets or asset
groups to be abandoned or from which no future benefit is expected are written down to zero in the period it is determined they will no longer be used and are
removed entirely from service. See Note 3 — Property and Equipment, Net and Note 6 — Leases for a discussion of impairment losses recorded during the periods
presented.
Foreign Currency Gains (Losses), Net
Foreign currency gains (losses), net includes realized and unrealized foreign exchange gains and losses resulting from remeasurement and settlement of foreign-
currency transactions denominated in a currency other than the functional currency of an entity, and realized and unrealized gains and losses on forward foreign
currency exchange derivative contracts. Realized foreign exchange gains and losses are reported in the operating segment in which they occur. Foreign exchange
gains and losses on intercompany balances and forward foreign exchange derivative contracts are reported within corporate operations.
Other Income, Net
Other income, net primarily includes gains and losses associated with activities not directly related to making and selling footwear, as well as certain gains or
losses on sales of non-operating assets.
Income Taxes
Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. We provide for income taxes at the current
and future enacted tax rates and laws applicable in each taxing jurisdiction. We account for the tax effects of global intangible low-taxed income (“GILTI”) as a
component of income tax expense in the period the tax arises, to the extent applicable. We use a two-step approach for recognizing and measuring tax benefits
taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. We recognize interest and penalties related to income
tax matters in income tax expense in the consolidated statements of operations. See Note 13 — Income Taxes for further discussion.
Earnings per Share
Basic and diluted earnings per common share (“EPS”) is presented using the treasury stock method. Diluted EPS reflects the potential dilution to common
shareholders from securities that could share in our earnings and is calculated by adjusting weighted average outstanding shares, assuming conversion of all
potentially dilutive stock options and awards. Anti-dilutive securities are excluded from diluted EPS. See Note 14 — Earnings per Share for additional information.
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Fair Value
U.S. GAAP for fair value establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques
(market approach, income approach, and cost approach). We utilize a combination of market and income approaches to value derivative instruments. Our financial
assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels of the hierarchy and the related inputs are as
follows:
Level
1
2
3
Inputs
Unadjusted quoted prices in active markets for identical assets and liabilities.
Unadjusted quoted prices in active markets for similar assets and liabilities;
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or
Inputs other than quoted prices that are observable for the asset or liability.
Unobservable inputs for the asset or liability.
We categorize fair value measurements within the fair value hierarchy based upon the lowest level of the most significant inputs used to determine fair value.
Our non-financial assets, which primarily consist of property and equipment, goodwill, and other intangible assets, are not required to be carried at fair value on a
recurring basis and are reported at carrying value. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value
may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and,
if applicable, written down to and recorded at fair value. See Note 7 — Fair Value Measurements for further discussion related to estimated fair value
measurements.
Consolidated Statements of Cash Flows - Supplemental Schedule of Non-Cash Investing and Financing Activities
Accrued purchases of property, equipment, and software
Series A preferred stock conversion
Series A preferred stock accretion, net
(1)
2020
Year Ended December 31,
2019
(in thousands)
2018
$
4,222 $
—
—
15,206 $
—
—
1,141
100,000
17,567
(1)
Represents total accretion of $17.6 million, net of $6.1 million acquired value of beneficial conversion feature attributable to repurchased Series A Convertible Preferred
Stock for the year ended December 31, 2018.
2. RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Pronouncement Adopted
Measurement of Credit Losses
In June 2016, and through subsequent amendments, the Financial Accounting Standards Board (“FASB”) issued guidance that requires the measurement and
recognition of expected credit losses for financial assets. This new model replaces the existing “current incurred loss” model with a forward-looking “current
expected credit loss” model. On January 1, 2020, we adopted this guidance on a modified retrospective basis. Based on the nature of our financial instruments
included within the scope of this standard, which are primarily trade and other receivables, the adoption did not have a material effect on our consolidated financial
statements.
Implementation Costs Incurred in Cloud Computing Arrangements
In August 2018, the FASB issued authoritative guidance related to the treatment of implementation costs incurred in a hosting arrangement that is considered a
service contract. On January 1, 2020, we adopted this guidance on a prospective basis. The adoption did not have a material effect on our consolidated financial
statements.
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New Accounting Pronouncements Not Yet Adopted
Simplifying Accounting for Income Taxes
In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and also
simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws
or rate changes. The standard will be effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those
periods. We do not expect this standard to have a material impact on our consolidated financial statements.
Reference Rate Reform
In March 2020, the FASB issued optional guidance related to reference rate reform, which provides practical expedients for contract modifications and certain
hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for our borrowing
instruments, which use LIBOR as a reference rate, and is available for adoption effective immediately but is only available through December 31, 2022. We are
currently evaluating the potential impact of this standard on our consolidated financial statements.
Other Pronouncements
Other new pronouncements issued but not effective until after December 31, 2020 are not expected to have a material impact on our consolidated financial
statements.
3. PROPERTY AND EQUIPMENT, NET
‘Property and equipment, net’ consists of the following:
Leasehold improvements
Machinery and equipment
Furniture, fixtures, and other
Construction-in-progress
Property and equipment
Less: Accumulated depreciation and amortization
Property and equipment, net
Asset Retirement Obligations
December 31,
2020
2019
(in thousands)
66,661 $
47,107
21,817
8,187
143,772
(86,305)
57,467 $
64,540
39,011
19,761
3,697
127,009
(79,604)
47,405
$
$
We are contractually obligated, under certain of our lease agreements, to restore certain retail and office facilities back to their original condition. At lease
inception, the estimated fair value of these liabilities is recorded along with a related asset. Asset retirement obligations were not material to the consolidated
balance sheets in the years ended December 31, 2020 or 2019.
Depreciation and Amortization Expense
Depreciation and amortization expense related to property and equipment, reported in ‘Cost of sales’ and ‘Selling, general and administrative expenses’ was:
Cost of sales
Selling, general and administrative expenses
Total depreciation and amortization expense
2020
Year Ended December 31,
2019
(in thousands)
2018
$
$
3,921 $
7,914
11,835 $
1,711 $
7,174
8,885 $
1,422
11,180
12,602
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Disposals of Property and Equipment and Intangible Assets
We recognized net losses on disposals of property and equipment and intangible assets of $0.3 million and $4.8 million, respectively, for the years ended
December 31, 2020 and 2018, and a net gain on disposals of property and equipment and intangible assets of $0.2 million for the year ended December 31, 2019,
which are included in ‘Selling, general and administrative expenses’ in the consolidated statement of operations.
Additionally, we impaired our leasehold improvement assets for a retail location in the year ended December 31, 2020, as described in Note 7 — Fair Value
Measurements.
4. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
In the years ended December 31, 2020 and 2019, there were no changes to our goodwill, which is in our EMEA segment, aside from immaterial changes related to
foreign currency translation. At December 31, 2020, accumulated goodwill impairment was $0.8 million.
Intangible Assets, Net
‘Intangible assets, net’ reported in the consolidated balance sheets consist of the following:
December 31, 2020
Accum.
Amortiz.
Gross
December 31, 2019
Accum.
Amortiz.
Net
Net
Gross
(in thousands)
Intangible assets subject to amortization:
Capitalized software
Patents, copyrights, and trademarks
Intangible assets not subject to amortization:
In progress
Trademarks and other
Total
$
$
124,544 $
3,774
(92,075) $
(3,351)
32,469 $
423
120,620 $
4,988
(78,387) $
(4,373)
4,660
84
133,062 $
—
—
(95,426) $
4,660
84
37,636 $
4,170
77
129,855 $
—
—
(82,760) $
42,233
615
4,170
77
47,095
At December 31, 2020, the weighted average remaining useful life of intangibles subject to amortization was approximately 6.4 years.
Amortization Expense
Amortization expense related to definite-lived intangible assets, reported in ‘Cost of sales’ and ‘Selling, general and administrative expenses’ was:
Cost of sales
Selling, general and administrative expenses
Total amortization expense
2020
Year Ended December 31,
2019
(in thousands)
2018
$
$
3,975 $
11,809
15,784 $
3,398 $
11,930
15,328 $
3,889
12,759
16,648
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Estimated future annual amortization expense of intangible assets is:
2021
2022
2023
2024
2025
Thereafter
Total
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Amounts reported in ‘Accrued expenses and other liabilities’ in the consolidated balance sheets were:
Accrued compensation and benefits
Professional services
Fulfillment, freight, and duties
Sales/use and value added taxes payable
Return liabilities
Royalties payable and deferred revenue
Accrued rent and occupancy
Other
Total accrued expenses and other liabilities
6. LEASES
As of
December 31, 2020
(in thousands)
15,731
5,180
4,548
3,378
2,106
1,949
32,892
$
$
December 31,
2020
2019
(in thousands)
48,870 $
18,478
17,868
12,480
6,906
6,254
3,818
12,030
126,704 $
42,460
13,361
20,110
6,843
7,090
3,740
4,682
10,391
108,677
$
$
Our lease portfolio consists primarily of real estate assets, which includes retail, warehouse, distribution center, and office spaces, under operating leases expiring
at various dates through 2033. Leases with an original term of twelve months or less are not reported in the consolidated balance sheets; expense for these short-
term leases is recognized on a straight-line basis over the lease term.
Many leases include one or more options to renew, with renewal terms that, if exercised by us, may extend the lease term. The exercise of these renewal options is
at our discretion. When assessing the likelihood of a renewal or termination, we consider the significance of leasehold improvements, availability of alternative
locations, and the cost of relocation or replacement, among other considerations. The depreciable lives of leasehold improvements are the shorter of the useful lives
of the improvements or the expected lease term. We determine the lease term for each lease based on the terms of each contract and factor in renewal and early
termination options if such options are reasonably certain to be exercised.
Due to our centralized treasury function, we utilize a portfolio approach to discount our lease obligations. We assess the expected lease term at lease inception and
discount the lease using a fully-secured annual incremental borrowing rate, adjusted for time value corresponding with the expected lease term.
Certain of our retail store leases include rental payments based upon a percentage of retail sales in excess of a minimum fixed rental. In some cases, there is no
fixed minimum rental and the entire rental payment is based upon a percentage of sales. Certain of our warehouse leases have rental payments that vary based upon
the volume of product placed in storage. In addition, certain leases include rental payments adjusted periodically for changes in price level indices. We recognize
expense for these types of payments as incurred and report them as variable lease expense.
As a result of the COVID-19 pandemic, we received lease concessions from landlords in the form of rent deferrals and rent abatements in the year ended December
31, 2020. We chose to implement the policy election provided by the FASB in April
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2020 to record rent concessions as if no modification to lease contracts were made, and thus no changes to the lease obligations were recorded in respect to these
concessions. As of December 31, 2020, we had outstanding deferred rent of $0.4 million. In the year ended December 31, 2020, we received rent abatements of
$1.5 million.
Right-of-Use Assets and Operating Lease Liabilities
Amounts reported in the consolidated balance sheets were:
Assets:
Right-of-use assets
Liabilities:
Current operating lease liabilities
Long-term operating lease liabilities
Total operating lease liabilities
Lease Costs and Other Information
Lease-related costs reported within ‘Cost of sales’ and ‘Selling, general and administrative expenses’ were:
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease costs
Other information related to leases, including supplemental cash flow information, consists of:
Cash paid for operating leases
Right-of-use assets obtained in exchange for operating lease liabilities
(1)
December 31,
2020
2019
(in thousands)
167,421 $
182,228
47,064 $
146,401
193,465 $
48,585
140,148
188,733
Year Ended December 31,
2019
2020
(in thousands)
61,583 $
4,898
15,691
82,172 $
60,142
3,771
16,936
80,849
Year Ended December 31,
2019
2020
(in thousands)
59,579 $
55,369
63,241
233,437
$
$
$
$
$
$
(1)
In the year ended December 31, 2019, we adopted authoritative guidance related to leases. Therefore, the prior period amount presented here includes $176.1 million for
operating leases existing on January 1, 2019 and a net $57.3 million for operating leases that commenced or were modified in the year ended December 31, 2019.
The weighted average remaining lease term and discount rate related to our lease liabilities as of December 31, 2020 were 6.7 years and 4.4%, respectively. As of
December 31, 2019, the weighted average remaining lease term and discount rate related to our lease liabilities were 5.9 years and 4.8%, respectively.
We also impaired our right-of-use assets for a retail location and our former corporate headquarters, as described in Note 7 — Fair Value Measurements.
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Maturities
The maturities of our operating lease liabilities were:
2021
2022
2023
2024
2025
Thereafter
Total future minimum lease payments
Less: imputed interest
Total operating lease liabilities
Leases That Have Not Yet Commenced
As of
December 31, 2020
(in thousands)
50,559
40,697
30,882
20,489
14,314
68,332
225,273
(31,808)
193,465
$
$
As of December 31, 2020, we had significant obligations for a lease not yet commenced related to our new EMEA distribution center. In the fourth quarter of
2019, we entered into a lease for a new distribution center in Dordrecht, the Netherlands, which is expected to replace our existing distribution center in Rotterdam
by the end of 2021. The contractual commitment related to this lease, as amended, with payments expected to begin in the second quarter of 2021 and continuing
through December 2030, is approximately €30 million, or $36 million, with expected total capital investments of approximately €30 million, or $36 million,
through 2023.
Comparative Information as Reported Under Previous Accounting Standards
We adopted authoritative guidance related to leases effective January 1, 2019 using the modified retrospective method. The 2018 comparative information
presented in the consolidated financial statements was not restated and is reported under the accounting standards in effect for the periods presented, as shown
below:
Rent expense for operating leases was:
Minimum rentals
Contingent rentals
(1)
Total rent expense
Year Ended December
31, 2018
(in thousands)
$
$
66,049
14,297
80,346
(1)
Minimum rentals include all lease payments as well as fixed and variable common area maintenance, parking, and storage fees, which were approximately $9.3 million for the
year ended December 31, 2018.
7. FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The financial assets and liabilities that are measured and recorded at fair value on a recurring basis consist of our derivative instruments. Our derivative instruments
are forward foreign currency exchange contracts. We manage credit risk of our derivative instruments on the basis of our net exposure with our counterparty. All of
our derivative instruments are classified as Level 2 of the fair value hierarchy and are reported in the consolidated balance sheets within either ‘Prepaid expenses
and other assets’ or ‘Accrued expenses and other liabilities’ at December 31, 2020 and 2019. The fair values of our derivative instruments were a liability of $0.4
million and an asset of $0.1 million at December 31, 2020 and 2019, respectively. See Note 8 — Derivative Financial Instruments for more information.
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The carrying amounts of our cash, cash equivalents, and restricted cash, accounts receivable, accounts payable, and current accrued expenses and other liabilities
approximate their fair value as recorded due to the short-term maturity of these instruments.
Our borrowing instruments are recorded at their carrying values in the consolidated balance sheets, which may differ from their respective fair values. The fair
values of our outstanding borrowings approximate their carrying values at December 31, 2020 and 2019, based on interest rates currently available to us for similar
borrowings, and were:
December 31, 2020
December 31, 2019
Carrying Value
Fair
Value
Carrying Value
(in thousands)
Fair
Value
Borrowings
$
180,000 $
180,000 $
205,000 $
205,000
During the year ended December 31, 2020, we also recorded inventory donations of $9.9 million at fair value within ‘Selling, general and administrative expenses’
in our consolidated statements of operations. We did not record material inventory donations in the years ended December 31, 2019 or 2018.
Non-Financial Assets and Liabilities
Our non-financial assets, which primarily consist of property and equipment, right-of-use assets, goodwill, and other intangible assets, are not required to be
carried at fair value on a recurring basis and are reported at carrying value.
The fair values of these assets were determined based on Level 3 measurements, including estimates of the amount and timing of future cash flows based upon
historical experience, expected market conditions, and management’s plans. We recorded impairments as follows:
Supply chain assets impairment
(1)
Retail store assets impairment
Right-of-use assets impairment
(1)
Total asset impairments
2020
Year Ended December 31,
2019
(in thousands)
2018
$
$
— $
2,412
18,659
21,071 $
— $
—
—
— $
1,284
898
—
2,182
(1)
During the year ended December 31, 2020, we recognized impairments for a retail location in New York City of $2.4 million to retail store assets and $17.6 million to the
right-of-use asset. We also recognized an impairment of $1.1 million to the right-of-use asset for our corporate headquarters in Niwot, Colorado, as a result of our relocation
to Broomfield, Colorado.
8. DERIVATIVE FINANCIAL INSTRUMENTS
We transact business in various foreign countries and are therefore exposed to foreign currency exchange rate risk that impacts the reported U.S. Dollar amounts of
revenues, expenses, and certain foreign currency monetary assets and liabilities. In order to manage exposure to fluctuations in foreign currency and to reduce the
volatility in earnings caused by fluctuations in foreign exchange rates, we may enter into forward contracts to buy and sell foreign currency. By policy, we do not
enter into these contracts for trading purposes or speculation.
Counterparty default risk is considered low because the forward contracts we enter into are over-the-counter instruments transacted with highly-rated financial
institutions. We were not required to and did not post collateral as of December 31, 2020 or 2019.
Our derivative instruments are recorded at fair value as a derivative asset or liability in the consolidated balance sheets. We report derivative instruments with the
same counterparty on a net basis when a master netting arrangement is in place. Changes in fair value are recognized within ‘Foreign currency gains (losses), net’
in the consolidated statements of operations. For the consolidated statements of cash flows, we classify cash flows from derivative instruments at settlement in the
same category as the cash flows from the related hedged items within ‘Cash provided by operating activities.’
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Results of Derivative Activities
The fair values of derivative assets and liabilities, net, all of which are classified as Level 2, are reported within either ‘Prepaid expenses and other assets’ or
‘Accrued expenses and other liabilities’ in the consolidated balance sheets and were:
Forward foreign currency exchange contracts
Netting of counterparty contracts
Foreign currency forward contract derivatives
December 31, 2020
December 31, 2019
Derivative Assets
Derivative
Liabilities
Derivative Assets
Derivative
Liabilities
$
$
794 $
(794)
—
$
(in thousands)
(1,225) $
794
(431) $
535 $
(424)
111 $
(424)
424
—
The notional amounts of outstanding forward foreign currency exchange contracts shown below report the total U.S. Dollar equivalent position and the net contract
fair values for each foreign currency position.
Euro
Singapore Dollar
Indian Rupee
Japanese Yen
British Pound Sterling
South Korean Won
Other currencies
Total
Latest maturity date
December 31, 2020
December 31, 2019
Notional
Fair Value
Notional
Fair Value
$
$
28,851 $
24,211
18,937
17,447
16,134
3,741
9,675
118,996 $
(in thousands)
(82) $
457
(134)
(240)
(182)
(56)
(194)
(431) $
46,757 $
31,255
17,088
11,823
9,155
10,328
7,881
134,287 $
36
344
(1)
63
(104)
(82)
(145)
111
January 2021
January 2020
Amounts reported in ‘Foreign currency gains (losses), net’ in the consolidated statements of operations include both realized and unrealized gains (losses) from
foreign currency transactions and derivative contracts and were as follows:
Foreign currency transaction gains (losses)
Foreign currency forward exchange contracts gains (losses)
Foreign currency gains (losses), net
9. REVOLVING CREDIT FACILITY AND BANK BORROWINGS
Our borrowings were as follows:
Revolving credit facilities
Less: Current portion of borrowings
Total long-term borrowings
2020
Year Ended December 31,
2019
(in thousands)
2018
$
$
941 $
(2,069)
(1,128) $
(356) $
(967)
(1,323) $
552
766
1,318
December 31,
2020
2019
(in thousands)
$
$
180,000 $
—
180,000 $
205,000
—
205,000
The weighted average interest rate on outstanding borrowings as of December 31, 2020 and 2019 was 2.53% and 3.96%, respectively.
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Senior Revolving Credit Facility
In July 2019, Crocs, Inc. and certain of its subsidiaries (the “Borrowers”) entered into a Second Amended and Restated Credit Agreement (as amended, the “Credit
Agreement”), with the lenders named therein and PNC Bank, National Association, as a lender and administrative agent for the lenders, which provides for a
revolving credit facility of $500.0 million, which can be increased by an additional $100.0 million subject to certain conditions (the “Facility”). Borrowings under
the Credit Agreement bear interest at a variable rate based on (A) a domestic base rate (defined as the highest of (i) the Federal Funds open rate, plus 0.25%, (ii)
the Prime Rate, and (iii) the Daily LIBOR rate, plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio, or (B) a LIBOR
rate, plus an applicable margin ranging from 1.25% to 1.875% based on our leverage ratio. Borrowings under the Credit Agreement are secured by all of the assets
of the Borrowers and guaranteed by certain other subsidiaries of the Borrowers.
The Credit Agreement requires us to maintain a minimum interest coverage ratio of 4.00 to 1.00, and a maximum leverage ratio of (i) 3.50 to 1.00 from the quarter
ended December 31, 2020 to the quarter ended December 31, 2021 and (ii) 3.25 to 1.00 from the quarter ending March 31, 2022 and thereafter (subject to
adjustment in certain circumstances). The Credit Agreement permits (i) stock repurchases subject to certain restrictions, including after giving effect to such stock
repurchases, the maximum leverage ratio does not exceed certain levels; and (ii) certain acquisitions so long as there is borrowing availability under the Credit
Agreement of at least $40.0 million. As of December 31, 2020, we were in compliance with all financial covenants under the Credit Agreement.
As of December 31, 2020, the total commitments available from the lenders under the Facility were $500.0 million. At December 31, 2020, we had $180.0 million
in outstanding borrowings, which are due when the Facility matures in July 2024, and $0.6 million in outstanding letters of credit under the Facility, which reduces
amounts available for borrowing under the Facility. As of December 31, 2020 and 2019, we had $319.4 million and $240.4 million, respectively, of available
borrowing capacity under the Facility.
Asia Revolving Credit Facilities
Our revolving credit facility with China Merchants Bank Company Limited, Shanghai Branch (the “CMBC Facility”) provides up to 30.0 million RMB, or $4.6
million at current exchange rates, and matures in May 2021. For RMB loans under the CMBC Facility, interest is determined at the time of borrowing based on
variable rates in effect at that time.
The revolving credit facility with Citibank (China) Company Limited, Shanghai Branch (the “Citibank Facility”) provides up to an equivalent of $5.0 million and
matures in June 2021. For RMB loans under the Citibank Facility, interest is based on a National Interbank Funding Center 1-year prime rate, plus 65 basis points.
For USD loans under the Citibank Facility, interest is based on a LIBOR rate, plus 1.5%.
We had no borrowings under our Asia revolving facilities during the years ended December 31, 2020 and 2019 or outstanding at December 31, 2020 or 2019.
10. EQUITY
Common Stock
We have one class of common stock with a par value of $0.001 per share. There are 250.0 million shares of common stock authorized for issuance. Holders of
common stock are entitled to one vote per share on all matters presented to common stockholders.
Common Stock Repurchase Program
On February 20, 2018, the Board of Directors approved and authorized a program to repurchase up to $500.0 million of our common stock, and on May 5, 2019,
the Board approved an increase to the repurchase authorization of an additional $500.0 million of our common stock. The number, price, structure, and timing of
the repurchases are at our sole discretion and may be made depending on market conditions, liquidity needs, restrictions under our revolving credit facility, and
other factors. The Board of Directors may suspend, modify, or terminate the program at any time without prior notice. Share repurchases may be made in the open
market or in privately negotiated transactions. The repurchase authorization does not have an expiration date and does not obligate us to acquire any amount of our
common stock. Under Delaware state law, these shares are not retired, and we have the right to resell any of the shares repurchased.
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We repurchased 3.2 million shares of our common stock at a cost of $170.8 million, including commissions, during the year ended December 31, 2020. This
includes 1.5 million shares delivered under a $125.0 million November 2020 accelerated share repurchase arrangement (“ASR”). Under the ASR, a financial
institution delivers shares of our common stock during the purchase period in exchange for an up-front payment. The total number of shares ultimately delivered
under the ASR, and therefore the average repurchase price paid per share, is determined based on the volume-weighted average price of our common stock during
the purchase period. The purchase period for this ASR ended in January 2021, at which time an additional 0.5 million shares were delivered. The shares received
are recorded in the periods they are delivered, and the up-front payment is accounted for as a reduction to stockholders’ equity in our consolidated balance sheet in
the period the payment is made. As of December 31, 2020, we had remaining authorization to repurchase approximately $337.8 million of our common stock,
subject to restrictions under our Credit Agreement.
During the year ended December 31, 2019, we repurchased 6.1 million shares of our common stock at a cost of $147.2 million, including commissions, and during
the year ended December 31, 2018, we repurchased 3.6 million shares of our common stock at a cost of $63.1 million, including commissions.
Preferred Stock
We have authorized and available for issuance 5.0 million shares of preferred stock. Of these preferred shares, 1.0 million were authorized as Series A Convertible
Preferred Stock (“Series A Preferred”) with a par value of $0.001 per share and none were issued and outstanding as of December 31, 2020.
2018 Repurchase and Conversion
On December 5, 2018, all of the outstanding Series A Preferred was repurchased or converted to common stock. As a result, we recognized the remaining
unamortized original issue discount and beneficial conversion feature accretion of $14.7 million, and settled the beneficial conversion feature related to the
repurchased Series A Preferred of $6.1 million, resulting in a net increase of $8.6 million in ‘Dividend equivalents on Series A convertible preferred stock related
to redemption value accretion and beneficial conversion feature’ in the consolidated statement of operations. We repurchased 100,000 shares of Series A Preferred
with a carrying value of $100.0 million in exchange for a cash payment of $183.7 million. The repurchase payment in excess of the carrying value of $83.7 million
is reported within ‘Dividends on Series A convertible preferred stock’ in the consolidated statement of operations for the year ended December 31, 2018. The
remaining 100,000 shares of Series A Preferred were converted to 6,896,548 shares common stock. In connection with the conversion, we paid $15.0 million in
cash to induce conversion, of which $12.0 million was paid at closing, with the remaining $3.0 million paid in January 2019. In addition, we paid other costs
associated with this transaction of $0.5 million. The $15.0 million inducement dividend and the $0.5 million of other costs are reported within ‘Dividends on
Series A convertible preferred stock’ in the consolidated statement of operations for the year ended December 31, 2018. Subsequently, in November 2019,
Blackstone sold all shares of its common stock in an underwritten public offering.
11. REVENUES
Revenues by reportable operating segment and by channel were:
Americas
Asia Pacific
Other Businesses
Total
Year Ended December 31, 2020
EMEA
(in thousands)
Channel:
Wholesale
Retail
E-commerce
Total revenues
$
$
390,930 $
249,238
223,445
863,613 $
133,416 $
64,789
80,310
278,515 $
168,410 $
19,989
55,261
243,660 $
163 $
—
—
163 $
692,919
334,016
359,016
1,385,951
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Channel:
Wholesale
Retail
E-commerce
Total revenues
Channel:
Wholesale
Retail
E-commerce
Total revenues
$
$
$
$
Americas
Asia Pacific
Other Businesses
Total
Year Ended December 31, 2019
EMEA
(in thousands)
275,284 $
241,694
123,537
640,515 $
207,405 $
74,793
65,874
348,072 $
173,480 $
30,875
37,593
241,948 $
58
—
—
58
$
$
656,227
347,362
227,004
1,230,593
Americas
Asia Pacific
Other Businesses
Total
Year Ended December 31, 2018
EMEA
(in thousands)
216,797 $
204,806
98,589
520,192 $
203,110 $
87,264
54,224
344,598 $
154,992 $
35,358
29,920
220,270 $
3,145 $
—
—
3,145 $
578,044
327,428
182,733
1,088,205
Revenues are recognized in the amount expected to be received in exchange for when control of the products transfers to customers, and excludes various forms of
promotions, which range from contractually-fixed percentage price reductions to sales returns, discounts, rebates, and other incentives that may vary in amount,
must be estimated, and are reported as a reduction in revenues. Variable amounts are estimated based on an analysis of historical experience and adjusted as better
estimates become available. During the year ended December 31, 2020, we recognized a net increase of $0.6 million to wholesale revenues and an increase of $1.1
million to e-commerce revenues due to changes in estimates related to products transferred to customers in prior periods. During the year ended December 31,
2019, we recognized a net increase of $0.4 million to wholesale revenues and a decrease of $0.1 million to e-commerce revenues due to changes in estimates
related to products transferred to customers in prior periods. During the year ended December 31, 2018, we recognized a net increase of $0.8 million to wholesale
revenues and no change to e-commerce revenues due to changes in estimates related to products transferred to customers in prior periods. There were no changes
to estimates in retail channels during the years ended December 31, 2020, 2019, and 2018.
We have elected to exclude from revenues taxes assessed by governmental authorities, including value-added and other sales-related taxes, that are imposed on and
concurrent with revenue-producing activities.
We have also elected to expense incremental costs to obtain customer contracts, consisting primarily of commission incentives, when incurred because the related
amortization period is short-term. These costs are reported within ‘Selling, general and administrative expenses’ in our consolidated statement of operations.
The following is a description of our principal revenue-generating activities by distribution channel. We have three reportable operating segments and sell our
products using three primary distribution channels. For more detailed information about reportable operating segments, see Note 16 — Operating Segments and
Geographic Information.
Wholesale Channel
For the majority of wholesale customers, control transfers and revenues are recognized when the product is shipped or delivered from a manufacturing facility or
distribution center to the wholesale customer. In certain cases, control of the product transfers and revenues are recognized when the customer receives the product
at the designated delivery point. For certain customers, primarily in the Asia Pacific region, cash payment is required in advance of delivery and revenues are
recognized upon delivery of the product. For a small number of customers in the Asia Pacific region, products are sold on consignment and revenues are
recognized on a sell-through basis. Wholesale customers are invoiced when products are shipped or delivered.
We have arrangements that grant certain wholesale customers exclusive licenses, concurrent with the terms of the related distribution agreements, to use our
intellectual property in exchange for a sales-based royalty. Sales-based royalty revenues are recognized over the terms of the related license agreements as sales are
made by the wholesalers.
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Retail Channel
We transfer control of products and recognize revenues at Company-operated retail stores at the point of sale, in exchange for cash or other payment, primarily
debit or credit card. A portion of the transaction price charged to our customers is variable, primarily due to promotional discounts or allowances, and terms that
permit retail customers to exchange or return products for a full refund within a limited period of time. When recognizing revenues, the amount of revenues
associated with expected sales returns is estimated based on historical experience, and adjustments to our estimates are made when the most likely amount of
consideration we expect to receive changes.
E-commerce Channel
In the e-commerce channel, we transfer control and recognize revenues when the product is shipped from the distribution centers. Payment from customers is
primarily through debit and credit card, and other e-payment methods, and is made at the time the customer order is shipped.
Similar to the retail channel, a portion of the amount of revenue is variable, primarily due to sales returns and discounts, offered to our customers. When
recognizing revenues, the amount of revenues associated with expected sales returns is estimated based on historical experience, and adjustments are made when
the most likely amount of consideration changes.
Contract Liabilities
Contract liabilities consist of advance cash deposits received from wholesale customers to secure product orders in connection with selling seasons and payments
received in advance of delivery. As products are shipped and control transfers, we recognize the deferred revenue in ‘Revenues’ in the consolidated statements of
operations. At December 31, 2020 and 2019, $0.7 million and $1.2 million, respectively, of deferred revenues associated with advance customer deposits were
reported in ‘Accrued expenses and other liabilities’ in the consolidated balance sheets.
Refund Liabilities
Refund liabilities, primarily associated with product sales returns, retrospective volume rebates, and early payment discounts are estimated based on an analysis of
historical experience, and adjustments to revenues made when the most likely amount of consideration expected changes. At December 31, 2020 and 2019, $6.9
million and $7.1 million, respectively, of refund liabilities, primarily associated with product returns, were reported in ‘Accrued expenses and other liabilities’ in
the consolidated balance sheets.
12. SHARE-BASED COMPENSATION
On June 10, 2020, our stockholders approved the Crocs, Inc. 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the grant of incentive and
non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and other stock-based awards. The 2020 Plan
replaces our 2015 Equity Incentive Plan (the “2015 Plan”), and no further awards will be made under the 2015 Plan after the effective date of the 2020 Plan.
Additionally, any awards that expire or are forfeited under the 2015 Plan become available for issuance under the 2020 Plan. We account for forfeitures as they
occur when calculating share-based compensation expense. The aforementioned plans provide for the issuance of previously unissued common stock in connection
with the exercise of stock options and conversion of other share-based awards. As of December 31, 2020, 5.0 million shares of common stock remained available
for future issuance under all plans, subject to adjustment for future stock splits, stock dividends, and similar changes in capitalization.
Share-Based Compensation Expense
Pre-tax share-based compensation expense reported in the consolidated statements of operations was:
Cost of sales
Selling, general and administrative expenses
Total share-based compensation expense
2020
Year Ended December 31,
2019
(in thousands)
2018
$
$
210 $
16,151
16,361 $
580 $
13,832
14,412 $
362
12,743
13,105
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Stock Option Activity
Stock option activity during the year ended December 31, 2020 was:
Outstanding as of December 31, 2019
Granted
Exercised
Forfeited or expired
Outstanding as of December 31, 2020
Exercisable at December 31, 2020
Vested and expected to vest at December 31, 2020
Number of Options
Weighted Average
Exercise Price
Weighted Average
Contractual Life
(Years)
Aggregate
Intrinsic Value
(in thousands, except exercise price and years)
315 $
—
(83)
—
232 $
232 $
232 $
10.45
—
16.42
—
8.29
8.29
8.29
5.28 $
9,904
5.84 $
5.84 $
5.84 $
12,586
12,586
12,586
No stock options were granted during 2020, 2019, or 2018. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2020,
2019, and 2018 was $0.8 million, $0.4 million, and $1.7 million, respectively. During the years ended December 31, 2020, 2019, and 2018, we received $1.4
million, $0.4 million, and $1.3 million cash, respectively, in connection with the exercise of stock options. As of December 31, 2020, we did not have any
unrecognized share-based compensation expense related to unvested options.
Stock options under our equity incentive plans generally vest ratably over four years with the first vesting occurring one year from the date of grant, followed by
monthly vesting for the remaining three years, and expire ten years after the date of grant.
Restricted Stock Awards and Restricted Stock Units Activity
From time to time, we grant RSAs and RSUs. RSAs and RSUs generally vest over three years, depending on the terms of the grant. Holders of unvested RSAs
have the same rights as those of common stockholders including voting rights and non-forfeitable dividend rights. However, ownership of unvested RSAs cannot
be transferred until vested. Holders of unvested RSUs have a contractual right to receive shares of common stock upon vesting. RSUs have dividend equivalent
rights, which accrue over the term of the award and are paid if and when the RSUs vest, but RSU holders have no voting rights. We grant service-condition RSUs,
performance-condition RSUs, and, less frequently, market-condition RSUs.
Service-condition RSUs are typically granted on an annual basis and vest over time in three equal annual installments, beginning one year after the grant date.
During the years ended December 31, 2020, 2019, and 2018, we granted 0.6 million, 0.3 million, and 0.4 million service-condition RSUs, respectively.
Performance-condition RSUs are typically granted on an annual basis and consist of a performance-based and service-based component. The performance targets
and vesting conditions for performance-condition RSUs are based on achievement of multiple weighted performance goals. The number of performance-condition
RSUs ultimately awarded may be between 0% and 200%, based on performance. These RSUs vest in three equal annual installments beginning one year after the
grant date, pending certification of performance achievement by the Compensation Committee of our Board of Directors and continued service. The fair value of
performance-condition awards is based on the closing market price of our common stock on the grant date. Compensation expense, net of forfeitures, is updated for
our expected performance level against performance goals at the end of each reporting period. We also periodically grant market-condition RSUs to certain
executives. The grant date fair value and derived service period for market-condition RSUs are estimated using a Monte Carlo simulation valuation model. During
the years ended December 31, 2020, 2019, and 2018, we granted 0.5 million, 0.5 million, and 1.0 million performance- and market-condition RSUs, respectively.
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RSA and RSU activity during the year ended December 31, 2020 was:
Unvested at December 31, 2019
Granted
Vested
Forfeited
Unvested at December 31, 2020
Restricted Stock Awards
Restricted Stock Units
Shares
Weighted Average
Grant Date Fair
Value
Shares
Weighted Average
Grant Date Fair
Value
(in thousands, except fair value data)
5
6
(6)
(2)
3
$
$
19.39
38.10
28.35
23.47
37.79
1,927 $
1,113
(854)
(356)
1,830 $
17.77
29.14
13.95
24.01
25.25
The weighted average grant date fair value of RSAs granted during the years ended December 31, 2020, 2019, and 2018 was $38.10, $20.53, and $18.61 per share,
respectively. RSAs vested during the years ended December 31, 2020, 2019, and 2018 consisted entirely of service-condition awards. The total grant date fair
value of RSAs vested was $0.2 million in each of the years ended December 31, 2020, 2019, and 2018.
As of December 31, 2020, unrecognized share-based compensation expense for RSAs was $0.1 million, which is expected to amortize over a remaining weighted
average period of 0.4 years.
The weighted average grant date fair value of RSUs granted during the years ended December 31, 2020, 2019, and 2018 was $29.14, $25.37, and $14.34 per share,
respectively. RSUs vested during the year ended December 31, 2020 consisted of 0.5 million service-condition awards and 0.4 million performance- and market-
condition awards. RSUs vested during the year ended December 31, 2019 consisted of 0.6 million service-condition awards and 0.4 million performance- and
market-condition awards. RSUs vested during the year ended December 31, 2018 consisted of 0.9 million service-condition awards and 0.2 million performance-
and market-condition awards. The total grant date fair value of RSUs vested during the years ended December 31, 2020, 2019, and 2018 was $11.9 million, $9.9
million and $9.7 million, respectively.
As of December 31, 2020, unrecognized share-based compensation expenses for service-condition RSUs were $17.1 million and for performance- and market-
condition RSUs were $5.7 million, and are expected to amortize over remaining weighted average periods of 1.9 years and 1.6 years, respectively.
13. INCOME TAXES
During the year ended December 31, 2017, as a result of the Tax Act, we recorded provisional estimates related to the revaluation of our net deferred tax assets at
the lower U.S. corporate income tax rate and the additional tax expense associated with the deemed repatriation tax. During the year ended December 31, 2018, we
recorded measurement period adjustments related to the provisional estimates. While we consider our accounting for the Tax Act to be complete, we continue to
evaluate new guidance and legislation as it is issued. We have not changed our indefinite reinvestment assertion, and we have elected to account for the impact of
global intangible low tax income based on the period cost method.
During the three months ended December 31, 2020, we completed an intra-entity transfer of certain intellectual property rights primarily to align with current and
future international operations. This transaction was executed using transfer pricing guidelines issued by the relevant taxing authorities. Significant estimates and
assumptions were required to compute the valuation of this transaction. These estimates and assumptions include, but are not limited to, estimated future revenue
growth and discount rates, which by their nature are inherently uncertain therefore may ultimately differ materially from our actual results.
We have recorded certain tax reserves to address potential differences involving our income tax positions. These potential tax liabilities result from the varying
application of statutes, rules, regulations and interpretations by different taxing jurisdictions. While our tax position is not uncertain, because of the significant
estimates used in the value of certain intellectual property rights, our tax reserves contain assumptions based on past experiences and judgments about the
interpretation of statutes, rules and regulations by taxing jurisdictions. It is possible that the costs of the ultimate tax liability or benefit from these matters may be
materially more or less than the amount that we estimated.
The transfer resulted in a step-up in tax basis of intellectual property rights and a correlated increase in foreign deferred tax assets based on the fair value of the
transferred intellectual property rights. We recorded a deferred tax asset of $492.5 million,
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net of a reserve for uncertain tax positions of $197.0 million, and further reduced by a valuation allowance of $167.8 million. Based on available objective
evidence, management believes that $167.8 million of the deferred tax asset, to the extent not offset by reserves for uncertain tax positions, is not more-likely-than-
not to be realizable as of December 31, 2020 and, therefore, is offset by a valuation allowance. As such, a net deferred tax asset of $127.7 million was recognized
along with a corresponding foreign deferred income tax benefit.
The following table sets forth income before taxes and the expense for income taxes:
2020
Year Ended December 31,
2019
(in thousands)
2018
Income before taxes:
U.S.
Foreign
Total income before taxes
Income tax expense (benefit):
Current income taxes:
U.S. federal
U.S. state
Foreign
Total current income taxes
Deferred income taxes:
U.S. federal
U.S. state
Foreign
Total deferred income taxes
Total income tax expense (benefit)
$
$
$
$
133,574 $
73,405
206,979 $
58,822 $
60,500
119,322 $
698 $
6,577
211,904
219,179
529
(2,381)
(323,209)
(325,061)
(105,882) $
1,284 $
1,427
13,373
16,084
(10,249)
(3,579)
(2,431)
(16,259)
(175) $
The following table sets forth income reconciliations of the statutory federal income tax rate to actual rates based on income or loss before income taxes:
Income tax expense and rate attributable to:
Federal income tax rate
State income tax rate, net of federal benefit
Foreign income tax rate differential
GILTI, net
Non-deductible / non-taxable items
Change in valuation allowance
Foreign tax credits
Uncertain tax positions
Share-based compensation
Intra-Entity IP Transfer
Other
Effective income tax expense and rate
2020
Year Ended December 31,
2019
(in thousands)
2018
$
$
43,466
7,231
(6,060)
7,515
6,871
143,012
(15,904)
200,571
(1,303)
(492,470)
1,189
(105,882)
21.0 % $
3.5 %
(2.9)%
3.6 %
3.3 %
69.0 %
(7.7)%
96.9 %
(0.6)%
(237.9)%
0.6 %
(51.2)% $
25,058
5,983
1,994
7,585
6,727
(33,691)
(11,907)
278
(2,715)
—
513
(175)
21.0 % $
5.0 %
1.7 %
6.4 %
5.7 %
(28.2)%
(10.0)%
0.2 %
(2.3)%
— %
0.4 %
(0.1)% $
13,683
1,271
7,630
3,443
3,602
(5,304)
(7,214)
(1,696)
764
—
(1,459)
14,720
F- 29
10,088
55,069
65,157
1,156
246
12,359
13,761
276
—
683
959
14,720
21.0 %
2.0 %
11.6 %
5.3 %
5.5 %
(8.1)%
(11.1)%
(2.6)%
1.2 %
— %
(2.2)%
22.6 %
Table of Contents
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. The following table sets forth deferred income tax assets and liabilities as of the date shown:
Non-current deferred tax assets:
Share-based compensation expense
Accruals, reserves, and other expenses
Net operating loss
Intangible assets
Foreign tax credit
Operating lease liabilities
Other
Valuation allowance
Total non-current deferred tax assets
Non-current deferred tax liabilities:
Unrealized gain on foreign currency
Property and equipment
Right-of-use assets
Other
Total non-current deferred tax liabilities
December 31,
2020
2019
(in thousands)
$
$
$
$
1,934 $
16,905
26,842
493,701
38,948
41,391
5,601
(226,655)
398,667 $
(506) $
(13,583)
(33,769)
(25)
(47,883) $
2,218
13,726
29,997
990
64,355
36,996
4,467
(79,023)
73,726
(529)
(13,713)
(34,470)
(267)
(48,979)
During 2020, valuation allowances recorded against deferred tax assets increased by $147.6 million. The change in the valuation allowance includes $143.0 million
related to income tax benefit and $4.6 million that does not impact the tax provision because this amount reflects the cumulative impact of unrecorded tax
attributes related to changes in cumulative translation adjustments. During 2019, valuation allowances decreased by $34.2 million. The change in the valuation
allowance includes $33.7 million related to income tax expense and $0.5 million that does not impact the tax provision because this amount reflects the impact of
unrecorded tax attributes related to changes in cumulative translation adjustments.
Our valuation allowances are primarily the result of uncertainties regarding the future realization of tax attributes recorded in various jurisdictions. The
measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not the deferred tax assets will not
be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the
reversal of existing temporary differences, historical and projected operating results and the availability of prudent and feasible tax planning strategies. In assessing
our valuation allowance we considered all available evidence, including the magnitude of recent and current operating results, the duration of statutory
carryforward periods, our historical experience utilizing tax attributes prior to their expiration dates, the historical volatility of operating results of these
jurisdictions, and our assessment regarding the sustainability of their profitability. The weight we give to any particular item is, in part, dependent upon the degree
to which it can be objectively verified. Certain jurisdictions, for which we have historically recorded significant valuation allowances, have sufficient history of
sustained profitability as of December 31, 2020. During 2020, valuation allowances recorded against deferred tax assets, not associated with the intra-entity
intellectual property rights transfer, decreased by $20.2 million.
In certain other jurisdictions, we recorded additional attributes, primarily driven by operational losses recognized based on local tax accounting requirements.
These carryforwards were generated in jurisdictions where results indicate it is not more likely than not the deferred tax assets would be realized. We maintain a
valuation allowance against the majority of these balances.
We have included in the table above deferred tax assets related to U.S. federal tax carryforwards, including foreign tax credits and other tax credits, which expire at
various dates between 2026 and 2040 of $5.8 million and $39.7 million as of December 31, 2020 and 2019, respectively. We have included in the table above
deferred tax assets related to U.S. state tax net operating loss carryforwards, some of which expire at various dates beginning in 2022 and some of which do not
expire, of $3.6 million and $6.7 million at December 31, 2020 and 2019, respectively. We have recorded deferred tax assets related to foreign tax carryforwards,
including foreign tax credits and net operating losses, which expire starting in 2021 and those which do not
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expire of $58.4 million and $48.0 million as of December 31, 2020 and 2019, respectively. We maintain a valuation allowance against a portion of the foreign
carryforwards and other attributes.
The transition tax in the Tax Act imposed a tax on undistributed and previously untaxed foreign earnings at various tax rates. This tax largely eliminated the
differences between the financial reporting and income tax basis of foreign undistributed earnings. Furthermore, as of December 31, 2020, foreign withholding
taxes have not been provided on unremitted earnings of subsidiaries operating outside of the U.S. as these amounts are considered to be indefinitely reinvested.
The following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits:
Unrecognized tax benefit as of January 1
Additions in tax positions taken in prior period
Reductions in tax positions taken in prior period
Additions in tax positions taken in current period
Settlements
Lapse of statute of limitations
Cumulative foreign currency translation adjustment
Unrecognized tax benefit as of December 31
2020
Year Ended December 31,
2019
(in thousands)
2018
$
$
4,613 $
519
(340)
200,947
(294)
(258)
1,022
206,209 $
4,511 $
631
(1,532)
1,786
(391)
(368)
(24)
4,613 $
6,204
250
(690)
461
(621)
(1,045)
(48)
4,511
We recorded a net expense of $200.6 million related to increases in 2020 unrecognized tax benefits combined with amounts effectively settled under audit.
Unrecognized tax benefits as of December 31, 2020 relate to tax years that are currently open under the statute of limitation. The primary impact of uncertain tax
benefits on the rate reconciliation includes audit settlements, net increases in position changes, and accrued interest expense.
Any settlements or statute of limitations expirations could result in a significant decrease in our uncertain tax positions. Our assessments are based on estimates and
assumptions using the best available information to management. However, our estimates of unrecognized tax benefits and potential tax benefits may not be
representative of actual outcomes, and any variation from such estimates could materially affect our financial statements in the period of settlement or when the
statutes of limitations expire. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is
difficult to estimate the timing and range of possible change related to our uncertain tax positions, and such changes could be significant.
Interest and penalties related to income tax liabilities are included in ‘Income tax expense (benefit)’ in the consolidated statements of operations. For the years
ended December 31, 2020, 2019, and 2018, we recorded approximately $0.6 million, $0.4 million, and $0.2 million, respectively, of penalties and interest. During
the year ended December 31, 2020, we released $0.1 million of interest from settlements, lapse of statutes, and change in certainty. The cumulative accrued
balance of penalties and interest was $1.2 million, $0.7 million, and $0.6 million, as of December 31, 2020, 2019, and 2018, respectively.
Unrecognized tax benefits of $205.6 million, $4.0 million and $4.5 million as of December 31, 2020, 2019, and 2018, respectively, if recognized, would reduce the
annual effective tax rate offset by deferred tax assets recorded for uncertain tax positions.
The following table sets forth the tax years subject to examination for the major jurisdictions where we conduct business as of December 31, 2020:
The Netherlands
Canada
Japan
China
Singapore
United States
2005 to 2020
2012 to 2020
2013 to 2020
2010 to 2020
2015 to 2020
2010 to 2020
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We are currently under audit in China. U.S. state tax returns are generally subject to examination for a period of three to five years after filing of the respective
return. The state impact of any federal changes remains subject to examination by various state jurisdictions for a period up to two years after formal notification to
the states. As such, U.S. state income tax returns for us are generally subject to examination for the years 2015 to 2020. Although the timing of income tax audit
resolutions and negotiations with taxing authorities is highly uncertain, we do not anticipate a significant change in the total amount of unrecognized tax benefits
within the next twelve months.
14. EARNINGS PER SHARE
Basic and diluted EPS for the years ended December 31, 2020, 2019, and 2018 were as follows:
2020
Year Ended December 31,
2019
(in thousands, except per share data)
2018
Numerator:
Net income (loss) attributable to common stockholders
(1)
$
312,861 $
119,497 $
(69,216)
Denominator:
Weighted average common shares outstanding - basic
Plus: Dilutive effect of stock options and unvested restricted stock units
Weighted average common shares outstanding - diluted
Net income (loss) per common share:
Basic
Diluted
67,386
1,158
68,544
70,357
1,414
71,771
$
$
4.64 $
4.56 $
1.70 $
1.66 $
68,421
—
68,421
(1.01)
(1.01)
(1)
Net loss attributable to common stockholders for the year ended December 31, 2018 reflects the repurchase and conversion of Series A Convertible Preferred Stock.
For the years ended December 31, 2020 and 2019, no outstanding shares issued under share-based compensation awards were anti-dilutive and, therefore, excluded
from the calculation of diluted EPS. For the year ended December 31, 2018, all outstanding shares issued under share-based compensation awards were excluded
from the calculation of diluted EPS because the effect was anti-dilutive.
15. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
As of December 31, 2020 and 2019, we had purchase commitments to our third-party manufacturers, primarily for materials and supplies used in the manufacture
of our products, for an aggregate of $220.8 million and $155.5 million, respectively. We expect to fulfill our commitments under these agreements in the normal
course of business, and as such, no liability has been recorded.
Other
We are regularly subject to, and are currently undergoing, audits by various tax authorities in the U.S. and several foreign jurisdictions, including customs duties,
import and other taxes for prior tax years.
During our normal course of business, we may make certain indemnities, commitments, and guarantees under which we may be required to make payments in
relation to certain matters. We cannot determine a range of estimated future payments and have not recorded any liability for such payments in the accompanying
consolidated balance sheets.
See Note 17 — Legal Proceedings for further details regarding potential loss contingencies related to government tax audits and other current legal proceedings.
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16. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION
We have three reportable operating segments: the Americas, Asia Pacific, and Europe, Middle East, and Africa (“EMEA”). ‘Other businesses’ aggregates
insignificant operating segments that do not meet the reportable segment threshold, including corporate operations and, in 2018, company-operated manufacturing
facilities, which substantially ceased operations in the third quarter of 2018.
Each of the reportable operating segments derives its revenues from the sale of footwear and accessories to external customers. Revenues for ‘Other businesses’
include non-footwear and accessories product sales to external customers that are excluded from the measurement of segment operating revenues and income.
Segment performance is evaluated based on segment results without allocating corporate expenses, or indirect general, administrative, and other expenses.
Segment profits or losses include adjustments to eliminate inter-segment sales. Reconciling items between segment income from operations and income from
operations consist of other businesses and unallocated corporate expenses, as well as inter-segment eliminations. We do not report asset information by segment
because that information is not used to evaluate performance or allocate resources between segments. The following tables set forth information related to
reportable operating segments:
Revenues:
Americas
Asia Pacific
EMEA
Segment revenues
Other businesses
Total consolidated revenues
Income from operations:
Americas
Asia Pacific
EMEA
Segment income from operations
Reconciliation of segment income from operations to income before income taxes:
(1)
Other businesses
Unallocated corporate
Total consolidated income from operations
Foreign currency gains (losses), net
Interest income
Interest expense
Other income, net
Income before income taxes
Depreciation and amortization:
Americas
Asia Pacific
EMEA
Total segment depreciation and amortization
Other businesses
Unallocated corporate
Total consolidated depreciation and amortization
2020
Year Ended December 31,
2019
(in thousands)
2018
863,613 $
278,515
243,660
1,385,788
163
1,385,951 $
361,930 $
47,442
63,314
472,686
(56,556)
(202,006)
214,124
(1,128)
215
(6,742)
510
206,979 $
3,528 $
1,138
730
5,396
8,015
14,208
27,619 $
640,515 $
348,072
241,948
1,230,535
58
1,230,593 $
204,868 $
80,645
70,326
355,839
(54,936)
(172,254)
128,649
(1,323)
601
(8,636)
31
119,322 $
3,593 $
963
793
5,349
5,234
13,630
24,213 $
520,192
344,598
220,270
1,085,060
3,145
1,088,205
138,940
82,780
59,539
281,259
(55,583)
(162,732)
62,944
1,318
1,281
(955)
569
65,157
4,640
2,049
1,252
7,941
5,256
16,053
29,250
$
$
$
$
$
$
(1)
Includes corporate support and administrative functions, costs associated with share-based compensation, research and development, marketing, legal, depreciation and
amortization of corporate and other assets not allocated to operating segments, and intersegment eliminations.
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There were no customers who represented 10% or more of consolidated revenues during the years ended December 31, 2020, 2019 and 2018. The following table
sets forth certain geographical information regarding Crocs’ revenues for the periods as shown:
Location:
United States
International
(1)
Total revenues
2020
Year Ended December 31,
2019
(in thousands)
2018
$
$
802,952 $
582,999
1,385,951 $
563,473 $
667,120
1,230,593 $
442,544
645,661
1,088,205
(1)
No individual international country represented 10% or more of consolidated revenues in any of the years presented.
The following table sets forth geographical information regarding property and equipment assets as of the dates shown:
Location:
United States
International
(1)
Total property and equipment, net
December 31,
2020
2019
(in thousands)
$
$
49,527 $
7,940
57,467 $
41,745
5,660
47,405
(1)
No individual international country represented 10% or more of consolidated net property and equipment assets in any of the years presented.
17. LEGAL PROCEEDINGS
We were subject to an audit by the Brazilian Federal Tax Authorities related to imports of footwear from China between 2010 and 2014. On January 13, 2015, we
were notified about the issuance of assessments totaling 14.4 million Brazilian Real (“BRL”), or approximately $2.8 million at current exchange rates, plus interest
and penalties, for the period January 2010 through May 2011. We disputed these assessments and asserted defenses to the claims. On February 25, 2015, we
received additional assessments totaling 33.3 million BRL, or approximately $6.4 million at current exchange rates, plus interest and penalties, related to the
remainder of the audit period. We also disputed these assessments and asserted defenses to these claims in administrative appeals. On August 29, 2017, we
received a favorable ruling on our appeal of the first assessment, which dismissed all fines, penalties, and interest. The tax authorities have appealed that decision
and we have challenged the appeal on both the merits and procedure. Additionally, the second appeal for the remaining assessments was heard on March 22, 2018.
That decision was partially favorable for us and resulted in an approximately 38% reduction in principal, penalties, and interest, leaving approximately $4.0
million, plus interest and penalties, at risk for those assessments. The tax authorities have appealed that decision and Crocs has filed a response to the tax
authorities’ appeal as well as a separate appeal against the unfavorable portion of the ruling. Should the Brazilian Tax Authority prevail in this final administrative
appeal, we may still challenge the assessments through the court system, which would likely require the posting of a bond. We have not recorded these items
within the consolidated financial statements as it is not possible at this time to predict the timing or outcome of this matter or to estimate a potential amount of loss,
if any.
For all other claims and disputes, we have accrued estimated losses of $0.1 million within ‘Accrued expenses and other liabilities’ in our consolidated balance
sheet as of December 31, 2020. As we are able, we estimate reasonably possible losses or a range of reasonably possible losses for claims and other disputes. As of
December 31, 2020, we estimated that reasonably possible losses could potentially exceed amounts accrued by up to $0.9 million.
Although we are subject to other litigation from time to time in the ordinary course of business, including employment, intellectual property and product liability
claims, other than as set forth above, we are not party to any other pending legal proceedings that we believe would reasonably have a material adverse impact on
our business, financial results, and cash flows.
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18. EMPLOYEE BENEFIT PLAN
Defined Contribution Plan
We sponsor a qualified defined contribution benefit plan (the “Plan”), covering substantially all of our U.S. employees. The Plan includes a savings plan feature
under Section 401(k) of the Internal Revenue Code. We make matching contributions to the plans equal to 100% of the first 3%, and up to 50% of the next 2% of
salary contributed by an eligible employee. Participants are vested 100% in our matching contributions when made. Contributions made by us under the Plan were
$4.7 million, $5.1 million and $5.4 million for the years ended December 31, 2020, 2019, and 2018, respectively.
19. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
Revenues
Gross profit
Income from operations
(1)
Net income
Basic income per common share
Diluted income per common share
(2)
(2)
March 31, 2020
For the Quarter Ended
June 30, 2020
(in thousands, except per share data)
September 30,
2020
December 31, 2020
$
$
$
281,160 $
134,162
20,812
11,091
0.16 $
0.16 $
331,549 $
179,933
56,595
56,551
0.84 $
0.83 $
361,736 $
206,769
72,086
61,889
0.92 $
0.91 $
411,506
229,084
64,631
183,330
2.75
2.69
(1)
(2)
During the three months ended December 31, 2020, we completed an intra-entity transfer of certain intellectual property rights, resulting in the recognition of a $127.7 million
tax benefit. See Note 13 — Income Taxes for more information. Additionally, in the three months ended December 31, 2020, we recorded an impairment for a retail
location in New York City of $20.0 million and for our former corporate headquarters of $1.1 million.
Basic and diluted income per common share are computed independently for each of the quarters presented. Therefore, the sum of the quarters may not equal the annual
amounts presented in the consolidated statements of operations. Additionally, for the three months ended December 31, 2020, basic and diluted income per common share
include the impact of the repurchase of 1.7 million shares of our common stock for $131.7 million, including a $125.0 million ASR, as described in more detail in Note 10
— Equity.
Revenues
Gross profit
Income from operations
(1)
Net income
Basic income per common share
Diluted income per common share
(2)
(2)
March 31, 2019
For the Quarter Ended
June 30, 2019
(in thousands, except per share data)
September 30,
2019
December 31, 2019
$
$
$
295,949 $
137,615
32,578
24,710
0.34 $
0.33 $
358,899 $
189,379
47,831
39,198
0.55 $
0.55 $
312,766 $
163,824
39,884
35,676
0.52 $
0.51 $
262,979
126,238
8,356
19,913
0.29
0.29
(1)
(2)
During the three months ended December 31, 2019, we reduced a portion of the valuation allowance recorded against certain deferred tax assets, resulting in a tax benefit.
Basic and diluted income per common share are computed independently for each of the quarters presented. Therefore, the sum of the quarters may not equal the annual
amounts presented in the consolidated statements of operations.
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Year Ended December 31, 2020
Allowance for doubtful accounts
Reserve for sales returns and allowances
Reserve for unapplied rebates
Total
Year Ended December 31, 2019
Allowance for doubtful accounts
Reserve for sales returns and allowances
Reserve for unapplied rebates
Total
Year Ended December 31, 2018
Allowance for doubtful accounts
Reserve for sales returns and allowances
Reserve for unapplied rebates
Total
APPENDIX A
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CROCS, INC. AND SUBSIDIARIES
Balance at
Beginning of
Period
Charged to Costs
and Expenses
Deductions
(1)
Balance at End of
Period
(in thousands)
$
$
$
$
$
$
8,276 $
5,261
5,260
18,797 $
10,959 $
2,741
6,777
20,477 $
18,325 $
4,983
8,081
31,389 $
5,779 $
95,740
4,920
106,439 $
1,566 $
73,027
6,837
81,430 $
711 $
71,865
8,604
81,180 $
(2,901) $
(95,219)
(6,023)
(104,143) $
(4,249) $
(70,507)
(8,354)
(83,110) $
(8,077) $
(74,107)
(9,908)
(92,092) $
11,154
5,782
4,157
21,093
8,276
5,261
5,260
18,797
10,959
2,741
6,777
20,477
(1)
Deductions include accounts written off, net of recoveries, and the effects of foreign currency translation.
F- 36
Exhibit 10.12
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This Second Amendment to Second Amended and Restated Credit Agreement (the “Amendment”), is made this 13th day
of November 2020 among CROCS, INC., a Delaware corporation (“Crocs”), CROCS RETAIL, LLC, a Colorado limited
liability company (“Crocs Retail”), JIBBITZ, LLC, a Colorado limited liability company (“Jibbitz”), COLORADO
FOOTWEAR C.V., a limited partnership (commanditaire vennootschap) established under the laws of the Netherlands and
registered with the Dutch trade register under number 27302818 (“Colorado Footwear”), CROCS EUROPE B.V., a private
limited company (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of the Netherlands and
registered with the Dutch trade register under number 27276812 (“Crocs Europe”, together with Crocs, Crocs Retail, Jibbitz,
Colorado Footwear and each Person joined to the Credit Agreement (as hereinafter defined) as a borrower from time to time,
collectively referred to herein as, the “Borrowers” or “Borrower”), the Guarantors party hereto, the Lenders (as hereinafter
defined), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent for the Lenders under this
Agreement (hereinafter referred to in such capacity as the “Administrative Agent”), Swing Loan Lender and Issuing Lender.
BACKGROUND
A. On July 26, 2019, Borrowers, Lenders, Joint Lead Arrangers (as defined in the Credit Agreement) and Administrative
Agent entered into, inter alia, that certain Second Amended and Restated Credit Agreement (as same has been or may hereafter be
amended, modified, renewed, extended, restated or supplemented from time to time, including without limitation as amended by
that certain First Amendment to Second Amended and Restated Credit Agreement by and among the parties hereto dated as of
March 26, 2020, the “Credit Agreement”) to reflect certain financing arrangements among the parties thereto. The Credit
Agreement and all other documents executed in connection therewith to the date hereof (including all of the Loan Documents) are
collectively referred to as the “Existing Financing Agreements”. All capitalized terms used and not otherwise defined herein shall
have the meaning ascribed thereto in the Credit Agreement, as amended hereby.
B. Borrowers have informed Administrative Agent and Lenders that Borrowers intend to consummate the 2020 Entity
Restructuring (as defined below).
C. Borrowers have requested, and Administrative Agent and Lenders have agreed, to consent to the 2020 Entity
Restructuring and to modify certain other terms and provisions of the Credit Agreement, in each case, on the terms and subject to
the conditions contained in this Amendment.
NOW, THEREFORE, in consideration of the mutual promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1
Section 1. Consent to 2020 Entity Restructuring.
(a) Upon the Effective Date (defined below), notwithstanding anything to the contrary contained in the Credit Agreement
and the Loan Documents, Administrative Agent and Lenders hereby consent to the 2020 Entity Restructuring. The Loan Parties
agree that this consent and acknowledgement shall not be deemed (a) to be a consent to the breach by the Loan Parties of any
covenants or agreements contained in the Credit Agreement with respect to any other transaction or matter or a consent to any
waiver or modification of any other term or condition of the Credit Agreement or (b) to prejudice any right or remedy that
Administrative Agent or any Lenders may now have or may in the future have under or in connection with the Credit Agreement
other than with respect to the matter for which this consent has been provided. The consent described herein shall not alter, affect,
release or prejudice in any way any of the Loan Parties’ obligations under the Credit Agreement (including, without limitation, the
Obligations) which are ratified and confirmed. This Amendment shall not obligate Administrative Agent and/or any Lender to
provide any further consent to any waiver or modification of any other term or condition of the Credit Agreement. This consent
shall not be construed as a course of conduct on the part of Administrative Agent and Lenders upon which the Loan Parties may
rely at any time in the future and the Loan Parties expressly waive any right to assert any claim to such effect at any time.
(b) Notwithstanding anything to the contrary contained herein, to the extent that (x) any intellectual property or other
assets transferred to Crocs New Malta from Colorado Footwear, or (y) any assets of Western Brands Netherlands Holding C.V.,
Crocs General Partner, LLC or Western Brands Holding Company, LLC, are in either case transferred, sold or contributed to
Crocs Old Malta at any time prior to the date that Crocs Old Malta has executed a joinder agreement and become a Loan Party in
accordance with Section 6 of this Amendment, then Crocs Old Malta shall transfer all of its right, title and interest in and to such
intellectual property or other assets to a Loan Party within three (3) Business Days. Failure to comply with this Section 1(b) shall
constitute an Event of Default under the Credit Agreement.
Section 2. Amendments.
(a) Definitions – New Definitions. Upon the Effective Date (as defined below), Section 1.1 of the Credit Agreement is
amended to add the following definitions in the appropriate alphabetical order:
“2020 Entity Restructuring” shall mean (A) the formation of Crocs New Malta, a limited liability company
organized under the laws of the Republic of Malta (“Crocs New Malta”), and (B) subsequent to the Second
Amendment Date: (i) the conversion of Crocs Bermuda Ltd., a Bermuda corporation, to Crocs Malta Holdings Ltd.,
a limited liability company organized under the laws of the Republic of Malta (“Crocs Old Malta”), (ii) the
distribution by Colorado Footwear of all of its intellectual property registered in jurisdictions other than the United
States and all of its Equity Interests in its Subsidiaries to Crocs Old Malta,
(iii) the transfer of all intellectual property referenced in clause (ii) above by Crocs Old Malta to Crocs Europe in
part as a contribution, and in part as a sale in exchange for the Crocs Old Malta Note to Crocs Europe, (iv)
subsequent to the
transactions descried in clause (ii) above, the disposition of, and transfer by Colorado Footwear of all of its
remaining assets to Crocs Old Malta, (v) the disposition of, and transfer by Western Brands Netherlands Holding
C.V., a
2
Guarantor, of all of its assets to Crocs Old Malta, (vi) the disposition of, and transfer by Crocs General Partner,
LLC, a Delaware limited liability company, and a Guarantor, of all of its assets to Crocs Old Malta, and (vii) the
disposition of, and transfer by Western Brands Holding Company, LLC, a Colorado limited liability company, and
a Guarantor, all of its assets to Crocs Old Malta, in each case as more fully set forth on Exhibit A attached hereto.
“Crocs New Malta” shall have the meaning given thereto in the definition of 2020 Entity Restructuring.
“Crocs Old Malta” shall have the meaning given thereto in the definition of 2020 Entity Restructuring.
“Crocs Old Malta Note” shall mean the promissory note to be issued in connection with the 2020 Entity
Restructuring by Crocs Europe in favor of Crocs Old Malta in the original principal amount of up to
$1,500,000,000 in connection with the sale of intellectual property by Crocs Old Malta to Crocs Europe, which
note will be issued subsequent to the Second Amendment Date.
“Second Amendment” shall mean the Second Amendment to Second Amended and Restated Credit Agreement
among Administrative Agent, the Lenders and the Loan Parties dated as of the Second Amendment Date.
“Second Amendment Date” shall mean November 13, 2020.
(b) Deposit Accounts. Upon the Effective Date (as defined below), Section 8.1.10(ii) of the Credit Agreement is
amended and restated in its entirety as follows and the following clause (iii) is added to such section:
(ii) No Loan Party shall have cash deposits, at any time, (A) in any deposit account, security account or other
account located in, titled in, or domiciled in Bermuda in excess of $1,000,000 in any one deposit account or
$2,000,000 in the aggregate in all such deposit, securities or other accounts, or (B) in any deposit account, security
account or other account located in, titled in, or domiciled in the Republic of Malta in excess of $500,000 in the
aggregate in all such deposit, securities or other accounts (and in each case, upon the reasonable request of
Administrative Agent, Borrowers shall provide bank statements for any such accounts evidencing such
compliance). Notwithstanding the foregoing, the cash deposits in any deposit account, security account or other
account located in, titled in, or domiciled in Bermuda or the Republic of Malta may exceed the limits set forth in
this Section 8.1.10(ii) so long as any amounts in excess of such limits are transferred from such accounts within
thirty (30) days, such that on the date of transfer, the cash deposits in any deposit account, security account or other
located in, title in, or domiciled in Bermuda or the Republic of Malta, as applicable, do not exceed the limits set
forth in this Section 8.1.10(ii).
(iii) Within 30 days after the conversion of Crocs Old Malta (as described in the definition of the 2020 Entity
Restructuring) or promptly after such later date
3
that Crocs Old Malta and Crocs New Malta are permitted to open deposit accounts at PNC under applicable law
and have provided Administrative Agent and each Lender all information and documentation requested by
Administrative Agent and Lenders in connection with anti-money laundering rules and regulations and “know your
customer” regulations in accordance with Section 3 of the Second Amendment), each of Crocs Old Malta and
Crocs New Malta shall establish their primary deposit account at PNC and shall not maintain any other deposit
accounts, securities accounts or other accounts except one deposit account for each such Person in the Republic of
Malta, in each case, subject to the limitations set forth in clause (ii) above.
(c) Permitted Indebtedness. The “.” at the end of Section 8.2.1(xx) shall be deleted and replaced with “and” and the
following clause (xxi) shall be added to the end of such section:
(xxi) Indebtedness pursuant to unsecured notes, bonds or other similar instruments issued by Crocs in an amount
not to exceed $500,000,000 in the aggregate so long as at the time of issuance of such Indebtedness and after giving
pro forma effect to the issuance thereof: (A) no Event of Default is continuing or would occur, (B) the Loan Parties
would be in compliance with the Leverage Ratio set forth in Section 8.2.15 hereof as of the last day of the most
recently ended fiscal quarter as if such Indebtedness were issued on the last day of such fiscal quarter, and (C) the
Loan Parties would be in compliance with the Interest Coverage Ratio set forth in Section 8.2.14 hereof as of the
last day of the most recently ended fiscal quarter as if such Indebtedness were issued on the first day of the trailing
twelve month period ending on the last day of the most recently ended fiscal quarter.
Section 3. KYC. The Loan Parties shall, promptly after formation of Crocs New Malta and the conversion of Crocs Old
Malta, provide to Administrative Agent and the Lenders such information and documentation as may reasonably be requested by
Administrative Agent or any Lender for purposes of compliance by Administrative Agent or such Lender with applicable laws
(including without limitation the USA Patriot Act and other “know your customer” and anti-money laundering rules and
regulations), and any policy or procedure implemented by Administrative Agent or such Lender to comply therewith. Until
Administrative Agent and each Lender has completed its “know your customer” diligence and satisfied all of its policies and
procedures with respect thereto, no Loan Party shall make any payment, loan, advance, cash distribution or dividend to Crocs New
Malta or Crocs Old Malta, other than formation costs limited to not more than $100,000 nor shall any proceeds of Loans be used
to fund any expenses or operations of, or transferred to Crocs New Malta or Crocs Old Malta.
Section 4. Acknowledgment of Guarantors. With respect to the amendments to the Credit Agreement effected by this
Amendment, each Guarantor signatory hereto hereby
acknowledges and agrees to this Amendment and confirms and agrees that its Guaranty Agreement (as modified and
supplemented in connection with this Amendment) and any other Loan Document to which it is a party is and shall continue to be,
in full force and effect and is hereby ratified and confirmed in all respects except that, upon the effectiveness of, and on and after
the date of this Amendment, each reference in such Guaranty or Loan Document to the Credit Agreement, “thereunder”, “thereof”
or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended or
modified by
4
this Amendment. Although Administrative Agent and the Lenders have informed the Guarantors of the matters set forth above,
and the Guarantors have acknowledged the same, each Guarantor understands and agrees that neither Administrative Agent nor
any Lender has any duty under the Credit Agreement, the Guaranty Agreements or any other Loan Document to so notify any
Guarantor or to seek such an acknowledgement, and nothing contained herein is intended to or shall create such a duty as to any
transaction hereafter.
Section 5. Conditions Precedent. This Amendment shall be effective upon (the “Effective Date”):
(a) Administrative Agent’s receipt of the following:
(i) this Amendment fully executed by the Borrowers, Guarantors, Administrative Agent and Required
Lenders;
(ii) such other documents as Administrative Agent or special counsel to Agent may reasonably request; and
(b) No Default or Event of Default shall have occurred and be continuing.
Section 6. Conditions Subsequent.
(a) Within ten (10) Business Days after the conversion of Crocs Old Malta (as described in the definition of the 2020
Entity Restructuring), or, promptly after such later date that Crocs Old Malta is permitted under applicable law to become a Loan
Party and has provided Administrative Agent and each Lender all information and documentation requested by Administrative
Agent and Lenders in connection with anti-money laundering rules and regulations and “know your customer” regulations in
accordance with Section 3 of this Amendment:
(i) Crocs Old Malta shall deliver a Guaranty and Suretyship Agreement executed by Crocs Old Malta in favor of
Administrative Agent and Lenders;
(ii) Crocs Old Malta shall execute a joinder agreement in the form of Exhibit B attached hereto, pursuant to which
Crocs Old Malta shall join in as, assume and adopt and agree to be bound by the role, duties, obligations, indebtedness,
liabilities, covenants and undertakings of, and become, a Grantor under the Security Agreement and the Loan Documents;
(iii) Crocs Old Malta shall deliver all certificates of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited
liability company agreement or comparable organizational documents of Crocs Old Malta under Maltese law; and
(iv) Crocs Old Malta shall deliver an executed copy of the Crocs Old Malta Note which shall contain provisions
subordinating the indebtedness evidenced thereby to the Obligations in form and substance reasonably satisfactory to
Administrative Agent in its Permitted Discretion
5
(b) Within ten (10) Business Days after the formation of Crocs New Malta or, promptly after such later date that Crocs
New Malta is permitted under applicable law to become a Loan Party and has provided Administrative Agent and each Lender all
information and documentation requested by Administrative Agent and Lenders in connection with anti-money laundering rules
and regulations and “know your customer” regulations in accordance with Section 3 of this Amendment:
(i) Crocs New Malta shall deliver a Guaranty and Suretyship Agreement executed by Crocs New Malta in favor of
Administrative Agent and Lenders;
(ii) Crocs New Malta shall execute a joinder agreement in the form of Exhibit B attached hereto, pursuant to which
Crocs New Malta shall join in as, assume and adopt and agree to be bound by the role, duties, obligations, indebtedness,
liabilities, covenants and undertakings of, and become, a Grantor under the Security Agreement and the Loan Documents;
(iii) Administrative Agent shall have received an Amendment to the Pledge Agreement of Crocs pursuant to which
Crocs pledges its interest in the Equity Interests of Crocs New Malta and any other Pledge Agreements and Amendments
to Pledge Agreements as Administrative Agent may reasonably request to maintain its Lien on all Equity Interests that
were pledged as Collateral prior to giving effect to the 2020 Entity Restructuring,
(iv) Administrative Agent shall have received a Pledge Agreement by Crocs New Malta in favor of Administrative
Agent pursuant to which Crocs New Malta pledges its interest in the Equity Interests of Crocs Old Malta; and
(v) Crocs New Malta shall deliver all certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability company agreement or comparable organizational
documents of Crocs New Malta under Maltese law; and
(c) Within five (5) Business Days after completion of the 2020 Entity Restructuring, the Loan Parties shall deliver to
Agent an organizational chart for Crocs and all of its Subsidiaries after giving effect to the 2020 Entity Restructuring.
Section 7. Representations and Warranties. Each Borrower:
(a) reaffirms all representations and warranties made to Administrative Agent and Lenders under the Credit Agreement
and all of the other Existing Financing Agreements and
confirms that all are true and correct in all material respects as of the date hereof (except to the extent any such representations and
warranties specifically relate to a specific date, in which case such representations and warranties were true and correct in all
material respects on and as of such other specific date);
(b) reaffirms all of the covenants contained in the Credit Agreement, covenants to abide thereby until Payment in Full of
the Obligations;
6
(c) represents and warrants to the Administrative Agent and the Lenders that no Potential Default or Event of Default has
occurred and is continuing under any of the Existing Financing Agreements;
(d) represents and warrants to the Administrative Agent and the Lenders that it has the authority and legal right to execute,
deliver and carry out the terms of this Amendment, that such actions were duly authorized by all necessary limited liability
company or corporate action, as applicable, and that the officers executing this Amendment on its behalf were similarly authorized
and empowered, and that this Amendment does not contravene any provisions of its certificate of incorporation or formation,
operating agreement, bylaws, or other formation documents, as applicable, or of any contract or agreement to which it is a party or
by which any of its properties are bound;
(e) represents and warrants to the Administrative Agent and the Lenders that this Amendment and all assignments,
instruments, documents, and agreements executed and delivered in connection herewith, are valid, binding and enforceable in
accordance with their respective terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency,
moratorium or similar laws affecting creditors’ rights generally; and
(f) represents and warrants that the organizational chart attached hereto as Exhibit B is true and correct in all material
respects.
Section 8. General Provisions.
(a) Payment of Expenses. Borrowers shall pay or reimburse Administrative Agent for its reasonable attorneys’ fees and
expenses in connection with the preparation, negotiation and execution of this Amendment and the documents provided for herein
or related hereto in accordance with Section 11.4.1 of the Credit Agreement.
(b) Reaffirmation of Credit Agreement. Except as modified by the terms hereof, all of the terms and conditions of the
Credit Agreement, as amended, and all of the other Existing Financing Agreements are hereby reaffirmed and shall continue in
full force and effect as therein written.
(c) Third Party Rights. No rights are intended to be created hereunder for the benefit of any third party donee, creditor, or
incidental beneficiary.
(d) Headings. The headings of any paragraph of this Amendment are for convenience only and shall not be used to
interpret any provision hereof.
(e) Modifications. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in
writing and signed on behalf of the party against whom enforcement is sought.
(f) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of
New York applied to contracts to be performed wholly within the State of New York.
7
(g) Loan Documents. This Amendment is a “Loan Document” as defined in and described in the Credit Agreement and
all of the terms and provisions of the Credit Agreement relating to Loan Documents shall apply hereto.
(h) Counterparts. This Amendment may be executed in any number of and by different parties hereto on separate
counterparts, all of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the
same agreement. Any signature delivered by a party by facsimile transmission or PDF shall be deemed to be an original signature
hereto.
(Signature Pages Follow)
8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers
thereunto duly authorized as of the day and year first above written.
BORROWERS:
CROCS, INC.
By: /s/ Anne Mehlman Name: Anne Mehlman
Title: Executive Vice President and Chief Financial Officer
CROCS RETAIL, LLC
By: /s/ Anne Mehlman Name: Anne Mehlman
Title: Chief Financial Officer
JIBBITZ, LLC
By: /s/ Anne Mehlman Name: Anne Mehlman
Title: Manager
COLORADO FOOTWEAR C.V.
By: Crocs General Partner, LLC, as General Partner of Colorado Footwear C.V.
By: /s/ Anne Mehlman Name: Anne Mehlman
Title: Chief Financial Officer
CROCS EUROPE B.V.
By: /s/ Trevin Abraham David Name: Trevin Abraham David
Title: Authorized Signatory
[SIGNATURE PAGE TO SECOND AMENDMENT TO 2ND A&R CREDIT AGREEMENT]
GUARANTORS:
WESTERN BRANDS HOLDING COMPANY, LLC
By: /s/ Anne Mehlman Name: Anne Mehlman
Title: Chief Financial Officer
WESTERN BRANDS NETHERLANDS HOLDING C.V.
By: Western Brands Holding Company, LLC, as General Partner of Western
Brands Netherlands Holding C.V.
By: /s/ Anne Mehlman Name: Anne Mehlman
Title: Chief Financial Officer
CROCS GENERAL PARTNER, LLC
By: /s/ Anne Mehlman Name: Anne Mehlman
Title: Chief Financial Officer
[SIGNATURE PAGE TO SECOND AMENDMENT TO 2ND A&R CREDIT AGREEMENT]
ADMINISTRATIVE AGENT AND LENDERS:
PNC BANK, NATIONAL ASSOCIATION, as Lender and as Administrative Agent
By: /s/ Steve C. Roberts
Name: Steve C. Roberts
Title: Senior Vice President
HSBC BANK USA, N.A., as Lender
By: /s/ Kevin Toda
Name: Kevin Toda
Title: Senior Vice President
KEYBANK NATIONAL ASSOCIATION, as Lender
By: /s/ Marianne T. Meil
Name: Marianne T. Meil
Title: Senior Vice President
CITIBANK, N.A., as Lender
By: /s/ Jonathan C. Eng
Name: Jonathan C. Eng
Title: Senior Vice President
BANK OF AMERICA, N.A., as Lender
By: /s/ John Sletten
Name: John Sletten
Title: Senior Vice President
U.S. BANK NATIONAL ASSOCIATION, as Lender
By: /s/ Cameron Doell
Name: Cameron Doell
Title: Vice President
[SIGNATURE PAGE TO SECOND AMENDMENT TO 2ND A&R CREDIT AGREEMENT]
GOLDMAN SACHS BANK USA, as Lender
By: /s/ Mahesh Mohan Name: Mahesh Mohan
Title: Authorized Signatory
[SIGNATURE PAGE TO SECOND AMENDMENT TO 2ND A&R CREDIT AGREEMENT]
EXHIBIT A
2020 ENTITY RESTRUCTURING
This Joinder (this “Joinder”) is executed and delivered as of this day of , 20 by , a (“New
Grantor”), in favor of PNC BANK, NATIONAL ASSOCIATION (“PNC”), in its capacity as administrative agent (in such
capacity, “Administrative Agent”) for the Lenders under the Credit Agreement (as defined below).
EXHIBIT B FORM OF JOINDER
Reference is hereby made to (i) that certain Second Amended and Restated Credit Agreement dated as of July 26, 2019 (as
the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) among
CROCS, INC., a Delaware corporation (“Crocs”), CROCS RETAIL, LLC, a Colorado limited liability company (“Crocs
Retail”), JIBBITZ, LLC, a Colorado limited liability company (“Jibbitz”), COLORADO FOOTWEAR C.V., a limited
partnership (commanditaire vennootschap) established under the laws of the Netherlands and registered with the Dutch trade
register under number 27302818 (“Colorado Footwear”), CROCS EUROPE B.V., a private limited company (besloten
vennootschap met beperkte aansprakelijkheid) incorporated under the laws of the Netherlands and registered with the Dutch trade
register under number 27276812 (“Crocs Europe”, together with Crocs, Crocs Retail, Jibbitz, Colorado Footwear and each Person
joined hereto as a borrower from time to time, collectively referred to herein as, the “Borrowers” or “Borrower”), the financial
institutions party thereto as lenders (the “Lenders”), PNC CAPITAL MARKETS LLC, in its capacity as sole book runner, co-
syndication agent and joint lead arranger (“PNCCM”), CITIBANK, N.A., BANK OF AMERICA, N.A., and KEY BANK
NATIONAL ASSOCIATION, each as joint lead arranger (together with PNCCM, the “Joint Lead Arrangers”) and PNC as
Administrative Agent, Swing Loan Lender and an Issuing Lender, and (ii) that certain Security Agreement dated as of July 26,
2019 by the Loan Parties in favor of Administrative Agent. Capitalized terms used but not defined herein shall have the meanings
set forth in the Credit Agreement.
Under the terms of the Credit Agreement (as amended by the Second Amendment), New Grantor is required, and does
agree, to expressly join the Security Agreement as a Grantor, and hereby agrees that it shall be deemed a “Loan Party” as defined
in the Credit Agreement as if New Grantor were originally signatory thereto. New Grantor also hereby agrees to comply with all
of the terms and conditions of, and covenants and undertakings of the Grantors under, the Security Agreement and the Loan
Documents. All references to a “Grantor” or the “Grantors” and/or to any “Loan Party” or the “Loan Parties” contained in the
Credit Agreement, the Security Agreement and the Loan Documents are hereby deemed for all purposes to also refer to and
include New Grantor as a Grantor and/or a Loan Party, and New Grantor hereby agrees to comply with all terms and conditions of
the Security Agreement as if an original signatory thereto.
As security for the due and punctual payment and performance of the Secured Obligations (as defined in the Security
Agreement) in full, New Grantor hereby agrees that the Administrative Agent and the other Secured Parties shall have, and New
Grantor hereby grants
to and creates in favor of the Administrative Agent for the benefit of itself, and the other Secured Parties, a continuing first priority
lien on and security interest under the UCC in and to the Collateral subject only to Permitted Liens. New Grantor further agrees
that with respect to each item of the Collateral as to which (i) the creation of a valid and enforceable security interest is not
governed exclusively by the UCC, or (ii) the perfection of a valid and enforceable first priority security interest therein under the
UCC cannot be accomplished either by the Administrative Agent taking possession thereof or by the filing in appropriate locations
of appropriate UCC financing statements executed by New Grantor, as applicable, such Person will at its expense execute and
deliver to the Administrative Agent and hereby does authorize the Administrative Agent to execute and file such documents,
agreements, notices, assignments and instruments and take such further actions as may be reasonably requested by the
Administrative Agent from time to time for the purpose of creating a valid and perfected first priority Lien on such item, subject
only to Permitted Liens, enforceable against New Grantor and all third parties to secure the Secured Obligations.
The information on the attached Schedules [ ] hereto is hereby added to Schedules [ ] to the Credit Agreement and/or
Security Agreement, as applicable. This Joinder is a supplement to, and not a novation of, the Credit Agreement or Security
Agreement, each of which remains in full force and effect, and the provisions of which are incorporated herein by reference.
[signatures to appear on following page]
IN WITNESS WHEREOF, New Grantor has executed and delivered this Joinder as part of the Security Agreement as of
the date and year first set forth above.
[NEW GRANTOR]
By:
Name:
Title:
List of Subsidiaries
Exhibit 21
Subsidiary
Crocs Asia Pte Ltd.
Crocs Austria GmbH
Crocs Australia Pty Ltd.
Crocs Bermuda Ltd.
Crocs Brasil Comércio de Calçados Ltda.
Crocs Canada Inc.
Crocs Europe B.V.
Crocs Europe BV (Italy Branch)
Crocs Footwear & Accessories (Shanghai) Co., Ltd.
Crocs Footwear (Malaysia) Sdn. Bhd.
Crocs France S.A.R.L.
Crocs General Partner LLC
Crocs Germany GmbH
Crocs Hong Kong Ltd.
Crocs India Private Limited
Crocs Industrial (Hong Kong) Co. Ltd.
Crocs Industrial (Shenzhen) Co. Ltd.
Crocs Italy S.r.l.
Crocs Japan GK
Crocs Japan GK (Taiwan Branch)
Crocs Korea Inc
Crocs Malta Ltd
Crocs Malta Holdings Ltd
Crocs México, S. de R.L. de C.V.
Crocs México Trading Company, S. de R.L. de C.V.
Crocs Nordic OY
Crocs Puerto Rico, Inc.
Crocs Retail, LLC
Crocs Servicios México, S. de R.L. de C.V.
Crocs Singapore Pte Ltd.
Crocs S.R.L.
Crocs Stores AB
Crocs Stores B.V.
Crocs Trading (Shanghai) Co. Ltd.
Crocs UK Limited
Crocs US Latin American Holdings, LLC
Crocs Vietnam Limited Liability Company
Colorado Footwear C.V.
Jibbitz LLC
LLC Crocs CIS
Panama Footwear Distribution S. De R.L.
Western Brands Holding Company, LLC
Western Brands Netherlands Holding C.V.
Jurisdiction
Singapore
Austria
Australia
Bermuda
Brazil
Canada
The Netherlands
Italy
China
Malaysia
France
Delaware
Germany
Hong Kong
India
Hong Kong
China
Italy
Japan
Taiwan
South Korea
Malta
Malta
Mexico
Mexico
Finland
Puerto Rico
Colorado
Mexico
Singapore
Argentina
Sweden
The Netherlands
China
United Kingdom
Delaware
Vietnam
The Netherlands
Colorado
Russia
Panama
Colorado
The Netherlands
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-132312, 333-144705, 333-176696, 333-204841, 333-221385 and 333-239089,
and in Post-Effective Amendments No. 1 to Registration Statement Nos. 333-176696, 333-204841 and 333-221385 on Form S-8 of our reports dated February 23,
2021, relating to the consolidated financial statements and financial statement schedule of Crocs, Inc. and subsidiaries, and the effectiveness of Crocs, Inc. and
subsidiaries' internal control over financial reporting, appearing in this Annual Report on Form 10-K of Crocs Inc. as of and for the year ended December 31, 2020.
Exhibit 23.1
/s/ Deloitte & Touche LLP
Denver, Colorado
February 23, 2021
SECTION 302 CERTIFICATION
EXHIBIT 31.1
I, Andrew Rees, 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 the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
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 in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) 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, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness 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 recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably 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 internal control over
financial reporting.
Date: February 23, 2021
/s/ ANDREW REES
Andrew Rees
Chief Executive Officer
SECTION 302 CERTIFICATION
EXHIBIT 31.2
I, Anne Mehlman, 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 the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
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 in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) 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, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness 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 recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably 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 internal control over
financial reporting.
Date: February 23, 2021
/s/ ANNE MEHLMAN
Anne Mehlman
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32
The undersigned, Chief Executive Officer and Executive Vice President and Chief Financial Officer of Crocs, Inc. (the “Company”), hereby certify, pursuant to 18
U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:
(1) The Annual Report on Form 10-K of the Company for the year ended December 31, 2020 (“Form 10-K”) fully complies with the requirements of
Section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), and
(2) The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company for the
period covered by this Form 10-K.
Date: February 23, 2021
/s/ ANDREW REES
Andrew Rees
Chief Executive Officer
/s/ ANNE MEHLMAN
Anne Mehlman
Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Crocs, Inc. and will be retained by Crocs, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.