UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021~~2022

☐ 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. 000-51754

CROCS, INC.

(Exact name of registrant as specified in its charter)


Delaware						20-2164234
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

13601 Via Varra, Broomfield, Colorado 80020

(Address, including zip code, of registrant’s principal executive offices)

(303) 848-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading symbol:

Name of each exchange on which registered:

Common Stock, par value $0.001 per share

CROX

The Nasdaq Global Select Market

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

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☒

☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 14, 2021,~~July 28, 2022, Crocs, Inc. had ~~58,847,388~~61,650,394 shares of its common stock, par value $0.001 per share, outstanding.

Table of Contents

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q 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. 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~~regarding:

•our expectations regarding future trends, expectations, and performance of our business;

•our expectations regarding leveraging selling, general and administrative expense as a percent of revenues;

•our expectations regarding leveraging our global presence, innovative marketing, and scale infrastructure to grow HEYDUDE and to create significant shareholder value;

•our expectations regarding supply chain disruptions;

•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;~~

•~~the amount and timing of our capital expenditures; and~~

•~~our intent to achieve various Environmental, Social, and Governance initiatives.~~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 the section entitled “Risk Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 and our subsequent filings with the Securities and Exchange ~~Commission.~~Commission, including those described in the section entitled “Risk Factors” under Item 1A in this report. 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 report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such ~~statements.~~statements, except as required by applicable law.

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Crocs, Inc.

Table of Contents to the Quarterly Report on Form 10-Q

For the Quarterly Period Ended ~~September~~June 30, ~~2021~~2022

Table of Contents

PART I — Financial Information

ITEM 1. Financial Statements

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenues	Revenues	$	625,919	$	361,736	$	1,726,790	$	974,445	Revenues	$	964,581	$	640,773	$	1,624,729	$	1,100,871
Cost of sales	Cost of sales	226,123		154,967		678,594		453,581		Cost of sales	466,848		245,592		802,072		452,471
Gross profit	Gross profit	399,796		206,769		1,048,196		520,864		Gross profit	497,733		395,181		822,657		648,400
Selling, general and administrative expenses	Selling, general and administrative expenses	196,728		134,683		525,120		371,371		Selling, general and administrative expenses	249,769		199,859		456,016		328,392
Income from operations	Income from operations	203,068		72,086		523,076		149,493		Income from operations	247,964		195,322		366,641		320,008
Foreign currency gains (losses), net		537		(516)		(84)		(1,434)
Foreign currency losses, net										Foreign currency losses, net	(1,202)		(117)		(722)		(621)
Interest income	Interest income	615		43		713		189		Interest income	86		71		188		98
Interest expense	Interest expense	(6,486)		(1,502)		(12,830)		(5,593)		Interest expense	(32,963)		(4,712)		(52,215)		(6,344)
Other income (expense), net	Other income (expense), net	2		(27)		15		901		Other income (expense), net	419		2		(528)		13
Income before income taxes	Income before income taxes	197,736		70,084		510,890		143,556		Income before income taxes	214,304		190,566		313,364		313,154
Income tax expense (benefit)	Income tax expense (benefit)	44,247		8,195		(59,951)		14,025		Income tax expense (benefit)	53,989		(128,388)		80,289		(104,198)
Net income	Net income	$	153,489	$	61,889	$	570,841	$	129,531	Net income	$	160,315	$	318,954	$	233,075	$	417,352
Net income per common share:	Net income per common share:									Net income per common share:
Basic	Basic	$	2.47	$	0.92	$	8.96	$	1.92	Basic	$	2.60	$	5.02	$	3.84	$	6.47
Diluted	Diluted	$	2.42	$	0.91	$	8.79	$	1.89	Diluted	$	2.58	$	4.93	$	3.79	$	6.35
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	62,033		67,473		63,695		67,606		Basic	61,590		63,595		60,712		64,526
Diluted	Diluted	63,324		68,385		64,937		68,608		Diluted	62,236		64,640		61,571		65,744

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income $ 153,489 $ 61,889 $ 570,841 $ 129,531
Other comprehensive income (loss):
Foreign currency translation gains (losses), net (12,867) 4,160 (20,053) (3,663)
Reclassification of foreign currency translation loss to income (1)
— — — (164)
Total comprehensive income $ 140,622 $ 66,049 $ 550,788 $ 125,704

~~(1)~~ ~~Represents the reclassification of cumulative foreign currency translation adjustment upon liquidation of foreign subsidiaries during the nine months ended September 30, 2020.~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	160,315	$	318,954	$	233,075	$	417,352
Other comprehensive income (loss):
Foreign currency translation gains (losses), net	(26,352)		3,442		(36,503)		(7,186)

Total comprehensive income	$	133,963	$	322,396	$	196,572	$	410,166

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and par value amounts)


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	436,601	$	135,802	Cash and cash equivalents	$	187,352	$	213,197
Restricted cash - current	Restricted cash - current	1,412		1,542		Restricted cash - current	32		65
Accounts receivable, net of allowances of $21,137 and $21,093, respectively		229,298		149,847
Accounts receivable, net of allowances of $28,087 and $20,715, respectively						Accounts receivable, net of allowances of $28,087 and $20,715, respectively	423,490		182,629
Inventories	Inventories	212,496		175,121		Inventories	501,527		213,520
Income taxes receivable	Income taxes receivable	1,255		1,857		Income taxes receivable	2,223		22,301
Other receivables	Other receivables	16,990		10,816		Other receivables	16,742		12,252
Prepaid expenses and other assets	Prepaid expenses and other assets	22,000		17,856		Prepaid expenses and other assets	36,941		22,605
Total current assets	Total current assets	920,052		492,841		Total current assets	1,168,307		666,569
Property and equipment, net of accumulated depreciation and amortization of $88,595 and $86,305, respectively		91,318		57,467
Intangible assets, net of accumulated amortization of $108,014 and $95,426, respectively		31,634		37,636
Property and equipment, net of accumulated depreciation and amortization of $89,009 and $83,745, respectively						Property and equipment, net of accumulated depreciation and amortization of $89,009 and $83,745, respectively	140,278		108,398
Intangible assets, net of accumulated amortization of $116,500 and $108,167, respectively						Intangible assets, net of accumulated amortization of $116,500 and $108,167, respectively	1,804,067		28,802
Goodwill	Goodwill	1,630		1,719		Goodwill	714,143		1,600
Deferred tax assets, net	Deferred tax assets, net	517,929		350,784		Deferred tax assets, net	513,582		567,201
Restricted cash	Restricted cash	3,731		1,929		Restricted cash	3,187		3,663
Right-of-use assets	Right-of-use assets	170,957		167,421		Right-of-use assets	236,077		160,768
Other assets	Other assets	7,814		8,926		Other assets	7,001		8,067
Total assets	Total assets	$	1,745,065	$	1,118,723	Total assets	$	4,586,642	$	1,545,068

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	133,446	$	112,778	Accounts payable	$	225,302	$	162,145
Accrued expenses and other liabilities	Accrued expenses and other liabilities	149,206		126,704		Accrued expenses and other liabilities	242,754		166,887
Income taxes payable	Income taxes payable	22,315		5,038		Income taxes payable	58,702		16,279
Current borrowings						Current borrowings	25,403		—
Current operating lease liabilities	Current operating lease liabilities	45,248		47,064		Current operating lease liabilities	49,983		42,932
Total current liabilities	Total current liabilities	350,215		291,584		Total current liabilities	602,144		388,243
Deferred tax liabilities, net						Deferred tax liabilities, net	312,821		—
Long-term income taxes payable	Long-term income taxes payable	193,990		205,974		Long-term income taxes payable	216,042		219,744
Long-term borrowings	Long-term borrowings	685,955		180,000		Long-term borrowings	2,743,507		771,390
Long-term operating lease liabilities	Long-term operating lease liabilities	157,874		146,401		Long-term operating lease liabilities	217,586		149,237
Other liabilities	Other liabilities	4,200		4,131		Other liabilities	2,577		2,372
Total liabilities	Total liabilities	1,392,234		828,090		Total liabilities	4,094,677		1,530,986
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, par value $0.001 per share, 5.0 million shares authorized including 1.0 million authorized as Series A Convertible Preferred Stock, none outstanding	Preferred stock, par value $0.001 per share, 5.0 million shares authorized including 1.0 million authorized as Series A Convertible Preferred Stock, none outstanding	—		—		Preferred stock, par value $0.001 per share, 5.0 million shares authorized including 1.0 million authorized as Series A Convertible Preferred Stock, none outstanding	—		—
Common stock, par value $0.001 per share, 250.0 million shares authorized, 105.9 million and 105.0 million issued, 61.5 million and 65.9 million outstanding, respectively		106		105
Treasury stock, at cost, 44.4 million and 39.1 million shares, respectively		(1,236,003)		(688,849)
Common stock, par value $0.001 per share, 250.0 million shares authorized, 109.3 million and 105.9 million issued, 61.6 million and 58.3 million outstanding, respectively						Common stock, par value $0.001 per share, 250.0 million shares authorized, 109.3 million and 105.9 million issued, 61.6 million and 58.3 million outstanding, respectively	109		106
Treasury stock, at cost, 47.7 million and 47.6 million shares, respectively						Treasury stock, at cost, 47.7 million and 47.6 million shares, respectively	(1,690,780)		(1,684,262)
Additional paid-in capital	Additional paid-in capital	540,948		482,385		Additional paid-in capital	783,862		496,036
Retained earnings	Retained earnings	1,124,187		553,346		Retained earnings	1,512,115		1,279,040
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(76,407)		(56,354)		Accumulated other comprehensive loss	(113,341)		(76,838)
Total stockholders’ equity	Total stockholders’ equity	352,831		290,633		Total stockholders’ equity	491,965		14,082
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,745,065	$	1,118,723	Total liabilities and stockholders’ equity	$	4,586,642	$	1,545,068

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

Common Stock Treasury Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Stockholders'
Equity
Shares Amount Shares Amount
Balance at June 30, 2021 62,382 $ 106 43,283 $ (1,078,857) $ 530,357 $ 970,698 $ (63,540) $ 358,764
Share-based compensation — — — — 10,591 — — 10,591
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units 174 — 52 (7,146) — — — (7,146)
Repurchases of common stock (1,055) — 1,055 (150,000) — — — (150,000)
Net income — — — — — 153,489 — 153,489
Other comprehensive loss — — — — — — (12,867) (12,867)
Balance at September 30, 2021 61,501 $ 106 44,390 $ (1,236,003) $ 540,948 $ 1,124,187 $ (76,407) $ 352,831


	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at March 31, 2022	61,572	$	109	47,658	$	(1,690,312)	$	774,562	$	1,351,800	$	(86,989)	$	349,170
Share-based compensation	—	—		—	—		9,300		—		—		9,300
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	55	—		9	(468)		—		—		—		(468)


Net income	—	—		—	—		—		160,315		—		160,315
Other comprehensive loss	—	—		—	—		—		—		(26,352)		(26,352)
Balance at June 30, 2022	61,627	$	109	47,667	$	(1,690,780)	$	783,862	$	1,512,115	$	(113,341)	$	491,965


		Common Stock			Treasury Stock			Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Total Stockholders' Equity				Common Stock						Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
		Shares	Amount		Shares	Amount								Shares								Amount			Shares			Amount
Balance at June 30, 2020		67,455	$	105	37,470	$	(587,940)			$	502,958						$	308,127			$	(66,366)		$	156,884
Balance at March 31, 2021																						Balance at March 31, 2021	65,225			$	106		40,383	$	(783,926)		$	525,289		$	651,744		$	(66,982)		$	326,231
Share-based compensation	Share-based compensation	—	—		—	—		4,867				—			—				4,867			Share-based compensation	—			—			—	—		11,294			—			—			11,294
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units		35	—		1	(43)		230				—			—				187
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes																						Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	47			—			10	(1,158)		1			—			—			(1,157)
Repurchases of common stock	Repurchases of common stock	—	—		—	—		—				—			—				—			Repurchases of common stock	(2,890)			—			2,890	(293,773)		(6,227)			—			—			(300,000)
Net income	Net income	—	—		—	—		—				61,889			—				61,889			Net income	—			—			—	—		—			318,954			—			318,954
Other comprehensive income	Other comprehensive income	—	—		—	—		—				—			4,160				4,160			Other comprehensive income	—			—			—	—		—			—			3,442			3,442
Balance at September 30, 2020		67,490	$	105	37,471	$	(587,983)	$	508,055			$	370,016		$	(62,206)			$	227,987
Balance at June 30, 2021																						Balance at June 30, 2021	62,382			$	106		43,283	$	(1,078,857)	$	530,357		$	970,698		$	(63,540)		$	358,764

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

Common Stock Treasury Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Stockholders'
Equity
Shares Amount Shares Amount
Balance at December 31, 2020 65,856 $ 105 39,132 $ (688,849) $ 482,385 $ 553,346 $ (56,354) $ 290,633
Share-based compensation — — — — 29,939 — — 29,939
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units 702 1 201 (18,766) 236 — — (18,529)
Repurchases of common stock (5,057) — 5,057 (528,388) 28,388 — — (500,000)
Net income — — — — — 570,841 — 570,841
Other comprehensive loss — — — — — — (20,053) (20,053)
Balance at September 30, 2021 61,501 $ 106 44,390 $ (1,236,003) $ 540,948 $ 1,124,187 $ (76,407) $ 352,831


	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	58,330	$	106	47,583	$	(1,684,262)	$	496,036	$	1,279,040	$	(76,838)	$	14,082
Share-based compensation	—	—		—	—		17,575		—		—		17,575
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	445	—		84	(6,518)		(142)		—		—		(6,660)

Share issuance at Acquisition	2,852	3		—	—		270,393		—		—		270,396
Net income	—	—		—	—		—		233,075		—		233,075
Other comprehensive loss	—	—		—	—		—		—		(36,503)		(36,503)
Balance at June 30, 2022	61,627	$	109	47,667	$	(1,690,780)	$	783,862	$	1,512,115	$	(113,341)	$	491,965


		Common Stock			Treasury Stock			Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Total Stockholders' Equity				Common Stock						Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
		Shares	Amount		Shares	Amount								Shares								Amount			Shares			Amount
Balance at December 31, 2019		68,232	$	104	35,796	$	(546,208)			$	495,903						$	240,485			$	(58,379)		$	131,905
Balance at December 31, 2020																						Balance at December 31, 2020	65,856			$	105		39,132	$	(688,849)		$	482,385		$	553,346		$	(56,354)		$	290,633
Share-based compensation	Share-based compensation	—	—		—	—		10,809				—			—				10,809			Share-based compensation	—			—			—	—		19,348			—			—			19,348
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units		817	1		116	(2,616)		1,343				—			—				(1,272)
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes																						Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	528			1			149	(11,620)		236			—			—			(11,383)
Repurchases of common stock	Repurchases of common stock	(1,559)	—		1,559	(39,159)		—				—			—				(39,159)			Repurchases of common stock	(4,002)			—			4,002	(378,388)		28,388			—			—			(350,000)
Net income	Net income	—	—		—	—		—				129,531			—				129,531			Net income	—			—			—	—		—			417,352			—			417,352
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—			(3,827)				(3,827)			Other comprehensive loss	—			—			—	—		—			—			(7,186)			(7,186)
Balance at September 30, 2020		67,490	$	105	37,471	$	(587,983)	$	508,055			$	370,016		$	(62,206)			$	227,987
Balance at June 30, 2021																						Balance at June 30, 2021	62,382			$	106		43,283	$	(1,078,857)	$	530,357		$	970,698		$	(63,540)		$	358,764

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

Nine Months Ended September 30,
2021 2020
Cash flows from operating activities:
Net income $ 570,841 $ 129,531
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 23,832 20,251
Operating lease cost 44,067 45,818
Inventory donations 1,153 8,873
Provision for (recovery of) doubtful accounts, net (2,441) 5,720
Share-based compensation 29,939 10,809
Deferred income taxes (176,873) —
Other non-cash items (1,384) 3,632
Changes in operating assets and liabilities:
Accounts receivable (80,981) (38,937)
Inventories (41,193) (14,873)
Prepaid expenses and other assets (5,069) 7,706
Accounts payable, accrued expenses and other liabilities 30,997 25,243
Right-of-use assets and operating lease liabilities (37,723) (45,133)
Cash provided by operating activities 355,165 158,640
Cash flows from investing activities:
Purchases of property, equipment, and software (35,758) (33,193)
Proceeds from disposal of property and equipment 6 434
Other (15) (168)
Cash used in investing activities (35,767) (32,927)
Cash flows from financing activities:
Proceeds from notes issuance 700,000 —
Proceeds from bank borrowings 170,000 150,000
Repayments of bank borrowings (350,000) (220,000)
Deferred debt issuance costs (14,491) (520)
Repurchases of common stock (500,000) (39,159)
Repurchases of common stock for tax withholding (18,766) (2,616)
Other 237 1,344
Cash used in financing activities (13,020) (110,951)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (3,907) 130
Net change in cash, cash equivalents, and restricted cash 302,471 14,892
Cash, cash equivalents, and restricted cash—beginning of period 139,273 112,045
Cash, cash equivalents, and restricted cash—end of period $ 441,744 $ 126,937


	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net income	$	233,075	$	417,352
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,754		15,749
Operating lease cost	30,887		29,758
Inventory donations	1,941		641
Recovery of doubtful accounts, net	(180)		(2,556)
Share-based compensation	17,575		19,348
Deferred income taxes	—		(176,862)
Other non-cash items	5,316		836
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Accounts receivable	(181,154)		(82,621)
Inventories	(121,452)		(36,099)
Prepaid expenses and other assets	(9,309)		(6,419)
Accounts payable, accrued expenses and other liabilities	85,091		75,520
Right-of-use assets and operating lease liabilities	(29,927)		(22,759)
Income taxes	36,127		10,478
Cash provided by operating activities	84,744		242,366
Cash flows from investing activities:
Purchases of property, equipment, and software	(56,744)		(21,329)

Acquisition of HEYDUDE, net of cash acquired	(2,040,265)		—
Other	(20)		6
Cash used in investing activities	(2,097,029)		(21,323)
Cash flows from financing activities:
Proceeds from notes issuance	—		350,000
Proceeds from borrowings	2,240,677		170,000
Repayments of borrowings	(195,000)		(305,000)
Deferred debt issuance costs	(51,395)		(8,961)
Repurchases of common stock	—		(350,000)
Repurchases of common stock for tax withholding	(6,756)		(11,619)
Other	95		236
Cash provided by (used in) financing activities	1,987,621		(155,344)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1,690)		(1,793)
Net change in cash, cash equivalents, and restricted cash	(26,354)		63,906
Cash, cash equivalents, and restricted cash—beginning of period	216,925		139,273
Cash, cash equivalents, and restricted cash—end of period	$	190,571	$	203,179

Non-Cash Investing and Financing Activities:
Accrued purchases of property, equipment, and software	$	5,038	$	6,423
Share issuance at Acquisition	270,396		—
Accrued additional consideration for Acquisition	6,616		—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CROCS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unless otherwise noted in this report, any description of the “Company,” “Crocs,” “we,” “us,” or “our” includes Crocs, Inc. and our 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.

On February 17, 2022, we acquired (the “Acquisition”) 100% of the equity of a privately-owned casual footwear brand business (“HEYDUDE”), pursuant to a securities purchase agreement (the “SPA”) entered into on December 22, 2021. HEYDUDE is engaged in the business of distributing and selling casual footwear under the brand name “HEYDUDE.”

Our reportable operating segments include: (i) North America for the ~~Americas,~~Crocs Brand, operating ~~in North~~throughout the United States and ~~South America;~~Canada; (ii) Asia Pacific for the Crocs Brand, operating throughout Asia, Australia, and New Zealand; ~~and~~(iii) Europe, Middle East, Africa, and ~~Africa~~Latin America (“~~EMEA”~~EMEALA”)~~, operating throughout Europe, Russia,~~ for the ~~Middle East,~~Crocs Brand; and ~~Africa.~~(iv) the HEYDUDE Brand. See Note 1514 — Operating Segments and Geographic Information for additional information.

The accompanying unaudited condensed consolidated interim financial statements include our accounts and those of our wholly-owned subsidiaries, and reflect all adjustments which are necessary for a fair statement of the 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”). Such unaudited condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.

These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (“Annual Report”) and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements included in our Annual Report. Our accounting policies did not change during the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, other than with respect to the new accounting pronouncements adopted as described in Note 2 — Recent Accounting ~~Pronouncements.~~Pronouncements and our business combination policy as described in Note 16 — Acquisition of HEYDUDE.

Reclassifications

We have reclassified certain amounts on the condensed consolidated statements of cash flows, in Note 103 — ~~Revenues,~~Accrued Expenses and Other Liabilities, and in Note 1514 — Operating Segments and Geographic Information to conform to current period presentation.

Use of Estimates

U.S. GAAP requires 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, and purchase price allocation for the Acquisition, as described in Note 16 — Acquisition of HEYDUDE, are reasonable based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our condensed consolidated financial statements may be materially affected.

~~Condensed Consolidated Statements of Cash Flows - Supplemental Schedule of Non-Cash Investing and Financing Activities~~

Nine Months Ended September 30,
2021 2020
(in thousands)
Accrued purchases of property, equipment, and software $ 13,061 $ 4,640

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2. RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncement Adopted

~~Simplifying Accounting for Income Taxes~~Business Combinations

In ~~December 2019,~~October 2021, the FASB issued new guidance primarily related to ~~simplify~~ the accounting for ~~income taxes by removing certain exceptions to the general principles~~contract assets and ~~also simplification of areas such as franchise taxes, intra-period income tax expense allocation exceptions, and~~liabilities from contracts with customers in a business combination. The standard will be effective for annual reporting periods beginning after December 31, 2022, including interim ~~recognition of enactment of tax laws or rate changes.~~reporting periods within those periods, with early adoption permitted. On January 1, ~~2021,~~2022, we early adopted this ~~guidance.~~guidance on a prospective basis. The adoption did not have a material ~~effect~~impact on our ~~condensed~~ consolidated financial statements.

New Accounting ~~Pronouncements~~Pronouncement Not Yet Adopted

~~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 revolving 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 condensed consolidated financial statements.

~~Other Pronouncements~~

~~Other new~~New pronouncements issued but not effective until after ~~September~~June 30, ~~2021~~2022 are not expected to have a material impact on our condensed consolidated financial statements.

3. ~~PROPERTY AND EQUIPMENT, NET~~

~~‘Property and equipment, net’ consists of the following:~~

September 30, 2021 December 31, 2020
(in thousands)
Leasehold improvements $ 68,734 $ 66,661
Machinery and equipment 52,486 47,107
Furniture, fixtures, and other 21,665 21,817
Construction-in-progress 37,028 8,187
Property and equipment 179,913 143,772
Less: Accumulated depreciation and amortization (88,595) (86,305)
Property and equipment, net $ 91,318 $ 57,467

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4. ACCRUED EXPENSES AND OTHER LIABILITIES

Amounts reported in ‘Accrued expenses and other liabilities’ in the condensed consolidated balance sheets were:


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(in thousands)					(in thousands)
Accrued compensation and benefits	Accrued compensation and benefits	$	47,353	$	48,870	Accrued compensation and benefits	$	53,241	$	62,945
Professional services	Professional services	28,567		18,478		Professional services	46,504		33,997
Fulfillment, freight, and duties	Fulfillment, freight, and duties	25,068		17,868		Fulfillment, freight, and duties	51,207		15,629
Sales/use and value added taxes payable	Sales/use and value added taxes payable	12,616		12,480		Sales/use and value added taxes payable	25,886		13,049
Return liabilities	Return liabilities	8,424		6,906		Return liabilities	16,773		10,342
Accrued rent and occupancy						Accrued rent and occupancy	9,391		7,431
Royalties payable and deferred revenue	Royalties payable and deferred revenue	6,004		6,254		Royalties payable and deferred revenue	8,152		7,425
Accrued rent and occupancy		6,602		3,818

Accrued legal fees	Accrued legal fees	6,139		1,078		Accrued legal fees	8,960		5,872
Other	Other	8,433		10,952		Other	22,640		10,197
Total accrued expenses and other liabilities	Total accrued expenses and other liabilities	$	149,206	$	126,704	Total accrued expenses and other liabilities	$	242,754	$	166,887

5.4. LEASES

Right-of-Use Assets and Operating Lease Liabilities

Amounts reported in the condensed consolidated balance sheets were:


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(in thousands)					(in thousands)
Assets:	Assets:					Assets:
Right-of-use assets	Right-of-use assets	$	170,957	$	167,421	Right-of-use assets	$	236,077	$	160,768
Liabilities:	Liabilities:					Liabilities:
Current operating lease liabilities	Current operating lease liabilities	$	45,248	$	47,064	Current operating lease liabilities	$	49,983	$	42,932
Long-term operating lease liabilities	Long-term operating lease liabilities	157,874		146,401		Long-term operating lease liabilities	217,586		149,237
Total operating lease liabilities	Total operating lease liabilities	$	203,122	$	193,465	Total operating lease liabilities	$	267,569	$	192,169

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Lease Costs and Other Information

Lease-related costs reported within ‘Cost of sales’ and ‘Selling, general and administrative expenses’ in our condensed consolidated statements of operations were:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands)									(in thousands)
Operating lease cost	Operating lease cost	$	14,309	$	15,605	$	44,067	$	45,818	Operating lease cost	$	16,656	$	14,926	$	30,887	$	29,758
Short-term lease cost	Short-term lease cost	2,095		1,274		5,499		3,936		Short-term lease cost	2,371		1,963		5,003		3,404
Variable lease cost	Variable lease cost	10,568		5,728		24,875		11,502		Variable lease cost	12,013		10,659		16,565		14,307
Total lease costs	Total lease costs	$	26,972	$	22,607	$	74,441	$	61,256	Total lease costs	$	31,040	$	27,548	$	52,455	$	47,469

Other information related to leases, including supplemental cash flow information, consists of:


		Nine Months Ended September 30,					Six Months Ended June 30,
		2021		2020			2022		2021
		(in thousands)					(in thousands)
Cash paid for operating leases	Cash paid for operating leases	$	46,345	$	41,043	Cash paid for operating leases	$	29,411	$	31,910
Right-of-use assets obtained in exchange for operating lease liabilities	Right-of-use assets obtained in exchange for operating lease liabilities	52,145		54,218		Right-of-use assets obtained in exchange for operating lease liabilities	52,837		43,582

~~Table of Contents~~

The weighted average remaining lease term and discount rate related to our lease liabilities as of ~~September~~June 30, ~~2021~~2022 were ~~7.1~~7.5 years and ~~3.9%~~3.6%, respectively. As of ~~September~~June 30, ~~2020,~~2021, the weighted average remaining lease term and discount rate related to our lease liabilities were ~~6.7~~7.3 years and ~~4.4%~~3.9%, respectively.

Maturities

The maturities of our operating lease liabilities were:

As of
September 30, 2021
(in thousands)
2021 (remainder of year) $ 9,631
2022 49,292
2023 37,690
2024 25,216
2025 19,023
Thereafter 92,364
Total future minimum lease payments 233,216
Less: imputed interest (30,094)
Total operating lease liabilities $ 203,122

~~Leases That Have Not Yet Commenced~~

As of September 30, 2021, we had significant obligations for a lease not yet commenced related to the expansion of our Americas distribution center in Dayton, Ohio. The total contractual commitment related to the lease, with payments expected to begin in the first quarter of 2022 and continue through September 2032, is approximately $39 million.


	As of June 30, 2022
	(in thousands)
2022 (remainder of year)	$	25,568
2023	54,625
2024	40,768
2025	29,934
2026	27,413
Thereafter	130,510
Total future minimum lease payments	308,818
Less: imputed interest	(41,249)
Total operating lease liabilities	$	267,569

6.5. FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

All of our derivative instruments are classified as Level 2 of the fair value hierarchy and are reported in the condensed consolidated balance sheets within either ‘Prepaid expenses and other assets’ ~~and~~or ‘Accrued expenses and other liabilities’ at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021. The fair values of our derivative instruments were an ~~immaterial~~insignificant asset at ~~September~~June 30, ~~2021~~2022 and an ~~immaterial~~insignificant liability at December 31, ~~2020.~~2021. See Note 76 — Derivative Financial Instruments for more information.

The carrying amounts of our cash, cash equivalents, and ~~current~~ 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.

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Our borrowing instruments are recorded at their carrying values in the condensed consolidated balance sheets, which may differ from their respective fair values. InDuring the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we ~~completed~~entered into a credit agreement for a term loan B facility in the ~~issuance and sale of $350.0 million~~ aggregate principal amount of ~~2029 Notes (as defined below) and $350.0 million aggregate principal amount of 2031 Notes (as defined below)~~$2.0 billion (the “Term Loan B Facility”), as described in more detail in Note 87 — ~~Long-Term~~ Borrowings. The Term Loan B Facility is classified as Level 1 of the fair value hierarchy. The Notes (as defined below) are also classified as Level 1 of the fair value hierarchy and are reported in our condensed consolidated balance sheet at face value, less unamortized issuance costs. The ~~carrying and~~ fair values of our revolving credit facilities approximate their carrying values at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 based on interest rates currently available to us for similar borrowings. The carrying value and fair value of our borrowing instruments as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were:

September 30, 2021 December 31, 2020
Carrying Value Fair Value Carrying Value Fair Value
(in thousands)
Senior notes due 2029 $ 350,000 $ 360,719 $ — $ —
Senior notes due 2031 350,000 354,375 — —
Revolving credit facilities — — 180,000 180,000


	June 30, 2022				December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Term Loan B Facility	$	1,995,000	$	1,825,425	$	—	$	—
2029 Notes	350,000		259,656		350,000		346,281
2031 Notes	350,000		246,750		350,000		341,250
Revolving credit facilities	130,000		130,000		85,000		85,000

~~Table of Contents~~

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 are determined, as required, 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. Impairment expense is reported in ‘Selling, general and administrative expenses’ in our condensed consolidated statements of operations. We did not record impairment expense in the three and nine months ended September 30, 2021. Additionally, no impairment expense was recorded in the three or nine months ended September 30, 2020.

7.6. 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 that 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 ~~September~~June 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

Our derivative instruments are recorded at fair value as a derivative asset or liability in the condensed 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),~~losses, net’ in the condensed consolidated statements of operations. For the condensed 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.’

Results of Derivative Activities

The fair values of derivative assets and liabilities, net, all of which are classified as Level 2, reported within either ‘Accrued expenses and other liabilities’ or ‘Prepaid expenses and other assets’ in the condensed consolidated balance sheets, were:


		September 30, 2021				December 31, 2020					June 30, 2022				December 31, 2021
		Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities			Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
		(in thousands)									(in thousands)
Forward foreign currency exchange contracts	Forward foreign currency exchange contracts	$	1,168	$	(843)	$	794	$	(1,225)	Forward foreign currency exchange contracts	$	339	$	(113)	$	724	$	(938)
Netting of counterparty contracts	Netting of counterparty contracts	(843)		843		(794)		794		Netting of counterparty contracts	(113)		113		(724)		724
Foreign currency forward contract derivatives	Foreign currency forward contract derivatives	$	325	$	—	$	—	$	(431)	Foreign currency forward contract derivatives	$	226	$	—	$	—	$	(214)

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The notional amounts of outstanding foreign currency forward exchange contracts presented below report the total U.S. Dollar equivalent position and the net contract fair values for each foreign currency position.


		September 30, 2021				December 31, 2020					June 30, 2022				December 31, 2021
		Notional		Fair Value		Notional		Fair Value			Notional		Fair Value		Notional		Fair Value
		(in thousands)									(in thousands)
Singapore Dollar										Singapore Dollar	$	51,851	$	(85)	$	43,723	$	(296)
British Pound Sterling										British Pound Sterling	18,861		2		25,795		104
Euro	Euro	$	23,972	$	130	$	28,851	$	(82)	Euro	28,428		43		21,198		162
Singapore Dollar		42,200		(131)		24,211		457
South Korean Won										South Korean Won	18,057		(28)		14,201		(112)
Japanese Yen										Japanese Yen	12,877		54		12,910		80
Indian Rupee	Indian Rupee	15,735		(179)		18,937		(134)		Indian Rupee	21,285		229		10,379		(86)
Japanese Yen		25,498		129		17,447		(240)
British Pound Sterling		14,138		90		16,134		(182)
South Korean Won		31,401		411		3,741		(56)
Other currencies	Other currencies	13,349		(125)		9,675		(194)		Other currencies	1,345		11		19,481		(66)
Total	Total	$	166,293	$	325	$	118,996	$	(431)	Total	$	152,704	$	226	$	147,687	$	(214)

Latest maturity date	Latest maturity date	October 2021				January 2021				Latest maturity date	September 2022				January 2022

Amounts reported in ‘Foreign currency ~~gains (losses),~~losses, net’ in the condensed consolidated statements of operations include both realized and unrealized gains (losses) from foreign currency transactions and derivative contracts and were:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands)									(in thousands)
Foreign currency transaction gains (losses)	Foreign currency transaction gains (losses)	$	493	$	(477)	$	148	$	223	Foreign currency transaction gains (losses)	$	(3,135)	$	506	$	(4,052)	$	(345)
Foreign currency forward exchange contracts gains (losses)	Foreign currency forward exchange contracts gains (losses)	44		(39)		(232)		(1,657)		Foreign currency forward exchange contracts gains (losses)	1,933		(623)		3,330		(276)
Foreign currency gains (losses), net		$	537	$	(516)	$	(84)	$	(1,434)
Foreign currency losses, net										Foreign currency losses, net	$	(1,202)	$	(117)	$	(722)	$	(621)

~~8. LONG-TERM~~7. BORROWINGS

Our long-term borrowings were as follows:


		Maturity	Stated Interest Rate		Effective Interest Rate		September 30, 2021		December 31, 2020			Maturity	Stated Interest Rate		Effective Interest Rate		June 30, 2022		December 31, 2021
							(in thousands)										(in thousands)
Notes issuance of $350.0 million	Notes issuance of $350.0 million	2029	4.250	%	4.64	%	$	350,000	$	—	Notes issuance of $350.0 million	2029	4.250	%	4.64	%	$	350,000	$	350,000
Notes issuance of $350.0 million	Notes issuance of $350.0 million	2031	4.125	%	4.35	%	350,000		—		Notes issuance of $350.0 million	2031	4.125	%	4.35	%	350,000		350,000
Term Loan B Facility											Term Loan B Facility	2029					1,995,000		—
Revolving credit facilities	Revolving credit facilities						—		180,000		Revolving credit facilities						130,000		85,000
Total face value of long-term borrowings	Total face value of long-term borrowings						700,000		180,000		Total face value of long-term borrowings						2,825,000		785,000
Less:	Less:										Less:
Unamortized issuance costs	Unamortized issuance costs						14,045		—		Unamortized issuance costs						61,493		13,610
Current portion of borrowings							—		—
Current portion of long-term borrowings (1)											Current portion of long-term borrowings (1)						20,000		—
Total long-term borrowings	Total long-term borrowings						$	685,955	$	180,000	Total long-term borrowings						$	2,743,507	$	771,390

(1) Represents the current portion of the borrowings on the Term Loan B facility.

At June 30, 2022 and December 31, 2021, $9.2 million and $10.4 million, respectively, of accrued interest related to our borrowings was reported in ‘Accounts payable’ in the condensed consolidated balance sheets.

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Senior Revolving Credit Facility

In July 2019, the Company 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,~~lenders. In February 2022, we amended the Credit Agreement, which, ~~provided~~as amended to date, provides for a revolving credit facility of ~~$500.0~~$600.0 million, which can be increased by an additional ~~$100.0~~$400.0 million subject to certain conditions (the ~~“Facility”~~“Revolving Facility”). Borrowings under the Credit Agreement bear interest at a variable interest rate based on (A) a ~~domestic base rate~~Base Rate (defined as the highest of (i) the ~~Federal Funds open rate,~~Overnight Bank Funding Rate (as defined in the Credit Agreement), plus 0.25%, (ii) the Prime Rate (as defined in the Credit Agreement), and (iii) the Daily ~~LIBOR rate,~~Simple SOFR (as defined in the Credit Agreement), plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio or 1.35% to 1.975% for the Daily Simple SOFR based on the leverage ratio, or (B) ~~a LIBOR rate,~~the Term SOFR Rate (as defined in the Credit Agreement), plus an applicable margin ranging from ~~1.25%~~1.35% to ~~1.875%~~1.975% based on our leverage ~~ratio.~~ratio for one-month interest periods and 1.40% to 2.025% based on our leverage ratio for three month interest periods. 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~~3.00 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~~4.00 to 1.00 from the quarter ended March 31, 2022 through, and including, the quarter ending December 31, 2023, (ii) 3.75 to 1.00 for the quarter ending March 31, 2024, (iii) 3.50 to 1.00 for the quarter ending June 30, 2024, and (iv) 3.25 to 1.00 for the quarter ending September 30, 2024 and thereafter (subject to adjustment in certain circumstances). The Credit Agreement permits, among other things, (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 ~~September~~June 30, ~~2021,~~2022, we were in compliance with all financial covenants under the Credit Agreement.

As of ~~September~~June 30, ~~2021,~~2022, the total commitments available from the lenders under the Revolving Facility were ~~$500.0~~$600.0 million. At ~~September~~June 30, ~~2021,~~2022, we had no$130.0 million in outstanding borrowings, which are due when the Revolving Facility matures in July 2024, and $0.3 million in outstanding letters of credit under the Revolving Facility, which reduces amounts available for borrowing under the Revolving Facility. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we had ~~$499.7~~$469.7 million and ~~$319.4~~$414.7 million, respectively, of available borrowing capacity under the Revolving Facility.

Term Loan B Facility

On February 17, 2022, the Company entered into a credit agreement (the “Term Loan B Credit Agreement”) with Citibank, N.A., as administrative agent and lender, to among other things, finance a portion of the cash consideration for the Acquisition.

The Term Loan B Credit Agreement provides for an aggregate term loan B facility in the principal amount of $2.0 billion (the “Term Loan B Facility”), which is secured by substantially all of the Company’s and each subsidiary guarantor’s assets on a pari passu basis with their obligations arising from the Credit Agreement and is scheduled to mature on February 17, 2029, subject to certain exceptions set forth in the Term Loan B Credit Agreement. Additionally, subject to certain conditions, including, without limitation, satisfying certain leverage ratios, the Company may, at any time, on one or more occasions, add one or more new classes of term facilities and/or increase the principal amount of the loans of any existing class by requesting one or more incremental term facilities.

Each term loan borrowing which is an alternate base rate borrowing bears interest at a rate per annum equal to the Alternate Base Rate (as defined in the Term Loan B Credit Agreement), plus 2.50%. Each term loan borrowing which is a term benchmark borrowing bears interest at a rate per annum equal to the Adjusted Term SOFR Rate (as defined in the Term Loan B Credit Agreement) plus 3.50%.

Outstanding principal under the Term Loan B Facility is payable on the last business day of each March, June, September and December, in a quarterly aggregate principal amount of $5.0 million. Quarterly aggregate principal payments began on June 30, 2022, with the remaining principal amount due on February 17, 2029, the maturity date. As of June 30, 2022, we had $1,995.0 million in outstanding principal and the Term Loan B Facility was fully drawn with no remaining borrowing capacity.

The Term Loan B Credit Agreement also contains customary affirmative and negative covenants, incurrence financial covenants, representations and warranties, events of default and other provisions. As of June 30, 2022, we were in compliance with all financial covenants under the Term Loan B Credit Agreement.

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Asia Revolving Credit Facilities

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we had 2 revolving credit facilities in Asia, ~~a revolving credit facility with Citibank (China) Company Limited, Shanghai Branch, which, as amended, provides up to an equivalent of $10.0 million, and a~~the revolving credit facility with China Merchants Bank Company Limited, Shanghai Branch (the “CMBC Facility”) which ~~matured in May 2021 and provided~~provides up to ~~30.0~~10.0 million RMB, or ~~$4.7~~$1.5 million ~~using~~at current exchange rates, asand matures in January 2023, and the revolving credit facility with Citibank (China) Company Limited, Shanghai Branch (the “Citibank Facility”), which provides up to an equivalent of ~~May 2021.~~$10.0 million.

As of June 30, 2022, we had borrowings outstanding of $0.5 million on the CMBC Facility, which are due in September 2022 and borrowings outstanding of $4.9 million on the Citibank Facility, which are due at various dates within the third quarter of 2022. We had no borrowings under our Asia revolving facilities during the ~~three or nine months ended September 30, 2021 and~~ year ended December 31, ~~2020~~2021 or ~~borrowings~~ outstanding at ~~September 30, 2021 and~~ December 31, ~~2020.~~2021.

Senior Notes ~~Issuance~~Issuances

OnIn March ~~12,~~ 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.250% Senior Notes due March 15, 2029 (the “2029 Notes”), pursuant to the indenture related thereto (“(as amended and/or supplemented to date, the ~~March~~“2029 Notes Indenture”). Additionally, onin August ~~10,~~ 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.125% Senior Notes due August 15, 2031 (the “2031 Notes”), pursuant to the indenture related thereto ~~(“the August~~(as amended and/or supplemented to date, “the 2031 Notes Indenture” and, together with the ~~March~~2029 Notes Indenture, the “Indentures” and, each, an “Indenture”). Interest on each of the 2029 Notes and the 2031 Notes (collectively, the “Notes”) is payable semi-annually.

The Company will have the option to redeem all or any portion of the 2029 Notes, at once or over time, at any time on or after March 15, 2024, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2029 Notes at any time before March 15, 2024 at a redemption price of 100% of the principal amount to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before March 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2029 Notes at a redemption price of 104.250% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

The Company will have the option to redeem all or any portion of the 2031 Notes, at once or over time, at any time on or after August 15, 2026, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the 2031 Notes at any time before August 15, 2026 at a redemption price of 100% of the principal amount to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before August 15, 2024, the Company may redeem up to 40% of the aggregate

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principal amount of the 2031 Notes at a redemption price of 104.125% of the principal amount with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

The Notes rank pari passu in right of payment with all of the Company’s existing and future senior debt, including the Credit Agreement, and are senior in right of payment to any of the Company’s future debt that is, by its term, expressly subordinated in right of payment to the Notes. The Notes are unconditionally guaranteed by each of the Company’s restricted subsidiaries that is a borrower or guarantor under the Credit Agreement and by each of the Company’s wholly-owned restricted subsidiaries that guarantees any debt of the Company or any guarantor under any syndicated credit facility or capital markets debt in an aggregate principal amount in excess of $25.0 million.

The Indentures contain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to incur additional debt or issue certain preferred stock; pay dividends or repurchase or redeem capital stock or make other restricted payments; declare or pay dividends or other payments; incur liens; enter into certain types of transactions with the Company’s affiliates; and consolidate or merge with or into other companies. As of ~~September~~June 30, ~~2021,~~2022, we were in compliance with all financial covenants under the Notes.

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9.8. COMMON STOCK REPURCHASE PROGRAM

During the three and six months ended ~~September~~June 30, 2022, we did not repurchase shares of our common stock.

During the three months ended June 30, 2021, we repurchased ~~1.1~~2.9 million shares of our common stock at a cost of ~~$150.0~~$300.0 million, including ~~commissions.~~commissions, under a $300.0 million April 2021 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. During the ~~nine~~six months ended ~~September~~June 30, 2021, we repurchased ~~5.1~~4.0 million shares of our common stock at an aggregate cost of ~~$500.0~~$350.0 million, including commissions. This ~~includes~~included 0.5 million shares received in January 2021 at the conclusion of the purchase period for an accelerated share repurchase agreement we entered into in November 2020.

During the three months ended September 30, 2020, we did not repurchase shares of our common stock to preserve maximum liquidity and flexibility as a result of the COVID-19 pandemic. During the nine months ended September 30, 2020, we repurchased 1.6 million shares of our common stock at a cost of $39.2 million, including commissions.

~~During the third quarter of 2021, the Board of Directors (the “Board”) approved a $1,000.0 million increase to our share repurchase authorization.~~ As of ~~September~~June 30, ~~2021,~~2022, we had remaining authorization to repurchase approximately ~~$1,550.0~~$1,050.0 million of our common stock, subject to restrictions under our ~~Notes~~Indentures, Credit Agreement, and Term Loan B Credit Agreement.

In September 2021, we entered into an accelerated share repurchase arrangement (“ASR”) to repurchase $500.0 million of our common stock. In exchange for an up-front payment of $500.0 million in October 2021, the financial institution that was party to the ASR committed to deliver us shares of our common stock during the ASR’s purchase period, which ends in December 2021.

9. REVENUES

Revenues by channel and brand were:

Second Quarter


	Three Months Ended June 30, 2022
	Crocs Brand		HEYDUDE Brand		Total
	(in thousands)
Channel:
Wholesale	$	392,511	$	162,499	$	555,010
Direct-to-consumer	339,705		69,866		409,571
Total revenues	$	732,216	$	232,365	$	964,581


	Three Months Ended June 30, 2021
	Crocs Brand		HEYDUDE Brand		Total
	(in thousands)
Channel:
Wholesale	$	307,327	$	—	$	307,327
Direct-to-consumer	333,446		—		333,446
Total revenues	$	640,773	$	—	$	640,773

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~~10. REVENUES~~Year to Date


	Six Months Ended June 30, 2022
	Crocs Brand		HEYDUDE Brand		Total
	(in thousands)
Channel:
Wholesale	$	736,768	$	249,418	$	986,186
Direct-to-consumer	540,673		97,870		638,543


Total revenues	$	1,277,441	$	347,288	$	1,624,729

~~Revenues~~


	Six Months Ended June 30, 2021
	Crocs Brand		HEYDUDE Brand		Total
	(in thousands)
Channel:
Wholesale	$	597,366	$	—	$	597,366
Direct-to-consumer	503,505		—		503,505


Total revenues	$	1,100,871	$	—	$	1,100,871

For information on revenues by reportable operating segment, see Note 14 — Operating Segments and ~~by channel were:~~

~~Third Quarter~~

Three Months Ended September 30, 2021
Americas Asia Pacific EMEA Unallocated Corporate and Other Total
(in thousands)
Channel:
Wholesale $ 213,321 $ 37,207 $ 59,058 $ 25 $ 309,611
Direct-to-consumer (1)
242,587 46,438 27,283 — 316,308
Total revenues $ 455,908 $ 83,645 $ 86,341 $ 25 $ 625,919

Three Months Ended September 30, 2020
Americas Asia Pacific EMEA Unallocated Corporate and Other Total
(in thousands)
Channel:
Wholesale $ 98,025 $ 28,842 $ 37,630 $ 14 $ 164,511
Direct-to-consumer (1)
136,022 38,862 22,341 — 197,225
Total revenues $ 234,047 $ 67,704 $ 59,971 $ 14 $ 361,736

~~(1)~~ Direct-to-consumer revenues consist of sales generated through our company-operated retail stores (previously our “Retail” channel) and company-operated e-commerce websites and third-party e-commerce marketplaces (previously our “E-commerce” channel).

~~Full Year to Date~~

Nine Months Ended September 30, 2021
Americas Asia Pacific EMEA Other Businesses Total
(in thousands)
Channel:
Wholesale $ 526,164 $ 158,098 $ 222,643 $ 73 $ 906,978
Direct-to-consumer (1)
611,833 134,973 73,006 — 819,812
Total revenues $ 1,137,997 $ 293,071 $ 295,649 $ 73 $ 1,726,790

Nine Months Ended September 30, 2020
Americas Asia Pacific EMEA Other Businesses Total
(in thousands)
Channel:
Wholesale $ 256,258 $ 109,705 $ 136,507 $ 106 $ 502,576
Direct-to-consumer (1)
297,097 117,031 57,741 — 471,869
Total revenues $ 553,355 $ 226,736 $ 194,248 $ 106 $ 974,445

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During the three and nine months ended September 30, 2021, we recognized no changes to estimates for wholesale or direct-to-consumer revenues. During the three and nine months ended September 30, 2020, we recognized increases of $0.1 million and $0.6 million, respectively, to wholesale revenues and $1.1 million to direct-to-consumer revenues due to changes in estimates related to products transferred to customer in prior periods.

~~There were no material changes in contract liabilities or refund liabilities in the three or nine months ended September 30, 2021 or 2020.~~Geographic Information.

~~11.~~10. SHARE-BASED COMPENSATION

Our share-based compensation awards are issued under the 2020 Equity Incentive Plan (“2020 Plan”) and a predecessor plan, the 2015 Equity Incentive Plan (“2015 Plan”). Any awards that expire or are forfeited under the 2015 Plan become available for issuance under the 2020 Plan.

~~Pre-tax share-based~~Share-based compensation expense reported in our condensed consolidated statements of operations was:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands)
Cost of sales $ 147 $ 39 $ 384 $ 78
Selling, general and administrative expenses 10,444 4,828 29,555 10,731
Total share-based compensation expense $ 10,591 $ 4,867 $ 29,939 $ 10,809

On January 11, 2021, our Board awarded 0.4 million market-condition restricted stock units (“RSUs”) to certain senior executives. For the executives to earn the target number of shares, the 30 trading day average of the daily volume weighted average trading price of the common stock must meet or exceed certain performance hurdles. Any earned shares will also be subject to time vesting. When a performance hurdle is met or exceeded, one third of the earned portion of the RSUs will vest immediately, and the remaining two thirds will be subject to the executive’s continued employment, with one third vesting one year later and the remaining one third vesting two years later, but in no case later than the fourth anniversary of the award, in each case, subject to certain change in control provisions.

The grant date fair value and derived service period for the market-condition RSUs granted on January 11, 2021 (“January market-condition RSUs”) were estimated using a Monte Carlo simulation valuation model. The grant date fair value for the January market-condition RSUs was $21.9 million. As of September 30, 2021, unrecognized share-based compensation for the January market-condition RSUs, which are expected to be recognized through August 2024 based on the Monte Carlo valuation model, was $9.2 million.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in thousands)
Cost of sales	$	153	$	151	$	264	$	237
Selling, general and administrative expenses	9,147		11,143		17,311		19,111
Total share-based compensation expense	$	9,300	$	11,294	$	17,575	$	19,348

~~12.~~11. INCOME TAXES

Income tax expense and effective tax rates were:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
		2021			2020			2021			2020				2022			2021			2022			2021
		(in thousands, except effective tax rate)													(in thousands, except effective tax rate)
Income before income taxes	Income before income taxes	$	197,736		$	70,084		$	510,890		$	143,556		Income before income taxes	$	214,304		$	190,566		$	313,364		$	313,154
Income tax expense (benefit)	Income tax expense (benefit)	44,247			8,195			(59,951)			14,025			Income tax expense (benefit)	53,989			(128,388)			80,289			(104,198)
Effective tax rate	Effective tax rate	22.4		%	11.7		%	(11.7)		%	9.8		%	Effective tax rate	25.2		%	(67.4)		%	25.6		%	(33.3		%)

The increase in the effective tax rate for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, was primarily driven by the prior year release of valuation allowances resulting from the enactment of a tax expense recorded in profitable jurisdictions, partially offset by the utilization of deferred tax assets which were subject to a valuation allowance, and by operating losses in certain jurisdictions where we had determined that it is not more likely than not to realize the associated tax benefits.law change. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate ~~primarily~~ due to ~~the release of valuation allowances, as well as~~ differences in income tax rates between U.S. and foreign jurisdictions. We had unrecognized tax benefits of ~~$193.6~~$211.6 million and ~~$206.2 million at September~~

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$218.4 million at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, and we do not expect any significant changes in tax benefits in the next twelve months.

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, income tax expense ~~decreased $74.0~~increased $184.5 million compared to the same period in ~~2020.~~2021. The effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~-11.7%~~25.6% compared to an effective tax rate of ~~9.8%~~(33.3)% for the same period in ~~2020,~~2021, a ~~21.5% decrease.~~58.9% increase. This ~~decrease~~increase in the effective rate was primarily driven ~~primarily~~ by the ~~release~~prior year realization of deferred tax assets which were subject to a valuation ~~allowances.~~allowance which did not reoccur in the current year. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate primarily due to ~~the release of valuation allowances, as well as~~ differences in income tax rates between U.S. and foreign jurisdictions.

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, 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. During the three months ended June 30, 2021, a jurisdiction for which we have historically recorded significant valuation allowances enacted a favorable change in the tax law related to net operating loss carryforwards. The change in tax law impacted the assessment of valuation allowances in the jurisdiction as the reversal of existing deferred tax assets would generate indefinite carryforward net operating losses instead of losses with a limited carryforward period. The release of the valuation allowance resulting from the tax law change was recorded as a discrete tax benefit of $176.9 million during the three months ended June 30, 2021.

Our tax rate is volatile and may increase or decrease with changes in, among other things, the amount of income or loss by jurisdiction, our ability to utilize net operating losses and foreign tax credits, changes in tax laws, and the movement of liabilities established pursuant to accounting guidance for uncertain tax positions as statutes of limitations expire, positions are effectively settled, or when additional information becomes available. There are proposed or pending tax law changes in various jurisdictions and other changes to regulatory environments in countries in which we do business that, if enacted, may have an impact on our effective tax rate, including federal corporate tax increases currently contemplated in the U.S.

~~13.~~12. EARNINGS PER SHARE

Basic and diluted earnings per common share (“EPS”) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands, except per share data)									(in thousands, except per share data)
Numerator:	Numerator:									Numerator:
Net income	Net income	$	153,489	$	61,889	$	570,841	$	129,531	Net income	$	160,315	$	318,954	$	233,075	$	417,352
Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	62,033		67,473		63,695		67,606		Weighted average common shares outstanding - basic	61,590		63,595		60,712		64,526
Plus: Dilutive effect of stock options and unvested restricted stock units	Plus: Dilutive effect of stock options and unvested restricted stock units	1,291		912		1,242		1,002		Plus: Dilutive effect of stock options and unvested restricted stock units	646		1,045		859		1,218
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	63,324		68,385		64,937		68,608		Weighted average common shares outstanding - diluted	62,236		64,640		61,571		65,744

Net income per common share:	Net income per common share:									Net income per common share:
Basic	Basic	$	2.47	$	0.92	$	8.96	$	1.92	Basic	$	2.60	$	5.02	$	3.84	$	6.47
Diluted	Diluted	$	2.42	$	0.91	$	8.79	$	1.89	Diluted	$	2.58	$	4.93	$	3.79	$	6.35

~~For~~In the three ~~and nine~~ months ended ~~September~~June 30, 2022 and 2021, 0.4 million and an ~~aggregate~~insignificant number of ~~less than 0.1 million options~~outstanding shares, respectively, issued under share-based compensation awards were anti-dilutive and, ~~restricted stock units (“RSUs”) were~~therefore, excluded from the calculation of diluted ~~EPS because~~EPS. In the ~~effect was anti-dilutive. For the three~~six months ended June 30, 2022 and ~~nine months~~

~~Table~~2021, 0.2 million and an insignificant number of ~~Contents~~

~~ended September 30, 2020, an aggregate of less than 0.1 million options~~outstanding shares, respectively, issued under share-based compensation awards were anti-dilutive and, ~~RSUs were~~therefore, excluded from the calculation of diluted ~~EPS because the effect was anti-dilutive.~~EPS.

~~14.~~13. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of ~~September~~June 30, ~~2021,~~2022, we had purchase commitments to third-party manufacturers, primarily for materials and supplies used in the manufacture of our products, for an aggregate of ~~$141.0~~$348.6 million. 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 United States and several foreign jurisdictions, including customs duties, import, and other taxes for prior tax years.

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During our normal course of business, we may make certain indemnities, commitments, and guarantees under which we may be required to make payments. We cannot determine a range of estimated future payments and have not recorded any liability for indemnities, commitments, and guarantees in the accompanying condensed consolidated balance sheets.

See Note 1615 — Legal Proceedings for further details regarding potential loss contingencies related to government tax audits and other current legal proceedings.

~~15.~~14. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION

WeCrocs, Inc. has 4 reportable operating segments. For the Crocs Brand, we have 3 reportable operating segments based on the geographic nature of our operations: ~~Americas,~~North America, Asia Pacific, and ~~EMEA.~~EMEALA. Beginning in the three months ended March 31, 2022, our HEYDUDE Brand also became a reportable segment on the Acquisition Date. Each of the reportable operating segments derives its revenues from the sale of footwear and accessories to external customers.

~~Segment~~Additionally, Crocs ‘Brand corporate’ costs represent operating expense that includes product creation, design, and marketing expenses centrally managed for the Crocs Brand, as well as certain royalty income. Crocs Brand corporate costs are included within the Crocs Brand for presentation purposes to align with the way management views the Company. ‘Enterprise corporate’ costs include global corporate costs associated with both brands, including legal, information technology, human resources, and finance, as well as costs associated with global digital operations.

Each segment’s performance is evaluated based on segment results without allocating Brand corporate ~~expenses,~~ or ~~indirect general, administrative, and other~~Enterprise corporate 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 unallocated brand and enterprise corporate and other expenses, as well as inter-segment eliminations.

In the three months ended March 31, 2021, certain costs previously reported within ‘Other Businesses’ were shifted to the Americas, Asia Pacific, and EMEA segments, as applicable, to reflect changes in the way management evaluates segment performance, makes operating decisions, and allocates resources. Additionally, any costs remaining in ‘Other Businesses,’ including depreciation and amortization, had been consolidated into ‘Unallocated corporate and other.’ The previously reported amounts for income from operations for the three and nine months ended September 30, 2020 have been revised to conform to current period presentation, as shown in the following tables.

In the three months ended June 30, 2021, to reflect changes in the way management evaluates segment performance, makes operating decisions, and allocates resources, and as a response to our incremental investments in marketing in line with our growth, certain marketing expenses previously reported within ‘Unallocated corporate and other’ were shifted to the Americas, Asia Pacific, and EMEA segments, as applicable, to better align these investments with segment profitability. The previously reported amounts for income from operations for the three and nine months ended September 30, 2020 have been revised to conform to current period presentation, as shown in the following tables.

We do not report asset information by segment because that information is not used to evaluate performance or allocate resources between segments.

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The following tables set forth information related to reportable operating segments:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands)
Revenues:
Americas $ 455,908 $ 234,047 $ 1,137,997 $ 553,355
Asia Pacific 83,645 67,704 293,071 226,736
EMEA 86,341 59,971 295,649 194,248
Total segment revenues 625,894 361,722 1,726,717 974,339
Unallocated corporate and other (2)
25 14 73 106
Total consolidated revenues $ 625,919 $ 361,736 $ 1,726,790 $ 974,445
Income from operations:
Americas (1)
$ 232,832 $ 100,827 $ 541,680 $ 192,019
Asia Pacific (1)
16,361 10,688 70,492 29,881
EMEA (1)
27,007 16,063 100,439 55,894
Total segment income from operations 276,200 127,578 712,611 277,794
Reconciliation of total segment income from operations to income before income taxes:
Unallocated corporate and other (1)(2)
(73,132) (55,492) (189,535) (128,301)
Income from operations 203,068 72,086 523,076 149,493
Foreign currency gains (losses), net 537 (516) (84) (1,434)
Interest income 615 43 713 189
Interest expense (6,486) (1,502) (12,830) (5,593)
Other income (expense), net 2 (27) 15 901
Income before income taxes $ 197,736 $ 70,084 $ 510,890 $ 143,556
Depreciation and amortization:
Americas $ 3,055 $ 904 $ 4,823 $ 2,654
Asia Pacific 449 288 1,061 853
EMEA 678 195 1,007 534
Total segment depreciation and amortization 4,182 1,387 6,891 4,041
Unallocated corporate and other (1)(2)
3,901 5,365 16,941 16,210
Total consolidated depreciation and amortization $ 8,083 $ 6,752 $ 23,832 $ 20,251


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in thousands)
Revenues:
North America (1)	$	422,936	$	393,152	$	742,386	$	660,419
Asia Pacific	148,889		126,834		244,737		209,426
EMEALA (1)	160,377		120,778		290,297		230,978
Brand corporate (2)	14		9		21		48
Total Crocs Brand	732,216		640,773		1,277,441		1,100,871
HEYDUDE Brand (3)	232,365		—		347,288		—
Total consolidated revenues	$	964,581	$	640,773	$	1,624,729	$	1,100,871
Income from operations:
North America (1)	$	177,363	$	188,180	$	306,974	$	300,873
Asia Pacific	51,432		32,016		81,537		54,131
EMEALA (1)	53,385		41,388		88,314		81,407
Brand corporate (2)	(28,259)		(21,393)		(58,968)		(41,401)
Total Crocs Brand	253,921		240,191		417,857		395,010
HEYDUDE Brand (3)	41,666		—		57,324		—
Reconciliation of total segment income from operations to income before income taxes:

Enterprise corporate (2)	(47,623)		(44,869)		(108,540)		(75,002)
Income from operations	247,964		195,322		366,641		320,008
Foreign currency losses, net	(1,202)		(117)		(722)		(621)
Interest income	86		71		188		98
Interest expense	(32,963)		(4,712)		(52,215)		(6,344)
Other income (expense), net	419		2		(528)		13
Income before income taxes	$	214,304	$	190,566	$	313,364	$	313,154

Depreciation and amortization:
North America (1)	$	2,589	$	806	$	4,809	$	1,731
Asia Pacific	497		325		1,020		612
EMEALA (1)	696		182		1,420		366
Brand corporate (2)	179		2,726		365		5,475
Total Crocs Brand	3,961		4,039		7,614		8,184
HEYDUDE Brand (3)	2,806		—		5,250		—

Enterprise corporate (2)	2,092		3,656		3,890		7,565
Total consolidated depreciation and amortization	$	8,859	$	7,695	$	16,754	$	15,749

(1) In the first quarter of ~~2021,~~2022, certain ~~costs~~revenues and expenses associated with our Latin America businesses previously reported ~~within ‘Other Businesses’~~in our ‘Americas’ segment were shifted into the ‘EMEA’ segment to ~~the Americas, Asia Pacific,~~better align with how we manage our distributor business. To reflect this change, we renamed our ‘Americas’ segment to ‘North America’ and ~~EMEA segments. Additionally, any costs remaining in ‘Other Businesses,~~renamed our ‘EMEA’ segment to ‘EMEALA.’ ~~including depreciation and amortization, have been consolidated into ‘Unallocated corporate and other.’ In~~As a result of these changes, the ~~second quarter of 2021, certain marketing expenses previously reported within ‘Unallocated corporate and other’ were shifted to the Americas, Asia Pacific, and EMEA segments. The~~ previously reported amounts for revenues, income from operations, and depreciation and amortization for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 have been revised to conform to current period presentation. See the ‘Impacts of segment composition change’ ~~and ‘Impacts of marketing expense allocations’ tables~~table below for more information.

(2) ~~Unallocated~~In the first quarter of 2022, as a result of the Acquisition, all costs previously reported in “Unallocated corporate and ~~other primarily includes corporate support and administrative functions, certain royalty income,~~other” were recast between ‘Brand corporate’ costs associated with ~~share-based compensation, research~~the Crocs Brand and ~~development, brand marketing, legal,~~‘Enterprise corporate’ costs, each of which is defined in the section preceding the above table. As a result of these changes, the previously reported amounts for income from operations and depreciation

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and amortization for the three and six months ended June 30, 2021 have been revised to conform to current period presentation. See the ‘Impacts of ~~corporate~~brand vs. enterprise recast’ table below for more information.

(3) We acquired HEYDUDE on February 17, 2022 and ~~other assets not allocated~~in connection therewith added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the partial period beginning on the Acquisition Date through June 30, 2022, and there are no comparative amounts for the three and six months ended June 30, 2021.

Impact to ~~operating segments.~~Second Quarter 2021, Third Quarter 2021, full year 2021, and full year 2020 of segment composition changes:

Impacts of segment composition change associated with Latin America:


	Second Quarter 2021				Third Quarter 2021
	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021		Year Ended December 31, 2021		Year Ended December 31, 2020
	(in thousands)
Impact on revenues:
Americas (now “North America”)	$	(12,528)	$	(21,670)	$	(18,162)	$	(39,832)	$	(53,121)	$	(31,073)
EMEA (now “EMEALA”)	12,528		21,670		18,162		39,832		53,121		31,073

Impact on income from operations:
Americas (now “North America”)	$	(4,601)	$	(7,975)	$	(8,714)	$	(16,689)	$	(22,587)	$	(9,599)
EMEA (now “EMEALA”)	4,601		7,975		8,714		16,689		22,587		9,599

Impact on depreciation and amortization:
Americas (now “North America”)	$	(19)	$	(37)	$	(20)	$	(57)	$	(78)	$	(75)
EMEA (now “EMEALA”)	19		$	37	20		57		78		75

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Impacts of ~~segment composition change:~~brand vs. enterprise recast:

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
(in thousands)
Impacts on income from operations:
Americas $ (6,334) $ (22,392)
Asia Pacific (1,683) (1,866)
EMEA (140) 2,550
Total impact on segment income from operations $ (8,157) $ (21,708)
Unallocated corporate and other $ 8,157 $ 21,708

~~Impacts of marketing expense allocations:~~

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
(in thousands)
Impacts on income from operations:
Americas $ (2,734) $ (6,404)
Asia Pacific (2,223) (8,589)
EMEA (550) (1,408)
Total impact on segment income from operations $ (5,507) $ (16,401)
Unallocated corporate and other $ 5,507 $ 16,401


	Second Quarter 2021				Third Quarter 2021
	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021		Year Ended December 31, 2021		Year Ended December 31, 2020
	(in thousands)
Impacts on income from operations:
Brand corporate	$	(21,393)	$	(41,401)	$	(27,992)	$	(69,393)	$	(100,391)	$	(92,833)
Enterprise corporate	(44,869)		(75,002)		(45,140)		(120,142)		(178,330)		(115,299)

Unallocated corporate and other	66,262		116,403		73,132		189,535		278,721		208,132

Impacts on depreciation and amortization:
Brand corporate	$	2,726	$	5,475	$	135	$	5,610	$	5,827	$	8,473
Enterprise corporate	3,656		7,565		3,766		11,331		15,045		13,750

Unallocated corporate and other	(6,382)		(13,040)		(3,901)		(16,941)		(20,872)		(22,223)

~~16.~~15. 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 $2.6 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 $6.1 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 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. The tax authorities have appealed that decision, and we filed a response to the tax authorities’ appeal as well as a separate appeal against the unfavorable portion of the ruling. Taking current rulings into consideration, we estimate the remaining principal for these assessments to be $4.6 million at current exchange rates, plus interest and penalties. Should the Brazilian Tax Authority prevail in these final administrative appeals, we may challenge the assessments through the court system, which would likely require the posting of a bond. We have not recorded these items within the condensed 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~~legal claims and disputes, we have accrued insignificant estimated losses ~~of $0.9 million~~ within ‘Accrued expenses and other liabilities’ in the condensed consolidated balance sheet as of ~~September~~June 30, ~~2021.~~2022. As we are able, we estimate reasonably possible losses or a range of reasonably possible losses. As of ~~September~~June 30, ~~2021,~~2022, we estimated that reasonably possible losses associated with these claims and other disputes could potentially exceed amounts accrued by ~~approximately $0.6 million.~~an insignificant amount.

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.

16. ACQUISITION OF HEYDUDE

On February 17, 2022, (the “Acquisition Date”), we acquired 100% of the equity of HEYDUDE, pursuant to the SPA. HEYDUDE is engaged in the business of distributing and selling casual footwear under the brand name “HEYDUDE.” The Acquisition allows us to diversify and expand our business by adding a second brand to the Crocs portfolio.

The aggregate preliminary purchase price at the closing of the Acquisition was $2.3 billion. We paid aggregate consideration of $2.05 billion in cash (the “Cash Consideration”), subject to adjustment based on, among other things, the cash, indebtedness, transaction expenses, and working capital of the companies comprising HEYDUDE and their respective subsidiaries as of the Acquisition Date, and issued 2,852,280 shares of the Company’s common stock to one of the sellers (the “Equity Consideration Shares”). The Equity Consideration Shares are subject to a lock-up period beginning on the Acquisition Date and continuing to, and including, the date that is 12 months after the Acquisition Date, provided that (a) on the date that is six months after the Acquisition Date, 50% of the Equity Consideration Shares will be released from the lock-up, and (b) on the date that is twelve months after the Acquisition Date, the remaining 50% of the Equity Consideration Shares will be released from the lock-up. In the three months ended June 30, 2022, the purchase price paid to the sellers was finalized.

The Cash Consideration was financed via the Company’s entry into the $2.0 billion Term Loan B Facility and $50.0 million of borrowings under the Revolving Facility. As a result of the Acquisition, HEYDUDE has become wholly owned by Crocs. Accordingly, the results of HEYDUDE are included in our condensed consolidated financial statements from the Acquisition Date and are reported in the HEYDUDE operating segment. HEYDUDE contributed revenue of $347.3 million and income from operations of $57.3 million from the Acquisition Date through June 30, 2022.

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Purchase Price Allocation

The Acquisition was accounted for in accordance with the ASC Topic 805 Business Combinations. As a result, we have applied acquisition accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their estimated fair values as of the Acquisition Date. For certain assets and liabilities, those fair values were consistent with historical carrying values. The fair value of inventory was determined using both a market approach and a cost approach.With respect to intangible assets, the estimated fair value was based on the Multi Period Excess Earnings approach for the trademark and the distributor method for the customer relationships. These models used primarily Level 2 and Level 3 inputs, including an estimate of future revenues, future cash flows, and discount rates.

The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the Acquisition Date:


	February 17, 2022
	(in thousands)
Cash and cash equivalents	$	6,232
Accounts receivable, net	69,031
Inventories (1)	176,000
Prepaid expenses and other assets	2,977
Intangible assets (2)	1,780,000
Goodwill (3)	712,668
Right-of-use assets	2,844
Accounts payable	(28,388)
Accrued expenses and other liabilities (4)	(38,780)
Income taxes payable (5)	(30,572)
Long-term deferred tax liability (5)	(312,656)
Long-term income taxes payable (5)	(13,004)
Operating lease liabilities	(2,843)
Net assets acquired (6)	$	2,323,509

(1) Includes an increase of $4.7 million due to a valuation adjustment during the three months ended June 30, 2022.

(2) Includes a decrease of $90.0 million due to a valuation adjustment during the three months ended June 30, 2022 related to customer relationships.

(3) During the three months ended June 30, 2022, goodwill increased $72.2 million, $65.6 million of which relates to the valuation and tax adjustments described in footnotes (1), (2), (4), and (5), and $6.6 million of which relates to a working capital adjustment, as described in footnote (6).

(4) Includes a net decrease of $0.8 million made during the three months ended June 30, 2022, comprised of a valuation adjustment of $1.5 million related to the acquired loyalty program and a tax adjustment of $0.7 million.

(5) Includes the impact of tax adjustments: a decrease of $2.4 million to income taxes payable, a decrease of $17.1 million to long-term deferred tax liability, and an increase of $0.6 million to long-term income taxes payable.

(6) During the three months ended June 30, 2022, the purchase price consideration was increased by $6.6 million associated with a working capital adjustment.

The purchase consideration for the Acquisition is preliminary. Valuation by management of certain assets and liabilities, is still in process, and therefore, the actual fair values may vary significantly from these preliminary estimates. Final valuations are expected to be completed within one year of the Acquisition Date.

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Intangible Assets

The components of intangible assets acquired in connection with the Acquisition were as follows:


	Weighted-Average Useful Life	Amortization Method	Estimated Fair Value
			(in thousands)
Customer relationships	15	Straight-line	$	210,000
Trademark	Indefinite	—	1,570,000
Total intangible assets			$	1,780,000

As a result of the increase in fair value of the identifiable intangible assets, the deferred tax liability was increased by $309.4 million at the Acquisition Date.

Goodwill

The excess of the purchase price over the fair value of the acquired business's net assets represents goodwill. The goodwill amount of $712.7 million at June 30, 2022 includes an adjustment of $72.2 million recorded in the three months ended June 30, 2022 as a result of changes to preliminary valuation estimates and a working capital adjustment. Goodwill largely consists of the acquired workforce and economies of scale resulting from the Acquisition. The total goodwill amount acquired was assigned to the HEYDUDE operating segment. None of the goodwill will be deductible for income tax purposes.

Escrow and Holdback Amounts

Additionally, $125.0 million of the Cash Consideration (the “Escrow Amount”) was placed in an escrow account to partially secure the indemnification obligations of the sellers, which will be released to the sellers, less any amounts that have been released to compensate the Company as provided in the SPA, after the date that is 18 months after the Acquisition Date. No liabilities have been recorded related to the Escrow Amount. Further, $8.5 million of the Cash Consideration (the “Adjustment Holdback Amount”) was held back and retained as security (but not as the sole source of recovery) for any downward adjustments to the purchase price made in accordance with the SPA. During the three months ended June 30, 2022, the Adjustment Holdback Amount was paid to the sellers.

Acquisition-related Costs

Costs incurred to complete the Acquisition are expensed as incurred and included in ‘Selling, general, and administrative expenses’ in our condensed consolidated statement of operations. During the six months ended June 30, 2022, there were approximately $20.6 million of Acquisition-related costs recognized. These costs represent legal, professional, and transaction fees.

Unaudited Pro Forma Information

The following unaudited pro forma financial information for the three and six months ended June 30, 2022 and 2021 combines the historical results of Crocs and HEYDUDE, assuming that the companies were combined as of January 1, 2021 and include business combination accounting effects from the Acquisition, including amortization charges from acquired intangible assets, adjustments to the fair value of inventory, interest expense on the financing transactions used to fund the Acquisition, and Acquisition-related transaction costs and tax-related effects. The pro forma information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the Acquisition had taken place on January 1, 2021.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in thousands)
Revenues	$	964,558	$	759,417	$	1,715,035	$	1,333,016
Net income	187,630		334,980		302,722		341,692

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

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 for women, men, and children, 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.~~

Known or Anticipated Trends

Based on our recent operating results and current perspectives on our operating environment, we anticipate certain trends will continue to impact our operating results:

•~~Global industry-wide logistics challenges have continued~~On February 17, 2022, (the “Acquisition Date”), we acquired (the “Acquisition”) 100% of the equity of a privately-owned casual footwear brand business (“HEYDUDE”), pursuant to ~~impact us, with some~~a securities purchase agreement (the “SPA”) entered into on December 22, 2021. HEYDUDE is engaged in the business of distributing and selling casual footwear, including footwear under the brand name “HEYDUDE.” On the Acquisition Date, we purchased all of the issued and outstanding equity securities of HEYDUDE. The aggregate preliminary purchase price at the closing of the Acquisition was $2.3 billion. We paid aggregate consideration of $2.05 billion in cash (the “Cash Consideration”), subject to adjustment based on, among other things, the cash, indebtedness, transaction expenses, and working capital of the companies comprising HEYDUDE and their respective subsidiaries as of the Acquisition Date, and issued 2,852,280 shares of our ~~factories in Vietnam closed for several weeks during~~common stock to one of the ~~third quarter. While most~~sellers, which shares are subject to a lock-up. The Cash Consideration was financed via our entry into the $2.0 billion Term Loan B Facility (as defined below) and $50.0 million of borrowings under our ~~factories in Vietnam are operational, they are in various stages~~Revolving Facility (as defined below). The Acquisition has enabled us to further diversify our product portfolio under two brands. We intend to leverage our global presence, innovative marketing, and scale infrastructure to grow HEYDUDE and to create significant shareholder value. For more information on the Acquisition, refer to Note 16 — Acquisition of reopening. We expect the situation to remain fluid as COVID-19 break-out rates fluctuate, including any deterioration in circumstances related to COVID-19 variants, and whether vaccination rates increaseHEYDUDE in the ~~country. We are taking several measures~~accompanying notes to ~~ensure continued future growth and strong gross margins~~the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q. The results reported for the rest of 2021 and in 2022. We are shifting production capacity to other countries, including China, Indonesia, and Bosnia, as we are able, to minimize unit shortfall. Fortunately, our products have limited inputs and simple configurations, which gives us a unique competitive advantage to increase factory production quickly. Additionally, by prioritizing top selling products and narrowing product assortment, while still preserving newness, we are able to improve factory throughput. We are also maintaining flexibility by leveraging air freight and reducing our dependencyHEYDUDE Brand herein represent the partial period beginning on ~~congested West Coast ports in~~ the United States by adding East Coast trans-shipment capabilities starting in the fourth quarter of 2021. In addition to maximizing supply, we are strategically allocating units and we will prioritize our key growth initiatives, including digital sales and our major wholesale customers. With the actions taken to-date and our future plans, we feel Crocs is well-positioned to emerge an even stronger, more diversified brand.Acquisition Date through June 30, 2022 (the “Partial Period”).

•~~Despite these actions, we expect to still be impacted by global logistics challenges for~~To support the ~~remainder~~long-term growth of ~~2021 and into 2022. Specifically,~~both brands we plan to ~~invest approximately $75 million~~continue leveraging selling, general and administrative expenses (“SG&A”) as a percent of revenues, while maintaining investments in ~~air freight in 2022~~certain key areas, including marketing and digital commerce. We also believe our ability to bolster our inventory positions for the first half of 2022 in all regions. Supported by the health of our brand, wholesale orders for the first half of 2022 have been exceptionally strong. However, we expectleverage Supply Chain, Information Technology, Finance, HR, and Legal resources across both brands will allow us to ~~have limitations around demand fulfillment~~manage SG&A effectively in the first half of the year. Additionally, we expect Europe, Middle East, and Africa (“EMEA”) revenue growth in the fourth quarter of 2021 will be disproportionately impacted by the Vietnam supply disruption, as much of the region’s inventory is sourced there.future.

•Global industry-wide logistics challenges, global inflation, ~~has also begun~~and foreign currency fluctuations resulting in a stronger U.S. Dollar, have impacted, and we expect will continue to impact, our business, contributing to incremental freight costs, increased wages, particularly in our distribution centers, and increased raw materials ~~cost.~~costs. Partial COVID-19-related closures in Vietnam in the first quarter of 2022 and in China in the second quarter of 2022 also negatively impacted our supply chain. In the six months ended June 30, 2022, we incurred air freight costs of approximately $57 million of our $75 million plan for 2022, which has helped mitigate supply delays as a result of Vietnam closures. We expect ~~this trend will continue through~~ the ~~fourth quarter of 2021~~situation to remain fluid as COVID-19 break-out rates, including any deterioration in circumstances related to COVID-19 variants, and ~~during 2022.~~

•~~Consumer demand for our brand continues to be strong, fueled by increased marketing investment~~foreign exchange rates fluctuate, and ~~compelling product, and is leading to strong sales growth, particularly in our clog and sandal silhouettes.~~

•We have committed to several Environmental, Social, and Governance (“ESG”) initiatives, including a plan to achieve net zero emissions by 2030 through sustainable ingredients and packaging as well as responsible resource use and exploring innovative product afterlife solutions. We began production on bio-based products, which are expected to go on sale in 2022, using materials sourced from waste and by-product from other industries. We continue to expand efforts to help serve our communities and create a welcoming environment for everyone, rooted in a culture of transparency and accountability. During the third quarter, we launched a new Brand Purpose section on our Crocs.com site and a new ESG section on our investor site to share our progress.

•In 2021, we have invested, and plan to continue to invest, in selling, general and administrative expenses (“SG&A”), including marketing, talent, and digital commerce, to fuel long-term growth, while continuing to leverage revenue growth.

•During the third quarter of 2021, the Board of Directors (the “Board”) approved a $1.0 billion increase to our share repurchase authorization. As of September 30, 2021, we had remaining authorization to repurchase approximately $1.6 billion of our common stock. In September 2021, we entered into an accelerated share repurchase (“ASR”) arrangement, effective October 2021, to repurchase an additional $500.0 million of shares of our common stock in the

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~~fourth quarter of 2021, which, upon completion, is expected to bring our total 2021 fiscal year repurchases to $1.0 billion.~~

•~~Capital expenditures for supply chain investments to support our growth are expected to be approximately $75 million for the year ended December 31, 2021.~~inflationary pressure continues.

•Our ~~year-over-year results discussed below were, and we expect for~~inventories balance at June 30, 2022 was $501.5 million. Similar to the ~~remainder~~rest of ~~2021 will be, impacted to some extent by prior year store closures and operating hour reductions~~the industry, our in-transit inventory levels remain elevated as a result of longer transit times. Additionally, inventories in the ~~COVID-19 impact~~U.S. are higher as a result of a slower than anticipated growth rate in ~~2020.~~the country.

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 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.

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Management uses constant currency to assist in comparing business trends from period to period on a consistent basis in communications with the Board, stockholders, analysts, and investors concerning our financial performance. We believe constant currency is useful to investors and other users of our condensed consolidated financial statements as an additional tool to 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.

~~Third~~Second Quarter ~~2021~~2022 Financial and Operational Highlights

Revenues were ~~$625.9~~$964.6 million for the ~~third~~second quarter of ~~2021,~~2022, a ~~73.0%~~50.5% increase compared to the ~~third~~second quarter of ~~2020.~~2021. The increase was due to the net effects of: (i) the addition of HEYDUDE Brand revenues of $232.4 million as a result of the Acquisition, which increased revenues by 36.3%; (ii) higher Crocs Brand average selling prices, driven primarily by higher pricing, which increased revenues by $65.3 million, or 10.2%; (iii) higher Crocs Brand unit sales volumes, which increased revenues by ~~$157.8~~$58.7 million, or 43.6%, driven by continued increased consumer demand for our products; (ii) higher average selling prices, driven primarily by reduced promotions and higher pricing, as well as favorable product mix, including increased sales of charms per shoe, which increased revenues by $103.4 million, or 28.6%9.2%; and ~~(iii) favorable~~(iv) unfavorable changes in exchange rates for the Crocs Brand, which ~~increased~~decreased revenues by ~~$2.9~~$32.6 million, or ~~0.8%~~5.1%.

The following were significant developments affecting our businesses and capital structure during the three months ended ~~September~~June 30, ~~2021:~~2022:

•~~Revenues~~We acquired HEYDUDE on February 17, 2022, which added revenues of $232.4 million in the three months ended June 30, 2022. This represented 24.1% of revenues in the quarter. The HEYDUDE Brand became a new reportable operating segment as of the Acquisition Date.

•We grew ~~73.0% compared to the third quarter of 2020, with strong growth~~Crocs Brand revenues, despite significant foreign currency headwinds and COVID-19 related shutdowns impacting our supply chain in ~~all regional segments.~~China. This was led by our EMEALA segment, which grew revenues by 32.8%, or 48.4% on a constant currency basis. Our ~~Americas~~North America segment revenues grew by ~~94.8%~~7.6%, or ~~94.5%~~7.8% on a constant currency basis, while our ~~EMEA~~Asia Pacific segment revenues grew by ~~44.0%~~17.4%, or ~~42.8% on a constant currency basis, and our Asia segment revenues grew by 23.5%, or 21.2%~~27.6% on a constant currency basis, compared to the ~~third~~second quarter of ~~2020.~~2021.

•~~Despite supply constraints resulting~~Footwear units sold for the Crocs Brand in the second quarter of 2022 were 32.4 million pairs worldwide, an increase of 3.3 million from ~~global logistics challenges, we~~the second quarter of 2021. We sold ~~25.4~~8.1 million pairs of shoes ~~worldwide, an increase from 16.9 million pairs~~for the HEYDUDE Brand in the ~~third~~second quarter of ~~2020.~~2022.

•Gross margin was ~~63.9%~~51.6%, ~~an increase~~a decrease of ~~670~~1,010 basis points from last year’s ~~third~~second quarter. Gross margin for the Crocs Brand was 57.7%, a decrease of 400 basis points from last year’s second quarter, as a result of ~~increased pricing~~higher freight costs due to continued supply chain challenges and ~~fewer promotions and discounts and favorable product mix,~~ongoing global inflation, which also impacts material costs, offset in part by higher pricing and product mix. Gross margin for the HEYDUDE Brand was 32.4%. This was lower than the Crocs Brand as a result of unfavorable channel mix and higher freight ~~costs associated with global logistics disruptions.~~rates, as we work to leverage Crocs Brand freight contracts for the HEYDUDE Brand. The HEYDUDE gross margin is also inclusive of an approximately 1,470 basis points unfavorable impact from a non-cash step-up of acquired HEYDUDE inventory to fair value.

•SG&A was ~~$196.7~~$249.8 million compared to ~~$134.7~~$199.9 million in the ~~third~~second quarter of ~~2020.~~2021, as a result of investments in headcount and marketing as we continue to grow the business, costs related to the integration of HEYDUDE, and incremental operating costs associated with operating the HEYDUDE Brand. As a percent of revenues, SG&A decreased to ~~31.4%~~25.9% of revenues compared to ~~37.2%~~31.2% of revenues in the ~~third~~second quarter of ~~2020.~~2021, largely driven by the HEYDUDE Brand, which carried lower SG&A costs as a percentage of revenue than the Crocs Brand, as well as continued SG&A rate improvement in the Crocs Brand compared to the same period in 2021.

•Income from operations ~~more than doubled~~increased to ~~$203.1~~$248.0 million from ~~$72.1~~$195.3 million in last year’s ~~third~~second quarter. Net income was ~~$153.5~~$160.3 million, or ~~$2.42~~$2.58 per diluted share, compared to ~~$61.9~~$319.0 million, or ~~$0.91~~$4.93 per diluted share, in last year’s ~~third~~second quarter.

•During the third quarter, we issued $350.0 million of 4.125% senior notes due in 2031. At September 30, 2021, we had $499.7 million in available borrowing capacity under our senior revolving credit facility.

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Results of Operations


		Three Months Ended September 30,							Nine Months Ended September 30,						% Change Favorable (Unfavorable)					Three Months Ended June 30,						Six Months Ended June 30,						% Change Favorable (Unfavorable)

								2021							2020		2021				2020			Q3 2021-2020			YTD 2021-2020		2022			2021		2022		2021	Q2 2022-2021	YTD 2022-2021
		(in thousands, except per share, margin, and average selling price data)																		(in thousands, except per share, margin, and average selling price data)
Revenues	Revenues	$	625,919		$	361,736			$	1,726,790		$	974,445		73.0	%	77.2	%	Revenues	$	964,581		$	640,773		$	1,624,729		$	1,100,871		50.5	%	47.6	%
Cost of sales	Cost of sales	226,123			154,967				678,594			453,581			(45.9)	%	(49.6)	%	Cost of sales	466,848			245,592			802,072			452,471			(90.1)	%	(77.3)	%
Gross profit	Gross profit	399,796			206,769				1,048,196			520,864			93.4	%	101.2	%	Gross profit	497,733			395,181			822,657			648,400			26.0	%	26.9	%
Selling, general and administrative expenses	Selling, general and administrative expenses	196,728			134,683				525,120			371,371			(46.1)	%	(41.4)	%	Selling, general and administrative expenses	249,769			199,859			456,016			328,392			(25.0)	%	(38.9)	%
Income from operations	Income from operations	203,068			72,086				523,076			149,493			181.7	%	249.9	%	Income from operations	247,964			195,322			366,641			320,008			27.0	%	14.6	%
Foreign currency gains (losses), net		537			(516)				(84)			(1,434)			204.1	%	94.1	%
Foreign currency losses, net																			Foreign currency losses, net	(1,202)			(117)			(722)			(621)			(927.4)	%	(16.3)	%
Interest income	Interest income	615			43				713			189			1,330.2	%	277.2	%	Interest income	86			71			188			98			21.1	%	91.8	%
Interest expense	Interest expense	(6,486)			(1,502)				(12,830)			(5,593)			(331.8)	%	(129.4)	%	Interest expense	(32,963)			(4,712)			(52,215)			(6,344)			(599.6)	%	(723.1)	%
Other income (expense), net	Other income (expense), net	2			(27)				15			901			107.4	%	(98.3)	%	Other income (expense), net	419			2			(528)			13			20,850.0	%	(4,161.5)	%
Income before income taxes	Income before income taxes	197,736			70,084				510,890			143,556			182.1	%	255.9	%	Income before income taxes	214,304			190,566			313,364			313,154			12.5	%	0.1	%
Income tax expense (benefit)	Income tax expense (benefit)	44,247			8,195				(59,951)			14,025			(439.9)	%	527.5	%	Income tax expense (benefit)	53,989			(128,388)			80,289			(104,198)			(142.1)	%	(177.1)	%
Net income	Net income	$	153,489		$	61,889			$	570,841		$	129,531		148.0	%	340.7	%	Net income	$	160,315		$	318,954		$	233,075		$	417,352		(49.7)	%	(44.2)	%
Net income per common share:	Net income per common share:																		Net income per common share:
Basic	Basic	$	2.47		$	0.92			$	8.96		$	1.92		168.5	%	366.7	%	Basic	$	2.60		$	5.02		$	3.84		$	6.47		(48.2)	%	(40.6)	%
Diluted	Diluted	$	2.42		$	0.91			$	8.79		$	1.89		165.9	%	365.1	%	Diluted	$	2.58		$	4.93		$	3.79		$	6.35		(47.7)	%	(40.3)	%

Gross margin (1)	Gross margin (1)	63.9		%	57.2		%		60.7		%	53.5		%	670	bp	720	bp	Gross margin (1)	51.6		%	61.7		%	50.6		%	58.9		%	(1,010)	bp	(830)	bp
Operating margin (1)	Operating margin (1)	32.4		%	19.9		%		30.3		%	15.3		%	1,250	bp	1,500	bp	Operating margin (1)	25.7		%	30.5		%	22.6		%	29.1		%	(480)	bp	(650)	bp
Footwear unit sales		25,410			16,867				80,402			50,234			50.6	%	60.1	%
Average footwear selling price - nominal basis (2)		$	24.42		$	21.36			$	21.30		$	19.33		14.3	%	10.2	%
Footwear unit sales:																			Footwear unit sales:
Crocs Brand																			Crocs Brand	32,396			29,085			58,011			54,992			11.4	%	5.5	%
HEYDUDE Brand (3)																			HEYDUDE Brand (3)	8,086			—			12,065			—			—	%	—	%
Average footwear selling price - nominal basis (2):																			Average footwear selling price - nominal basis (2):
Crocs Brand																			Crocs Brand	$	22.39		$	21.84		$	21.82		$	19.86		2.5	%	9.9	%
HEYDUDE Brand (3)																			HEYDUDE Brand (3)	$	28.74		$	—		$	28.78		$	—		—	%	—	%

(1) Changes for gross margin and operating margin are shown in basis points (“bp”).

(2) Average footwear selling price is calculated as footwear and charms revenues divided by footwear ~~units.~~units, as applicable.

(3) We acquired HEYDUDE on February 17, 2022. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the Partial Period, and there are no comparative amounts for the three and six months ended June 30, 2021.

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Revenues By Channel

Three Months Ended September 30, Nine Months Ended September 30, % Change
Constant Currency
% Change (1)
Favorable (Unfavorable)
2021 2020 2021 2020 Q3 2021-2020 YTD 2021-2020 Q3 2021-2020 YTD 2021-2020
(in thousands)
Wholesale:
Americas $ 213,321 $ 98,025 $ 526,164 $ 256,258 117.6 % 105.3 % 117.4 % 105.4 %
Asia Pacific 37,207 28,842 158,098 109,705 29.0 % 44.1 % 28.6 % 38.8 %
EMEA 59,058 37,630 222,643 136,507 56.9 % 63.1 % 55.5 % 55.4 %
Unallocated corporate and other 25 14 73 106 78.6 % (31.1) % 71.5 % (31.1) %
Total wholesale 309,611 164,511 906,978 502,576 88.2 % 80.5 % 87.7 % 77.3 %
Direct-to-consumer (2):
Americas 242,587 136,022 611,833 297,097 78.3 % 105.9 % 78.0 % 105.3 %
Asia Pacific 46,438 38,862 134,973 117,031 19.5 % 15.3 % 15.8 % 8.8 %
EMEA 27,283 22,341 73,006 57,741 22.1 % 26.4 % 21.3 % 22.1 %
Total direct-to-consumer 316,308 197,225 819,812 471,869 60.4 % 73.7 % 59.3 % 71.2 %
Total revenues $ 625,919 $ 361,736 $ 1,726,790 $ 974,445 73.0 % 77.2 % 72.2 % 74.3 %


	Three Months Ended June 30,				Six Months Ended June 30,				% Change				Constant Currency % Change (1)
									Favorable (Unfavorable)
	2022		2021		2022		2021		Q2 2022-2021		YTD 2022-2021		Q2 2022-2021		YTD 2022-2021
	(in thousands)
Crocs Brand:
Wholesale	$	392,511	$	307,327	$	736,768	$	597,366	27.7	%	23.3	%	35.2	%	29.2	%
Direct-to-consumer	339,705		333,446		540,673		503,505		1.9	%	7.4	%	4.8	%	9.8	%
Total Crocs Brand	732,216		640,773		1,277,441		1,100,871		14.3	%	16.0	%	19.4	%	20.3	%
HEYDUDE Brand (2):
Wholesale	162,499		—		249,418		—		—	%	—	%	—	%	—	%
Direct-to-consumer	69,866		—		97,870		—		—	%	—	%	—	%	—	%
Total HEYDUDE Brand	232,365		—		347,288		—		—	%	—	%	—	%	—	%
Total consolidated revenues (2)	$	964,581	$	640,773	$	1,624,729	$	1,100,871	50.5	%	47.6	%	55.6	%	51.9	%

(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~~‘Reconciliation of GAAP Measures to Non-GAAP ~~Financial Measures”~~Measures’ above for more information.

(2) ~~Direct-to-consumer revenues consist of sales generated through our company-operated retail stores (previously our “Retail” channel)~~We acquired HEYDUDE on February 17, 2022. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the Partial Period, and ~~company-operated e-commerce websites~~there are no comparative amounts for the three and ~~third-party e-commerce marketplaces (previously our “E-commerce” channel).~~

~~The primary drivers of changes in revenue were:~~

Three Months Ended September 30, 2021 vs. 2020
Volume
Price (1)
Foreign Exchange Total
$
Change % Change $
Change % Change $
Change % Change $
Change % Change
(in thousands)
Total revenues $ 157,841 43.6 % $ 103,424 28.6 % $ 2,918 0.8 % $ 264,183 73.0 %

~~(1)~~ ~~The change due to price is based on the change in average selling price on a constant currency basis (“ASP”).~~

Nine Months Ended September 30, 2021 vs. 2020
Volume
Price (1)
Foreign Exchange Total
$
Change % Change $
Change % Change $
Change % Change $
Change % Change
(in thousands)
Total revenues $ 550,538 56.5 % $ 173,990 17.8 % $ 27,817 2.9 % $ 752,345 77.2 %

~~(1)~~ ~~The change due to price is based on the change in ASP.~~six months ended June 30, 2021.

Revenues. In the three months ended ~~September~~June 30, ~~2021,~~2022, revenues increased compared to the same period in ~~2020, despite global logistics challenges that resulted from port congestion and intermittent COVID-19 related factory shutdowns~~2021. This was driven by (i) the addition of HEYDUDE Brand revenues of $232.4 million, (ii) higher average selling price on a constant currency basis (“ASP”) in ~~Vietnam. Volume was higher in all segments, led by our Americas segment, due to continued~~the Crocs Brand of $65.3 million, or 10.2%, as a result of increased ~~consumer demand, which was due~~pricing, offset in part ~~to negative impacts of the COVID-19 pandemic on prior year wholesale~~by unfavorable channel mix, and ~~retail store revenues, including traffic limitations in stores and reduced operating hours. ASPs increased revenues in all segments and channels due to~~(iii) higher ~~pricing, less promotional activity, and favorable product mix. Foreign exchange fluctuations also increased revenues, primarily due to favorable changes~~volume in the ~~Chinese Yuan,~~Crocs Brand of $58.7 million, or 9.2%, primarily in our Asia Pacific and EMEALA segments. Revenue increased despite unfavorable foreign currency headwinds, most significantly in the Euro and Korean Won, ~~Euro, and Canadian Dollar.~~which decreased Crocs Brand revenues by $32.6 million, or 5.1%.

Revenues also increased in the ~~nine~~six months ended ~~September~~June 30, ~~2021, primarily as a result~~2022, driven by (i) the addition of ~~volume increases in all regions, led by~~HEYDUDE Brand revenues of $347.3 million during the Americas segment, as a result of continued increased consumer demand, attributable in part to the negative impact of the COVID-19 pandemic on prior year wholesale and retail store revenues, particularlyPartial Period, (ii) higher ASP in the ~~first part~~Crocs Brand of ~~the year. Higher ASP,~~

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~~primarily in the direct-to-consumer (“DTC”) channel in all segments~~$174.1 million, or 15.8%, as a result of increased pricing ~~fewer promotions,~~in all regions, and ~~favorable product mix, also contributed to~~(iii) higher ~~revenues. Foreign exchange favorability to revenue was driven~~volume in the Crocs Brand of $49.8 million, or 4.5%, led by our Asia Pacific and EMEALA segments, offset in part by lower volumes of 2.7% in our Americas segment. Unfavorable foreign currency fluctuations, most significantly in the Euro and Korean Won, ~~and Chinese Yuan.~~decreased Crocs Brand revenues by $47.2 million, or 4.3%.

Cost of sales. InHEYDUDE contributed to the majority of the increase in cost of sales, which was in line with its contributions to revenue, and was inclusive of a $34.3 million due to a non-cash step-up of acquired HEYDUDE inventory to fair value. Additionally, in the three months ended ~~September~~June 30, ~~2021,~~2022, compared to the same period in ~~2020, cost of sales increased due to~~2021, higher volume of $69.7 million, or 45.0%, primarily in our Americas segment, and foreign currency fluctuations, which increased cost of sales by $1.1 million, or 0.7%. These increases were slightly offset by lower average cost per unit on a constant currency basis (“AUC”) in the Crocs Brand of ~~$0.4~~$44.9 million, or ~~0.2%~~18.3%, ~~which~~ was driven ~~by favorable channel mix and efficiencies in our U.S. distribution network, mitigated~~mostly by higher material and freight costs, ~~associated with global~~driven by inflation impacts as well as air freight used to mitigate supply ~~chain disruptions, including container costs, port congestion,~~challenges, and ~~Vietnam factory closures.~~unfavorable purchasing power as a result of foreign currency fluctuations. Higher volume in the Crocs Brand of $32.6 million, or 13.3%, also contributed to higher cost of sales, while fluctuations in foreign currency decreased cost of sales by $13.4 million, or 5.5%.

In the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, cost of sales increased ~~primarily~~ due to ~~higher volume~~the addition of ~~$244.6 million, or 53.9%, and foreign currency fluctuations,~~HEYDUDE, which ~~further increased~~had cost of sales ~~by $12.5~~in the Partial Period that were in line with its contributions to revenues discussed above, and were inclusive of a $62.3 million non-cash step-up of acquired HEYDUDE inventory to fair value. Higher AUC in the Crocs Brand of $94.1 million, or ~~2.8%~~20.8%, resulted mostly from higher material and freight costs, driven by inflation and the use of air freight, and higher volume in the Crocs Brand of $32.0 million, or 7.1%. These increases were partially offset by ~~lower AUC of $32.1 million, or 7.1%,~~decreases as a result of ~~favorable product mix and increased efficiencies in our distribution and logistics network, moderated by higher freight costs associated with global supply chain disruptions, including the blockage~~foreign currency changes in the ~~Suez Canal, container costs, port congestion, and Vietnam Factory closures.~~Crocs Brand of $20.2 million, or 4.5%.

Gross profit. Gross margin ~~increased~~decreased in the three months ended ~~September~~June 30, ~~2021~~2022 to ~~63.9%~~51.6%, compared to ~~57.2%~~61.7% in the same period in ~~2020,~~2021. Gross margin for the Crocs Brand was 57.7%, compared to 61.7% in the same period in 2021, driven ~~by increased pricing and fewer promotions and discounts and favorable product mix, offset in part~~mostly by higher freight costs ~~associated~~due to supply chain challenges, which have caused us to use more expensive shipping methods, such as air freight, and the impact of global inflation on our supply chain. We have been able to partially mitigate higher AUC with ~~global logistics disruptions. Gross profit increased $193.0 million, or 93.4%,~~better sales performance as a result of higher ASPs, as described above, and favorable product mix. Gross margin for the ~~combined impact~~HEYDUDE Brand was 32.4%, a lower rate than the Crocs Brand as a result of ~~lower AUC~~a unfavorable channel mix and higher ~~ASP,~~freight rates, as we

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work to leverage Crocs Brand freight contracts for the HEYDUDE Brand. The HEYDUDE gross margin is also inclusive of an approximately 1,470 basis points unfavorable impact from a non-cash step-up of acquired HEYDUDE inventory to fair value.

Gross profit increased $102.6 million, or ~~49.9%~~26.0%, mostly due to the addition of the HEYDUDE Brand. Additionally, gross profit increased in the Crocs Brand as a result of higher volume of ~~$88.1~~$26.1 million, or ~~42.6%~~6.6%, and ~~favorable~~the net impact of higher ASP and higher AUC of $20.4 million, or 5.2%. This was offset by unfavorable foreign currency changes for the Crocs Brand of ~~$1.8~~$19.1 million, or ~~0.9%~~4.9%. The HEYDUDE Brand contributed to the remainder of the increase.

Gross margin in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~60.7%~~50.6% compared to ~~53.5%~~58.9% in ~~2020,~~2021. Gross margin for the Crocs Brand was 56.3%, compared to 58.9% in 2021, due primarily to higher freight costs, as described above, offset in part by higher pricing and product mix. Gross margin for the HEYDUDE Brand was 30.2%, a lower rate than the Crocs Brand, due to ~~favorable~~unfavorable channel mix and ~~product mix, increased pricing, and fewer promotions and discounts.~~ higher freight rates, as we work to leverage Crocs Brand freight contracts for the HEYDUDE Brand. The HEYDUDE gross margin is also inclusive of an approximately 1,790 basis points unfavorable impact from a non-cash step-up of acquired HEYDUDE inventory to fair value.

Gross profit increased ~~$527.3~~$174.3 million, or ~~101.2%~~26.9%, as a result of the addition of the HEYDUDE Brand, which contributed to over half of the increase, as well as increases in the Crocs Brand due to the net impact of both higher ASP and AUC of $80.0 million, or 12.3%, and higher volumes of ~~$305.9~~$17.8 million, or ~~58.7%, the combined impact of lower AUC and higher ASP of $206.1 million, or 39.6%, and positive~~2.8%. These were offset by unfavorable foreign currency changes in the Crocs Brand of ~~$15.3~~$27.1 million, or ~~2.9%~~4.2%.

Selling, general and administrative expenses. SG&A expenses increased ~~$62.0~~$49.9 million, or ~~46.1%~~25.0%, in the three months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020.~~2021. This was due to an increase in ~~large~~marketing costs of $16.2 million, the vast majority of which relates to both variable marketing, including variable marketing associated with HEYDUDE, and additional investments in our digital business. There was also an increase in professional services costs of $10.7 million, due in part to the integration of HEYDUDE, and an ~~increased marketing investment~~increase in sales commissions of $7.6 million, due mostly to ~~continue~~HEYDUDE, which used more costly external sales representatives prior to ~~fuel revenue growth~~the Acquisition Date. An increase in compensation expense of ~~$26.2 million. Higher services costs~~$7.1 million was driven by investments in employee headcount, including ~~consulting~~employees associated with ~~supply chain investments, legal~~HEYDUDE, variable labor costs in distribution centers and retail stores associated with revenue growth. Additionally, this increase includes severance costs related to the continued shutdown of our direct operations in Russia. There was also an increase in facilities expense of $4.4 million driven primarily by lease exit costs and ~~variable~~penalties associated with the continued shutdown of our direct operations in Russia and duplicate rent costs associated with higher revenues contributed $12.6 million to the increase and higher facilities costs due to variable rent associated with higher revenues contributed $5.7 million to the increase. Further, higher salaries and wages and recruiting costs as a result of increased headcount and higher variable executive compensation was partially offset by a variable compensation adjustment driven by the timing of business performance in the prior year, for a net increase of $10.4 million. Information technology and otherour upcoming headquarters move. Other net costs, ~~also~~including information technology costs, increased ~~SG&A by $6.1~~$3.9 million.

SG&A as a percent of revenue improved to 30.4% in the nine months ended September 30, 2021 from 38.1% in the same period in 2020 as a result of strong sales growth and our continued efforts to leverage operating costs, while SG&A expenses increased ~~$153.7~~$127.6 million, or ~~41.4%~~38.9%, during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020. This was driven both by higher compensation~~2021. We have continued to invest in marketing to fuel growth, with an increase of $31.9 million to SG&A, primarily associated with variable marketing and investments in our digital business. Additionally, costs of $26.3 million associated with the Acquisition and related ~~expense~~integration, including consulting, legal, and accounting fees, as well as compensation-related costs associated with the integration, contributed to the increase. Other increases in compensation costs of ~~$63.4~~$18.0 million ~~as a result of~~were due to increased employee headcount ~~and higher variable and executive compensation, compounded by~~as we have grown the ~~prior year temporary and permanent elimination~~Company over the last year. Increases in professional services costs of ~~certain roles in response~~$15.0 million were due to COVID-19, and by additional investments in marketing of $54.3 million, both of which support the growth of the business. Services costs, including consulting associated with supply chain investments, legal fees, and variable costs associated with revenue growth, supply chain projects, and higher legal costs associated in part with ongoing defense of our intellectual property. There was an increase in sales commissions of $12.0 million, due mostly to HEYDUDE, which used more costly external representatives prior to the Acquisition, and were ~~up $24.0 million,~~net increases in other costs, including facilities expense ~~was up $16.3 million as a result of variable rent associated with higher sales,~~ and information technology ~~depreciation, and other net~~ costs, ~~were up by $12.7~~of $24.4 million. These increases were offset in part by lower inventory donations of $8.8 million as a result of prior year COVID-19 donations to frontline healthcare workers and other organizations that did not recur at the same magnitude in the current year and decreases in bad debt expense of $8.2 million, mostly due to the prior year COVID-19 related impact on our distributors that did not recur in the current year, as well as collections on previously reserved bad debt expense.

Foreign currency ~~gains (losses),~~losses, net. Foreign currency ~~gains (losses),~~losses, net, consist of realized and unrealized 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 three months ended ~~September~~June 30, ~~2021,~~2022, we recognized realized and unrealized net foreign currency ~~gains~~losses of ~~$0.5~~$1.2 million, compared to losses of ~~$0.5~~$0.1 million during the three months ended ~~September~~June 30, ~~2020.~~2021. During the six months ended June 30, 2022, we recognized realized and unrealized net foreign currency losses of $0.7 million, compared to losses of $0.6 million during the six months ended June 30, 2021.

Income tax expense (benefit). During the three months ended June 30, 2022, income tax expense increased $182.4 million compared to the same period in 2021. The effective tax rate for the three months ended June 30, 2022 was 25.2% compared to an effective tax rate of (67.4)% for the same period in 2021, a 92.6% increase. This increase in the effective rate was primarily driven by the prior year release of valuation allowances resulting from the enactment of a tax law change. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate due to differences in income tax rates between U.S. and foreign jurisdictions.

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During the ~~nine~~six months ended ~~September~~June 30, ~~2021, we recognized realized and unrealized net foreign currency losses of $0.1 million, compared to losses of $1.4 million during the nine months ended September 30, 2020.~~

~~Income tax expense.~~ ~~During the three months ended September 30, 2021,~~2022, income tax expense increased ~~$36.1~~$184.5 million compared to the same period in ~~2020.~~2021. The effective tax rate for the ~~three~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~22.4%~~25.6% compared to an effective tax rate of ~~11.7%~~(33.3)% for the same period in ~~2020,~~2021, a ~~10.7%~~58.9% increase. This increase in the effective rate was driven ~~by tax expense recorded in profitable jurisdictions, partially offset~~primarily by the ~~utilization~~prior year realization of deferred tax assets which were subject to a valuation allowance ~~and by operating losses~~which did not reoccur in ~~certain jurisdictions where we had determined that it is not more likely than not to realize~~ the ~~associated tax benefits.~~current year. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate primarily due to ~~the release of valuation allowances, as well as differences in income tax rates between U.S. and foreign jurisdictions.~~

During the nine months ended September 30, 2021, income tax expense decreased $74.0 million compared to the same period in 2020. The effective tax rate for the nine months ended September 30, 2021 was -11.7% compared to an effective tax rate of 9.8% for the same period in 2020, a 21.5% decrease. This decrease in the effective rate was driven primarily by the release of valuation allowances. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate primarily due to the release of valuation allowances, as well as differences in income tax rates between U.S. and foreign jurisdictions.

Reportable Operating Segments

The following table sets forth information related to our reportable operating segments, including a comparison of revenues and operating income by segment:

Three Months Ended September 30, Nine Months Ended September 30, % Change
Constant Currency
% Change (1)
Favorable (Unfavorable)
2021 2020 2021 2020 Q3 2021-2020 YTD 2021-2020 Q3 2021-2020 YTD 2021-2020
(in thousands)
Revenues:
Americas $ 455,908 $ 234,047 $ 1,137,997 $ 553,355 94.8 % 105.7 % 94.5 % 105.5 %
Asia Pacific 83,645 67,704 293,071 226,736 23.5 % 29.3 % 21.2 % 23.4 %
EMEA 86,341 59,971 295,649 194,248 44.0 % 52.2 % 42.8 % 45.5 %
Total segment revenues 625,894 361,722 1,726,717 974,339 73.0 % 77.2 % 72.2 % 74.3 %
Unallocated corporate and other (3)
25 14 73 106 78.6 % (31.1) % 71.5 % (31.1) %
Total consolidated revenues $ 625,919 $ 361,736 $ 1,726,790 $ 974,445 73.0 % 77.2 % 72.2 % 74.3 %
Income from operations:

Americas (2)
$ 232,832 $ 100,827 $ 541,680 $ 192,019 130.9 % 182.1 % 130.8 % 182.0 %
Asia Pacific (2)
16,361 10,688 70,492 29,881 53.1 % 135.9 % 49.9 % 124.2 %
EMEA (2)
27,007 16,063 100,439 55,894 68.1 % 79.7 % 66.7 % 72.0 %
Total segment income from operations 276,200 127,578 712,611 277,794 116.5 % 156.5 % 116.0 % 153.6 %
Unallocated corporate and other (2)(3)
(73,132) (55,492) (189,535) (128,301) (31.8) % (47.7) % (32.1) % (48.3) %
Total consolidated income from operations $ 203,068 $ 72,086 $ 523,076 $ 149,493 181.7 % 249.9 % 180.6 % 244.0 %


	Three Months Ended June 30,				Six Months Ended June 30,				% Change				Constant Currency % Change (1)
									Favorable (Unfavorable)
	2022		2021		2022		2021		Q2 2022-2021		YTD 2022-2021		Q2 2022-2021		YTD 2022-2021
	(in thousands)
Revenues:
North America (2)	$	422,936	$	393,152	$	742,386	$	660,419	7.6	%	12.4	%	7.8	%	12.5	%
Asia Pacific	148,889		126,834		244,737		209,426		17.4	%	16.9	%	27.6	%	25.5	%
EMEALA (2)	160,377		120,778		290,297		230,978		32.8	%	25.7	%	48.4	%	38.0	%
Brand corporate (3)	14		9		21		48		55.6	%	(56.3)	%	55.6	%	(56.3)	%
Crocs Brand revenues	732,216		640,773		1,277,441		1,100,871		14.3	%	16.0	%	19.4	%	20.3	%
HEYDUDE Brand revenues (4)	232,365		—		347,288		—		—	%	—	%	—	%	—	%
Total consolidated revenues	$	964,581	$	640,773	$	1,624,729	$	1,100,871	50.5	%	47.6	%	55.6	%	51.9	%

Income from operations:
North America (2)	$	177,363	$	188,180	$	306,974	$	300,873	(5.7)	%	2.0	%	(5.4)	%	2.2	%
Asia Pacific	51,432		32,016		81,537		54,131		60.6	%	50.6	%	77.3	%	65.5	%
EMEALA (2)	53,385		41,388		88,314		81,407		29.0	%	8.5	%	46.9	%	18.2	%
Brand corporate (3)	(28,259)		(21,393)		(58,968)		(41,401)		(32.1)	%	(42.4)	%	(33.8)	%	(44.1)	%
Crocs Brand income from operations	253,921		240,191		417,857		395,010		5.7	%	5.8	%	11.1	%	9.8	%
HEYDUDE Brand income from operations (4)	41,666		—		57,324		—		—	%	—	%	—	%	—	%
Enterprise corporate (3)	(47,623)		(44,869)		(108,540)		(75,002)		(6.1)	%	(44.7)	%	(6.1)	%	(44.7)	%
Total consolidated income from operations	$	247,964	$	195,322	$	366,641	$	320,008	27.0	%	14.6	%	33.6	%	19.6	%

(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) In the first quarter of ~~2021,~~2022, certain ~~costs~~revenues and expenses associated with our Latin America businesses previously reported ~~within ‘Other Businesses’~~in our ‘Americas’ segment were shifted into the ‘EMEA’ segment. To reflect this change, we renamed our ‘Americas’ segment to ~~the Americas, Asia Pacific,~~‘North America’ and ~~EMEA segments. Additionally, any costs remaining in ‘Other Businesses,~~renamed our ‘EMEA’ segment to ‘EMEALA.’ ~~including depreciation and amortization, have been consolidated into ‘Unallocated corporate and other.’ In~~As a result of these changes, the ~~second quarter of 2021, certain marketing expenses previously reported within ‘Unallocated corporate and other’ were shifted to the Americas, Asia Pacific, and EMEA segments. The~~ previously reported amounts for revenues and income from operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 have been revised to conform to current period presentation. See the ‘Impacts of segment composition change’ ~~and ‘Impacts of marketing expense allocations’ tables~~table below for more information.

(3)~~Unallocated~~ In the first quarter of 2022, as a result of the Acquisition, all costs previously reported in “Unallocated corporate and ~~other includes corporate support and administrative functions, certain royalty income,~~other” were recast between ‘Brand corporate’ costs associated with ~~share-based~~the Crocs Brand and ‘Enterprise corporate’ costs, each of which is defined in Note 14 — Operating Segments and Geographic Information in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q. As a result of these changes, the previously reported amounts for income from operations for the three and six months ended June 30, 2021 have been revised to conform to current period presentation. See the ‘Impacts of brand vs. enterprise recast’ table below for more information.

(4) We acquired HEYDUDE on February 17, 2022 and added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the Partial Period, and there are no comparative amounts for the three and six months ended June 30, 2021.

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~~compensation, research and development, brand marketing, legal, and depreciation and amortization~~Impacts of ~~corporate and other assets not allocated to operating segments.~~segment composition change associated with Latin America:


	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
	(in thousands)
Impact on revenues:
Americas (now “North America”)	$	(12,528)	$	(21,670)
EMEA (now “EMEALA”)	12,528		21,670

Impact on income from operations:
Americas (now “North America”)	$	(4,601)	$	(7,975)
EMEA (now “EMEALA”)	4,601		7,975

Impacts of ~~segment composition change:~~brand vs. enterprise recast:


	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
	(in thousands)
Impacts on income from operations:
Brand corporate	$	(21,393)	$	(41,401)
Enterprise corporate	(44,869)		(75,002)

Unallocated corporate and other	66,262		116,403

~~Impacts~~

Table of ~~marketing expense allocations:~~Contents

The primary drivers of changes in revenues by operating segment were:


		Three Months Ended September 30, 2021 vs. 2020																	Three Months Ended June 30, 2022 vs. 2021
		Volume				Price (1)				Foreign Exchange				Total					Volume				Price (1)				Foreign Exchange				Total
		$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change			$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change
		(in thousands)																	(in thousands)
Segment Revenues:	Segment Revenues:																	Segment Revenues:
Americas		$	129,979	55.5	%	$	91,236	39.0	%	$	646	0.3	%	$	221,861	94.8	%
Crocs Brand:																		Crocs Brand:
North America																		North America	$	(230)	—	%	$	30,752	7.8	%	$	(738)	(0.2)	%	$	29,784	7.6	%
Asia Pacific	Asia Pacific	5,734		8.5	%	8,635		12.7	%	1,572		2.3	%	15,941		23.5	%	Asia Pacific	14,343		11.3	%	20,681		16.3	%	(12,969)		(10.2)	%	22,055		17.4	%
EMEA		22,118		36.9	%	3,553		5.9	%	699		1.2	%	26,370		44.0	%
EMEALA																		EMEALA	44,577		36.9	%	13,898		11.5	%	(18,876)		(15.6)	%	39,599		32.8	%
HEYDUDE Brand (2)																		HEYDUDE Brand (2)	—		—	%	—		—	%	—		—	%	—		—	%
Total segment revenues	Total segment revenues	$	157,831	43.6	%	$	103,424	28.6	%	$	2,917	0.8	%	$	264,172	73.0	%	Total segment revenues	$	58,690	9.2	%	$	65,331	10.2	%	$	(32,583)	(5.1)	%	$	91,438	14.3	%

(1) The change due to price for revenues is based on ASP, as defined earlier in this section.

(2) We acquired HEYDUDE on February 17, 2022 and added the HEYDUDE Brand as a new operating segment. Therefore, there are no comparative amounts for the three months ended June 30, 2021.


		Nine Months Ended September 30, 2021 vs. 2020																	Six Months Ended June 30, 2022 vs. 2021
		Volume				Price (1)				Foreign Exchange				Total					Volume				Price (1)				Foreign Exchange				Total
		$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change			$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change
		(in thousands)																	(in thousands)
Segment Revenues:	Segment Revenues:																	Segment Revenues:
Americas		$	441,081	79.7	%	$	142,182	25.7	%	$	1,379	0.3	%	$	584,642	105.7	%
Crocs Brand:																		Crocs Brand:
North America																		North America	$	(17,574)	(2.7)	%	$	100,294	15.2	%	$	(753)	(0.1)	%	$	81,967	12.4	%
Asia Pacific	Asia Pacific	25,655		11.3	%	27,268		12.1	%	13,412		5.9	%	66,335		29.3	%	Asia Pacific	20,266		9.7	%	33,023		15.8	%	(17,978)		(8.6)	%	35,311		16.9	%
EMEA		83,835		43.2	%	4,540		2.3	%	13,026		6.7	%	101,401		52.2	%
EMEALA																		EMEALA	47,098		20.4	%	40,737		17.6	%	(28,516)		(12.3)	%	59,319		25.7	%
HEYDUDE Brand (2)																		HEYDUDE Brand (2)	—		—	%	—		—	%	—		—	%	—		—	%
Total segment revenues	Total segment revenues	$	550,571	56.4	%	$	173,990	17.8	%	$	27,817	2.9	%	$	752,378	77.2	%	Total segment revenues	$	49,790	4.5	%	$	174,054	15.8	%	$	(47,247)	(4.3)	%	$	176,597	16.0	%

(1) The change due to price for revenues is based on ASP, as defined earlier in this section.

(2) We acquired HEYDUDE on February 17, 2022 and added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the Partial Period, and there are no comparative amounts for the six months ended June 30, 2021.

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~~Americas~~North America Operating Segment

Revenues. ~~Americas~~North America revenues increased in the three months ended ~~September~~June 30, ~~2021,~~2022, compared to the same period in ~~2020. Higher volume in both channels contributed to the majority of the increase. This was~~2021, driven by ~~continued increased consumer demand, which was due in part to negative impacts~~higher ASP as a result of ~~the COVID-19 pandemic on prior year wholesale~~price increases. Volume and retail store revenues, including traffic limitations in stores and reduced operating hours. Higher ASP in both channels, mostly from price increases and less promotions, as well as favorable product mix, also increased revenues. Favorable foreign currency ~~fluctuations~~changes were ~~driven by~~relatively flat during the ~~Canadian Dollar.~~quarter.

The increase in ~~Americas~~North America revenues in the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, was ~~primarily~~most significantly due to higher ~~volumes in both channels, which led to a 79.7% increase, as a result of continued increased consumer demand, partially~~ASP due to ~~the prior year impact of COVID-19 on our brick-and-mortar stores, which further increased the disparity between the two periods. Higher ASP also contributed to higher sales, mostly from~~ higher pricing, ~~and fewer promotions, particularly~~while volumes decreased, primarily in ~~our DTC channel, and favorable product mix. Favorable foreign currency fluctuations were driven by~~wholesale. Changes in the Canadian Dollar ~~offset in part by unfavorable changes in the Brazilian Real in the first part of the year.~~also slightly decreased revenues.

Income from Operations. Income from operations for our ~~Americas~~North America segment was ~~$232.8~~$177.4 million for the three months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$132.0~~$10.8 million, or ~~130.9%~~5.7%, compared to the same period in ~~2020.~~2021. Gross profit ~~increased $160.8~~was relatively flat with a $0.5 million, or ~~111.0%~~0.2%, ~~as a result of the net impact of higher ASP and AUC, of $86.5 million, or 59.7%. This~~ increase ~~was due~~compared to favorable product mix, higher prices and less promotions, and efficiencies in our U.S. distribution network, mitigated by higher inbound freight costs associated with global supply chain disruptions. Higher volume of $74.1 million, or 51.2% and insignificant favorableprior year. Unfavorable foreign currency changes ~~also contributed~~and higher costs, due in part to ~~higher~~inflation, partially offset a volume benefit to gross profit.

SG&A for our ~~Americas~~North America segment increased ~~$28.8~~$11.3 million, or ~~65.5%~~16.8%, during the three months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020. We continued to invest in marketing, which~~2021. Compensation cost increased ~~by $13.9~~$3.5 million compared to prior year to support revenue growth in the region. Additionally, compensation and other employee-related costs were higher by $7.2 million, due to increased employee headcount in 2021, compounded by the prior year temporary and permanent elimination of certain roles in response to COVID-19, facilities expense was higher by $4.2 million primarily as a result of ~~variable rent associated with an increase~~investments in employee headcount, including retail ~~sales,~~labor, which also had higher wages for the full quarter in 2022 compared to 2021. Marketing costs

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increased by $3.5 million, bad debt expense increased by $1.6 million as a result of prior year collections on previously reserved bad debt which reduced SG&A in the comparative period, and other net costs ~~were higher~~increased by ~~$3.5 million, mostly as a result of variable costs associated with higher DTC sales.~~$2.7 million.

~~Income~~During the six months ended June 30, 2022. income from operations for our ~~Americas~~North America segment was ~~$541.7~~$307.0 million, ~~for the nine months ended September 30, 2021,~~ an increase of ~~$349.7~~$6.1 million, or ~~182.1%~~2.0%, compared to the same period in ~~2020.~~2021. Gross profit increased ~~$410.6~~$30.9 million, or ~~129.3%~~7.5%, primarily due to ~~volume~~higher ASP from price increases that outpaced higher AUC due to higher material and freight costs, including air freight used to combat supply chain disruptions, of ~~$252.2~~$40.9 million, or ~~79.4%, in both our wholesale and DTC channels, and higher ASP, supplemented by lower AUC,~~9.9%. Lower volumes of ~~$158.0~~$9.3 million, or ~~49.7%~~2.2%, ~~as a result of favorable product mix, higher prices~~ and ~~less promotions, and increased efficiencies in our U.S. distribution network. Immaterial favorable~~unfavorable foreign currency ~~fluctuations also increased revenues.~~changes partially offset this increase.

SG&A for our ~~Americas~~North America segment increased ~~$61.0~~$24.8 million, or ~~48.6%~~22.2%, during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020,~~2021, due to an ~~investment~~increase in marketing of $32.1 million to support growth, higher compensation and other employee-related costs of $20.4 million primarily due increased headcount and the prior year temporary and permanent elimination of certain roles in response to COVID-19, and higher facilities costs of $11.2 million ~~associated with variable rent driven~~to fuel revenue growth and continue our investment in digital marketing while operating in a higher cost environment and higher compensation of $6.3 million primarily due to investments in employee headcount, including retail labor, which also had higher wages in 2022 compared to 2021. Bad debt expense increased by higher retail sales. Additionally, higher services costs of $5.2 million and other costs of $4.5 million resulted predominantly from variable costs associated with higher sales. These increases were offset by lower donations of inventory of $8.3$2.0 million as a result of prior year ~~COVID-19 donations to frontline healthcare workers that did not recur in the current year and lower~~collections on previously reserved bad debt, while other net costs, including facilities expense ~~of $4.1 million as a result of the prior year impact of COVID-19 on our distributors~~ and ~~subsequent collections in the current year.~~services costs, increased by $5.3 million.

Asia Pacific Operating Segment

Revenues. Asia Pacific revenues increased in the three months ended ~~September~~June 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, as a result of higher ASP as a result of higher pricing and less discounting, offset in ~~both our wholesale and DTC channels, driven~~part by ~~price increases, fewer promotions, and product~~unfavorable channel mix, and higher volume, primarily in India and with distributors in Southeast Asia, which benefited from COVID-19 re-openings and the partial return of tourism to the region over prior year. This was offset in part by lower DTC volumes as a result of COVID-19 lockdowns in ~~our wholesale channel driven~~China that impacted distribution in the current quarter. These increases were partially offset by ~~the prior year COVID-19 impact on our distributor markets, which further increased the disparity between the two periods. Favorable~~significant unfavorable foreign currency ~~fluctuations, primarily~~changes in all currencies in the ~~Korean Won and Chinese Yuan, also increased revenues.~~region.

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Revenues in our Asia Pacific segment increased in the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, as a result of ~~volume increases in our wholesale channel driven by the prior year COVID-19 impact on our distributor markets and~~ ASP increases, ~~in both channels,~~ as a result of increased pricing and fewer ~~promotions. Favorable~~promotions, and volume increases. Unfavorable foreign currency fluctuations in all currencies, but most significantly the Korean Won ~~Chinese Yuan,~~ and ~~Singapore Dollar also resulted in higher revenues.~~Japanese Yen, partially offset ASP and volume increases.

Income from Operations. Income from operations for the Asia Pacific segment was ~~$16.4~~$51.4 million for the three months ended ~~September~~June 30, ~~2021,~~2022, an increase of ~~$5.7~~$19.4 million, or ~~53.1%~~60.6%, compared to the same period in ~~2020.~~2021. Gross profit increased by ~~$15.2~~$16.8 million, or ~~41.0%~~21.6%, ~~mostly from~~as a result of higher ASP ~~growth, combined with AUC savings, of $11.5 million, or 31.1%, driven~~and volumes, offset by ~~increased pricing and less promotional activity, favorable product mix, and greater purchasing power from~~unfavorable foreign currency changes. ~~Increases in sales volume of $2.4 million, or 6.3%, and favorable changes in foreign currency of $1.3 million, or 3.6%, led by the Korean Won and Chinese Yuan, also contributed to higher gross profit.~~

SG&A for our Asia Pacific segment ~~increased $9.6~~decreased $2.6 million, or ~~36.2%~~5.7%, during the three months ended ~~September~~June 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, primarily due to anlower marketing costs of $3.0 million as a result of delayed investment driven by the COVID-19 impact on China factories during the second quarter. This was offset in ~~marketing of $6.4 million and increases in facilities expense, compensation expense, and~~part by higher other net costs, including facilities expense, of ~~$3.2~~$0.4 million.

Income from operations for the Asia Pacific segment was ~~$70.5~~$81.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, an increase of ~~$40.6~~$27.4 million, or ~~135.9%~~50.6%, compared to the same period in ~~2020.~~2021. Gross profit increased by ~~$55.0~~$28.2 million, or ~~46.1%~~23.1%, ~~most significantly~~due to higher ASPs of 25.0% from increased price increases and decreased promotional activity, partially offset by unfavorable purchasing power as a result of ~~higher ASPs and lower AUCs, on a net basis, of $36.7 million, or 30.7%, resulting from price increases and less promotional activity, favorable product mix, and greater purchasing power from~~foreign currency changes. ~~Favorable currency impacts of $8.7 million, or 7.3%, and higher volumes of $9.6 million, or 8.1%, primarily in our wholesale channel, also~~Volumes increased gross ~~profit.~~profit by 8.4%. Changes in foreign currency offset these increases by 10.3%.

SG&A for our Asia Pacific segment increased ~~$14.4~~$0.8 million, or ~~16.1%~~1.1%, in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same period in ~~2020, primarily~~2021, mostly due to ~~an investment~~increased investments in ~~marketing~~employee headcount of ~~$11.8~~$1.7 million ~~to support growth, an increase in~~and higher facilities ~~expense~~costs of ~~$4.0~~$1.3 million associated with ~~variable rent~~higher retail revenues, offset in part by lower marketing costs of $2.0 million, mostly as a result of delayed investment driven by ~~higher retail sales, and an increase in compensation expense of $1.9 million. These increases were partially offset by lower bad debt expense of $2.7 million, primarily from net charges taken in~~ the ~~prior year in response to~~ COVID-19 ~~and prior year inventory donations to healthcare workers and other organizations of $1.4 million, neither of which recurred in 2021.~~impact on China factories during the second quarter. There were ~~decreases in~~also lower other net costs of ~~$0.8~~$0.2 million.

~~EMEA~~EMEALA Operating Segment

Revenues. ~~Revenues increased~~The EMEALA segment led the increase in ~~our EMEA segment~~overall revenues in the three months ended ~~September~~June 30, ~~2021,~~2022, compared to the same period in ~~2020, driven mostly by increased sales volumes in our wholesale channel, which is both the result of higher demand for our products in the third quarter of~~ 2021, and the prior year impact of the COVID-19 pandemic on our wholesale brick-and-mortar and distributor markets, which further increased the disparity between the two periods. Increased ASPs, driven by favorable product mix and price increases, and favorable foreigndespite significant unfavorable currency headwinds due to fluctuations in the Euro ~~also contributed to higher revenues.~~and the shutdown of our direct operations in Russia as a result of the Ukraine war. This performance was driven by increased volume, with growth particularly strong in our distributor markets and increased ASPs, driven by increased prices and product mix, offset in part by unfavorable channel mix.

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During the ~~nine~~six months ended ~~September~~June 30, ~~2021, EMEA~~2022, EMEALA revenues increased compared to the same period in ~~2020,~~2021, primarily due to ~~higher wholesale revenue volumes resulting from~~ increased ~~product demand~~volume and ~~prior year COVID-19 impacts, which further increased the disparity between the two periods, and higher~~ ASP, ~~resulting from price increases and less promotions~~primarily in our ~~DTC channel. Favorable~~wholesale channel, offset in part by significant unfavorable foreign currency fluctuations in the ~~Euro, partially offset by negative fluctuations in the Russian Ruble, also contributed to higher revenues.~~Euro.

Income from Operations. Income from operations for the ~~EMEA~~EMEALA segment was ~~$27.0~~$53.4 million for the three months ended ~~September~~June 30, ~~2021,~~2022, an increase of ~~$10.9~~$12.0 million, or ~~68.1%~~29.0%, compared to the same period in ~~2020.~~2021. Gross profit increased ~~$15.7~~$13.6 million, or ~~52.6%~~21.9%, ~~due~~ mostly toas a result of higher volume of ~~$10.3~~$20.7 million, or ~~34.5%~~33.3%. Gains in ASP ~~growth~~due to increased pricing and ~~AUC savings together led to higher gross profit of $5.1 million, or 16.9%. This was driven by favorable purchasing power from currency changes, duties favorability, and favorable product mix,~~decreased promotions were partially offset by higher AUC as a result of increased freight costs, ~~from global supply chain challenges. Foreign currency changes, primarily~~mostly due to increased air freight, and unfavorable purchasing power, leading to a net increase in ~~the Euro, were favorable, impacting~~ gross profit ~~by $0.3~~of $2.4 million, or ~~1.2%~~4.0%. These increases were offset in part by unfavorable changes in foreign currency of $9.5 million, or 15.4%.

SG&A for our ~~EMEA~~EMEALA segment increased ~~$4.8~~$1.6 million, or ~~34.6%~~7.8%, during three months ended ~~September~~June 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021. Marketing investments increased $2.3 million, primarily in digital marketing. Various costs associated with the continued shutdown of our direct operations in Russia, including severance and lease exit costs and penalties, increased SG&A $7.3 million. These increases were partially offset by a decrease in bad debt expense of $5.7 million, primarily due to collections on previously reserved receivables in Russia. Other net costs decreased SG&A by $2.3 million.

Income from operations for the EMEALA segment was $88.3 million for the six months ended June 30, 2022, an increase of $6.9 million, or 8.5%, compared to the same period in 2021. Gross profit increased $17.2 million, or 14.7%, due to higher sales volumes of $22.5 million, or 19.3%, and increases in ASP that outpaced increases in AUC of $8.6 million, or 7.3%, as a result of price increases, offset in part by higher freight costs and unfavorable purchasing power. Negative currency changes, primarily in the Euro, led to decreases of 11.9%.

SG&A for our EMEALA segment increased $10.3 million, or 29.0%, during the six months ended June 30, 2022, compared to the same period in 2021. Marketing investments, primarily in digital marketing, ~~investments~~increased $3.8 million, while various costs associated with the continued shutdown of our direct operations in Russia, including severance and lease exit costs and penalties, increased SG&A $7.3 million. Other net cost decreases of $0.8 million partially offset these increases.

Crocs Brand Corporate

During the three months ended June 30, 2022, total net costs within ‘Brand corporate’ increased $6.9 million, or 32.1%, compared to ~~support growth~~the same period in 2021, due to an increase in compensation costs of ~~$3.4~~$1.6 million, information technology costs of $1.4 million, services costs of $1.2 million, and other net ~~cost increases, including compensation expense,~~costs of ~~$1.4~~$2.7 million.

During the six months ended June 30, 2022, total net costs within ‘Brand corporate’ increased $17.6 million, or 42.4%, compared to the same period in 2021, due to higher compensation costs of $5.2 million as a result of increased headcount, higher services costs of $2.9 million, and higher information technology costs of $2.3 million. Other net costs increased by $7.2 million.

HEYDUDE Brand

For the three months ended June 30, 2022, revenues attributable to HEYDUDE were $232.4 million, with the majority of revenues attributable to our wholesale channel at approximately 70%. Overall, we sold 8.1 million pairs of shoes in the HEYDUDE Brand during the quarter. Income from operations during the quarter was $41.7 million and included a $34.3 million non-cash step-up of acquired HEYDUDE inventory to fair value and SG&A costs comprised primarily of marketing, sales commissions, and compensation expense.

For the Partial Period, revenues attributable to HEYDUDE were $347.3 million, with the majority of revenues attributable to our wholesale channel at approximately 72%. Overall, we sold 12.1 million pairs of shoes in the HEYDUDE Brand during the Partial Period. Income from operations during the Partial Period was $57.3 million and included a $62.3 million non-cash step-up of acquired HEYDUDE inventory to fair value and SG&A costs comprised primarily of marketing, sales commissions, and compensation expense.

Refer to Note 16 — Acquisition of HEYDUDE in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q for additional information regarding the Acquisition.

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Income from operations for the EMEA segment was $100.4 million for the nine months ended September 30, 2021, an increase of $44.5 million, or 79.7%, compared to the same period in 2020. Gross profit increased $57.1 million, or 59.7%, due to higher sales volumes of $39.2 million, or 41.0%. Lower AUC and higher ASP resulted in a net impact on gross profit of $11.5 million, or 12.0%, as a result of favorable purchasing power, price increases, and fewer promotions, offset in part by higher freight costs from global supply chain challenges. Positive currency changes, primarily in the Euro, led to increases of $6.4 million, or 6.7%.

SG&A for our EMEA segment increased $12.6 million, or 31.6%, during the nine months ended September 30, 2021, compared to the same period in 2020. Additional investments in marketing to support growth of $9.4 million, higher compensation expense of $2.6 million, and higher facilities and other net costs of $1.9 million were offset in part by $1.3 million lower bad debt expense.

~~Unallocated~~Enterprise Corporate ~~and Other~~

During the three months ended ~~September~~June 30, ~~2021,~~2022, total net costs within ~~‘Unallocated Corporate and Other’~~‘Enterprise corporate’ increased ~~$17.6~~$2.8 million, or ~~31.8%~~6.1%, compared to the same period in ~~2020,~~2021, due to ~~higher~~an increase in services costs ~~including~~of $5.6 million, primarily related to consulting costs associated with ~~supply chain investments and legal expenses~~the integration of ~~$10.1~~HEYDUDE into our business. There was also $2.2 million ~~and~~higher information technology investments of $4.0 million. Higher salaries expense as a result of increased headcount and higher variable executive compensation was mostly offset by a variable compensation adjustment driven by the timing of business performance in the prior year, for a net increase of $0.6 million. Higher marketing and other net costs. These increases were offset by lower compensation costs ~~contributed $2.9~~of $5.0 million primarily due to ~~the increase.~~lower variable compensation.

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, total net costs within ~~‘Unallocated Corporate and Other’~~‘Enterprise corporate’ increased ~~$61.2~~$33.5 million, or ~~47.7%~~44.7%, compared to the same period in ~~2020,~~2021. This was primarily ~~driven by an increase in compensation expense of $36.5 million~~ due to ~~increased employee headcount~~costs associated with the acquisition and integration of HEYDUDE, including consulting, legal, and accounting fees, among others, of $26.3 million. There were also higher ~~variable and executive compensation, higher~~other professional services costs ~~for consulting associated with supply chain investments and legal expenses~~ of ~~$18.1~~$6.1 million, higher information technology costs of $3.0 million, and higher ~~information technology investments~~other net costs of ~~$8.5~~$4.9 million. These increases were offset in part by lower ~~other net~~depreciation and amortization of $3.7 million and lower compensation costs of ~~$1.9 million.~~$3.1 million primarily due to lower variable compensation.

Crocs Brand Store Locations and Digital Sales Percentage

The tables below illustrate the overall change in the number of our Crocs Brand company-operated retail locations by reportable operating segment for the ~~three and nine~~six months ended ~~September~~June 30, ~~2021:~~2022:


		June 30, 2021	Opened	Closed	September 30, 2021		March 31, 2022	Opened	Closed	June 30, 2022
Company-operated retail locations:	Company-operated retail locations:					Company-operated retail locations:

Americas		164	—	—	164
North America						North America	175	—	—	175
Asia Pacific	Asia Pacific	142	12	—	154	Asia Pacific	153	1	2	152
EMEA		46	—	—	46
EMEALA						EMEALA	44	—	3	41
Total	Total	352	12	—	364	Total	372	1	5	368

December 31,
2020 Opened Closed September 30,
2021
Operating segment:
Americas 165 — 1 164
Asia Pacific 137 19 2 154
EMEA 49 — 3 46
Total 351 19 6 364


	December 31, 2021	Opened	Closed	June 30, 2022





Company-operated retail locations:
North America	173	2	—	175
Asia Pacific	153	2	3	152
EMEALA	47	1	7	41
Total	373	5	10	368

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Digital sales, which includes sales through our company-owned websites, third party marketplaces, and e-tailers (which are reported in our wholesale channel), as a percent of total revenues, by operating segment were:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Digital sales as a percent of total revenues:
Americas 32.8 % 30.8 % 31.2 % 38.9 %
Asia Pacific 38.1 % 42.3 % 37.1 % 39.0 %
EMEA 56.9 % 59.8 % 50.1 % 53.5 %
Global 36.8 % 37.7 % 35.5 % 41.8 %


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Digital sales as a percent of total revenues:
Crocs Brand	37.2	%	36.4	%	35.3	%	34.7	%
HEYDUDE Brand (1)	31.5	%	—	%	29.6	%	—	%
Total (2)	35.8	%	36.4	%	34.1	%	34.7	%

(1) We acquired HEYDUDE on February 17, 2022. Therefore, the amounts shown above for the six months ended June 30, 2022 represent results during the Partial Period, and there are no comparative amounts for the three and six months ended June 30, 2021.

(2) For the three and six months ended June 30, 2021, the digital sales as a percent of total revenues represents the Crocs Brand.

~~The 2020 digital~~

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Direct-to-consumer (“DTC”) comparable sales ~~percentages were impacted~~for the Crocs Brand are as follows:


	Constant Currency (1)
	Three Months Ended June 30,			Six Months Ended June 30,
	2022		2021	2022		2021
Direct-to-consumer comparable sales: (2)



Crocs Brand (3)	7.5	%	N/A	10.7	%	N/A

(1) Reflects period over period change on a constant currency basis, which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” for more information.

(2) Comparable store status, as included in the DTC comparable sales figures above, is determined on a monthly basis. Comparable store sales include 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 comparable revenues are based on same site sales period over period. E-commerce sites that are temporarily offline or unable to ~~some extent by~~transact or fulfill orders (“site disruption”) are excluded from the comparable sales calculation during the month of site disruption and in the same month in the following year. E-commerce site disruptions in excess of three months are excluded until the thirteenth month after the site has re-opened.

(3) In the three and six months ended June 30, 2021, as a result of the COVID-19 ~~pandemic, which increased digital penetration when brick-and-mortar stores~~pandemic’s impact on 2020 sales we did not disclose DTC comparable sales, as they were ~~closed during such time-frame. Nonetheless, we expect digital sales to continue to increase going forward.~~not meaningful.

Financial Condition, Capital Resources, and Liquidity

Liquidity

Our liquidity position as of ~~September~~June 30, ~~2021~~2022 was:


	~~September~~June 30, ~~2021~~2022
	(in thousands)
Cash and cash equivalents	$	~~436,601~~187,352
Available borrowings	~~499,725~~475,806

As of ~~September~~June 30, ~~2021,~~2022, we had ~~$436.6~~$187.4 million in cash and cash equivalents and up to ~~$499.7~~$475.8 million of available borrowings, including $469.7 million of remaining borrowing availability under ~~our~~the Revolving Facility and $6.1 million of remaining borrowing availability under the Asia revolving facilities (as defined below). As of June 30, 2022, the Term Loan B Facility was fully drawn and there was no available borrowing capacity. We believe that cash flows from operations, our cash and cash equivalents on hand, and available borrowings under our Revolving Facility will be sufficient to meet our ongoing liquidity needs and capital expenditure requirements for at least the next twelve months.

We ~~also intend to be opportunistic with respect to our capital structure and our capital returns. Additionally, in March 2021, we~~ completed the ~~issuance~~Acquisition on February 17, 2022. The consideration for the Acquisition was comprised of $2.05 billion in cash and ~~sale~~2,852,280 of $350.0 million aggregate principal amount of 2029 Notes (as defined below), and in August 2021, we completed the issuance and sale of $350.0 million aggregate principal amount of 2031 Notes (as defined below). ACrocs shares. To finance a portion of the ~~net proceeds from~~Cash Consideration, we entered into the ~~2029 notes were used to repay the then-outstanding balance of $115.0~~$2.0 billion Term Loan B Facility and borrowed $50.0 million under our ~~Facility~~Revolving Facility. In 2022, we plan to use excess cash generated by our operations to begin to repay our outstanding debt, and, the remainder of the net proceeds from the Notes (as defined below) has and will be used for share repurchases and general corporate purposes, which may include, among other things, working capital expenditures and repayment of debt. See “Senior Notes Issuance” below for more information. Further, in third quarter 2021, the Board approved a $1,000.0 million increase toas such, we have suspended our share repurchase authorization. As of September 30, 2021, we had remaining authorization to repurchase approximately $1,550.0 million of our common stock, subject to restrictions under our Notes and Credit Agreement (as defined below).program.

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. 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 ~~among other factors,~~ could each 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.

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All of the cash held outside of the U.S. as of June 30, 2022 could be repatriated to the U.S. without incurring additional U.S. federal income taxes.As of ~~September~~June 30, ~~2021,~~2022, we held ~~$112.3~~$109.0 million of our total ~~$436.6~~$187.4 million in cash in international locations. This cash is

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primarily used for the ongoing operations of the business in the locations in which the cash is held. The repatriation of the ~~$112.3~~$109.0 million, held in international locations is not limited by local regulations.

Senior Revolving Credit Facility

Term Loan B Facility

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2022, with the remaining principal amount due on February 17, 2029, the maturity date. As of June 30, 2022, we had $1,995.0 million in outstanding principal and the Term Loan B Facility was fully drawn with no remaining borrowing capacity.

Asia Revolving Credit Facilities

During the six months ended June 30, 2022, we had two revolving credit facilities in Asia, the revolving credit facility with China Merchants Bank Company Limited, Shanghai Branch (the “CMBC Facility”) which provides up to 10.0 million RMB, or $1.5 million at current exchange rates, and matures in January 2023, and the revolving credit facility with Citibank (China) Company Limited, Shanghai Branch (the “Citibank Facility”), which provides up to an equivalent of $10.0 million.

As of June 30, 2022, we had borrowings outstanding of $0.5 million on the CMBC Facility, which are due in September 2022 and borrowings outstanding of $4.9 million on the Citibank Facility, which are due at various dates within the third quarter of 2022. We had no borrowings under our Asia revolving facilities during the year ended December 31, 2021 or outstanding at December 31, 2021.

Senior Notes ~~Issuance~~Issuances

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that guarantees any debt of the Company or any guarantor under any syndicated credit facility or capital markets debt in an aggregate principal amount in excess of $25.0 million.

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Cash Flows


		Nine Months Ended September 30,				$ Change		% Change			Six Months Ended June 30,				$ Change		% Change
		2021		2020		Favorable (Unfavorable)					2022		2021		Favorable (Unfavorable)
		(in thousands)									(in thousands)
Cash provided by operating activities	Cash provided by operating activities	$	355,165	$	158,640	$	196,525	123.9	%	Cash provided by operating activities	$	84,744	$	242,366	$	(157,622)	(65.0)	%
Cash used in investing activities	Cash used in investing activities	(35,767)		(32,927)		(2,840)		(8.6)	%	Cash used in investing activities	(2,097,029)		(21,323)		(2,075,706)		(9,734.6)	%
Cash used in financing activities		(13,020)		(110,951)		97,931		88.3	%
Cash provided by (used in) financing activities										Cash provided by (used in) financing activities	1,987,621		(155,344)		2,142,965		1,379.5	%
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(3,907)		130		(4,037)		(3,105.4)	%	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1,690)		(1,793)		103		5.7	%
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	$	302,471	$	14,892	$	287,579	1,931.1	%	Net change in cash, cash equivalents, and restricted cash	$	(26,354)	$	63,906	$	(90,260)	(141.2)	%

Operating Activities. Cash provided by operating activities consists of net income adjusted for noncash items and changes in working capital. Cash provided by operating activities ~~increased $196.5~~decreased $157.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, driven by decreases in operating assets and liabilities of $158.7 million, primarily due to accounts receivable, net and inventory, partially offset by higher net income, adjusted for non-cash items, of ~~$264.5 million and by net decreases in operating assets and liabilities of $68.0~~$1.1 million.

Investing Activities. There was a ~~$2.8~~$2,075.7 million increase in cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase is primarily due to ~~an increase in~~ the ~~purchases of property, equipment, and software, related to~~Cash Consideration for the ~~expansion of our distribution centers.~~

~~Financing Activities.~~ Cash used in financing activities decreased by $97.9 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The overall decrease was primarily due to an increase of $700.0 million in proceeds from the Notes issuances. This was offset by increases in repurchases of our common stock and repurchases of common stock for tax withholding of $460.8 million and $16.2 million, respectively, a $110.0 million increase in repayments,Acquisition, net of ~~borrowings, on our Facility, an increase in deferred debt issuance costs, which were associated with the Notes,~~cash acquired. Refer to Note 16 — Acquisition of ~~$14.0 million, and an increase of cash used in other financing activities of $1.1 million.~~

~~Contractual Obligations~~

There have been no significant changes to the contractual obligations reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, other than (i) borrowings and repayments on the Facility and the issuances of the Notes, as described above; and (ii) in the nine months ended September 30, 2021, we signed contracts to further expand our U.S. distribution center, resulting in (a) future lease payments of approximately $39 million through 2032, as described in Note 5 — LeasesHEYDUDE in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form ~~10-Q,~~10-Q.

Financing Activities. Cash provided by financing activities increased by $2,143.0 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was primarily due to an increase of $2,070.7 million in proceeds from borrowings, which includes borrowings under the Term Loan B Facility, Revolving Facility, and ~~(b)~~the Asia revolving facilities. Additionally, we had a decrease of $110.0 million in repayments of borrowings, a decrease of $350.0 million in repurchases of common stock, and a decrease of $4.8 million in repurchases of common stock for tax withholding. The overall increase was offset by a $350.0 million decrease in proceeds from the 2029 Notes issuance that occurred in the six months ended June 30, 2021 that did not recur in the current period, a $42.4 million increase in deferred debt issuance costs, primarily related to the Term Loan B Facility, and a $0.1 million increase in other cash used in financing activities.

Contractual Obligations

There have been no significant changes to the contractual ~~commitments~~obligations reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, other than (i) borrowings and repayments on the Revolving Facility and Asia Facilities and (ii) borrowings of ~~approximately $43 million through~~$2.0 billion under the Term Loan B Facility, which we entered into in the six months ended June 30, 2022.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of ~~September~~June 30, ~~2021,~~2022, other than certain purchase commitments, which are described in Note 1413 — Commitments and Contingencies in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q.

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Critical Accounting Policies and Estimates

The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, and expenses, and related disclosure of contingent assets and liabilities. We evaluate our assumptions and estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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Business Combinations

We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. Contingent consideration, if any, is included within the purchase price and is recognized at its fair value on the acquisition date. We allocate the purchase price of acquired businesses to the tangible assets, intangible assets, and contingent consideration based upon internal estimates of cash flows and consideration and/or the report of a third-party valuation expert, and this requires a significant amount of management judgment. The determination of fair values of identifiable assets and liabilities as well as contingent consideration requires estimates and the use of valuation techniques when market value is not readily available. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill.

During the six months ended June 30, 2022, we acquired HEYDUDE. The aggregate closing price of the Acquisition was $2.3 billion. The fair value of the acquired assets was determined by a third-party valuation specialist. The fair value of inventory was determined using a market approach and a cost approach, the replacement cost method. These methods were reconciled in order to allocate profit and expenses to measure the inventory value created by a seller. For the trademark, the third-party valuation team used the Multi Period Excess Earnings approach and for customer relationships, the valuation team used the distributor method.

Deferred taxes associated with estimated fair value adjustments reflect an estimated tax rate applicable to the acquiree. Deferred tax has been calculated based on the fair value adjustments of inventories and intangible assets using the tax rates for US and HK entities. This determination is preliminary and subject to change based upon the final determination of the fair value of the acquired assets and assumed liabilities of the acquiree.

The fair values of all the other assets and liabilities noted are equal to their carrying values due to the nature of the specific asset or liability. Refer to Note 16 — Acquisition of HEYDUDE in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q for additional details on the Acquisition.

For a complete discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 and Note 2 — Recent Accounting Pronouncements in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q. There have been no other significant changes in our critical accounting policies or their application since December 31, ~~2020.~~2021.

Recent Accounting Pronouncements

See Note 2 — Recent Accounting Pronouncements in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q for a description of recently adopted accounting pronouncements and issued accounting pronouncements that we believe may have an impact on our condensed consolidated financial statements when adopted.

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ITEM 3. 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 Revolving Facility and certain financial instruments.

Borrowings under our Revolving Facility bear interest at a variable rate 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.

As of ~~September~~June 30, 2022, we had borrowings with a face value of $2,830.4 million, comprised of the Notes, which carry a fixed rate, the Term Loan B Facility, and borrowings under the Revolving Facility and Asia revolving facilities. We also had $0.3 million in outstanding letters of credit under our Revolving Facility as of June 30, 2022. As of December 31, 2021, we had long-term borrowings with a face value of ~~$700.0~~$785.0 million ~~comprised of the Notes, which carry a fixed rate,~~ and $0.3 million in outstanding letters of credit under our ~~Facility. As of December 31, 2020, we had $180.0 million in outstanding borrowings and $0.6 million in outstanding letters of credit under our~~Revolving Facility.

A hypothetical increase of 1% in the interest rate on the borrowings under our Term Loan B Facility ~~borrowings~~and Revolving Facility would have increased interest expense by ~~less than $0.1~~$5.6 million and ~~$0.6~~$7.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

Foreign Currency Exchange Risk

Changes in exchange rates have a direct effect on our reported U.S. Dollar condensed consolidated financial statements because we translate the operating results and financial position of our international subsidiaries to U.S. Dollars using current period exchange rates. Specifically, we translate the statements of operations of our foreign subsidiaries into the U.S. Dollar 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 U.S. Dollar relative to foreign currencies would have decreased our revenues and income before taxes during the three ~~and nine~~ months ended ~~September~~June 30, ~~2021~~2022 by ~~$1.9~~$3.2 million and ~~$6.4~~$0.9 million, respectively. During the six months ended June 30, 2022, an increase of 1% of the value of the U.S. Dollar relative to foreign currencies would have decreased our revenues and income before taxes by $5.6 million and $1.4 million, respectively. The volatility of the exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy.

We may 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 ~~September~~June 30, ~~2021,~~2022, the U.S. Dollar notional value of our outstanding foreign currency forward exchange contracts was approximately ~~$166.3~~$152.7 million. The net fair value of these contracts at ~~September~~June 30, ~~2021~~2022 was an asset of ~~$0.3~~$0.2 million.

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 ~~September~~June 30, ~~2021,~~2022, a 10% appreciation in the value of the U.S. Dollar would result in a net increase in the fair value of our derivative portfolio of approximately ~~$0.4~~$0.8 million.

See Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q for a discussion of the impact of the change in foreign exchange rates on our U.S. Dollar condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~

2021.

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ITEM 4. 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 of our disclosure controls and procedures as such item is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). as of June 30, 2022. During the six months ended June 30, 2022, we closed the Acquisition, as discussed in Note 16 — Acquisition of HEYDUDE in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q. As such, the scope of our assessment of the effectiveness of our disclosure controls and procedures did not include internal controls over financial reporting at HEYDUDE. HEYDUDE revenues represented approximately 24.1% and 21.4% of our total revenues for the three and six months ended June 30, 2022, respectively. This exclusion is consistent with the Securities and Exchange Commission (the “SEC”) staff's guidance that an assessment of a recently acquired business may be omitted from the scope of our assessment of the effectiveness of disclosure controls and procedures that are also part of internal control over financial reporting in the year of acquisition.

Based onupon that this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2021,~~2022, 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 ~~Securities and Exchange Commission’s~~SEC’s 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.

Changes in Internal Control over Financial Reporting

~~There~~As noted above, we are in the process of integrating HEYDUDE into our overall internal control over financial reporting and will include HEYDUDE in Management’s Evaluation of Disclosure Controls and Procedures for the year ended December 31, 2023. This process may result in addition or changes to our internal control over financial reporting. In addition, as a result of the Acquisition, we have implemented new processes and controls over accounting for an acquisition during the six months ended June 30, 2022, including determining the fair value of the assets acquired and liabilities assumed. Except as described herein, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the three or six months ended ~~September~~June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — Other Information

ITEM 1. Legal Proceedings

A discussion of legal matters is found in Note 1615 — Legal Proceedings in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. Financial Statements of this Quarterly Report on Form 10-Q.

ITEM 1A. Risk Factors

You should carefully consider the factors discussed in Part I - Item 1A. Risk Factors in our Annual Report, which could materially affect our business, financial condition, cash flows, or future results. Except as set forth below, there have been no material changes in our risk factors included in our Annual Report.

~~Supply chain~~The ongoing war between Russia and Ukraine could cause further disruptions ~~could interrupt product manufacturing~~in the global economy as well as a negative impact on our business, financial condition and ~~increase product costs.~~results of operations.

~~We rely on third-party manufacturers outside~~The ongoing war between Russia and Ukraine has adversely affected the global economy, resulted in heightened economic sanctions against Russia from the United States, the United Kingdom, the European Union, and the international community and could result in geopolitical instability. As a result of the ~~U.S. to produce our products. Global industry-wide logistics challenges~~ongoing war between Russia and Ukraine, we have ~~continued to negatively impact us during the three months ended September 30, 2021, during which some~~stopped DTC business operations in Russia. Even though revenues from Russia represented less than 3% of our ~~third-party factories~~consolidated revenues in ~~Vietnam were closed for several weeks due~~2021, the impact of these government measures and our continued withdrawal of the business, as well as retaliatory actions taken by Russia and the United States and foreign government bodies has caused a negative impact to ~~COVID-19 outbreaks. Most~~the global economy, driving increases to the cost of transportation, energy and supplies, which have had, and could continue to have, a material adverse effect on our business, financial condition, results of operations, supply chain, intellectual property, partners, customers or employees and may expose us to adverse legal proceedings in Russia in the future. Further escalation of geopolitical tensions related to the war between Russia and Ukraine, including increased trade barriers or restrictions on global trade, could result in, among other things, broader impacts that expand into other markets, cyberattacks, supply chain and logistics disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain. In addition, the effects of the ongoing war between Russia and Ukraine could heighten many of our ~~third-party factories~~known risks described in ~~Vietnam resumed operations~~Part I, Item 1A, “Risk Factors” in ~~the third quarter but they remain in various stages of reopening. Closures and factory disruptions may recur if additional COVID-19 break-outs occur in Vietnam or other countries where we rely~~our Annual Report on ~~third-party manufacturers to produce our products.~~

We also rely on international shipping to transport our products to their various geographic markets. During the three months ended September 30, 2021, international shipping to the U.S. was disrupted and delayed due to congestion in west coast ports. Delays in shipping may cause us to have to use more expensive air freight or other more costly methods to ship our products. In addition, global inflation has contributed to already higher incremental freight costs. Failure to adequately produce and timely ship our products to customers could lead to lost potential revenue, failure to meet customer demand, strained relationships with customers, including wholesales, and diminished brand loyalty.

Despite our actions to mitigate these impacts, we expect to still be impacted by global logistics challenges in the remainder of 2021 and into 2022. Specifically, we plan to invest approximately $75 million in air freight in 2022 to bolster our inventory positionsForm 10-K for the ~~first half of 2022 in all regions. Additionally, we expect EMEA revenue growth in~~year ended December 31, 2021, filed with the ~~fourth quarter of 2021 will be disproportionately impacted by the Vietnam supply disruption, as much of the region’s inventory is sourced there.~~

SEC on February 16, 2022.

~~Table of Contents~~

~~ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

Issuer Purchases of Equity Securities
Period Total Number of Shares Purchased Average Price Paid per Share
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 Programs (1)
July 1 - 31, 2021 107,800 $ 132.65 107,800 $ 685,699,889
August 1 - 31, 2021 605,000 142.38 605,000 599,558,051
September 1 - 30, 2021 342,294 144.78 342,294 1,550,000,098
Total 1,055,094 $ 142.17 1,055,094 $ 1,550,000,098

~~(1)~~ On February 20, 2018, the Board approved and authorized a program to repurchase up to $500.0 million of our common stock. On May 5, 2019, the Board approved an increase to the repurchase authorization of up to an additional $500.0 million of our common stock. On April 23, 2021, the Board approved a $712.2 million increase to our share repurchase authorization. Additionally, on September 23, 2021, the Board approved an increase of $1.0 billion to our share repurchase authorization. Note, the table above does not include the September 2021 accelerated share repurchase, which will settle during the fourth quarter of 2021. As of September 30, 2021, approximately $1.6 billion 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 debt arrangements, 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.

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ITEM 6. Exhibits


Exhibit Number						Description
3.1						Restated Certificate of Incorporation of Crocs, Inc. (incorporated herein by reference to Exhibit 4.1 to Crocs, Inc.’s Registration Statement on Form S-8, filed on March 9, 2006).

3.2						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).

3.3						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).

3.4						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).

4.1						Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.2 to Crocs, Inc.’s Registration Statement on Form S-1/A, filed on January 19, 2006).

~~4.2~~						Indenture (including Form of Global 4.125% Senior Notes due 2031), dated August 10, 2021, by and among Crocs, Inc. the Guarantors party thereto from time to time and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to Crocs, Inc.’s Current Report on Form 8-K, filed on August 10, 2021).

31.1†						Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as 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+						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.

101.INS†						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.

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).

† Filed herewith.

+ Furnished herewith.

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SIGNATURES

Pursuant to the requirements 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.

CROCS, INC.

Date: ~~October 21, 2021~~August 4, 2022

By:

/s/ Anne Mehlman

Name:

Anne Mehlman

Title:

Executive Vice President and Chief Financial Officer

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PART I — Financial Information

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations	1
	Condensed Consolidated Statements of Comprehensive Income	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2123
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3539
Item 4.	Controls and Procedures	3640

PART II — Other Information		3741

Item 1.	Legal Proceedings	3741
Item 1A.	Risk Factors	3741
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	37
Item 6.	Exhibits	3942
Signatures		4043


	As of September 30, 2021
	(in thousands)
2021 (remainder of year)	$	9,631
2022	49,292
2023	37,690
2024	25,216
2025	19,023
Thereafter	92,364
Total future minimum lease payments	233,216
Less: imputed interest	(30,094)
Total operating lease liabilities	$	203,122


	Three Months Ended September 30, 2020
	Americas		Asia Pacific		EMEA		Unallocated Corporate and Other		Total
	(in thousands)
Channel:
Wholesale	$	98,025	$	28,842	$	37,630	$	14	$	164,511
Direct-to-consumer (1)	136,022		38,862		22,341		—		197,225


Total revenues	$	234,047	$	67,704	$	59,971	$	14	$	361,736


	Nine Months Ended September 30, 2020
	Americas		Asia Pacific		EMEA		Other Businesses		Total
	(in thousands)
Channel:
Wholesale	$	256,258	$	109,705	$	136,507	$	106	$	502,576
Direct-to-consumer (1)	297,097		117,031		57,741		—		471,869


Total revenues	$	553,355	$	226,736	$	194,248	$	106	$	974,445


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid per Share		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 Programs (1)
July 1 - 31, 2021	107,800	$	132.65	107,800	$	685,699,889


August 1 - 31, 2021	605,000	142.38		605,000	599,558,051
September 1 - 30, 2021	342,294	144.78		342,294	1,550,000,098


Total	1,055,094	$	142.17	1,055,094	$	1,550,000,098