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 ~~June~~September 30, 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 ~~July 28,~~October 27, 2022, Crocs, Inc. had ~~61,650,394~~61,744,934 shares of its common stock, par value $0.001 per share, outstanding.

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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:

•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;~~disruptions and inflation trends;

•our belief that we have sufficient liquidity to fund our business operations during the next twelve months; and

•our expectations about the impact of our strategic plans.

Forward-looking statements are subject to risks, uncertainties, and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation, those described in the section entitled “Risk Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2021 and our subsequent filings with the Securities and Exchange 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, except as required by applicable law.

Table of Contents

Crocs, Inc.

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

For the Quarterly Period Ended ~~June~~September 30, 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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenues	Revenues	$	964,581	$	640,773	$	1,624,729	$	1,100,871	Revenues	$	985,094	$	625,919	$	2,609,823	$	1,726,790
Cost of sales	Cost of sales	466,848		245,592		802,072		452,471		Cost of sales	443,792		226,123		1,245,864		678,594
Gross profit	Gross profit	497,733		395,181		822,657		648,400		Gross profit	541,302		399,796		1,363,959		1,048,196
Selling, general and administrative expenses	Selling, general and administrative expenses	249,769		199,859		456,016		328,392		Selling, general and administrative expenses	277,239		196,728		733,255		525,120
Income from operations	Income from operations	247,964		195,322		366,641		320,008		Income from operations	264,063		203,068		630,704		523,076
Foreign currency losses, net		(1,202)		(117)		(722)		(621)
Foreign currency gains (losses), net										Foreign currency gains (losses), net	(393)		537		(1,115)		(84)
Interest income	Interest income	86		71		188		98		Interest income	31		615		219		713
Interest expense	Interest expense	(32,963)		(4,712)		(52,215)		(6,344)		Interest expense	(34,142)		(6,486)		(86,357)		(12,830)
Other income (expense), net	Other income (expense), net	419		2		(528)		13		Other income (expense), net	16		2		(512)		15
Income before income taxes	Income before income taxes	214,304		190,566		313,364		313,154		Income before income taxes	229,575		197,736		542,939		510,890
Income tax expense (benefit)	Income tax expense (benefit)	53,989		(128,388)		80,289		(104,198)		Income tax expense (benefit)	60,226		44,247		140,515		(59,951)
Net income	Net income	$	160,315	$	318,954	$	233,075	$	417,352	Net income	$	169,349	$	153,489	$	402,424	$	570,841
Net income per common share:	Net income per common share:									Net income per common share:
Basic	Basic	$	2.60	$	5.02	$	3.84	$	6.47	Basic	$	2.75	$	2.47	$	6.59	$	8.96
Diluted	Diluted	$	2.58	$	4.93	$	3.79	$	6.35	Diluted	$	2.72	$	2.42	$	6.51	$	8.79
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	61,590		63,595		60,712		64,526		Basic	61,693		62,033		61,042		63,695
Diluted	Diluted	62,236		64,640		61,571		65,744		Diluted	62,367		63,324		61,840		64,937

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 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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	169,349	$	153,489	$	402,424	$	570,841
Other comprehensive income (loss), net of tax:
Derivatives designated as hedging instruments:
Unrealized gains (losses) on derivative instruments	568		—		568		—

Net increase (decrease) from derivatives designated as hedging instruments	568		—		568		—
Foreign currency translation losses, net	(34,285)		(12,867)		(70,788)		(20,053)

Total comprehensive income, net of tax	$	135,632	$	140,622	$	332,204	$	550,788

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)


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	187,352	$	213,197	Cash and cash equivalents	$	142,971	$	213,197
Restricted cash - current	Restricted cash - current	32		65		Restricted cash - current	2		65
Accounts receivable, net of allowances of $28,087 and $20,715, respectively		423,490		182,629
Accounts receivable, net of allowances of $31,039 and $20,715, respectively						Accounts receivable, net of allowances of $31,039 and $20,715, respectively	397,657		182,629
Inventories	Inventories	501,527		213,520		Inventories	513,748		213,520
Income taxes receivable	Income taxes receivable	2,223		22,301		Income taxes receivable	2,464		22,301
Other receivables	Other receivables	16,742		12,252		Other receivables	23,560		12,252
Prepaid expenses and other assets	Prepaid expenses and other assets	36,941		22,605		Prepaid expenses and other assets	42,770		22,605
Total current assets	Total current assets	1,168,307		666,569		Total current assets	1,123,172		666,569
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		1,804,067		28,802
Property and equipment, net of accumulated depreciation and amortization of $91,037 and $83,745, respectively						Property and equipment, net of accumulated depreciation and amortization of $91,037 and $83,745, respectively	163,374		108,398
Intangible assets, net of accumulated amortization of $121,717 and $108,167, respectively						Intangible assets, net of accumulated amortization of $121,717 and $108,167, respectively	1,802,576		28,802
Goodwill	Goodwill	714,143		1,600		Goodwill	714,380		1,600
Deferred tax assets, net	Deferred tax assets, net	513,582		567,201		Deferred tax assets, net	481,897		567,201
Restricted cash	Restricted cash	3,187		3,663		Restricted cash	2,980		3,663
Right-of-use assets	Right-of-use assets	236,077		160,768		Right-of-use assets	248,548		160,768
Other assets	Other assets	7,001		8,067		Other assets	6,241		8,067
Total assets	Total assets	$	4,586,642	$	1,545,068	Total assets	$	4,543,168	$	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	$	225,302	$	162,145	Accounts payable	$	190,097	$	162,145
Accrued expenses and other liabilities	Accrued expenses and other liabilities	242,754		166,887		Accrued expenses and other liabilities	228,971		166,887
Income taxes payable	Income taxes payable	58,702		16,279		Income taxes payable	76,990		16,279
Current borrowings	Current borrowings	25,403		—		Current borrowings	20,000		—
Current operating lease liabilities	Current operating lease liabilities	49,983		42,932		Current operating lease liabilities	55,102		42,932
Total current liabilities	Total current liabilities	602,144		388,243		Total current liabilities	571,160		388,243
Deferred tax liabilities, net	Deferred tax liabilities, net	312,821		—		Deferred tax liabilities, net	312,813		—
Long-term income taxes payable	Long-term income taxes payable	216,042		219,744		Long-term income taxes payable	204,769		219,744
Long-term borrowings	Long-term borrowings	2,743,507		771,390		Long-term borrowings	2,595,767		771,390
Long-term operating lease liabilities	Long-term operating lease liabilities	217,586		149,237		Long-term operating lease liabilities	225,395		149,237
Other liabilities	Other liabilities	2,577		2,372		Other liabilities	2,462		2,372
Total liabilities	Total liabilities	4,094,677		1,530,986		Total liabilities	3,912,366		1,530,986
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies
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, 109.3 million and 105.9 million issued, 61.6 million and 58.3 million outstanding, respectively		109		106
Common stock, par value $0.001 per share, 250.0 million shares authorized, 109.5 million and 105.9 million issued, 61.7 million and 58.3 million outstanding, respectively						Common stock, par value $0.001 per share, 250.0 million shares authorized, 109.5 million and 105.9 million issued, 61.7 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)		Treasury stock, at cost, 47.7 million and 47.6 million shares, respectively	(1,695,463)		(1,684,262)
Additional paid-in capital	Additional paid-in capital	783,862		496,036		Additional paid-in capital	791,750		496,036
Retained earnings	Retained earnings	1,512,115		1,279,040		Retained earnings	1,681,464		1,279,040
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(113,341)		(76,838)		Accumulated other comprehensive loss	(147,058)		(76,838)
Total stockholders’ equity	Total stockholders’ equity	491,965		14,082		Total stockholders’ equity	630,802		14,082
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	4,586,642	$	1,545,068	Total liabilities and stockholders’ equity	$	4,543,168	$	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				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 March 31, 2022		61,572	$	109	47,658	$	(1,690,312)			$	774,562						$	1,351,800			$	(86,989)		$	349,170
Balance at June 30, 2022																						Balance at June 30, 2022	61,627			$	109		47,667	$	(1,690,780)		$	783,862		$	1,512,115		$	(113,341)		$	491,965
Share-based compensation	Share-based compensation	—	—		—	—		9,300				—			—				9,300			Share-based compensation	—			—			—	—		7,888			—			—			7,888
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	55	—		9	(468)		—				—			—				(468)			Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	118			—			62	(4,683)		—			—			—			(4,683)

Net income	Net income	—	—		—	—		—				160,315			—				160,315			Net income	—			—			—	—		—			169,349			—			169,349
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—			(26,352)				(26,352)			Other comprehensive loss	—			—			—	—		—			—			(33,717)			(33,717)
Balance at June 30, 2022		61,627	$	109	47,667	$	(1,690,780)	$	783,862			$	1,512,115		$	(113,341)			$	491,965
Balance at September 30, 2022																						Balance at September 30, 2022	61,745			$	109		47,729	$	(1,695,463)	$	791,750		$	1,681,464		$	(147,058)		$	630,802


		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 March 31, 2021		65,225	$	106	40,383	$	(783,926)			$	525,289						$	651,744			$	(66,982)		$	326,231
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
Share-based compensation	Share-based compensation	—	—		—	—		11,294				—			—				11,294			Share-based compensation	—			—			—	—		10,591			—			—			10,591
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)			Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	174			—			52	(7,146)		—			—			—			(7,146)
Repurchases of common stock	Repurchases of common stock	(2,890)	—		2,890	(293,773)		(6,227)				—			—				(300,000)			Repurchases of common stock	(1,055)			—			1,055	(150,000)		—			—			—			(150,000)
Net income	Net income	—	—		—	—		—				318,954			—				318,954			Net income	—			—			—	—		—			153,489			—			153,489
Other comprehensive income		—	—		—	—		—				—			3,442				3,442
Balance at June 30, 2021		62,382	$	106	43,283	$	(1,078,857)	$	530,357			$	970,698		$	(63,540)			$	358,764
Other comprehensive loss																						Other comprehensive loss	—			—			—	—		—			—			(12,867)			(12,867)
Balance at September 30, 2021																						Balance at September 30, 2021	61,501			$	106		44,390	$	(1,236,003)	$	540,948		$	1,124,187		$	(76,407)		$	352,831

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				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, 2021	Balance at December 31, 2021	58,330	$	106	47,583	$	(1,684,262)			$	496,036						$	1,279,040			$	(76,838)		$	14,082	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	Share-based compensation	—	—		—	—		17,575				—			—				17,575			Share-based compensation	—			—				—			—				25,463				—				—				25,463
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	445	—		84	(6,518)		(142)				—			—				(6,660)			Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	563			—				146			(11,201)			(142)				—				—				(11,343)

Share issuance at Acquisition	Share issuance at Acquisition	2,852	3		—	—		270,393				—			—				270,396			Share issuance at Acquisition	2,852			3				—			—			270,393				—				—				270,396
Net income	Net income	—	—		—	—		—				233,075			—				233,075			Net income	—			—				—			—			—				402,424				—				402,424
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—			(36,503)				(36,503)			Other comprehensive loss	—			—				—			—			—				—				(70,220)				(70,220)
Balance at June 30, 2022		61,627	$	109	47,667	$	(1,690,780)	$	783,862			$	1,512,115		$	(113,341)			$	491,965
Balance at September 30, 2022																						Balance at September 30, 2022	61,745			$	109			47,729			$	(1,695,463)		$	791,750			$	1,681,464			$	(147,058)			$	630,802


		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, 2020	Balance at December 31, 2020	65,856	$	105	39,132	$	(688,849)			$	482,385						$	553,346			$	(56,354)		$	290,633	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	—	—		—	—		19,348				—			—				19,348			Share-based compensation	—			—				—			—				29,939				—				—				29,939
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)			Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	702			1				201			(18,766)			236				—				—				(18,529)
Repurchases of common stock	Repurchases of common stock	(4,002)	—		4,002	(378,388)		28,388				—			—				(350,000)			Repurchases of common stock	(5,057)			—				5,057			(528,388)			28,388				—				—				(500,000)
Net income	Net income	—	—		—	—		—				417,352			—				417,352			Net income	—			—				—			—			—				570,841				—				570,841
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—				—			(7,186)				(7,186)			Other comprehensive loss	—			—				—			—			—				—				(20,053)				(20,053)
Balance at June 30, 2021		62,382	$	106	43,283	$	(1,078,857)	$	530,357			$	970,698		$	(63,540)			$	358,764
Balance at September 30, 2021																						Balance at September 30, 2021	61,501			$	106			44,390			$	(1,236,003)		$	540,948			$	1,124,187			$	(76,407)			$	352,831

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)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	233,075	$	417,352	Net income	$	402,424	$	570,841
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	16,754		15,749		Depreciation and amortization	26,498		23,832
Operating lease cost	Operating lease cost	30,887		29,758		Operating lease cost	47,945		44,067
Inventory donations		1,941		641
Recovery of doubtful accounts, net		(180)		(2,556)

Share-based compensation	Share-based compensation	17,575		19,348		Share-based compensation	25,463		29,939
Deferred income taxes	Deferred income taxes	—		(176,862)		Deferred income taxes	—		(176,873)
Other non-cash items(1)	Other non-cash items(1)	5,316		836		Other non-cash items(1)	12,568		(2,672)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:	Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:					Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Accounts receivable	Accounts receivable	(181,154)		(82,621)		Accounts receivable	(166,864)		(80,981)
Inventories	Inventories	(121,452)		(36,099)		Inventories	(139,682)		(41,193)
Prepaid expenses and other assets(1)	Prepaid expenses and other assets(1)	(9,309)		(6,419)		Prepaid expenses and other assets(1)	(20,526)		(9,936)
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	85,091		75,520		Accounts payable, accrued expenses and other liabilities	51,608		30,997
Right-of-use assets and operating lease liabilities	Right-of-use assets and operating lease liabilities	(29,927)		(22,759)		Right-of-use assets and operating lease liabilities	(45,824)		(37,723)
Income taxes(1)	Income taxes(1)	36,127		10,478		Income taxes(1)	53,075		4,867
Cash provided by operating activities	Cash provided by operating activities	84,744		242,366		Cash provided by operating activities	246,685		355,165
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property, equipment, and software	Purchases of property, equipment, and software	(56,744)		(21,329)		Purchases of property, equipment, and software	(89,588)		(35,758)

Acquisition of HEYDUDE, net of cash acquired	Acquisition of HEYDUDE, net of cash acquired	(2,040,265)		—		Acquisition of HEYDUDE, net of cash acquired	(2,046,881)		—
Other(1)	Other(1)	(20)		6		Other(1)	(20)		(9)
Cash used in investing activities	Cash used in investing activities	(2,097,029)		(21,323)		Cash used in investing activities	(2,136,489)		(35,767)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from notes issuance	Proceeds from notes issuance	—		350,000		Proceeds from notes issuance	—		700,000
Proceeds from borrowings	Proceeds from borrowings	2,240,677		170,000		Proceeds from borrowings	2,240,677		170,000
Repayments of borrowings	Repayments of borrowings	(195,000)		(305,000)		Repayments of borrowings	(350,285)		(350,000)
Deferred debt issuance costs	Deferred debt issuance costs	(51,395)		(8,961)		Deferred debt issuance costs	(51,395)		(14,491)
Repurchases of common stock	Repurchases of common stock	—		(350,000)		Repurchases of common stock	—		(500,000)
Repurchases of common stock for tax withholding	Repurchases of common stock for tax withholding	(6,756)		(11,619)		Repurchases of common stock for tax withholding	(11,439)		(18,766)
Other	Other	95		236		Other	95		237
Cash provided by (used in) financing activities	Cash provided by (used in) financing activities	1,987,621		(155,344)		Cash provided by (used in) financing activities	1,827,653		(13,020)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1,690)		(1,793)		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(8,821)		(3,907)
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	(26,354)		63,906		Net change in cash, cash equivalents, and restricted cash	(70,972)		302,471
Cash, cash equivalents, and restricted cash—beginning of period	Cash, cash equivalents, and restricted cash—beginning of period	216,925		139,273		Cash, cash equivalents, and restricted cash—beginning of period	216,925		139,273
Cash, cash equivalents, and restricted cash—end of period	Cash, cash equivalents, and restricted cash—end of period	$	190,571	$	203,179	Cash, cash equivalents, and restricted cash—end of period	$	145,953	$	441,744

Non-Cash Investing and Financing Activities:	Non-Cash Investing and Financing Activities:					Non-Cash Investing and Financing Activities:
Accrued purchases of property, equipment, and software	Accrued purchases of property, equipment, and software	$	5,038	$	6,423	Accrued purchases of property, equipment, and software	$	80,098	$	13,061
Share issuance at Acquisition	Share issuance at Acquisition	270,396		—		Share issuance at Acquisition	270,396		—
Accrued additional consideration for Acquisition		6,616		—

(1) Amounts for the nine months ended September 30, 2021 have been reclassified to conform to current period presentation.

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~~casual 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 Crocs Brand, operating throughout the United States and Canada; (ii) Asia Pacific for the Crocs Brand, operating throughout Asia, Australia, and New Zealand; (iii) Europe, Middle East, Africa, and Latin America (“EMEALA”) for the Crocs Brand; and (iv) the HEYDUDE Brand. See Note 1415 — 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, 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 ~~six~~nine months ended ~~June~~September 30, 2022, other than with respect to the new accounting pronouncements adopted as described in Note 2 — Recent Accounting Pronouncements, our accounting policy for hedged derivatives as described in Note 7 — Derivative Financial Instruments, and our business combination policy as described in Note 1617 — Acquisition of HEYDUDE.

Reclassifications

We have reclassified certain amounts on the condensed consolidated statements of cash flows, in Note 34 — Accrued Expenses and Other Liabilities, and in Note 1415 — 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, depreciation and amortization, and purchase price allocation for the Acquisition, as described in Note 1617 — 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.

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2. RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncement Adopted

Income Taxes

The CHIPS and Science Act of 2022 (CHIPS) and the Inflation Reduction Act (IRA) of 2022 were signed into law by President Biden on August 9, 2022 and August 16, 2022, respectively. The legislation introduces new options for monetizing certain credits, a corporate alternative minimum tax, and a stock repurchase excise tax. The Company is currently evaluating the impact of CHIPS and IRA, but at present does not expect that the any of the provisions included in these acts would result in a material impact to our deferred tax assets, liabilities, or income taxes payable.

Business Combinations

In October 2021, the FASB issued new guidance primarily related to the accounting for contract assets 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 reporting periods within those periods, with early adoption permitted. On January 1, 2022, we early adopted this guidance on a prospective basis. The adoption did not have a material impact on our consolidated financial statements.

New Accounting Pronouncement Not Yet Adopted

New pronouncements issued but not effective until after ~~June~~September 30, 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, 2022		December 31, 2021
	(in thousands)
Leasehold improvements	$	66,532	$	64,625
Machinery and equipment	126,451		53,976
Furniture, fixtures, and other	36,151		20,210
Construction-in-progress	25,277		53,332
Property and equipment	254,411		192,143
Less: Accumulated depreciation and amortization	(91,037)		(83,745)
Property and equipment, net	$	163,374	$	108,398

4. ACCRUED EXPENSES AND OTHER LIABILITIES

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


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(in thousands)					(in thousands)
Accrued compensation and benefits	Accrued compensation and benefits	$	53,241	$	62,945	Accrued compensation and benefits	$	53,008	$	62,945
Professional services	Professional services	46,504		33,997		Professional services	48,293		33,997
Fulfillment, freight, and duties	Fulfillment, freight, and duties	51,207		15,629		Fulfillment, freight, and duties	46,340		15,629
Sales/use and value added taxes payable	Sales/use and value added taxes payable	25,886		13,049		Sales/use and value added taxes payable	21,714		13,049
Return liabilities	Return liabilities	16,773		10,342		Return liabilities	18,185		10,342
Accrued rent and occupancy	Accrued rent and occupancy	9,391		7,431		Accrued rent and occupancy	8,641		7,431
Royalties payable and deferred revenue	Royalties payable and deferred revenue	8,152		7,425		Royalties payable and deferred revenue	8,699		7,425

Accrued legal fees(1)	Accrued legal fees(1)	8,960		5,872		Accrued legal fees(1)	4,541		5,872
Other(1)	Other(1)	22,640		10,197		Other(1)	19,550		10,197
Total accrued expenses and other liabilities	Total accrued expenses and other liabilities	$	242,754	$	166,887	Total accrued expenses and other liabilities	$	228,971	$	166,887

(1) Amounts as of December 31, 2021 have been reclassified to conform to current period presentation.

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4.5. LEASES

Right-of-Use Assets and Operating Lease Liabilities

Amounts reported in the condensed consolidated balance sheets were:


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(in thousands)					(in thousands)
Assets:	Assets:					Assets:
Right-of-use assets	Right-of-use assets	$	236,077	$	160,768	Right-of-use assets	$	248,548	$	160,768
Liabilities:	Liabilities:					Liabilities:
Current operating lease liabilities	Current operating lease liabilities	$	49,983	$	42,932	Current operating lease liabilities	$	55,102	$	42,932
Long-term operating lease liabilities	Long-term operating lease liabilities	217,586		149,237		Long-term operating lease liabilities	225,395		149,237
Total operating lease liabilities	Total operating lease liabilities	$	267,569	$	192,169	Total operating lease liabilities	$	280,497	$	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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Operating lease cost	Operating lease cost	$	16,656	$	14,926	$	30,887	$	29,758	Operating lease cost	$	17,058	$	14,309	$	47,945	$	44,067
Short-term lease cost	Short-term lease cost	2,371		1,963		5,003		3,404		Short-term lease cost	2,490		2,095		7,493		5,499
Variable lease cost	Variable lease cost	12,013		10,659		16,565		14,307		Variable lease cost	12,161		10,568		28,726		24,875
Total lease costs	Total lease costs	$	31,040	$	27,548	$	52,455	$	47,469	Total lease costs	$	31,709	$	26,972	$	84,164	$	74,441

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


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
		(in thousands)					(in thousands)
Cash paid for operating leases	Cash paid for operating leases	$	29,411	$	31,910	Cash paid for operating leases	$	45,192	$	46,345
Right-of-use assets obtained in exchange for operating lease liabilities	Right-of-use assets obtained in exchange for operating lease liabilities	52,837		43,582		Right-of-use assets obtained in exchange for operating lease liabilities	96,292		52,145

The weighted average remaining lease term and discount rate related to our lease liabilities as of ~~June~~September 30, 2022 were ~~7.5~~7.2 years and 3.6%, respectively. As of ~~June~~September 30, 2021, the weighted average remaining lease term and discount rate related to our lease liabilities were ~~7.3~~7.1 years and 3.9%, respectively.

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Maturities

The maturities of our operating lease liabilities were:


		As of June 30, 2022			As of September 30, 2022
		(in thousands)			(in thousands)
2022 (remainder of year)	2022 (remainder of year)	$	25,568	2022 (remainder of year)	$	11,809
2023	2023	54,625		2023	61,580
2024	2024	40,768		2024	47,943
2025	2025	29,934		2025	36,329
2026	2026	27,413		2026	31,275
Thereafter	Thereafter	130,510		Thereafter	133,028
Total future minimum lease payments	Total future minimum lease payments	308,818		Total future minimum lease payments	321,964
Less: imputed interest	Less: imputed interest	(41,249)		Less: imputed interest	(41,467)
Total operating lease liabilities	Total operating lease liabilities	$	267,569	Total operating lease liabilities	$	280,497

Leases That Have Not Yet Commenced

As of September 30, 2022, we had significant obligations for a lease not yet commenced related to a new HEYDUDE distribution center in Las Vegas, Nevada. The total contractual commitment related to the lease, with payments expected to begin in the third quarter of 2023 and continue through December 2033, is approximately $75 million.

5.6. 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’ or ‘Accrued expenses and other liabilities’ at ~~June~~September 30, 2022 and December 31, 2021. The fair values of our derivative instruments were an insignificant asset at ~~June~~September 30, 2022 and an insignificant liability at December 31, 2021. See Note 67 — Derivative Financial Instruments for more information.

The carrying amounts of our cash, cash equivalents, and restricted cash, accounts receivable, accounts payable, and current accrued expenses and other liabilities approximate their fair value as recorded due to the short-term maturity of these instruments.

~~Table of Contents~~

Our borrowing instruments are recorded at their carrying values in the condensed consolidated balance sheets, which may differ from their respective fair values. During the ~~six~~nine months ended ~~June~~September 30, 2022, we entered into a credit agreement for a term loan B facility in the aggregate principal amount of $2.0 billion (the “Term Loan B Facility”), as described in more detail in Note 78 — 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 fair values of our revolving credit facilities approximate their carrying values at ~~June~~September 30, 2022 and December 31, 2021 based on interest rates currently available to us for similar borrowings. The carrying value and fair value of our borrowing instruments as of ~~June~~September 30, 2022 and December 31, 2021 were:


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
		(in thousands)									(in thousands)
Term Loan B Facility	Term Loan B Facility	$	1,995,000	$	1,825,425	$	—	$	—	Term Loan B Facility	$	1,975,000	$	1,856,500	$	—	$	—
2029 Notes	2029 Notes	350,000		259,656		350,000		346,281		2029 Notes	350,000		275,844		350,000		346,281
2031 Notes	2031 Notes	350,000		246,750		350,000		341,250		2031 Notes	350,000		267,750		350,000		341,250
Revolving credit facilities	Revolving credit facilities	130,000		130,000		85,000		85,000		Revolving credit facilities	—		—		85,000		85,000

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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.

6.7. 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 ~~June~~September 30, 2022 or December 31, 2021.

Our derivative instruments and cash flow hedges are recorded at fair value as a derivative asset or liability in the condensed consolidated balance ~~sheets.~~ sheets within either ‘Prepaid expenses and other assets’ or ‘Accrued expenses and other liabilities’ at September 30, 2022 and December 31, 2021. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or we elect not to apply hedge accounting.

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 ~~losses,~~gains (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.’

As of September 30, 2022, we have derivatives not designated as hedging instruments (“non-hedged derivatives”), which consist of foreign currency forward contracts primarily used to hedge monetary assets and liabilities denominated in non-functional currencies and cash flow hedges (“hedged derivatives”), as described in the following section.

Cash Flow Hedges of Foreign Exchange Risk

We are exposed to fluctuations in various foreign currencies against our functional currency, the U.S. Dollar. Specifically, we have subsidiaries that transact in currencies other than their functional currency. We use cash flow hedges to minimize the variability in cash flows caused by fluctuations in foreign currency exchange rates related to our external sales and external purchases of inventory. Currency forward agreements involve fixing the exchange rates for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in U.S. Dollars for their fair value at or close to their settlement date. We may also use currency option contracts under which we will pay a premium for the right to sell a specified amount of a foreign currency prior to the maturity date of the option.

For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in ‘Accumulated other comprehensive loss’ in the condensed consolidated balance sheets. In the period during which the hedged transaction affects earnings, the related gain or loss is subsequently reclassified to ‘Revenues’ or ‘Cost of sales’ in the condensed consolidated statement of operations, which is consistent with the nature of the hedged transaction. During the three months ended September 30, 2022, there were no gains or losses reclassified from ‘Accumulated other comprehensive loss’ to ‘Revenues’ or ‘Cost of sales.’ During the next twelve months, we estimate that approximately $0.6 million will be reclassified to the condensed consolidated statement of operations.

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Results of Derivative Activities

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


		June 30, 2022				December 31, 2021					September 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)
Non-hedged derivatives:										Non-hedged derivatives:
Forward foreign currency exchange contracts	Forward foreign currency exchange contracts	$	339	$	(113)	$	724	$	(938)	Forward foreign currency exchange contracts	$	1,368	$	(1,226)	$	724	$	(938)
Netting of counterparty contracts	Netting of counterparty contracts	(113)		113		(724)		724		Netting of counterparty contracts	(1,226)		1,226		(724)		724
Foreign currency forward contract derivatives	Foreign currency forward contract derivatives	$	226	$	—	$	—	$	(214)	Foreign currency forward contract derivatives	142		—		—		(214)
Hedged derivatives:										Hedged derivatives:
Cash flow foreign currency contracts										Cash flow foreign currency contracts	568		—		—		—
Netting of counterparty contracts										Netting of counterparty contracts	—		—		—		—
Cash flow foreign currency contract derivatives										Cash flow foreign currency contract derivatives	568		—		—		—
Total derivatives										Total derivatives	$	710	$	—	$	—	$	(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.


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
		Notional		Fair Value		Notional		Fair Value			Notional		Fair Value		Notional		Fair Value
		(in thousands)									(in thousands)
Non-hedged derivatives:										Non-hedged derivatives:
Singapore Dollar	Singapore Dollar	$	51,851	$	(85)	$	43,723	$	(296)	Singapore Dollar	$	67,673	$	(1,226)	$	43,723	$	(296)
South Korean Won										South Korean Won	19,635		646		14,201		(112)
Indian Rupee										Indian Rupee	21,590		484		10,379		(86)
British Pound Sterling	British Pound Sterling	18,861		2		25,795		104		British Pound Sterling	17,513		49		25,795		104
Japanese Yen										Japanese Yen	9,528		75		12,910		80
Euro										Euro	6,119		114		21,198		162
Other currencies										Other currencies	—		—		19,481		(66)
Total non-hedged derivatives										Total non-hedged derivatives	142,058		142		147,687		(214)
Hedged derivatives:										Hedged derivatives:
Euro	Euro	28,428		43		21,198		162		Euro	12,800		113		—		—
South Korean Won	South Korean Won	18,057		(28)		14,201		(112)		South Korean Won	8,860		271		—		—
Japanese Yen		12,877		54		12,910		80
Indian Rupee	Indian Rupee	21,285		229		10,379		(86)		Indian Rupee	6,960		138		—		—
Other currencies		1,345		11		19,481		(66)
Total		$	152,704	$	226	$	147,687	$	(214)
British Pound Sterling										British Pound Sterling	6,812		46		—		—
Total hedged derivatives										Total hedged derivatives	35,432		568		—		—
Total derivatives										Total derivatives	$	177,490	$	710	$	147,687	$	(214)

Latest maturity date		September 2022				January 2022
Latest maturity date, non-hedged derivatives										Latest maturity date, non-hedged derivatives	December 2022				January 2022
Latest maturity date, hedged derivatives										Latest maturity date, hedged derivatives	June 2023				N/A

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Amounts reported in ‘Foreign currency ~~losses,~~gains (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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Foreign currency transaction gains (losses) $ (3,135) $ 506 $ (4,052) $ (345)
Foreign currency forward exchange contracts gains (losses) 1,933 (623) 3,330 (276)
Foreign currency losses, net $ (1,202) $ (117) $ (722) $ (621)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Non-hedged derivatives:
Foreign currency transaction gains (losses)	$	(2,126)	$	493	$	(6,178)	$	148
Foreign currency forward exchange contracts gains	1,733		44		5,063		(232)
Foreign currency gains (losses), net	$	(393)	$	537	$	(1,115)	$	(84)

7.8. BORROWINGS

Our long-term borrowings were as follows:


		Maturity	Stated Interest Rate		Effective Interest Rate		June 30, 2022		December 31, 2021			Maturity	Stated Interest Rate		Effective Interest Rate		September 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	$	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		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		—		Term Loan B Facility	2029					1,975,000		—
Revolving credit facilities	Revolving credit facilities						130,000		85,000		Revolving credit facilities						—		85,000
Total face value of long-term borrowings	Total face value of long-term borrowings						2,825,000		785,000		Total face value of long-term borrowings						2,675,000		785,000
Less:	Less:										Less:
Unamortized issuance costs	Unamortized issuance costs						61,493		13,610		Unamortized issuance costs						59,233		13,610
Current portion of long-term borrowings (1)	Current portion of long-term borrowings (1)						20,000		—		Current portion of long-term borrowings (1)						20,000		—
Total long-term borrowings	Total long-term borrowings						$	2,743,507	$	771,390	Total long-term borrowings						$	2,595,767	$	771,390

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

At ~~June~~September 30, 2022 and December 31, 2021, ~~$9.2~~$2.1 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. In February 2022, we amended the Credit Agreement, which, as amended to date, provides for a revolving credit facility of $600.0 million, which can be increased by an additional $400.0 million subject to certain conditions (the “Revolving Facility”). Borrowings under the Credit Agreement bear interest at a variable interest rate based on (A) a Base Rate (defined as the highest of (i) the 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 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) the Term SOFR Rate (as defined in the Credit Agreement), plus an applicable margin ranging from 1.35% to 1.975% based on our leverage 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.

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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 ~~June~~September 30, 2022, we were in compliance with all financial covenants under the Credit Agreement.

As of ~~June~~September 30, 2022, the total commitments available from the lenders under the Revolving Facility were $600.0 million. At ~~June~~September 30, 2022, we had ~~$130.0 million in~~no 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 ~~June~~September 30, 2022 and December 31, 2021, we had ~~$469.7~~$599.7 million and $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~~September 30, 2022, we had ~~$1,995.0~~$1,975 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~~September 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 ~~six~~nine months ended ~~June~~September 30, 2022, we had 2two 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~~$1.4 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 outstanding under our Asia revolving facilities ~~during the year ended December 31, 2021~~at September 30, 2022 or ~~outstanding at~~ December 31, 2021.

Senior Notes Issuances

In March 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 “2029 Notes Indenture”). Additionally, in August 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 (as amended and/or supplemented to date, “the 2031 Notes Indenture” and, together with the 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.

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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 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 ~~June~~September 30, 2022, we were in compliance with all financial covenants under the Notes.

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8.9. COMMON STOCK REPURCHASE PROGRAM

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

During the three months ended ~~June~~September 30, 2021, we repurchased ~~2.9~~1.1 million shares of our common stock at a cost of ~~$300.0~~$150.0 million, including 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.commissions. During the ~~six~~nine months ended ~~June~~September 30, 2021, we repurchased ~~4.0~~5.1 million shares of our common stock at an aggregate cost of ~~$350.0~~$500.0 million, including commissions. This 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.

As of ~~June~~September 30, 2022, we had remaining authorization to repurchase approximately $1,050.0 million of our common stock, subject to restrictions under our Indentures, Credit Agreement, and Term Loan B Credit Agreement.

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10. REVENUES

Revenues by channel and brand were:

~~Second~~Third Quarter


		Three Months Ended June 30, 2022							Three Months Ended September 30, 2022
		Crocs Brand		HEYDUDE Brand		Total			Crocs Brand		HEYDUDE Brand		Total
		(in thousands)							(in thousands)
Channel:	Channel:							Channel:
Wholesale	Wholesale	$	392,511	$	162,499	$	555,010	Wholesale	$	353,304	$	181,768	$	535,072
Direct-to-consumer	Direct-to-consumer	339,705		69,866		409,571		Direct-to-consumer	362,403		87,619		450,022
Total revenues	Total revenues	$	732,216	$	232,365	$	964,581	Total revenues	$	715,707	$	269,387	$	985,094


		Three Months Ended June 30, 2021							Three Months Ended September 30, 2021
		Crocs Brand		HEYDUDE Brand		Total			Crocs Brand		HEYDUDE Brand		Total
		(in thousands)							(in thousands)
Channel:	Channel:							Channel:
Wholesale	Wholesale	$	307,327	$	—	$	307,327	Wholesale	$	309,611	$	—	$	309,611
Direct-to-consumer	Direct-to-consumer	333,446		—		333,446		Direct-to-consumer	316,308		—		316,308
Total revenues	Total revenues	$	640,773	$	—	$	640,773	Total revenues	$	625,919	$	—	$	625,919

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Year to Date


		Six Months Ended June 30, 2022							Nine Months Ended September 30, 2022
		Crocs Brand		HEYDUDE Brand		Total			Crocs Brand		HEYDUDE Brand		Total
		(in thousands)							(in thousands)
Channel:	Channel:							Channel:
Wholesale	Wholesale	$	736,768	$	249,418	$	986,186	Wholesale	$	1,090,073	$	431,186	$	1,521,259
Direct-to-consumer	Direct-to-consumer	540,673		97,870		638,543		Direct-to-consumer	903,075		185,489		1,088,564

Total revenues	Total revenues	$	1,277,441	$	347,288	$	1,624,729	Total revenues	$	1,993,148	$	616,675	$	2,609,823


		Six Months Ended June 30, 2021							Nine Months Ended September 30, 2021
		Crocs Brand		HEYDUDE Brand		Total			Crocs Brand		HEYDUDE Brand		Total
		(in thousands)							(in thousands)
Channel:	Channel:							Channel:
Wholesale	Wholesale	$	597,366	$	—	$	597,366	Wholesale	$	906,978	$	—	$	906,978
Direct-to-consumer	Direct-to-consumer	503,505		—		503,505		Direct-to-consumer	819,812		—		819,812

Total revenues	Total revenues	$	1,100,871	$	—	$	1,100,871	Total revenues	$	1,726,790	$	—	$	1,726,790

For information on revenues by reportable operating segment, see Note 1415 — Operating Segments and Geographic Information.

~~10.~~11. 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.

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Share-based compensation expense reported in our condensed consolidated statements of operations was:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Cost of sales	Cost of sales	$	153	$	151	$	264	$	237	Cost of sales	$	114	$	147	$	378	$	384
Selling, general and administrative expenses	Selling, general and administrative expenses	9,147		11,143		17,311		19,111		Selling, general and administrative expenses	7,774		10,444		25,085		29,555
Total share-based compensation expense	Total share-based compensation expense	$	9,300	$	11,294	$	17,575	$	19,348	Total share-based compensation expense	$	7,888	$	10,591	$	25,463	$	29,939

~~11.~~12. INCOME TAXES

Income tax expense and effective tax rates were:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2022			2021			2022			2021				2022			2021			2022			2021
		(in thousands, except effective tax rate)													(in thousands, except effective tax rate)
Income before income taxes	Income before income taxes	$	214,304		$	190,566		$	313,364		$	313,154		Income before income taxes	$	229,575		$	197,736		$	542,939		$	510,890
Income tax expense (benefit)	Income tax expense (benefit)	53,989			(128,388)			80,289			(104,198)			Income tax expense (benefit)	60,226			44,247			140,515			(59,951)
Effective tax rate	Effective tax rate	25.2		%	(67.4)		%	25.6		%	(33.3		%)	Effective tax rate	26.2		%	22.4		%	25.9		%	(11.7		%)

The increase in the effective tax rate for the three months ended ~~June~~September 30, 2022 compared to the same period in 2021, 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.allowances. We had unrecognized tax benefits of ~~$211.6~~$200.0 million and

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

During the ~~six~~nine months ended ~~June~~September 30, 2022, income tax expense increased ~~$184.5~~$200.5 million compared to the same period in 2021. The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~25.6%~~25.9% compared to an effective tax rate of ~~(33.3)~~(11.7)% for the same period in 2021, a ~~58.9%~~37.6% increase. This increase in the effective rate was primarily driven by the prior year ~~realization~~release of ~~deferred tax assets which were subject to a~~ valuation ~~allowance which did not reoccur in the current year.~~allowances. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate primarily due to differences in income tax rates between U.S. and foreign jurisdictions.

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.

~~12.~~

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13. EARNINGS PER SHARE

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands, except per share data)									(in thousands, except per share data)
Numerator:	Numerator:									Numerator:
Net income	Net income	$	160,315	$	318,954	$	233,075	$	417,352	Net income	$	169,349	$	153,489	$	402,424	$	570,841
Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	61,590		63,595		60,712		64,526		Weighted average common shares outstanding - basic	61,693		62,033		61,042		63,695
Plus: Dilutive effect of stock options and unvested restricted stock units	Plus: Dilutive effect of stock options and unvested restricted stock units	646		1,045		859		1,218		Plus: Dilutive effect of stock options and unvested restricted stock units	674		1,291		798		1,242
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	62,236		64,640		61,571		65,744		Weighted average common shares outstanding - diluted	62,367		63,324		61,840		64,937

Net income per common share:	Net income per common share:									Net income per common share:
Basic	Basic	$	2.60	$	5.02	$	3.84	$	6.47	Basic	$	2.75	$	2.47	$	6.59	$	8.96
Diluted	Diluted	$	2.58	$	4.93	$	3.79	$	6.35	Diluted	$	2.72	$	2.42	$	6.51	$	8.79

In the three and nine months ended ~~June~~September 30, 2022 and 2021, ~~0.4 million and~~ an insignificant number of outstanding shares respectively, issued under share-based compensation awards were anti-dilutive and, therefore, excluded from the calculation of diluted EPS. In the six months ended June 30, 2022 and 2021, 0.2 million and an insignificant number of outstanding shares, respectively, issued under share-based compensation awards were anti-dilutive and, therefore, excluded from the calculation of diluted EPS.

~~13.~~14. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of ~~June~~September 30, 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 ~~$348.6~~$331.9 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 1516 — Legal Proceedings for further details regarding potential loss contingencies related to government tax audits and other current legal proceedings.

~~14.~~

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15. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION

Crocs, Inc. has 4four reportable operating segments. For the Crocs Brand, we have 3three reportable operating segments based on the geographic nature of our operations: North America, Asia Pacific, and 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.

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 or 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.

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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Revenues:	Revenues:									Revenues:
North America (1)	North America (1)	$	422,936	$	393,152	$	742,386	$	660,419	North America (1)	$	445,327	$	437,746	$	1,187,713	$	1,098,165
Asia Pacific	Asia Pacific	148,889		126,834		244,737		209,426		Asia Pacific	138,450		83,645		383,187		293,071
EMEALA (1)	EMEALA (1)	160,377		120,778		290,297		230,978		EMEALA (1)	131,929		104,503		422,226		335,481
Brand corporate (2)	Brand corporate (2)	14		9		21		48		Brand corporate (2)	1		25		22		73
Total Crocs Brand	Total Crocs Brand	732,216		640,773		1,277,441		1,100,871		Total Crocs Brand	715,707		625,919		1,993,148		1,726,790
HEYDUDE Brand (3)	HEYDUDE Brand (3)	232,365		—		347,288		—		HEYDUDE Brand (3)	269,387		—		616,675		—
Total consolidated revenues	Total consolidated revenues	$	964,581	$	640,773	$	1,624,729	$	1,100,871	Total consolidated revenues	$	985,094	$	625,919	$	2,609,823	$	1,726,790
Income from operations:	Income from operations:									Income from operations:
North America (1)	North America (1)	$	177,363	$	188,180	$	306,974	$	300,873	North America (1)	$	191,438	$	224,118	$	498,413	$	524,991
Asia Pacific	Asia Pacific	51,432		32,016		81,537		54,131		Asia Pacific	40,286		16,361		121,823		70,492
EMEALA (1)	EMEALA (1)	53,385		41,388		88,314		81,407		EMEALA (1)	40,506		35,721		128,819		117,128
Brand corporate (2)	Brand corporate (2)	(28,259)		(21,393)		(58,968)		(41,401)		Brand corporate (2)	(36,896)		(27,992)		(95,864)		(69,393)
Total Crocs Brand	Total Crocs Brand	253,921		240,191		417,857		395,010		Total Crocs Brand	235,334		248,208		653,191		643,218
HEYDUDE Brand (3)	HEYDUDE Brand (3)	41,666		—		57,324		—		HEYDUDE Brand (3)	79,056		—		136,381		—
Reconciliation of total segment income from operations to income before income taxes:	Reconciliation of total segment income from operations to income before income taxes:									Reconciliation of total segment income from operations to income before income taxes:

Enterprise corporate (2)	Enterprise corporate (2)	(47,623)		(44,869)		(108,540)		(75,002)		Enterprise corporate (2)	(50,327)		(45,140)		(158,868)		(120,142)
Income from operations	Income from operations	247,964		195,322		366,641		320,008		Income from operations	264,063		203,068		630,704		523,076
Foreign currency losses, net		(1,202)		(117)		(722)		(621)
Foreign currency gains (losses), net										Foreign currency gains (losses), net	(393)		537		(1,115)		(84)
Interest income	Interest income	86		71		188		98		Interest income	31		615		219		713
Interest expense	Interest expense	(32,963)		(4,712)		(52,215)		(6,344)		Interest expense	(34,142)		(6,486)		(86,357)		(12,830)
Other income (expense), net	Other income (expense), net	419		2		(528)		13		Other income (expense), net	16		2		(512)		15
Income before income taxes	Income before income taxes	$	214,304	$	190,566	$	313,364	$	313,154	Income before income taxes	$	229,575	$	197,736	$	542,939	$	510,890

Depreciation and amortization:	Depreciation and amortization:									Depreciation and amortization:
North America (1)	North America (1)	$	2,589	$	806	$	4,809	$	1,731	North America (1)	$	2,705	$	3,035	$	7,514	$	4,766
Asia Pacific	Asia Pacific	497		325		1,020		612		Asia Pacific	508		449		1,528		1,061
EMEALA (1)	EMEALA (1)	696		182		1,420		366		EMEALA (1)	746		698		2,166		1,064
Brand corporate (2)	Brand corporate (2)	179		2,726		365		5,475		Brand corporate (2)	164		135		529		5,610
Total Crocs Brand	Total Crocs Brand	3,961		4,039		7,614		8,184		Total Crocs Brand	4,123		4,317		11,737		12,501
HEYDUDE Brand (3)	HEYDUDE Brand (3)	2,806		—		5,250		—		HEYDUDE Brand (3)	3,500		—		8,750		—

Enterprise corporate (2)	Enterprise corporate (2)	2,092		3,656		3,890		7,565		Enterprise corporate (2)	2,121		3,766		6,011		11,331
Total consolidated depreciation and amortization	Total consolidated depreciation and amortization	$	8,859	$	7,695	$	16,754	$	15,749	Total consolidated depreciation and amortization	$	9,744	$	8,083	$	26,498	$	23,832

(1) In the first quarter of 2022, certain revenues and expenses associated with our Latin America businesses previously reported in our ‘Americas’ segment were shifted into the ‘EMEA’ segment to better align with how we manage our distributor business. To reflect this change, we renamed our ‘Americas’ segment to ‘North America’ and renamed our ‘EMEA’ segment to ‘EMEALA.’ As a result of these changes, the previously reported amounts for revenues, income from operations, and depreciation and amortization for the three and ~~six~~nine months ended ~~June~~September 30, 2021 have been revised to conform to current period presentation. ~~See~~Refer to Part I - Item I. Financial Statements in our Quarterly Report on Form 10-Q for the ~~‘Impacts of segment composition change’ table below~~period ended June 30, 2022 for more information.

(2) In the first quarter of 2022, as a result of the Acquisition, all costs previously reported in “Unallocated corporate and other” were recast between ‘Brand corporate’ costs associated with the Crocs Brand and ‘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~~nine months ended ~~June~~September 30, 2021 have been revised to conform to current period presentation. ~~See~~

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Refer to Part I - Item I. Financial Statements in our Quarterly Report on Form 10-Q for the ~~‘Impacts of brand vs. enterprise recast’ table below~~period ended June 30, 2022 for more information.

(3) We acquired HEYDUDE on February 17, 2022 and in connection therewith added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the ~~six~~nine months ended ~~June~~September 30, 2022 represent results during the partial period beginning on the Acquisition Date through ~~June~~September 30, 2022, and there are no comparative amounts for the three and ~~six~~nine months ended ~~June~~September 30, 2021.

~~Impact to 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 brand vs. enterprise recast:~~

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)

~~15.~~16. LEGAL PROCEEDINGS

For legal claims and disputes, we have accrued insignificant estimated losses within ‘Accrued expenses and other liabilities’ in the condensed consolidated balance sheet as of ~~June~~September 30, 2022. As we are able, we estimate reasonably possible losses or a range of reasonably possible losses. As of ~~June~~September 30, 2022, we estimated that reasonably possible losses associated with these claims and other disputes could potentially exceed amounts accrued by 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, 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.~~17. 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~~As of September 30, 2022, the purchase price paid to the sellers ~~was~~has been 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~~$616.7 million and income from operations of ~~$57.3~~$136.4 million from the Acquisition Date through ~~June~~September 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.

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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(1)	~~69,031~~68,698
Inventories ~~(1)~~(2)	~~176,000~~155,773
Prepaid expenses and other assets	2,977
Intangible assets~~(2)~~	1,780,000
Goodwill ~~(3)~~(1)	~~712,668~~713,001
Right-of-use assets	2,844
Accounts payable	(28,388)
Accrued expenses and other liabilities ~~(4)~~(2)	~~(38,780)~~(18,553)
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 that decreased accounts receivable, net by $0.3 million and increased goodwill by $0.3 million during the three months ended ~~June~~September 30, 2022.

(2) Includes a ~~decrease of $90.0~~valuation adjustment that decreased inventories by $20.2 million ~~due to a valuation adjustment~~and decreased accrued expenses by $20.2 million during the three months ended ~~June~~September 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.~~2022.

The purchase ~~consideration~~price allocation 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~~$713.0 million at ~~June~~September 30, 2022 includes an aggregate adjustment of ~~$72.2~~$72.5 million recorded in the ~~three~~nine months ended ~~June~~September 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.

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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~~nine months ended ~~June~~September 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~~nine months ended ~~June~~September 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~~nine months ended ~~June~~September 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,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Revenues	Revenues	$	964,558	$	759,417	$	1,715,035	$	1,333,016	Revenues	$	985,094	$	770,101	$	2,700,129	$	2,103,117
Net income	Net income	187,630		334,980		302,722		341,692		Net income	169,349		174,771		472,071		516,463

2223

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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.

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:

•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 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 common stock to one of the 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 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 1617 — 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. The results reported for the HEYDUDE Brand herein represent the partial period beginning on the Acquisition Date through ~~June~~September 30, 2022 (the “Partial Period”).

•Global inflation, elevated interest rates, global industry-wide logistics challenges, and foreign currency fluctuations resulting in a stronger U.S. Dollar, have impacted, and we expect will continue to impact, our business, contributing to, among other things, incremental freight costs, increased wages, particularly in our distribution centers, and increased raw materials costs. A stronger U.S. Dollar also results in costs for foreign goods purchased in U.S. Dollars but recognized in foreign currencies (“purchasing power”) that are unfavorable. As of September 30, 2022, we have concluded our 2022 $75 million air freight program initiated as a result of partial COVID-19-related factory closures in Vietnam at the end of 2021. In the nine months ended September 30, 2022, we incurred air freight costs of approximately $67 million of our $75 million plan, which has helped mitigate supply delays as a result of Vietnam closures. At September 30, 2022, our inventories balance was $513.7 million. While the majority of the total increase in inventories of 141.8% over September 30, 2021 was due to the addition of the HEYDUDE Brand in the first quarter of 2022, inventories for the Crocs Brand were also up 52.6% compared to the prior year. Throughout 2021 and into the first half of 2022, inventories were historically lean across the footwear industry as a result of factory closures and other supply chain delays, as described above. However, in recent months, elevated inventory levels have caused the industry, including us, to become more promotional. This is particularly true in North America. We expect these challenges to remain fluid as macroeconomic and inflationary pressures continue and foreign exchange rates fluctuate.

•To support the long-term growth of both brands we plan to continue ~~leveraging~~to maintain our efficient selling, general and administrative expenses (“SG&A”) ~~as a percent of revenues,~~structure, while ~~maintaining~~continuing investments in certain key areas, including marketing, digital commerce, and ~~digital commerce.~~talent. We also believe our ability to leverage Supply Chain, Information Technology, Finance, HR, and Legal resources across both brands will allow us to manage SG&A effectively in the future.

•Global industry-wide logistics challenges, global inflation, 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 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 the situation to remain fluid as COVID-19 break-out rates, including any deterioration in circumstances related to COVID-19 variants, and foreign exchange rates fluctuate, and inflationary pressure continues.

•Our inventories balance at June 30, 2022 was $501.5 million. Similar to the rest of the industry, our in-transit inventory levels remain elevated as a result of longer transit times. Additionally, inventories in the U.S. are higher as a result of a slower than anticipated growth rate in 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.

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

Revenues were ~~$964.6~~$985.1 million for the ~~second~~third quarter of 2022, a ~~50.5%~~57.4% increase compared to the ~~second~~third quarter of 2021. The increase was due to the net effects of: (i) the addition of HEYDUDE Brand revenues of ~~$232.4~~$269.4 million as a result of the Acquisition, which increased revenues by ~~36.3%~~43.1%; (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 ~~$58.7~~$131.0 million, or ~~9.2%~~20.9%; ~~and (iv)~~(iii) unfavorable changes in exchange rates for the Crocs Brand, which decreased revenues by ~~$32.6~~$34.9 million, or ~~5.1%~~5.6%; and (iv) lower Crocs Brand average selling prices, driven primarily by increased promotions in our North America segment, which in total decreased revenues by $6.2 million, or 1.0%.

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

•We acquired HEYDUDE on February 17, 2022, which ~~added~~contributed revenues of ~~$232.4~~$269.4 million in the three months ended ~~June~~September 30, 2022. This represented ~~24.1%~~27.3% of revenues in the quarter. The HEYDUDE Brand became a new reportable operating segment as of the Acquisition Date.

•We grew Crocs Brand revenues, despite significant foreign currency headwinds and ~~COVID-19 related shutdowns impacting our~~ supply chain ~~in China.~~challenges. This was led by our ~~EMEALA~~Asia Pacific segment, which grew revenues by ~~32.8%~~65.5%, or ~~48.4% on a constant currency basis. Our North America segment revenues grew by 7.6%, or 7.8% on a constant currency basis, while our Asia Pacific segment revenues grew by 17.4%, or 27.6%~~82.3% on a constant currency basis, compared to the ~~second~~third quarter of 2021. Our EMEALA segment grew revenues by 26.2%, or 45.6% on a constant currency basis, and our North America segment revenues grew by 1.7%, or 1.8% on a constant currency basis.

•Footwear units sold for the Crocs Brand in the ~~second~~third quarter of 2022 were ~~32.4~~30.3 million pairs worldwide, an increase of ~~3.3 million~~19.2% from the ~~second~~third quarter of 2021. We sold ~~8.1~~9.2 million pairs of shoes for the HEYDUDE Brand in the ~~second~~third quarter of 2022.

•Gross margin was ~~51.6%~~54.9%, a decrease of ~~1,010~~900 basis points from last year’s ~~second~~third quarter. Gross margin for the Crocs Brand was ~~57.7%~~57.3%, a decrease of ~~400~~660 basis points from last year’s ~~second~~third quarter, as a result of ongoing global inflation, which negatively impacted material and freight costs, higher ~~freight~~distribution and logistics costs due to continued supply chain challenges, and ~~ongoing global inflation, which~~unfavorable purchasing power. Increased promotional activity in our North America segment also ~~impacts material costs, offset in part by~~contributed to the gross margin decrease, while higher pricing ~~and product mix.~~across all segments partially offset these declines. Gross margin for the HEYDUDE Brand was ~~32.4%. This was lower than~~48.8%, representing the ~~Crocs Brand as a result~~continued effect of unfavorable ~~channel mix~~pre-acquisition freight contracts on inventory costs, which are recognized in gross margin as inventory is sold, and higher ~~freight rates,~~inventory storage costs as we work to ~~leverage Crocs Brand freight contracts for the~~expand HEYDUDE ~~Brand. The HEYDUDE gross margin is also inclusive of an approximately 1,470 basis points unfavorable impact from~~distribution centers to support a ~~non-cash step-up of acquired HEYDUDE inventory to fair value.~~larger business.

•SG&A was ~~$249.8~~$277.2 million compared to ~~$199.9~~$196.7 million in the ~~second~~third quarter of 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 ~~25.9%~~28.1% of revenues compared to ~~31.2%~~31.4% of revenues in the ~~second~~third quarter of 2021, ~~largely driven by~~as we leverage our cost structure with the addition of the HEYDUDE Brand ~~which carried lower SG&A costs~~and as ~~a percentage of~~we leverage revenue ~~than~~growth in both the Crocs ~~Brand, as well as continued SG&A rate improvement in the Crocs Brand compared to the same period in 2021.~~and HEYDUDE Brands.

•Income from operations increased to ~~$248.0~~$264.1 million from ~~$195.3~~$203.1 million in last year’s ~~second~~third quarter. Net income was ~~$160.3~~$169.3 million, or ~~$2.58~~$2.72 per diluted share, compared to ~~$319.0~~$153.5 million, or ~~$4.93~~$2.42 per diluted share, in last year’s ~~second~~third quarter.

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Results of Operations


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

		2022			2021									2022						2021			Q2 2022-2021			YTD 2022-2021			2022				2021			2022			2021	Q3 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	$	964,581		$	640,773		$	1,624,729		$	1,100,871			50.5	%	47.6	%	Revenues	$	985,094		$	625,919		$	2,609,823			$	1,726,790			57.4	%		51.1	%
Cost of sales	Cost of sales	466,848			245,592			802,072			452,471				(90.1)	%	(77.3)	%	Cost of sales	443,792			226,123			1,245,864				678,594				(96.3)	%		(83.6)	%
Gross profit	Gross profit	497,733			395,181			822,657			648,400				26.0	%	26.9	%	Gross profit	541,302			399,796			1,363,959				1,048,196				35.4	%		30.1	%
Selling, general and administrative expenses	Selling, general and administrative expenses	249,769			199,859			456,016			328,392				(25.0)	%	(38.9)	%	Selling, general and administrative expenses	277,239			196,728			733,255				525,120				(40.9)	%		(39.6)	%
Income from operations	Income from operations	247,964			195,322			366,641			320,008				27.0	%	14.6	%	Income from operations	264,063			203,068			630,704				523,076				30.0	%		20.6	%
Foreign currency losses, net		(1,202)			(117)			(722)			(621)				(927.4)	%	(16.3)	%
Foreign currency gains (losses), net																			Foreign currency gains (losses), net	(393)			537			(1,115)				(84)				(173.2)	%		(1,227.4)	%
Interest income	Interest income	86			71			188			98				21.1	%	91.8	%	Interest income	31			615			219				713				(95.0)	%		(69.3)	%
Interest expense	Interest expense	(32,963)			(4,712)			(52,215)			(6,344)				(599.6)	%	(723.1)	%	Interest expense	(34,142)			(6,486)			(86,357)				(12,830)				(426.4)	%		(573.1)	%
Other income (expense), net	Other income (expense), net	419			2			(528)			13				20,850.0	%	(4,161.5)	%	Other income (expense), net	16			2			(512)				15				700.0	%		(3,513.3)	%
Income before income taxes	Income before income taxes	214,304			190,566			313,364			313,154				12.5	%	0.1	%	Income before income taxes	229,575			197,736			542,939				510,890				16.1	%		6.3	%
Income tax expense (benefit)	Income tax expense (benefit)	53,989			(128,388)			80,289			(104,198)				(142.1)	%	(177.1)	%	Income tax expense (benefit)	60,226			44,247			140,515				(59,951)				(36.1)	%		(334.4)	%
Net income	Net income	$	160,315		$	318,954		$	233,075		$	417,352			(49.7)	%	(44.2)	%	Net income	$	169,349		$	153,489		$	402,424			$	570,841			10.3	%		(29.5)	%
Net income per common share:	Net income per common share:																		Net income per common share:
Basic	Basic	$	2.60		$	5.02		$	3.84		$	6.47			(48.2)	%	(40.6)	%	Basic	$	2.75		$	2.47		$	6.59			$	8.96			11.3	%		(26.5)	%
Diluted	Diluted	$	2.58		$	4.93		$	3.79		$	6.35			(47.7)	%	(40.3)	%	Diluted	$	2.72		$	2.42		$	6.51			$	8.79			12.4	%		(25.9)	%

Gross margin (1)	Gross margin (1)	51.6		%	61.7		%	50.6		%	58.9		%		(1,010)	bp	(830)	bp	Gross margin (1)	54.9		%	63.9		%	52.3		%		60.7		%		(900)	bp		(840)	bp
Operating margin (1)	Operating margin (1)	25.7		%	30.5		%	22.6		%	29.1		%		(480)	bp	(650)	bp	Operating margin (1)	26.8		%	32.4		%	24.2		%		30.3		%		(560)	bp		(610)	bp
Footwear unit sales:	Footwear unit sales:																		Footwear unit sales:
Crocs Brand	Crocs Brand	32,396			29,085			58,011			54,992				11.4	%	5.5	%	Crocs Brand	30,292			25,410			88,304				80,402				19.2	%		9.8	%
HEYDUDE Brand (3)	HEYDUDE Brand (3)	8,086			—			12,065			—				—	%	—	%	HEYDUDE Brand (3)	9,167			—			21,232				—				—	%		—	%
Average footwear selling price - nominal basis (2):	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	%	Crocs Brand	$	23.33		$	24.42		$	22.34			$	21.30			(4.5)	%		4.9	%
HEYDUDE Brand (3)	HEYDUDE Brand (3)	$	28.74		$	—		$	28.78		$	—			—	%	—	%	HEYDUDE Brand (3)	$	29.39		$	—		$	29.04			$	—			—	%		—	%

(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, as applicable.

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

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Revenues By Channel


		Three Months Ended June 30,					Six Months Ended June 30,					% Change						Constant Currency % Change (1)						Three Months Ended September 30,				Nine Months Ended September 30,					% Change						Constant Currency % Change (1)
						Favorable (Unfavorable)													Favorable (Unfavorable)
				2022							2021			2022			2021			Q2 2022-2021			YTD 2022-2021					Q2 2022-2021		YTD 2022-2021		2022			2021			2022			2021			Q3 2022-2021	YTD 2022-2021	Q3 2022-2021	YTD 2022-2021
		(in thousands)																							(in thousands)
Crocs Brand:	Crocs Brand:																						Crocs Brand:
Wholesale	Wholesale	$	392,511	$	307,327		$	736,768	$	597,366		27.7	%		23.3	%		35.2	%		29.2	%	Wholesale	$	353,304	$	309,611	$	1,090,073	$	906,978		14.1	%		20.2	%		21.8	%		26.7	%
Direct-to-consumer	Direct-to-consumer	339,705		333,446			540,673		503,505			1.9	%		7.4	%		4.8	%		9.8	%	Direct-to-consumer	362,403		316,308		903,075		819,812			14.6	%		10.2	%		18.1	%		13.1	%
Total Crocs Brand	Total Crocs Brand	732,216		640,773			1,277,441		1,100,871			14.3	%		16.0	%		19.4	%		20.3	%	Total Crocs Brand	715,707		625,919		1,993,148		1,726,790			14.3	%		15.4	%		19.9	%		20.2	%
HEYDUDE Brand (2):	HEYDUDE Brand (2):																						HEYDUDE Brand (2):
Wholesale	Wholesale	162,499		—			249,418		—			—	%		—	%		—	%		—	%	Wholesale	181,768		—		431,186		—			—	%		—	%		—	%		—	%
Direct-to-consumer	Direct-to-consumer	69,866		—			97,870		—			—	%		—	%		—	%		—	%	Direct-to-consumer	87,619		—		185,489		—			—	%		—	%		—	%		—	%
Total HEYDUDE Brand	Total HEYDUDE Brand	232,365		—			347,288		—			—	%		—	%		—	%		—	%	Total HEYDUDE Brand	269,387		—		616,675		—			—	%		—	%		—	%		—	%
Total consolidated revenues (2)	Total consolidated revenues (2)	$	964,581	$	640,773		$	1,624,729	$	1,100,871		50.5	%		47.6	%		55.6	%		51.9	%	Total consolidated revenues (2)	$	985,094	$	625,919	$	2,609,823	$	1,726,790		57.4	%		51.1	%		63.0	%		55.9	%

(1) Reflects year over year change as if the current period results were in constant currency, which is a non-GAAP financial measure. See ~~‘Reconciliation~~“Use of ~~GAAP Measures to~~ Non-GAAP ~~Measures’~~Financial Measures” above for more information.

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

Revenues. In the three months ended ~~June~~September 30, 2022, revenues increased compared to the same period in 2021. This was driven by ~~(i)~~ the addition of HEYDUDE Brand revenues of ~~$232.4~~$269.4 million ~~(ii)~~and higher volume in the Crocs Brand of $131.0 million, or 20.9%, as a result of volume increases in all segments. Partially offsetting these increases were unfavorable foreign currency changes, most significantly in the Euro, which decreased Crocs Brand revenues by $34.9 million, or 5.6%, and lower average selling price on a constant currency basis (“ASP”) in the Crocs Brand of ~~$65.3~~$6.2 million, or ~~10.2%~~1.0%, as a result of ~~increased pricing, offset in part by unfavorable channel mix,~~more discounting and ~~(iii) higher volume in the Crocs Brand of $58.7 million, or 9.2%,~~promotional activity, primarily in our Asia Pacific and EMEALA segments. Revenue increased despite unfavorable foreign currency headwinds, most significantly in the Euro and Korean Won, which decreased Crocs Brand revenues by $32.6 million, or 5.1%.North America segment.

Revenues also increased in the ~~six~~nine months ended ~~June~~September 30, 2022, driven by (i) the addition of HEYDUDE Brand revenues of ~~$347.3~~$616.7 million during the Partial Period, (ii) higher ASP in the Crocs Brand of ~~$174.1~~$175.3 million, or ~~15.8%~~10.2%, as a result of increased pricing in all regions, offset in part by more promotions, and (iii) higher volume in ~~the~~all Crocs Brand segments of ~~$49.8~~$173.2 million, or ~~4.5%~~10.0%, led by our EMEALA and Asia Pacific ~~and EMEALA segments, offset in part by lower volumes of 2.7% in our Americas segment.~~segments. Unfavorable foreign currency fluctuations, most significantly in the Euro and Korean Won, decreased Crocs Brand revenues by ~~$47.2~~$82.2 million, or ~~4.3%~~4.8%.

Cost of sales. In the three months ended September 30, 2022, compared to the same period in 2021, HEYDUDE 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.~~revenue. Additionally, higher volume in the ~~three months ended June 30, 2022, compared to the same period in 2021, higher~~Crocs Brand increased cost of sales by $51.1 million, or 22.6%. Higher average cost per unit on a constant currency basis (“AUC”) in the Crocs Brand of ~~$44.9~~$46.0 million, or ~~18.3%~~20.3%, was ~~driven~~ mostly bydue to higher material and ~~freight~~distribution and logistics costs, driven by inflation impacts ~~as well as~~and air freight used to mitigate supply challenges, ~~and~~as well as 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~~power. Fluctuations in foreign currency decreased cost of sales by ~~$13.4~~$17.4 million, or ~~5.5%~~7.7%.

In the ~~six~~nine months ended ~~June~~September 30, 2022, compared to the same period in 2021, cost of sales increased due to the addition of HEYDUDE, which had cost of sales 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~~$141.1 million, or 20.8%, resulted mostly from higher material and ~~freight~~distribution and logistics costs, driven by inflation and the use of air freight, as well as unfavorable purchasing power, and ~~higher~~ volume in the Crocs Brand ~~of $32.0~~was higher by $82.1 million, or ~~7.1%~~12.1%. These increases were partially offset by decreases as a result of foreign currency changes in the Crocs Brand of ~~$20.2~~$37.5 million, or ~~4.5%~~5.5%.

Gross profit. Gross margin decreased in the three months ended ~~June~~September 30, 2022 to ~~51.6%,~~54.9% compared to ~~61.7%~~63.9% in the same period in 2021. Gross margin for the Crocs Brand was ~~57.7%,~~57.3% compared to ~~61.7%~~63.9% in the same period in 2021, driven mostly by higher material and freight costs due to global inflation and supply chain challenges, which have caused us to use more expensive shipping methods, ~~such~~and unfavorable purchasing power, as ~~air freight, and the impact of global inflation on~~well as increased promotions, particularly in our ~~supply chain. We have been able to partially mitigate higher AUC with better sales performance as a result of higher ASPs, as described above, and favorable product mix.~~North America segment. Gross margin for the HEYDUDE Brand was ~~32.4%~~48.8%, ~~a lower rate than~~representing the ~~Crocs Brand as a result~~continued effect of a unfavorable ~~channel mix and higher freight rates, as we~~pre-

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acquisition freight contracts on inventory costs, which are recognized in gross margin as inventory is sold, and higher inventory storage costs as we work to ~~leverage Crocs Brand freight contracts for the~~expand HEYDUDE ~~Brand. The HEYDUDE gross margin is also inclusive of an approximately 1,470 basis points unfavorable impact from~~distribution centers to support a ~~non-cash step-up of acquired HEYDUDE inventory to fair value.~~larger business.

Gross profit increased ~~$102.6~~$141.5 million, or ~~26.0%~~35.4%, mostly due to the addition of the HEYDUDE Brand. Additionally, gross profit increased in the Crocs Brand as a result of higher volume of ~~$26.1~~$79.8 million, or ~~6.6%, and~~20.0%. These increases were partially offset by the net impact of ~~higher~~lower ASP and higher AUC of ~~$20.4~~$52.2 million, or ~~5.2%. This was offset by~~13.1% and unfavorable foreign currency changes for the Crocs Brand of ~~$19.1~~$17.6 million, or ~~4.9%~~4.4%. ~~The HEYDUDE Brand contributed to the remainder of the increase.~~

Gross margin in the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~50.6%~~52.3% compared to ~~58.9%~~60.7% in 2021. Gross margin for the Crocs Brand was ~~56.3%,~~56.7% compared to ~~58.9%~~60.7% in 2021, due primarily to higher material and freight costs, as described above, and unfavorable purchasing power, offset in part by higher ~~pricing and product mix.~~pricing. Gross margin for the HEYDUDE Brand was ~~30.2%~~38.3%, ~~a lower rate than the Crocs Brand, due to unfavorable channel mix and higher freight rates, as we work to leverage Crocs Brand freight contracts for the HEYDUDE Brand. The HEYDUDE gross margin~~which is ~~also~~ inclusive of an approximately ~~1,790~~1,010 basis points unfavorable impact from a non-cash step-up of acquired HEYDUDE inventory to fair value. This gross margin also represents the continued effect of unfavorable pre-acquisition freight contracts on inventory costs, which are recognized in gross margin as inventory is sold, and higher inventory storage costs as we work to expand HEYDUDE distribution centers to support a larger business.

Gross profit increased ~~$174.3~~$315.8 million, or ~~26.9%~~30.1%, as a result of the addition of the HEYDUDE Brand, which contributed to ~~over half~~the majority 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~~$34.2 million, or ~~12.3%~~3.3%, and higher volumes of ~~$17.8~~$91.2 million, or ~~2.8%~~8.7%. These were offset by unfavorable foreign currency changes in the Crocs Brand of ~~$27.1~~$44.7 million, or ~~4.2%~~4.3%.

Selling, general and administrative expenses. SG&A expenses increased ~~$49.9~~$80.5 million, or ~~25.0%~~40.9%, in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021. This was due to an increase in marketing costs of ~~$16.2~~$35.1 million, ~~the vast majority of which relates to both variable marketing, including variable marketing associated with HEYDUDE, and additional~~mostly for investments in ~~our digital business.~~the HEYDUDE Brand. There was also an increase in ~~professional services costs of $10.7 million, due in part to the integration of HEYDUDE, and an increase in~~ sales commissions of ~~$7.6~~$9.9 million, due ~~mostly~~primarily to HEYDUDE, which used more costly external sales representatives prior to the Acquisition Date. We are currently in the process of transitioning off of this model. Higher professional services costs of $9.7 million were due to variable costs associated with revenue growth and higher legal costs in part from the ongoing defense of our intellectual property. An increase in compensation expense of ~~$7.1~~$7.4 million was driven by investments in employee headcount, including employees associated with HEYDUDE, offset in part by lower 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.compensation. There was also an increase in facilities expense of $4.4 million driven in part by duplicate rent costs associated with our upcoming headquarters move and in part to variable rent associated with revenue growth. Other net costs, including costs associated with the integration of HEYDUDE and information technology costs, increased SG&A by $14.0 million.

SG&A expenses increased $208.1 million, or 39.6%, during the nine months ended September 30, 2022 compared to the same period in 2021. We have continued to invest in marketing to fuel growth, with an increase of $66.9 million to SG&A, primarily associated with investments in marketing in the Crocs Brand, including for our digital business, as well as investments in marketing for our new HEYDUDE Brand during the Partial Period. Additionally, costs of $33.2 million associated with the Acquisition and related integration, including consulting, legal, statutory, and accounting fees, contributed to the increase. Other increases in compensation costs of $25.9 million were due primarily to increased employee headcount as we have grown the Company over the last year, offset in part by lower variable compensation. Increases in professional services costs of $24.1 million were due to variable costs associated with revenue growth and higher legal costs in part from the ongoing defense of our intellectual property. There was an increase in sales commissions of $21.9 million, due mostly to HEYDUDE, which used more costly external representatives prior to the Acquisition, and an increase in facilities expenses of $11.2 million driven primarily by lease exit costs and penalties associated with the continued shutdown of our direct operations in Russia and duplicate rent costs associated with our upcoming headquarters move. ~~Other net costs, including information technology costs, increased $3.9 million.~~

SG&A expenses increased $127.6 million, or 38.9%, during the six months ended June 30, 2022 compared to the same period in 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 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 $18.0 million were due to increased employee headcount as we have grown the Company over the last year. Increases in professional services costs of $15.0 million were due to 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 net increases in other costs, including ~~facilities expense and~~ information technology, depreciation and amortization, and travel and related costs, of ~~$24.4~~$24.9 million.

Foreign currency ~~losses,~~gains (losses), net. Foreign currency ~~losses,~~gains (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 ~~June~~September 30, 2022, we recognized realized and unrealized net foreign currency losses of ~~$1.2~~$0.4 million compared to ~~losses~~gains of ~~$0.1~~$0.5 million during the three months ended ~~June~~September 30, 2021. During the ~~six~~nine months ended ~~June~~September 30, 2022, we recognized realized and unrealized net foreign currency losses of ~~$0.7~~$1.1 million compared to losses of ~~$0.6~~$0.1 million during the ~~six~~nine months ended ~~June~~September 30, 2021.

Income tax expense (benefit). During the three months ended ~~June~~September 30, 2022, income tax expense increased ~~$182.4~~$16.0 million compared to the same period in 2021. The effective tax rate for the three months ended ~~June~~September 30, 2022 was ~~25.2%~~26.2% compared to an effective tax rate of ~~(67.4)%~~22.4% for the same period in 2021, a ~~92.6%~~3.8% 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.

allowances.

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During the ~~six~~nine months ended ~~June~~September 30, 2022, income tax expense increased ~~$184.5~~$200.5 million compared to the same period in 2021. The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~25.6%~~25.9% compared to an effective tax rate of ~~(33.3)~~(11.7)% for the same period in 2021, a ~~58.9%~~37.6% increase. This increase in the effective rate was primarily driven ~~primarily~~ by the prior year ~~realization~~release of ~~deferred tax assets which were subject to a~~ valuation ~~allowance which did not reoccur in the current year.~~allowances. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate primarily due to 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 June 30,					Six Months Ended June 30,					% Change						Constant Currency % Change (1)						Three Months Ended September 30,				Nine Months Ended September 30,					% Change						Constant Currency % Change (1)
						Favorable (Unfavorable)													Favorable (Unfavorable)
				2022							2021			2022			2021			Q2 2022-2021			YTD 2022-2021					Q2 2022-2021		YTD 2022-2021		2022			2021			2022			2021			Q3 2022-2021	YTD 2022-2021	Q3 2022-2021	YTD 2022-2021
		(in thousands)																							(in thousands)
Revenues:	Revenues:																						Revenues:
North America (2)	North America (2)	$	422,936	$	393,152		$	742,386	$	660,419		7.6	%		12.4	%		7.8	%		12.5	%	North America (2)	$	445,327	$	437,746	$	1,187,713	$	1,098,165		1.7	%		8.2	%		1.8	%		8.3	%
Asia Pacific	Asia Pacific	148,889		126,834			244,737		209,426			17.4	%		16.9	%		27.6	%		25.5	%	Asia Pacific	138,450		83,645		383,187		293,071			65.5	%		30.7	%		82.3	%		41.6	%
EMEALA (2)	EMEALA (2)	160,377		120,778			290,297		230,978			32.8	%		25.7	%		48.4	%		38.0	%	EMEALA (2)	131,929		104,503		422,226		335,481			26.2	%		25.9	%		45.6	%		40.4	%
Brand corporate (3)	Brand corporate (3)	14		9			21		48			55.6	%		(56.3)	%		55.6	%		(56.3)	%	Brand corporate (3)	1		25		22		73			(96.0)	%		(69.9)	%		(96.0)	%		(69.9)	%
Crocs Brand revenues	Crocs Brand revenues	732,216		640,773			1,277,441		1,100,871			14.3	%		16.0	%		19.4	%		20.3	%	Crocs Brand revenues	715,707		625,919		1,993,148		1,726,790			14.3	%		15.4	%		19.9	%		20.2	%
HEYDUDE Brand revenues (4)	HEYDUDE Brand revenues (4)	232,365		—			347,288		—			—	%		—	%		—	%		—	%	HEYDUDE Brand revenues (4)	269,387		—		616,675		—			—	%		—	%		—	%		—	%
Total consolidated revenues	Total consolidated revenues	$	964,581	$	640,773		$	1,624,729	$	1,100,871		50.5	%		47.6	%		55.6	%		51.9	%	Total consolidated revenues	$	985,094	$	625,919	$	2,609,823	$	1,726,790		57.4	%		51.1	%		63.0	%		55.9	%

Income from operations:	Income from operations:																						Income from operations:
North America (2)	North America (2)	$	177,363	$	188,180		$	306,974	$	300,873		(5.7)	%		2.0	%		(5.4)	%		2.2	%	North America (2)	$	191,438	$	224,118	$	498,413	$	524,991		(14.6)	%		(5.1)	%		(14.4)	%		(4.9)	%
Asia Pacific	Asia Pacific	51,432		32,016			81,537		54,131			60.6	%		50.6	%		77.3	%		65.5	%	Asia Pacific	40,286		16,361		121,823		70,492			146.2	%		72.8	%		167.9	%		89.3	%
EMEALA (2)	EMEALA (2)	53,385		41,388			88,314		81,407			29.0	%		8.5	%		46.9	%		18.2	%	EMEALA (2)	40,506		35,721		128,819		117,128			13.4	%		10.0	%		31.1	%		22.1	%
Brand corporate (3)	Brand corporate (3)	(28,259)		(21,393)			(58,968)		(41,401)			(32.1)	%		(42.4)	%		(33.8)	%		(44.1)	%	Brand corporate (3)	(36,896)		(27,992)		(95,864)		(69,393)			(31.8)	%		(38.1)	%		(33.6)	%		(39.8)	%
Crocs Brand income from operations	Crocs Brand income from operations	253,921		240,191			417,857		395,010			5.7	%		5.8	%		11.1	%		9.8	%	Crocs Brand income from operations	235,334		248,208		653,191		643,218			(5.2)	%		1.6	%		(1.3)	%		5.6	%
HEYDUDE Brand income from operations (4)	HEYDUDE Brand income from operations (4)	41,666		—			57,324		—			—	%		—	%		—	%		—	%	HEYDUDE Brand income from operations (4)	79,056		—		136,381		—			—	%		—	%		—	%		—	%
Enterprise corporate (3)	Enterprise corporate (3)	(47,623)		(44,869)			(108,540)		(75,002)			(6.1)	%		(44.7)	%		(6.1)	%		(44.7)	%	Enterprise corporate (3)	(50,327)		(45,140)		(158,868)		(120,142)			(11.5)	%		(32.2)	%		(11.5)	%		(32.2)	%
Total consolidated income from operations	Total consolidated income from operations	$	247,964	$	195,322		$	366,641	$	320,008		27.0	%		14.6	%		33.6	%		19.6	%	Total consolidated income from operations	$	264,063	$	203,068	$	630,704	$	523,076		30.0	%		20.6	%		34.8	%		25.5	%

(1) Reflects year over year change as if the current period results were in constant currency, which is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” for more information.

(2) In the first quarter of 2022, certain revenues and expenses associated with our Latin America businesses previously reported in our ‘Americas’ segment were shifted into the ‘EMEA’ segment. To reflect this change, we renamed our ‘Americas’ segment to ‘North America’ and renamed our ‘EMEA’ segment to ‘EMEALA.’ As a result of these changes, the previously reported amounts for revenues and income from operations for the three and ~~six~~nine months ended ~~June~~September 30, 2021 have been revised to conform to current period presentation. ~~See~~Refer to Part I - Item I. Financial Statements in our Quarterly Report on Form 10-Q for the ~~‘Impacts of segment composition change’ table below~~period ended June 30, 2022 for more information.

(3) In the first quarter of 2022, as a result of the Acquisition, all costs previously reported in “Unallocated corporate and other” were recast between ‘Brand corporate’ costs associated with the Crocs Brand and ‘Enterprise corporate’ costs, each of which is defined in Note 1415 — 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~~nine months ended ~~June~~September 30, 2021 have been revised to conform to current period presentation. ~~See~~Refer to Part I - Item I. Financial Statements in our Quarterly Report on Form 10-Q for the ~~‘Impacts of brand vs. enterprise recast’ table below~~period ended June 30, 2022 for more information.

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

~~Table of Contents~~

~~Impacts of 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 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

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


		Three Months Ended June 30, 2022 vs. 2021																	Three Months Ended September 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:
Crocs Brand:	Crocs Brand:																	Crocs Brand:
North America	North America	$	(230)	—	%	$	30,752	7.8	%	$	(738)	(0.2)	%	$	29,784	7.6	%	North America	$	51,882	11.8	%	$	(43,663)	(10.0)	%	$	(638)	(0.1)	%	$	7,581	1.7	%
Asia Pacific	Asia Pacific	14,343		11.3	%	20,681		16.3	%	(12,969)		(10.2)	%	22,055		17.4	%	Asia Pacific	51,113		61.1	%	17,721		21.2	%	(14,029)		(16.8)	%	54,805		65.5	%
EMEALA	EMEALA	44,577		36.9	%	13,898		11.5	%	(18,876)		(15.6)	%	39,599		32.8	%	EMEALA	27,982		26.8	%	19,705		18.8	%	(20,261)		(19.4)	%	27,426		26.2	%
HEYDUDE Brand (2)	HEYDUDE Brand (2)	—		—	%	—		—	%	—		—	%	—		—	%	HEYDUDE Brand (2)	—		—	%	—		—	%	—		—	%	—		—	%
Total segment revenues	Total segment revenues	$	58,690	9.2	%	$	65,331	10.2	%	$	(32,583)	(5.1)	%	$	91,438	14.3	%	Total segment revenues	$	130,977	20.9	%	$	(6,237)	(1.0)	%	$	(34,928)	(5.6)	%	$	89,812	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, as a result, added the HEYDUDE Brand as a new operating segment. Therefore, there are no comparative amounts for the three months ended ~~June~~September 30, 2021.


		Six Months Ended June 30, 2022 vs. 2021																	Nine Months Ended September 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:
Crocs Brand:	Crocs Brand:																	Crocs Brand:
North America	North America	$	(17,574)	(2.7)	%	$	100,294	15.2	%	$	(753)	(0.1)	%	$	81,967	12.4	%	North America	$	29,536	2.7	%	$	61,402	5.6	%	$	(1,390)	(0.1)	%	$	89,548	8.2	%
Asia Pacific	Asia Pacific	20,266		9.7	%	33,023		15.8	%	(17,978)		(8.6)	%	35,311		16.9	%	Asia Pacific	69,200		23.6	%	52,924		18.0	%	(32,008)		(10.9)	%	90,116		30.7	%
EMEALA	EMEALA	47,098		20.4	%	40,737		17.6	%	(28,516)		(12.3)	%	59,319		25.7	%	EMEALA	74,547		22.2	%	60,975		18.2	%	(48,777)		(14.5)	%	86,745		25.9	%
HEYDUDE Brand (2)	HEYDUDE Brand (2)	—		—	%	—		—	%	—		—	%	—		—	%	HEYDUDE Brand (2)	—		—	%	—		—	%	—		—	%	—		—	%
Total segment revenues	Total segment revenues	$	49,790	4.5	%	$	174,054	15.8	%	$	(47,247)	(4.3)	%	$	176,597	16.0	%	Total segment revenues	$	173,283	10.0	%	$	175,301	10.2	%	$	(82,175)	(4.8)	%	$	266,409	15.4	%

(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, as a result, added the HEYDUDE Brand as a new operating segment. Therefore, the amounts shown above for the ~~six~~nine months ended ~~June~~September 30, 2022 represent results during the Partial Period, and there are no comparative amounts for the ~~six~~nine months ended ~~June~~September 30, 2021.

Crocs Brand

North America Operating Segment

Revenues. North America revenues increased in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021, ~~driven~~due to higher volumes, offset in part by ~~higher~~lower ASP as a result of ~~price increases. Volume and foreign~~increased promotional activity. Foreign currency changes were relatively flat during the ~~quarter.~~quarter, with slight decreases due to changes in the Canadian Dollar.

The increase in North America revenues in the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021, ~~was most significantly~~ due to higher ASP ~~due to~~from higher pricing, offset in part by increased promotional activity in the third quarter, while volumes ~~decreased,~~increased, primarily in ~~wholesale.~~DTC. Changes in the Canadian Dollar also slightly decreased revenues.

Income from Operations. Income from operations for our North America segment was ~~$177.4~~$191.4 million for the three months ended ~~June~~September 30, 2022, a decrease of ~~$10.8~~$32.7 million, or ~~5.7%~~14.6%, compared to the same period in 2021. Gross profit ~~was relatively flat with a $0.5~~decreased by $25.3 million, or ~~0.2%~~8.6%, ~~increase~~ compared to prior ~~year. Unfavorable foreign currency changes~~year, primarily due to lower ASP driven by increased promotional activity and higher AUC driven by higher material costs, due in part to inflation, ~~partially~~ offset ~~a volume benefit to gross profit.~~in part by favorable channel mix. Volume was up 13.7%, while foreign currency impacts were relatively flat.

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SG&A for our North America segment increased ~~$11.3~~$7.4 million, or ~~16.8%~~10.3%, during the three months ended ~~June~~September 30, 2022 compared to the same period in 2021. Compensation cost increased ~~$3.5~~$2.5 million as a result of investments in employee headcount, ~~including retail labor, which also had higher wages for the full quarter in 2022 compared to 2021. Marketing costs~~

~~Table of Contents~~

~~increased by $3.5 million, bad debt~~facilities expense increased ~~by $1.6~~$1.5 million, ~~as a result of prior year collections on previously reserved bad debt which reduced SG&A in the comparative period,~~services costs, including variable costs associated with higher revenues, increased $1.3 million, and ~~other~~marketing costs increased $1.2 million. Other net costs increased by ~~$2.7~~$0.9 million.

During the ~~six~~nine months ended ~~June~~September 30, ~~2022.~~2022, income from operations for our North America segment was ~~$307.0~~$498.4 million, ~~an increase~~a decrease of ~~$6.1~~$26.6 million, or ~~2.0%~~5.1%, compared to the same period in 2021. Gross profit increased ~~$30.9~~$5.6 million, or ~~7.5%~~0.8%, primarily due to higher ~~ASP from price increases that outpaced~~volumes of $26.5 million, or 3.8%, partially offset by higher AUC, due to higher material and freight costs, ~~including air freight used~~that outpaced higher ASP, due to ~~combat supply chain disruptions,~~higher pricing, of ~~$40.9~~$19.7 million, or ~~9.9%~~2.8%. ~~Lower volumes of $9.3 million, or 2.2%, and unfavorable~~Unfavorable foreign currency changes also partially offset ~~this increase.~~the increase due to higher volumes.

SG&A for our North America segment increased ~~$24.8~~$32.2 million, or ~~22.2%~~17.5%, during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021, due to an increase in marketing costs of ~~$11.2~~$12.4 million to fuel revenue growth and ~~continue our investment~~invest in digital marketing ~~while operating in a higher cost environment~~ and higher compensation of ~~$6.3~~$8.8 million primarily due to investments in employee headcount, including retail labor, which also had higher wages in 2022 compared to 2021. ~~Bad debt expense~~Facilities costs increased ~~by $2.0~~$3.3 million, ~~as a result of prior year collections on previously reserved bad debt, while other net costs, including facilities expense~~ and services costs, including variable costs associated with higher revenues, increased $2.8 million. Other net costs increased by ~~$5.3~~$4.9 million.

Asia Pacific Operating Segment

Revenues.Increases in revenues in our Asia Pacific ~~revenues increased~~segment led the Crocs Brand in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021, largely as a result of higher ~~ASP as a result of higher pricing and less discounting, offset~~volume, leading to broad-based growth in ~~part by unfavorable channel mix, and higher volume,~~the region, 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~~year, as well as in India and South Korea. ASPs were also up in the region as a result of higher pricing, less discounting, and favorable product mix, offset in part by ~~lower DTC volumes as a result of COVID-19 lockdowns in China that impacted distribution in the current quarter.~~unfavorable channel mix towards wholesale. These increases were partially offset by ~~significant~~ unfavorable foreign currency changes in all currencies in the ~~region.~~region, most significantly in the Korean Won and Japanese Yen.

Revenues in our Asia Pacific segment increased in the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021, as a result of volume increases and ASP increases, as a result of increased pricing and fewer ~~promotions, and volume increases. Unfavorable~~promotions. Significant unfavorable foreign currency fluctuations in all currencies, but most significantly the Korean Won, ~~and Japanese Yen,~~ partially offset ASP and volume increases.

Income from Operations. Income from operations for the Asia Pacific segment was ~~$51.4~~$40.3 million for the three months ended ~~June~~September 30, 2022, an increase of ~~$19.4~~$23.9 million, or ~~60.6%~~146.2%, compared to the same period in 2021. Gross profit increased by ~~$16.8~~$30.7 million, or ~~21.6%~~58.6%, primarily as a result of 52.2% higher ~~ASP and~~ volumes, as well as higher ASP. These increases were partially offset by unfavorable foreign currency ~~changes.~~changes of 15.3%.

SG&A for our Asia Pacific segment ~~decreased $2.6~~increased $6.8 million, or ~~5.7%~~18.8%, during the three months ended ~~June~~September 30, 2022 compared to the same period in 2021, primarily due to ~~lower~~higher marketing costs of ~~$3.0~~$2.7 million, mostly driven by the COVID-19-related closures during the second quarter, which delayed our marketing investment into the third quarter. Facilities expense increased $1.5 million as a result of ~~delayed investment driven by the COVID-19 impact on China factories during the second quarter. This was offset in part by~~variable rent associated with higher revenues, while other net costs ~~including facilities expense, of $0.4~~increased $2.6 million.

Income from operations for the Asia Pacific segment was ~~$81.5~~$121.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022, an increase of ~~$27.4~~$51.3 million, or ~~50.6%~~72.8%, compared to the same period in 2021. Gross profit increased by ~~$28.2~~$58.8 million, or ~~23.1%~~33.7%, due to higher ASPs, ~~of 25.0% from increased price increases and decreased promotional activity,~~offset partially ~~offset~~ by ~~unfavorable purchasing power~~higher AUCs, as a result of ~~foreign currency changes. Volumes~~price increases, decreased promotional activity, and unfavorable purchasing power, which led to a net increase to gross profit of 24.7%. Higher volumes also increased gross profit by ~~8.4%. Changes~~20.8%, but changes in foreign currency offset these increases by ~~10.3%~~11.8%.

SG&A for our Asia Pacific segment increased ~~$0.8~~$7.5 million, or ~~1.1%~~7.2%, in the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021, mostly due to higher facilities costs of $2.9 million associated with higher retail revenues and increased investments in employee headcount of $1.7 million and higher facilities costs of $1.3 million associated with higher retail revenues, offset in part by lower marketing costs of $2.0 million, mostly as a result of delayed investment driven by the COVID-19 impact on China factories during the second quarter.$2.7 million. There were also ~~lower~~higher other net costs of ~~$0.2~~$1.9 million.

EMEALA Operating Segment

Revenues. ~~The~~Revenues increased in the EMEALA segment ~~led the increase in overall revenues~~ in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021, despite significant unfavorable currency headwinds due to fluctuations in the Euro 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 ~~six~~nine months ended ~~June~~September 30, 2022, EMEALA revenues increased compared to the same period in 2021, ~~primarily~~ due to increased volume, ~~and~~as well as higher ASP, primarily in our wholesale channel, offset in part by significant unfavorable foreign currency fluctuations in the Euro.

Income from Operations. Income from operations for the EMEALA segment was ~~$53.4~~$40.5 million for the three months ended ~~June~~September 30, 2022, an increase of ~~$12.0~~$4.8 million, or ~~29.0%~~13.4%, compared to the same period in 2021. Gross profit increased ~~$13.6~~$5.9 million, or ~~21.9%~~10.6%, mostly as a result of higher volume of ~~$20.7 million, or 33.3%~~23.9%. ~~Gains~~Additionally, gains in ASP due to increased pricing and decreased promotions were ~~partially~~largely offset by higher AUC as a result of ~~increased freight costs, mostly due to increased air freight, and~~ unfavorable purchasing power and increased material and freight costs, leading to a net increase in gross profit of ~~$2.4 million, or 4.0%~~3.3%. These increases were offset in part by unfavorable changes in foreign currency of ~~$9.5~~$9.2 million, or ~~15.4%~~16.6%.

SG&A for our EMEALA segment increased ~~$1.6~~$1.1 million, or ~~7.8%~~5.4%, during the three months ended ~~June~~September 30, 2022 compared to the same period in 2021. Marketing investments increased ~~$2.3~~$1.3 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. Otherwhile other net costs decreased ~~SG&A by $2.3~~$0.2 million.

Income from operations for the EMEALA segment was ~~$88.3~~$128.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022, an increase of ~~$6.9~~$11.7 million, or ~~8.5%~~10.0%, compared to the same period in 2021. Gross profit increased ~~$17.2~~$23.1 million, or ~~14.7%~~13.4%, due to higher sales volumes of ~~$22.5~~$35.5 million, or ~~19.3%~~20.6%, and increases in ASP that outpaced increases in AUC of ~~$8.6~~$10.7 million, or ~~7.3%~~6.2%, as a result of price increases, offset in part by higher material and freight costs and unfavorable purchasing power. Negative currency changes, primarily in the Euro, led to decreases of ~~11.9%~~13.4%.

SG&A for our EMEALA segment increased ~~$10.3~~$11.4 million, or ~~29.0%~~20.6%, during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021. ~~Marketing investments,~~This was primarily ~~in digital marketing, increased $3.8 million, while~~due to various costs associated with the continued shutdown of our direct operations in Russia, including severance and lease exit costs and penalties, of $5.8 million. Marketing costs, including investments in digital marketing, increased ~~SG&A $7.3~~$5.1 million. ~~Other~~There were also other net cost ~~decreases~~increases of ~~$0.8 million partially offset these increases.~~$0.5 million.

Crocs Brand Corporate

During the three months ended ~~June~~September 30, 2022, total net costs within ‘Brand corporate’ increased ~~$6.9~~$8.9 million, or ~~32.1%~~31.8%, compared to the same period in 2021, due to a larger investment in marketing of $3.0 million, an increase in compensation costs of ~~$1.6~~$2.5 million, ~~information technology costs of $1.4 million, services costs of $1.2 million,~~ and an increase in other net costs, including contract labor, of ~~$2.7~~$3.4 million.

During the ~~six~~nine months ended ~~June~~September 30, 2022, total net costs within ‘Brand corporate’ increased ~~$17.6~~$26.5 million, or ~~42.4%~~38.1%, compared to the same period in 2021, due to higher compensation costs of ~~$5.2~~$7.6 million as a result of increased headcount, higher services costs, including consulting and contract labor, of ~~$2.9~~$3.8 million, a larger investment in marketing of $3.0 million, and higher information technology costs of ~~$2.3~~$2.1 million. Other net costs increased by ~~$7.2~~$10.0 million.

HEYDUDE Brand

For the three months ended ~~June~~September 30, 2022, revenues attributable to HEYDUDE were ~~$232.4~~$269.4 million, with the majority of revenues attributable to our wholesale channel at approximately ~~70%~~67%. Overall, we sold ~~8.1~~9.2 million pairs of shoes ~~in the HEYDUDE Brand~~ during the quarter. Income from operations during the quarter was ~~$41.7~~$79.1 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~~$616.7 million, with the majority of revenues attributable to our wholesale channel at approximately ~~72%~~70%. Overall, we sold ~~12.1~~21.2 million pairs of shoes ~~in the HEYDUDE Brand~~ during the Partial Period. Income from operations during the Partial Period was ~~$57.3~~$136.4 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, compensation expense, and ~~compensation~~depreciation and amortization expense.

Refer to Note 1617 — 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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Enterprise Corporate

During the three months ended ~~June~~September 30, 2022, total net costs within ‘Enterprise corporate’ increased ~~$2.8~~$5.2 million, or ~~6.1%~~11.5%, compared to the same period in ~~2021,~~2021. This was primarily due to ~~an increase~~increases in various costs, including services, facilities, and information technology costs, of ~~$5.6~~$8.0 million, ~~primarily related to consulting~~and statutory costs associated with the ~~integration~~HEYDUDE acquisition of ~~HEYDUDE into our business. There was also $2.2~~$4.7 million, ~~higher information technology and other net costs. These increases were~~mostly offset by ~~lower~~decreased compensation costs of ~~$5.0~~$5.2 million, ~~primarily~~ due to lower variable ~~compensation.~~compensation, and decreases in other costs, including depreciation and amortization, of $2.3 million.

During the ~~six~~nine months ended ~~June~~September 30, 2022, total net costs within ‘Enterprise corporate’ increased ~~$33.5~~$38.7 million, or ~~44.7%~~32.2%, compared to the same period in 2021. This was primarily due to costs associated with the acquisition and integration of HEYDUDE, including consulting, legal, statutory, and accounting fees, among others, of ~~$26.3~~$33.2 million. There were also ~~higher~~increases in other professional services costs of ~~$6.1~~$8.4 million, ~~higher~~ information technology costs of ~~$3.0~~$4.3 million, facilities costs, including duplicate rent for our new corporate headquarters, of $4.1 million, and ~~higher~~ other net costs of ~~$4.9~~$1.8 million. These increases were offset in part by lower ~~depreciation and amortization of $3.7 million and lower~~ compensation costs of ~~$3.1~~$7.8 million primarily due to lower variable ~~compensation.~~compensation and lower depreciation and amortization of $5.3 million.

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 ~~six~~three and nine months ended ~~June~~September 30, 2022:


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

North America	North America	175	—	—	175	North America	175	3	—	178
Asia Pacific	Asia Pacific	153	1	2	152	Asia Pacific	152	3	2	153
EMEALA	EMEALA	44	—	3	41	EMEALA	41	—	19	22
Total	Total	372	1	5	368	Total	368	6	21	353


		December 31, 2021	Opened	Closed	June 30, 2022		December 31, 2021	Opened	Closed	September 30, 2022

Company-operated retail locations:	Company-operated retail locations:					Company-operated retail locations:
North America	North America	173	2	—	175	North America	173	5	—	178
Asia Pacific	Asia Pacific	153	2	3	152	Asia Pacific	153	5	5	153
EMEALA	EMEALA	47	1	7	41	EMEALA	47	1	26	22
Total	Total	373	5	10	368	Total	373	11	31	353

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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Digital sales as a percent of total revenues:	Digital sales as a percent of total revenues:									Digital sales as a percent of total revenues:
Crocs Brand	Crocs Brand	37.2	%	36.4	%	35.3	%	34.7	%	Crocs Brand	37.4	%	36.8	%	36.0	%	35.5	%
HEYDUDE Brand (1)	HEYDUDE Brand (1)	31.5	%	—	%	29.6	%	—	%	HEYDUDE Brand (1)	35.9	%	—	%	32.4	%	—	%
Total (2)	Total (2)	35.8	%	36.4	%	34.1	%	34.7	%	Total (2)	37.0	%	36.8	%	35.2	%	35.5	%

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

(2) For the three and ~~six~~nine months ended ~~June~~September 30, 2021, the digital sales as a percent of total revenues represents the Crocs ~~Brand.~~Brand only. See footnote (1) above.

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


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

Crocs Brand (3)	Crocs Brand (3)	7.5	%	N/A	10.7	%	N/A	Crocs Brand (3)	18.2	%	N/A	13.6	%	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 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~~nine months ended ~~June~~September 30, 2021, as a result of the COVID-19 pandemic’s impact on 2020 sales we did not disclose DTC comparable sales, as they were not meaningful.

Financial Condition, Capital Resources, and Liquidity

Liquidity

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


	~~June~~September 30, 2022
	(in thousands)
Cash and cash equivalents	$	~~187,352~~142,971
Available borrowings	~~475,806~~611,080

As of ~~June~~September 30, 2022, we had ~~$187.4~~$143.0 million in cash and cash equivalents and up to ~~$475.8~~$611.1 million of available borrowings, including ~~$469.7~~$599.7 million of remaining borrowing availability under the Revolving Facility (as defined below) and ~~$6.1~~$11.4 million of remaining borrowing availability under the Asia revolving ~~facilities (as defined below).~~facilities. As of ~~June~~September 30, 2022, the Term Loan B Facility (as defined below) 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 completed the Acquisition on February 17, 2022. The consideration for the Acquisition was comprised of $2.05 billion in cash and 2,852,280 of Crocs shares. To finance a portion of the Cash Consideration, we entered into the $2.0 billion Term Loan B Facility and borrowed $50.0 million under our Revolving Facility. In the remainder of 2022, we plan to continue to use excess cash generated by our operations to begin to repay our outstanding debt, and, as such, ~~we have suspended~~ our share repurchase ~~program.~~program remains suspended.

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,~~conditions, and the pace of sustainable growth in our markets, among other things, could each impact our business and liquidity.

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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. as of September 30, 2022 without incurring additional U.S. federal income taxes. As of ~~June~~September 30, 2022, we held ~~$109.0~~$100.9 million of our total ~~$187.4~~$143.0 million in cash in international locations. This cash is primarily used for the ongoing operations of the business in the locations in which the cash is held. The repatriation of the ~~$109.0~~$100.9 million, held in international locations is not limited by local regulations.

Senior Revolving Credit Facility

The Credit Agreement requires us to maintain a minimum interest coverage ratio of 3.00 to 1.00, and a maximum leverage ratio of (i) 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 ~~June~~September 30, 2022, we were in compliance with all financial covenants under the Credit Agreement.

Term Loan B Facility

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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%.

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2022, with the remaining principal amount due on February 17, 2029, the maturity date. As of ~~June~~September 30, 2022, we had ~~$1,995.0~~$1,975 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~~nine months ended ~~June~~September 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~~$1.4 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.

Senior Notes Issuances

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Company’s affiliates; and consolidate or merge with or into other companies. As of ~~June~~September 30, 2022, we were in compliance with all financial covenants under the Notes.

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Cash Flows


		Six Months Ended June 30,				$ Change		% Change			Nine Months Ended September 30,				$ Change		% Change
		2022		2021		Favorable (Unfavorable)					2022		2021		Favorable (Unfavorable)
		(in thousands)									(in thousands)
Cash provided by operating activities	Cash provided by operating activities	$	84,744	$	242,366	$	(157,622)	(65.0)	%	Cash provided by operating activities	$	246,685	$	355,165	$	(108,480)	(30.5)	%
Cash used in investing activities	Cash used in investing activities	(2,097,029)		(21,323)		(2,075,706)		(9,734.6)	%	Cash used in investing activities	(2,136,489)		(35,767)		(2,100,722)		(5,873.4)	%
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	%	Cash provided by (used in) financing activities	1,827,653		(13,020)		1,840,673		14,137.3	%
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1,690)		(1,793)		103		5.7	%	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(8,821)		(3,907)		(4,914)		(125.8)	%
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	$	(26,354)	$	63,906	$	(90,260)	(141.2)	%	Net change in cash, cash equivalents, and restricted cash	$	(70,972)	$	302,471	$	(373,443)	(123.5)	%

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 decreased ~~$157.6~~$108.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021, driven by decreases in operating assets and liabilities of ~~$158.7~~$134.2 million, primarily due to accounts receivable, net and inventory, partially offset by higher net income, adjusted for non-cash items, of ~~$1.1~~$25.8 million.

Investing Activities. There was a ~~$2,075.7~~$2,100.7 million increase in cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021. The increase is primarily due to the Cash Consideration for the Acquisition, net of cash acquired. Refer to Note 1617 — 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.

Financing Activities. Cash provided by financing activities increased by ~~$2,143.0~~$1,840.7 million in the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 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, the Revolving Facility, and the Asia revolving facilities. Additionally, ~~we had~~ a decrease of ~~$110.0 million in repayments of borrowings, a decrease of $350.0~~$500.0 million in repurchases of common stock and a decrease of ~~$4.8~~$7.3 million in repurchases of common stock for tax withholding. The overall increase was offset by a ~~$350.0~~$700.0 million decrease in proceeds from the ~~2029~~ Notes ~~issuance~~issuances that occurred in the ~~six~~nine months ended ~~June~~September 30, 2021 that did not recur in the current period, a ~~$42.4~~$36.9 million increase in deferred debt issuance costs, primarily related to the Term Loan B ~~Facility,~~Facility. We also had an increase of $0.3 million in repayments of borrowings and a $0.1 million increase in other cash used in financing activities.

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, 2021, other than (i) borrowings and repayments on the Revolving Facility and Asia Facilities, ~~and~~ (ii) borrowings ~~of $2.0 billion~~and repayments under the Term Loan B Facility, which we entered into in the ~~six~~nine months ended ~~June~~September 30, ~~2022.~~2022, and (iii) future lease payments of approximately $75 million through 2033, as described in Note 5 — Leases 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.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of ~~June~~September 30, 2022, other than certain purchase commitments, which are described in Note 1314 — 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~~nine months ended ~~June~~September 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~~specialist 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 1617 — 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, 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, 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 ~~June~~September 30, 2022, we had borrowings with a face value of ~~$2,830.4~~$2,675.0 million, comprised of the Notes, which carry a fixed rate, and the Term Loan B ~~Facility, and borrowings under the Revolving Facility and Asia revolving facilities.~~Facility. We also had $0.3 million in outstanding letters of credit under our Revolving Facility as of ~~June~~September 30, 2022. As of December 31, 2021, we had long-term borrowings with a face value of $785.0 million and $0.3 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 and Revolving Facility would have increased interest expense by ~~$5.6~~$5.4 million and ~~$7.6~~$13.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 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 when translating our financial results would have decreased our revenues and income before taxes during the three months ended ~~June~~September 30, 2022 by ~~$3.2~~$2.9 million and ~~$0.9~~$0.4 million, respectively. ~~During~~For the ~~six~~nine months ended ~~June~~September 30, 2022, an increase of 1% of the value of the U.S. Dollar relative to foreign currencies when translating our financial results would have decreased our revenues and income before taxes by ~~$5.6~~$8.5 million and ~~$1.4~~$1.8 million, respectively. This analysis does not account for transactional fluctuations in accounts, such as those driven by purchasing power, as defined in “Known or Anticipated Trends” in Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q. 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 ~~June~~September 30, 2022, the U.S. Dollar notional value of our outstanding foreign currency forward exchange contracts was approximately ~~$152.7~~$177.5 million. The net fair value of these contracts at ~~June~~September 30, 2022 was an asset of ~~$0.2~~$0.7 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 ~~June~~September 30, 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 ~~$0.8~~$0.9 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 ~~six~~nine months ended ~~June~~September 30, 2022 and 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~~September 30, 2022. During the ~~six~~nine months ended ~~June~~September 30, 2022, we closed the Acquisition, as discussed in Note 1617 — 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%~~27.3% and ~~21.4%~~23.6% of our total revenues for the three and ~~six~~nine months ended ~~June~~September 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 upon that this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June~~September 30, 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 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

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~~ending 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~~nine months ended ~~June~~September 30, 2022, including determining the fair value of the assets acquired and liabilities assumed. Except as described ~~herein,~~above, 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~~nine months ended ~~June~~September 30, 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 1516 — 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.

The ongoing war between Russia and Ukraine could cause further disruptions in the global economy as well as a negative impact on our business, financial condition and results of operations.

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 ongoing war between Russia and Ukraine, we have stopped DTC business operations in Russia. Even though revenues from Russia represented less than 3% of our consolidated revenues in 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 the global economy, driving increases to the cost of transportation, energy, and supplies and macro financial impacts resulting from the exclusion of Russian financial institutions from the global banking system, 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 known risks described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 16, 2022.

Changes in global economic conditions, including, but not limited to, those driven by inflation, may adversely affect consumer spending and the financial health of our customers and others with whom we do business, which may adversely affect our financial condition, results of operations, and cash resources.

Uncertainty about current and future global economic conditions may cause consumers, wholesalers, and retailers to defer purchases or cancel purchase orders for our products in response to tighter credit, decreased cash availability, and weakened consumer confidence. Our financial success is sensitive to changes in general economic conditions, both globally and in specific markets, that may adversely affect the demand for our products including recessionary economic cycles, higher interest rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws, public health issues like the COVID-19 pandemic, or other economic factors, certain of which effects we have experienced thus far in 2022 and currently expect to continue to experience in 2023. If global economic and financial market conditions deteriorate, or remain weak, for an extended period of time, the following factors, among others, could have a material adverse effect on our business and financial results:

•Changes in foreign currency exchange rates relative to the USD could have a material impact on our reported financial results, such as in the quarter ended September 30, 2022.

•Slower consumer spending may result in our inability to maintain or increase our sales to new and existing customers, cause reduced product orders or product order delays or cancellations from wholesale accounts that are directly impacted by fluctuations in the broader economy, difficulties managing inventories, higher discounts, and lower product margins.

•If consumer demand for our products declines, we may not be able to profitably operate existing retail stores, due to higher fixed costs of the retail business.

•A decrease in credit available to our wholesale or distributor customers, product suppliers and other service providers, or financial institutions that are counterparties to our Revolving Facility or derivative instruments may result in credit pressures, other financial difficulties, or insolvency for these parties, with a potential adverse impact on our business, our financial results, or our ability to obtain future financing.

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•If our wholesale customers experience diminished liquidity, we may experience a reduction in product orders, an increase in customer order cancellations, and/or the need to extend customer payment terms, which could lead to larger balances and delayed collection of our accounts receivable, reduced cash flows, greater expenses for collection efforts, and increased risk of nonpayment of our accounts receivable.

•If our manufacturers or other parties in our supply chain experience diminished liquidity, and as a result are unable to fulfill their obligations to us, we may be unable to provide our customers with our products in a timely manner, resulting in lost sales opportunities or a deterioration in our customer relationships.

•If we are unable to mitigate the impact of supply chain constraints and inflationary pressure through price increases or other measures, our results of operations and financial condition could be negatively impacted. Furthermore, even if we are able to raise the prices of our products, consumers might react negatively to such price increases, which could have a material adverse effect on, among other things, our brand, reputation, and sales.

The Federal Reserve recently raised interest rates multiple times in response to concerns about inflation and it may raise them again. Higher interest rates, coupled with reduced government spending and volatility in financial markets may also increase economic uncertainty and negatively affect consumer spending. Similarly, the ongoing war between Russia and Ukraine has created extreme volatility in the global capital markets and is expected to continue to have further global economic consequences, including disruptions of the global supply chain and energy markets. See “The ongoing war between Russia and Ukraine could cause further disruptions in the global economy as well as a negative impact on our business, financial condition and results of operations.” Any such volatility and disruptions may adversely affect our business or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Increased inflation rates have already, and may continue to, adversely affect us by increasing our costs, including labor and employee benefit costs. In addition, higher inflation and macro turmoil and uncertainty could also adversely affect our customers, which could reduce demand for our products.

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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).

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.

4243

Table of Contents

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: ~~August 4,~~November 3, 2022

By:

/s/ Anne Mehlman

Name:

Anne Mehlman

Title:

Executive Vice President and Chief Financial Officer

4344


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	2324
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40

PART II — Other Information		41

Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41

Item 6.	Exhibits	4243
Signatures		4344


	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