CROCS, INC. Business Overview
Crocs, Inc. and its consolidated subsidiaries (collectively, the "Company," "we," "us," or "our") are engaged in the design, development, worldwide marketing, distribution, and sale of casual lifestyle footwear and accessories for women, men, and children. We strive to be the world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers want. The vast majority of shoes within the Crocs Brand's collection contain Croslite™ material, a proprietary, molded footwear technology, delivering extraordinary comfort with each step. The broad appeal of our footwear has allowed us to market our products through a wide range of distribution channels. We currently sell our products in more than 85 countries, through two distribution channels: wholesale and direct-to-consumer. Our wholesale channel includes domestic and international multi-brand retailers, mono-branded partner stores, e-tailers, and distributors; our direct-to-consumer channel includes company-operated retail stores, company-operated e-commerce sites, and third-party marketplaces.
Known or Anticipated Trends
Based on our recent operating results and our assessment of the current operating environment, we anticipate certain trends will continue to impact our future operating results:
•OnFebruary 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 onDecember 22, 2021 . HEYDUDE is engaged in the business of distributing and selling casual footwear, including footwear under the brand name "HEYDUDE." 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 3 - Acquisition of HEYDUDE in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on this Form 10-K. The consolidated results reported for the year endedDecember 31, 2022 represent the Crocs Brand and 'Enterprise corporate' for the full year and the HEYDUDE Brand for the partial period beginning on the Acquisition Date throughDecember 31, 2022 (the "Partial Period"); for the years endedDecember 31, 2021 and 2020, the results represent the Crocs Brand and 'Enterprise corporate' only. •Consumer spending habits, including spending for the products that we sell, are affected by various macroeconomic factors, such as, among other things, prevailing global economic conditions, inflation, including the costs of basic necessities and other goods, levels of employment, salaries and wage rates, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns may be influenced by consumers' disposable income. Recently, we have also been impacted by adverse macroeconomic and geopolitical conditions, such as the war betweenRussia andUkraine , which has increased global supply chain, logistics, and inflationary challenges. Global inflation, elevated interest rates, global industry-wide logistics challenges, and foreign currency fluctuations resulting in a stronger USD, 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 USD also results in costs for foreign goods purchased in USD but recognized in foreign currencies ("purchasing power") that are unfavorable. In the year endedDecember 31, 2022 , we incurred air freight costs of approximately$67 million , which helped mitigate supply delays as a result ofVietnam factory closures. We do not intend to use a significant amount of air freight in 2023. AtDecember 31, 2022 , our inventories balance was$471.6 million . The majority of the total increase in inventories of 120.8% overDecember 31, 2021 was due to the addition of the HEYDUDE Brand in the first quarter of 2022. Inventories for the Crocs Brand were also up 41.9% as ofDecember 31, 2022 . 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. However, more recently, elevated inventory levels have caused the industry, including us, to become more promotional. This is particularly true inNorth America . We expect these challenges to remain fluid as macroeconomic and inflationary pressures continue and foreign exchange rates fluctuate. 31
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Use of Non-GAAP Financial Measures
In addition to financial measures presented on the basis of accounting principles generally accepted inthe United States of America ("U.S. GAAP"), we present certain information related to our current period results of operations through "constant currency," which is a non-GAAP financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments underU.S. GAAP. Constant currency represents current period results that have been retranslated using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rates on reported amounts. Management uses constant currency to assist in comparing business trends from period to period on a consistent basis in communications with the Board, stockholders, analysts, and investors concerning our financial performance. We believe constant currency is useful to investors and other users of our consolidated financial statements as an additional tool to evaluate operating performance and trends. Investors should not consider constant currency in isolation from, or as a substitute for, financial information prepared in accordance withU.S. GAAP.
2022 Financial and Operational Highlights
Revenues were$3,555.0 million for the year endedDecember 31, 2022 , a 53.7% increase compared to the year endedDecember 31, 2021 . The increase in 2022 revenues compared to 2021 revenues was due to the net effects of: (i) the addition of HEYDUDE Brand revenues of$895.9 million as a result of the Acquisition, which increased revenues by 38.7%; (ii) higher Crocs Brand sales volumes, which increased revenues by$294.1 million , or 12.7%; (iii) higher average selling prices for the Crocs Brand, which increased revenues by$155.3 million , or 6.7%, as a result of increased pricing; and (iv) unfavorable changes in exchange rates, which decreased revenues by$103.7 million , or 4.5% for the Crocs Brand.
The following were significant developments affecting our businesses during the
year ended
•We acquired HEYDUDE on
•We grew Crocs Brand revenues 14.9%, despite significant foreign currency headwinds and supply chain challenges, compared to the same period in 2021, led by ourAsia Pacific segment, which grew revenues 35.3%, or 47.0% on a constant currency basis, and our EMEALA segment, which grew revenues 32.1%, or 46.8% on a constant currency basis. OurNorth America segment revenues grew 5.8%, or 6.0% on a constant currency basis. •We sold 115.6 million pairs of shoes worldwide for the Crocs Brand, an increase from 103.0 million pairs in 2021. We sold 30.5 million pairs of shoes for the HEYDUDE Brand in the Partial Period. •Gross margin was 52.3% compared to 61.4% in 2021, a decrease of 910 basis points. Gross margin for the Crocs Brand was 56.3%, a decrease of 510 basis points from last year, as a result of ongoing global inflation, which negatively impacted material and freight costs, and higher distribution and logistics costs as a result of continued supply chain challenges. This includes air freight costs, which impacted gross margin by approximately 220 basis points. Higher pricing and favorable product mix partially offset these decreases. Gross margin for the HEYDUDE Brand was 40.8%, which is inclusive of an approximately 690 basis points unfavorable impact from a non-cash step-up of acquired HEYDUDE inventory to fair value and 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. To that end, in 2022, we entered into a lease not yet commenced for a new HEYDUDE distribution center inNevada . •Selling, general & administrative expenses ("SG&A") was$1,009.5 million , an increase of$272.4 million , or 36.9%, compared to 2021, primarily as a result of investments in marketing and headcount as we continue to grow the business, costs related to the acquisition and integration of HEYDUDE, and incremental operating costs associated with operating the HEYDUDE Brand. However, as a percent of revenues, SG&A improved 350 basis points to 28.4% of revenues as a result of strong sales growth and our continued leveraging of operating costs. •Income from operations was$850.8 million for the year endedDecember 31, 2022 compared to income from operations of$683.1 million for the year endedDecember 31, 2021 . Our operating margin declined to 23.9%, compared to 29.5% in 2021. •Net income was$540.2 million compared to$725.7 million in 2021. Diluted net income per common share was$8.71 for the year endedDecember 31, 2022 , compared to a diluted net income per common share of$11.39 for the year ended 32
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December 31, 2021 . These amounts include an income tax expense of$178.3 million in 2022 and an income tax benefit of$61.8 million in 2021, as described in more detail under Income tax expense (benefit) below.
Results of Operations
Comparison of the Years Ended
A discussion of our comparison between 2022 and 2021 is presented below. A discussion of the changes in our results of operations between the years endedDecember 31, 2021 andDecember 31, 2020 has been omitted from this Annual Report on Form 10-K but may be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 16, 2022 , which is available free of charge on theSEC's website at www.sec.gov and our corporate website (www.crocs.com). $ Change % Change Year Ended December 31, Favorable (Unfavorable) 2022 2021 2022-2021 2022-2021 (in thousands, except per share data, margin, and average selling price data) Revenues$ 3,554,985 $ 2,313,416 $ 1,241,569 53.7 % Cost of sales 1,694,703 893,196 (801,507) (89.7) % Gross profit 1,860,282 1,420,220 440,062 31.0 % Selling, general and administrative expenses 1,009,526 737,156 (272,370) (36.9) % Income from operations 850,756 683,064 167,692 24.5 % Foreign currency gains (losses), net 3,228 (140) 3,368 2,405.7 % Interest income 1,020 775 245 31.6 % Interest expense (136,158) (21,647) (114,511) (529.0) % Other income (expense), net (338) 1,797 (2,135) (118.8) % Income before income taxes 718,508 663,849 54,659 8.2 % Income tax expense (benefit) 178,349 (61,845) (240,194) (388.4) % Net income$ 540,159 $ 725,694 $ (185,535) (25.6) % Net income per common share: Basic$ 8.82 $ 11.62 $ (2.80) (24.1) % Diluted$ 8.71 $ 11.39 $ (2.68) (23.5) % Gross margin (1) 52.3 % 61.4 % (910) bp (14.8) % Operating margin (1) 23.9 % 29.5 % (560) bp (19.0) % Selling, general and administrative expenses as a percentage of revenues (1) 28.4 % 31.9 % 350 bp 11.0 % Footwear unit sales: Crocs Brand 115,558 102,962 12,596 12.2 % HEYDUDE Brand (3) 30,519 - - - % Average footwear selling price - nominal basis (2): Crocs Brand$ 22.72 $ 22.27 $ 0.45 2.0 % HEYDUDE Brand (3)$ 29.35 $ - $ - - % (1) Changes for gross margin, operating margin, and SG&A as a percentage of revenues are shown in basis points ("bp"). (2) Average footwear selling price is calculated as footwear and charms revenues divided by footwear units. (3) We acquired HEYDUDE onFebruary 17, 2022 and, as a result, added the HEYDUDE Brand as a new reportable operating segment. Therefore, the amounts shown above for the year endedDecember 31, 2022 represent results during the Partial Period, and there are no comparative amounts for the year endedDecember 31, 2021 . 33
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Revenues by Channel
Constant
Currency %
% Change Change (1)
Year Ended December 31, Favorable (Unfavorable)
2022 2021 2022-2021 2022-2021
(in thousands)
Crocs Brand:
Wholesale $ 1,377,302 $ 1,174,081 17.3 % 23.4 %
Direct-to-consumer 1,281,823 1,139,335 12.5 % 15.3 %
Total Crocs Brand 2,659,125 2,313,416 14.9 % 19.4 %
HEYDUDE Brand (2):
Wholesale 574,140 - - % - %
Direct-to-consumer 321,720 - - % - %
Total HEYDUDE Brand 895,860 - - % - %
Total consolidated revenues (2) $ 3,554,985 $ 2,313,416 53.7 % 58.2 %
(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) We acquired HEYDUDE on February 17, 2022 and, as a result, added the HEYDUDE
Brand as a new reportable operating segment. Therefore, the amounts shown above
for the year ended December 31, 2022 represent results during the Partial
Period, and there are no comparative amounts for the year ended December 31,
2021 .
Revenues. In the year ended December 31, 2022 , revenues increased $1,241.6
million , or 53.7%, compared to 2021, driven by (i) the addition of HEYDUDE Brand
revenues of $895.9 million during the Partial Period, (ii) higher volume in all
Crocs Brand segments of $294.1 million , or 12.7%, led by our EMEALA and Asia
Pacific segments, and (iii) higher average selling price on a constant currency
basis ("ASP") in the Crocs Brand of $155.3 million , or 6.7%, as a result of
strategic increased pricing in all regions. Unfavorable foreign currency
fluctuations, most significantly in the Euro and South Korean Won, decreased
Crocs Brand revenues by $103.7 million , or 4.5%.
Cost of sales. Cost of sales increased compared to 2021, in part due to the
addition of the HEYDUDE Brand, which had cost of sales in the Partial Period
that were in line with its contributions to revenues discussed above. Higher
average cost per unit on a constant currency basis ("AUC") in the Crocs Brand of
$186.0 million , or 20.8%, resulted mostly from higher distribution and logistics
and material costs, driven in part by the use of air freight to combat supply
chain disruptions and inflation. Higher volume in the Crocs Brand contributed
$132.0 million , or 14.8%, to the increase in cost of sales, while foreign
currency fluctuations in the Crocs Brand reduced cost of sales by $49.2 million ,
or 5.5%.
Gross margin and gross profit. Gross margin was 52.3% compared to 61.4% in 2021.
Gross margin for the Crocs Brand was 56.3% compared to 61.4% in 2021, due
primarily to higher material and freight costs, as described above, offset in
part by higher pricing and favorable product mix. Gross margin for the HEYDUDE
Brand was 40.8%, which is inclusive of an approximately 690 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 $440.1 million , or 31.0%, primarily as a result of the
addition of HEYDUDE, which contributed to the majority of the increase, as well
as higher sales volumes in the Crocs Brand of $162.1 million , or 11.4%. These
increases were offset in part by unfavorable foreign currency fluctuations of
$54.5 million , or 3.9%, and the net impact of higher AUCs and higher ASPs, which
decreased gross profit by $30.7 million , or 2.2%.
Selling, general and administrative expenses. SG&A as a percent of revenue
improved to 28.4% during the year ended December 31, 2022 compared to 2021, as a
result of strong sales growth and our continued efforts to leverage operating
costs, while SG&A expenses increased $272.4 million , or 36.9% in the same
period. We have continued to invest in marketing to fuel growth, with an
increase of $88.1 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 $38.2 million associated with the Acquisition and related
integration, including consulting, legal, statutory, and accounting fees, as
well as certain compensation costs, contributed to the increase. There was an
increase in sales
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commissions of$36.9 million , due mostly to HEYDUDE, which used more costly external representatives prior to the Acquisition, at which point we began to transition to a more cost-effective model. Other increases in compensation costs of$27.7 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. Other increases in professional services costs of$22.2 million were due to variable costs associated with revenue growth and contract labor costs and an increase in facilities expenses of$15.3 million was driven by duplicate rent costs associated with our upcoming headquarters move, lease exit costs and penalties associated with the shutdown of our direct operations inRussia , and variable rent associated with higher revenues. There were net increases in other costs, including information technology, depreciation and amortization, and travel and related costs, of$44.0 million . Foreign currency gains (losses), net. Foreign currency gains (losses), net, consists of unrealized and realized foreign currency gains and losses from the remeasurement and settlement of monetary assets and liabilities denominated in non-functional currencies as well as realized and unrealized gains and losses on certain foreign currency derivative instruments. During the year endedDecember 31, 2022 , we recognized realized and unrealized net foreign currency gains of$3.2 million compared to net losses of$0.1 million during the year endedDecember 31, 2021 . Income tax expense (benefit). During the year endedDecember 31, 2022 , we recognized an income tax expense of$178.3 million on pre-tax book income of$718.5 million , representing an effective tax rate of 24.8%, compared to an income tax benefit of$61.8 million on pre-tax book income of$663.8 million in 2021, which represented an effective tax rate of (9.3)%. The prior year effective tax rate is lower primarily due to the prior year net foreign deferred income tax benefit as a result of an intra-entity intellectual property rights transfer of$127.7 million and the prior year release of valuation allowances. Our effective tax rate has varied dramatically in recent years due to the intra-entity intellectual property rights transfer, differences in our profitability levels and relative operating earnings across multiple jurisdictions, and by changes in the valuation allowance. During the three months endedDecember 31, 2021 , we completed an intra-entity transfer of certain intellectual property rights primarily to align with current and future international operations. The transfer resulted in a step-up in tax basis of intellectual property rights and a correlated increase in foreign deferred tax assets based on the fair value of the transferred intellectual property rights. We recorded a deferred tax asset of$40.3 million , net of a reserve for uncertain tax positions of$16.1 million . As such, a net deferred tax asset of$24.2 million was recognized along with a corresponding foreign deferred income tax benefit. Our valuation allowances are primarily the result of uncertainties regarding the future realization of tax attributes recorded in various jurisdictions. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that the deferred tax assets will not be realized. We have evaluated the realizability of our deferred tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the reversal of existing temporary differences, historical and projected operating results and the availability of prudent and feasible tax planning strategies. In assessing our valuation allowance as ofDecember 31, 2022 , we considered all available evidence, including the magnitude of recent and current operating results, the duration of statutory carryforward periods, our historical experience utilizing tax attributes prior to their expiration dates, the historical volatility of operating results of these jurisdictions and our assessment regarding the sustainability of their profitability. The weight we give to any particular item is, in part, dependent upon the degree to which it can be objectively verified. In 2021, a jurisdiction for which we have historically recorded significant valuation allowances enacted a favorable change in the tax law related to net operating loss carryforwards. This change in tax law impacted the assessment of valuation allowances in the jurisdiction as the reversal of existing deferred tax assets would generate indefinite carryforward net operating losses instead of losses with a limited carryforward period. During 2022, valuation allowances recorded against deferred tax assets increased by$1.7 million . The 2022 impact of changes in valuation allowances to the effective tax rate was an unfavorable impact of$4.4 million , equating to a 0.6% unfavorable impact. There is also a$2.7 million favorable change in the valuation allowance related to cumulative translation adjustments. We maintain valuation allowances of approximately$28.1 million as ofDecember 31, 2022 , which may be reduced in the future depending upon the achieved profitability of certain jurisdictions as well as the magnitude of the profitability. 35
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Reportable Operating Segments
The following table sets forth information related to our reportable operating business segments for the years endedDecember 31, 2022 , 2021, and 2020. As a result of changes made in the presentation of certain amounts between our segments in the year endedDecember 31, 2022 , as described in more detail below, we have included a discussion of the changes in our results of operations between the yearsDecember 31, 2021 and 2020, as revised to conform to current period presentation. Constant Currency % % Change Change (1) Year Ended December 31, Favorable (Unfavorable) 2022 2021 2020 2022-2021 2021-2020 2022-2021 (in thousands) Revenues: North America (2)$ 1,644,630 $ 1,553,891 $ 832,540 5.8 % 86.6 % 6.0 % Asia Pacific 473,935 350,160 278,515 35.3 % 25.7 % 47.0 % EMEALA (2) 540,534 409,278 274,733 32.1 % 49.0 % 46.8 % Brand corporate (3) 26 87 163 (70.1) % (46.6) % (70.1) % Crocs Brand revenues 2,659,125 2,313,416 1,385,951 14.9 % 66.9 % 19.4 % HEYDUDE Brand revenues (4) 895,860 - - - % - % - % Total consolidated revenues$ 3,554,985 $ 2,313,416 $ 1,385,951 53.7 % 66.9 % 58.2 % Income from operations: North America (2)$ 683,350 $ 755,723 $ 313,913 (9.6) % 140.7 % (9.4) % Asia Pacific 145,011 71,936 32,830 101.6 % 119.1 % 119.5 % EMEALA (2) 153,976 134,126 75,513 14.8 % 77.6 % 28.1 % Brand corporate (3) (130,312) (100,391) (92,833) (29.8) % (8.1) % (31.4) % Crocs Brand income from operations 852,025 861,394 329,423 (1.1) % 161.5 % 2.4 % HEYDUDE Brand income from operations (4) 211,361 - - - % - % - % Enterprise corporate (3) (212,630) (178,330) (115,299) (19.2) % (54.7) % (19.2) % Total consolidated income from operations 850,756 683,064 214,124 24.5 % 219.0 % 29.0 % Foreign currency gains (losses), net 3,228 (140) (1,128) 2,405.7 % 87.6 % Interest income 1,020 775 215 31.6 % 260.5 % Interest expense (136,158) (21,647) (6,742) (529.0) % (221.1) % Other income (expense), net (338) 1,797 510 (118.8) % 252.4 % Income before income taxes$ 718,508 $ 663,849 $ 206,979 8.2 % 220.7 % (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 ourLatin 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 years endedDecember 31, 2021 and 2020 have been revised to conform to current period presentation. Refer to Part I - Item 1. Financial Statements in our Quarterly Report on Form 10-Q for the period endedJune 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 17 - Operating Segments and Geographic Information in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K. As a result of these changes, the previously reported amounts for income from operations for the years endedDecember 31, 2021 and 2020 have been revised to conform 36
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to current period presentation. Refer to Part I - Item 1. Financial Statements in our Quarterly Report on Form 10-Q for the period endedJune 30, 2022 for more information. (4) We acquired HEYDUDE onFebruary 17, 2022 and added the HEYDUDE Brand as a new reportable operating segment. Therefore, the amounts shown above for the year endedDecember 31, 2022 represent results during the Partial Period, and there are no comparative amounts for the years endedDecember 31, 2021 or 2020.
The primary drivers of changes in revenues by operating segment were:
2022 vs. 2021
Volume Price (1) Foreign Exchange Total
$ Change % Change $ Change % Change $ Change % Change $ Change % Change
(in thousands)
Segment Revenues:
Crocs Brand:
North America $ 78,337 5.0 % $ 14,962 1.0 % $ (2,560) (0.2) % $ 90,739 5.8 %
Asia Pacific 96,775 27.6 % 68,038 19.4 % (41,038) (11.7) % 123,775 35.3 %
EMEALA 119,029 29.1 % 72,311 17.8 % (60,084) (14.7) % 131,256 32.1 %
HEYDUDE Brand (2) - - % - - % - - % - - %
Total segment revenues $ 294,141 12.7 % $ 155,311 6.7 % $ (103,682) (4.5) % $ 345,770 14.9 %
(1) The change due to price for revenues is based on ASP, as defined earlier in
this section.
(2) We acquired HEYDUDE on February 17, 2022 and added the HEYDUDE Brand as a
new reportable operating segment. Therefore, there are no comparative amounts
for the year ended December 31, 2021 .
2021 vs. 2020
Volume Price (1) Foreign Exchange Total
$ Change % Change $ Change % Change $ Change % Change $ Change % Change
(in thousands)
Segment Revenues:
Crocs Brand:
North America $ 505,949 60.7 % $ 212,462 25.5 % $ 2,940 0.4 % $ 721,351 86.6 %
Asia Pacific 24,881 8.9 % 34,987 12.6 % 11,777 4.2 % $ 71,645 25.7 %
EMEALA 107,379 39.1 % 17,723 6.5 % 9,443 3.4 % $ 134,545 49.0 %
Total segment revenues $ 638,209 46.1 % $ 265,172 19.1 % $ 24,160 1.7 % $ 927,541 66.9 %
(1) The change due to price for revenues is based on ASP, as defined earlier in this section.
Crocs Brand
North America Operating Segment
Revenues. TheNorth America segment grew revenues 5.8% for the year endedDecember 31, 2022 compared 2021, primarily as a result of higher volume in our DTC channel. Higher ASPs due to higher pricing, offset in part by increased promotional activity in the second half of the year, also drove revenue growth. Currency fluctuations had an insignificant negative impact on revenues. TheNorth America segment grew revenues 86.6% for the year endedDecember 31, 2021 compared to 2020, as a result of higher volume and higher ASPs in both our wholesale and DTC channels. Volume was up versus 2020 as a result of continued increased consumer demand, partially due to the prior year negative impact of COVID-19 on our brick-and-mortar stores. Higher ASPs also contributed to higher sales due mostly to higher pricing and fewer promotions and discounts, primarily in our DTC channel, as well as favorable product mix. Currency fluctuations had an insignificant impact on revenues. Income from Operations. During the year endedDecember 31, 2022 , income from operations for ourNorth America segment was$683.4 million , a decrease of$72.4 million , or 9.6% from 2021. Gross profit for the year endedDecember 31, 2022 37
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decreased$33.1 million , or 3.2%, compared to the year endedDecember 31, 2021 . Gross profit was lower as a result of a decrease of$94.4 million , or 9.2%, due primarily to higher AUC as a result of higher material and freight costs, due in part to inflation and in part to air freight used to combat supply chain disruptions, mostly in the first half of the year. This was offset in part by higher ASP, as described above. Insignificant unfavorable foreign currency fluctuations also slightly decreased gross profit. These decreases were offset by increased volume of$63.1 million , or 6.2%. During the year endedDecember 31, 2022 , SG&A for ourNorth America segment increased by$39.3 million , or 15.0%, compared to 2021. This was due in part to an increase in variable costs associated with higher revenues, particularly in our DTC channel. Additionally, compensation costs increased primarily due to investments in employee headcount, including retail labor, which also had higher wages in 2022 compared to 2021. During the year endedDecember 31, 2021 , income from operations for ourNorth America segment was$755.7 million , an increase of$441.8 million , or 140.7% from 2020. Gross profit for the year endedDecember 31, 2021 increased$530.9 million , or 109.0%. Gross profit increased$292.7 million , or 60.1%, due to sales volume increases in both channels, and increased$232.8 million , or 47.8%, due to higher ASP and lower AUC as a result of favorable product mix, including increased sales of charms per shoe, higher prices and fewer promotions and discounts, favorable channel mix, and increased efficiencies in ourU.S. distribution network, partially offset by higher inbound freight costs. Favorable foreign currency fluctuations in the CAD also increased gross profit by$5.4 million , or 1.1%. During the year endedDecember 31, 2021 , SG&A for ourNorth America segment increased by$89.1 million , or 51.4%, compared to 2020. This was primarily due to an investment in marketing to support growth, higher compensation and related costs as a result of increased headcount associated with the growth of the business and the 2020 temporary and permanent elimination of certain roles in response to COVID-19, and higher facilities costs, mostly associated with variable rent driven by higher retail sales. Additionally, higher services and other costs resulted predominantly from variable costs associated with higher sales. These increases were offset by lower donations of inventory as a result of 2020 COVID-19 donations to frontline healthcare workers that did not recur in 2021.
Asia Pacific Operating Segment
Revenues. Revenues in ourAsia Pacific segment increased in the year endedDecember 31, 2022 compared to 2021, as a result of volume increases, primarily inIndia ,South Korea , and with distributors inSoutheast Asia , which benefited from COVID-19 re-openings and the partial return of tourism to the region over the prior year. ASPs also increased revenues as a result of higher pricing and less discounting. Negative fluctuations in foreign currency, primarily in the South Korean Won, Japanese Yen, and Indian Rupee, partially offset these increases. Revenues in ourAsia Pacific segment increased in the year endedDecember 31, 2021 compared to 2020, as a result of volume increases in our wholesale channel driven in part by cycling 2020 negative COVID-19 impacts on our distributor markets and ASP increases in both channels, as a result of increased pricing and fewer promotions and discounts. Revenue also increased as a result of fluctuations in foreign currency, including the South Korean Won and Chinese Yuan. Income from Operations. During the year endedDecember 31, 2022 , income from operations for ourAsia Pacific segment was$145.0 million , an increase of$73.1 million , or 101.6%. Gross profit for the year endedDecember 31, 2022 increased$78.4 million , or 37.6%, compared to the year endedDecember 31, 2021 . An increase of$52.1 million , or 25.0% in gross profit was largely due to higher ASPs from price increases and less promotional activity, partially offset by higher AUCs, resulting from unfavorable purchasing power and higher material and duties costs. Higher volume of$51.7 million , or 24.8%, also increased gross profit, while unfavorable currency fluctuations, primarily in the South Korean Won, of$25.4 million , or 12.2%, partially offset these increases.
During the year ended
During the year endedDecember 31, 2021 , income from operations for ourAsia Pacific segment was$71.9 million , an increase of$39.1 million , or 119.1%, from 2020. Gross profit for the year endedDecember 31, 2021 increased$63.5 million , or 43.7%, compared to the year endedDecember 31, 2020 . The increase in gross profit was largely due to higher ASPs and lower AUCs, on a net basis, of$46.7 million , or 32.1%, resulting from price increases and less promotional activity, favorable product mix, and greater purchasing power from currency changes. Higher volume of$8.9 million , or 6.2%, and favorable currency fluctuations of$7.8 million , or 5.4%, also contributed to higher gross profit. 38
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During the year endedDecember 31, 2021 , SG&A for ourAsia Pacific segment increased$24.4 million , or 21.7%, compared to the same period in 2020, primarily due to increased investment in marketing to support growth, an increase in facilities expense associated with variable rent driven by higher retail sales, an increase in compensation expense and related costs, and an increase in variable costs associated with revenue growth. These increases were partially offset by lower bad debt expense, primarily from net charges taken in the 2020 in response to COVID-19, and 2020 inventory donations to healthcare workers and other organizations, neither of which recurred in 2021.
EMEALA Operating Segment
Revenues. Revenues increased for our EMEALA segment compared to the year endedDecember 31, 2021 , despite significant unfavorable currency headwinds due to fluctuations in the Euro and the shutdown of our direct operations inRussia as a result of theUkraine war. This performance was driven by increased volume, with growth particularly strong in our wholesale channel. Additionally, increased ASPs, driven by increased prices and product mix, contributed to revenue growth. Unfavorable foreign currency fluctuations in the Euro partially offset these increases. Revenues in our EMEALA segment increased in the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , most significantly as a result of higher volumes in both channels, particularly in wholesale, resulting from increased product demand and cycling 2020 negative COVID-19 impacts which further increased the disparity between the two periods. Higher ASPs in all channels, as a result of price increases and fewer promotions and discounts, and favorable foreign currency fluctuations, primarily in the Euro, also increased revenues. Income from Operations. During the year endedDecember 31, 2022 , income from operations for our EMEALA segment was$154.0 million , an increase of$19.9 million , or 14.8%. Gross profit for the year endedDecember 31, 2022 increased$40.3 million , or 19.5%, compared to the year endedDecember 31, 2021 . The increase in our EMEALA segment gross profit was due to higher volumes of$56.6 million , or 27.3%, primarily in our wholesale channel. Higher ASPs, as described above, partially offset by higher AUCs, primarily due to unfavorable purchasing power and higher material and freight costs, also increased gross profit by$11.6 million , or 5.6%. Foreign currency headwinds of$27.8 million , or 13.4%, partially offset these increases. During the year endedDecember 31, 2022 , SG&A for our EMEALA segment increased$20.4 million , or 28.1%, compared to the same period in 2021. This was primarily due to various costs associated with the shutdown of our direct operations inRussia , including the recognition of cumulative translation adjustments into earnings, as well as severance and lease exit costs and penalties. Marketing costs, including investments in digital marketing, also increased. During the year endedDecember 31, 2021 , income from operations for our EMEALA segment was$134.1 million , an increase of$58.6 million , or 77.6%, compared to 2020. Gross profit for the year endedDecember 31, 2021 increased$73.0 million , or 54.4%, compared to the year endedDecember 31, 2020 . The increase in our EMEALA segment gross profit was due to higher volumes of$50.0 million , or 37.3%, primarily in our wholesale channel, and higher ASPs, supplemented by slightly lower AUCs, of$19.9 million , or 14.8%, as a result of purchasing power gains, favorable product mix, and price increases and fewer promotions and discounts, offset in part by higher freight costs. Favorable foreign currency fluctuations of$3.0 million , or 2.3% also contributed to higher gross profit.
During the year ended
Crocs Brand Corporate
During the year ended
During the year endedDecember 31, 2021 , total net costs within 'Brand corporate' increased by$7.6 million , or 8.1%, compared to the same period in 2020. This was primarily driven by an increase in compensation expense due to increased employee headcount, as well as higher services costs as a result of supply chain investments. HEYDUDE Brand For the Partial Period, revenues attributable to the HEYDUDE Brand were$895.9 million , with more than half of this amount attributable to the wholesale channel at approximately 64%. We sold 30.5 million pairs of shoes during the Partial Period. 39
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Income from operations during the Partial Period was$211.4 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 depreciation and amortization expense.
Refer to Note 3 - Acquisition of HEYDUDE in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for more information.
Enterprise Corporate
During the year endedDecember 31, 2022 , total net costs within 'Enterprise corporate' increased$34.3 million , or 19.2%, 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$38.2 million . There were also increases in facilities costs due to duplicate rent costs associated with our upcoming headquarters move and information technology costs. These increases were offset in part by decreases in compensation, primarily due to lower variable compensation, and depreciation and amortization. During the year endedDecember 31, 2021 , total net costs within 'Enterprise corporate' increased$63.0 million , or 54.7%, compared to the same period in 2020. This was primarily driven by an increase in compensation expense due to increased employee headcount and the related hiring costs and higher variable and executive compensation, as well as increased professional services costs due to higher legal expenses and costs associated with our then-pending HEYDUDE Acquisition. These increases were partially offset by 2020 impairment charges which did not recur in 2021.
Store Locations and Digital Sales Percentage
The table below illustrates the overall change in the number of our company-operated retail locations by reportable operating segment:
December 31, 2021 Opened Closed December 31, 2022
Company-operated retail locations:
Crocs Brand:
North America 173 9 11 171
Asia Pacific 153 5 7 151
EMEALA 47 3 32 18
Total Crocs Brand 373 17 50 340
HEYDUDE Brand (1) - 5 - 5
Total 373 22 50 345
(1) We acquired HEYDUDE on February 17, 2022 and, as a result, added the HEYDUDE
Brand as a new reportable operating segment. Therefore, there are no comparative
amounts for the year ended December 31, 2021 .
Digital sales, which includes sales through our company-owned website, third-party marketplaces, and e-tailers (which are reported in our wholesale channel), as a percent of total revenues, by reportable operating segment were:
Year Ended December 31,
2022 2021
Digital sales as a percent of total revenues: Crocs Brand 37.6 % 36.7 % HEYDUDE Brand (1) 38.5 % - % Total (2) 37.8 % 36.7 % (1) We acquired HEYDUDE onFebruary 17, 2022 . Therefore, the amounts shown above for the year endedDecember 31, 2022 represent results during the Partial Period, and there are no comparative amounts for the year endedDecember 31, 2021 . (2) For the year endedDecember 31, 2021 , the digital sales as a percent of total revenues represents the Crocs Brand. See footnote (1) above. 40
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Direct-to-consumer ("DTC") comparable sales for the Crocs Brand are as follows:
Constant Currency (1)
Year Ended December 31,
2022 2021
Direct-to-consumer comparable sales: (2)
Crocs Brand (3) 15.0 % N/A
(1) Reflects period over period change on a constant currency basis, which is a
non-GAAP financial measure. See the "Use of Non-GAAP Financial Measures" section
for additional information.
(2) Comparable store status, 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.
(3) In the year ended December 31, 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.
Liquidity and Capital Resources
Our liquidity position as of
December 31, 2022
(in thousands)
Cash and cash equivalents $ 191,629
Available borrowings 755,789
As of December 31, 2022 , we had $191.6 million in cash and cash equivalents and
up to $755.8 million of available borrowings, including $748.7 million remaining
borrowing availability under the Revolving Facility (as defined below) and $7.1
million of remaining borrowing availability under the Asia revolving facilities.
As of December 31, 2022 , the Term Loan B Facility (as defined below) was fully
drawn, and there was no available borrowing capacity. We believe that our cash
flows from operations, our cash and cash equivalents on hand, and available
borrowings under our Revolving Facility and other financing agreements will be
sufficient to meet our ongoing liquidity needs and capital expenditure
requirements for at least the next twelve months.
We completed the Acquisition on February 17, 2022 . The consideration for the
Acquisition was comprised of $2.05 billion in cash (the "Cash Consideration")
and 2,852,280 of Crocs, Inc. shares. To finance 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 year ended December 31, 2022 , we
prioritized using excess cash generated by our operations to repay our
outstanding debt, including debt incurred to finance a part of the Acquisition,
and, as such, we suspended our share repurchase program until such time that our
gross leverage is under 2.0x. See the risk factor under "HEYDUDE Acquisition
Risks - The incurrence by us of substantial indebtedness in connection with the
financing of the Acquisition may have an adverse impact on our liquidity, limit
our flexibility in responding to other business opportunities, and increase our
vulnerability to adverse economic and industry conditions" included in Part I -
Item 1A. Risk Factors of this Annual Report on Form 10-K for further information
on liquidity risks associated with the Acquisition.
Additional future financing may be necessary to fund our operations and there
can be no assurance that, if needed, we will be able to secure additional debt
or equity financing on terms acceptable to us or at all. Although we believe we
have adequate sources of liquidity over the long term, the success of our
operations, the global economic outlook, and the pace of sustainable growth in
our markets could each impact our business and liquidity.
Repatriation of Cash
As a global business, we have cash balances in various countries and amounts are
denominated in various currencies. Fluctuations in foreign currency exchange
rates impact our results of operations and cash positions. Future fluctuations
in foreign currencies may have a material impact on our cash flows and capital
resources. Cash balances held in foreign countries may have additional
restrictions and covenants associated with them which could adversely impact our
liquidity and our ability to timely access and transfer cash balances between
entities.
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All of the cash held outside of theU.S. could be repatriated to theU.S. as ofDecember 31, 2022 without incurring additionalU.S. federal income taxes. In some countries, repatriation of certain foreign balances is restricted by local laws. These limitations may affect our ability to fully utilize our cash resources for needs in theU.S. or other countries and could adversely affect our liquidity. As ofDecember 31, 2022 , we held$97.0 million of our total$191.6 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. Of the$97.0 million ,$4.8 million could potentially be restricted by local laws.
Senior Revolving Credit Facility
InJuly 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 andPNC Bank, National Association , as a lender and administrative agent for the lenders. Since that time, we have amended the Credit Agreement, which, as amended to date, provides for a revolving credit facility of$750.0 million , which can be increased by an additional$250.0 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. 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 endedMarch 31, 2022 through, and including, the quarter endingDecember 31, 2023 , (ii) 3.75 to 1.00 for the quarter endingMarch 31, 2024 , (iii) 3.50 to 1.00 for the quarter endingJune 30, 2024 , and (iv) 3.25 to 1.00 for the quarter endingSeptember 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 ofDecember 31, 2022 , we were in compliance with all financial covenants under the Credit Agreement. As ofDecember 31, 2022 , the total commitments available from the lenders under the Revolving Facility were$750.0 million . AtDecember 31, 2022 , we had no outstanding borrowings and$1.3 million in outstanding letters of credit under the Revolving Facility, which reduces amounts available for borrowing under the Revolving Facility. As ofDecember 31, 2022 and 2021, we had$748.7 million and$414.7 million , respectively, of available borrowing capacity under the Revolving Facility, which maturesNovember 2027 .
Term Loan B Facility
OnFebruary 17, 2022 , the Company entered into a credit agreement (the "Term Loan B Credit Agreement") withCitibank, 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 onFebruary 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
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2022, with the remaining principal amount due onFebruary 17, 2029 , the maturity date. As ofDecember 31, 2022 , we had$1,675.0 million in outstanding principal and the Term Loan B Facility was fully drawn with no remaining borrowing capacity. The Term Loan B Credit Agreement also contains customary affirmative and negative covenants, incurrence financial covenants, representations and warranties, events of default and other provisions. As ofDecember 31, 2022 , we were in compliance with all financial covenants under the Term Loan B Credit Agreement.
Asia Revolving Credit Facilities
During the year endedDecember 31, 2022 , we had two revolving credit facilities inAsia , the revolving credit facility with China Merchants Bank Company Limited,Shanghai Branch (the "CMBC Facility"), which provides up to10.0 million RMB , or$1.4 million at current exchange rates, and matures inJanuary 2023 , and the revolving credit facility withCitibank (China) Company Limited ,Shanghai Branch (the "Citibank Facility"), which provides up to an equivalent of$10.0 million . For RMB loans under the CMBC Facility, interest is based on a National Interbank Funding Center 1-year prime rate, plus 65 basis points. For USD loans under the Citibank Facility, interest is mutually agreed upon prior to utilization of a loan. As ofDecember 31, 2022 , we had no outstanding borrowings on the CMBC Facility, and we had borrowings outstanding of$4.3 million on the Citibank Facility, which are due inJanuary 2023 andMay 2023 . We had no outstanding borrowings under ourAsia revolving facilities atDecember 31, 2021 .
Senior Notes Issuances
InMarch 2021 , the Company completed the issuance and sale of$350.0 million aggregate principal amount of 4.250% Senior Notes dueMarch 15, 2029 (the "2029 Notes"), pursuant to the indenture related thereto (as amended and/or supplemented to date, the "2029 Notes Indenture"). Additionally, inAugust 2021 , the Company completed the issuance and sale of$350.0 million aggregate principal amount of 4.125% Senior Notes dueAugust 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. 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 afterMarch 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 beforeMarch 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 beforeMarch 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 afterAugust 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 beforeAugust 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 beforeAugust 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 43
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Company's affiliates; and consolidate or merge with or into other companies. As ofDecember 31, 2022 , we were in compliance with all financial covenants under the Notes.
Consolidated Statements of Cash Flows
Our consolidated statements of cash flows are summarized as follows:
Year Ended December 31, $ Change % Change
2022 2021 Favorable (Unfavorable)
(in thousands)
Cash provided by operating activities $ 603,142 $ 567,165 $ 35,977 6.3 %
Cash used in investing activities (2,151,091) (55,925) (2,095,166) (3,746.4) %
Cash provided by (used in) financing activities 1,529,659 (429,638) 1,959,297 456.0 %
Effect of exchange rate changes on cash, cash
equivalents, and restricted cash (3,750) (3,950) 200 5.1 %
Net change in cash, cash equivalents, and
restricted cash $ (22,040) $ 77,652 $ (99,692) (128.4) %
Operating Activities. Our primary source of liquidity is cash provided by
operating activities, consisting of net income adjusted for non-cash items and
changes in working capital. Cash provided by operating activities increased
$36.0 million for the year ended December 31, 2022 compared to the year ended
December 31, 2021 . This change was driven by higher net income adjusted for
non-cash items of $83.1 million , partly offset by a net decrease in operating
assets and liabilities of $47.1 million .
Investing Activities. There was a $2,095.2 million increase in cash used in
investing activities for the year ended December 31, 2022 compared to the year
ended December 31, 2021 . The increase is primarily due to the Cash Consideration
for the Acquisition, net of cash acquired. Refer to Note 3 - Acquisition of
HEYDUDE in the accompanying notes to the consolidated financial statements
included in Part II - Item 8. Financial Statements and Supplementary Data of
this Annual Report on Form 10-K. Additionally, there was a $48.3 million
increase in the purchases of property and equipment related primarily to the
expansion of our distribution centers in North America .
Financing Activities. Cash provided by financing activities increased by
$1,959.3 million in the year ended December 31, 2022 compared to the year ended
December 31, 2021 . The increase was primarily due to an increase of $1,779.9
million in proceeds from borrowings, which includes borrowings under the Term
Loan B Facility and the Revolving Facility that were used to finance the
Acquisition in part. Additionally, there was a decrease in cash used by
financing activities of $1,000.0 million in repurchases of common stock and $8.6
million in repurchases of common stock for tax withholding. The overall increase
was offset by a $700.0 million decrease in proceeds from the Notes issuances
that occurred in the year ended December 31, 2021 that did not recur in the
current period, a $90.3 million increase in repayments of borrowings, and a
$38.8 million increase in deferred debt issuance costs, primarily related to the
Term Loan B Facility. We also had a $0.1 million increase in other cash used in
financing activities.
Stock Repurchases
On April 23, 2021 , the Board approved and authorized a program to repurchase up
to $1.0 billion of our common stock. Additionally, on September 23, 2021 , the
Board approved an increase of $1.0 billion to our share repurchase
authorization. The number, price, structure, and timing of the repurchases are
at our sole discretion and may be made depending on market conditions, liquidity
needs, restrictions under the agreements governing our indebtedness, and other
factors. The Board of Directors may suspend, modify, or terminate the program at
any time without prior notice. Share repurchases may be made in the open market
or in privately negotiated transactions. The repurchase authorization does not
have an expiration date and does not obligate us to acquire any amount of our
common stock. Under Delaware state law, these shares are not retired, and we
have the right to resell any of the shares repurchased.
During the year ended
During the year endedDecember 31, 2021 , we repurchased 8.2 million shares of our common stock at a cost of$1,000.0 million , including commissions. This included 3.2 million shares delivered under the$500.0 million accelerated share repurchase arrangement ("ASR") entered into inSeptember 2021 , 2.9 million shares delivered under the$300.0 million ASR entered into inApril 2021 , and 0.5 million shares delivered inJanuary 2021 at the conclusion of the purchase period for the 44
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ASR entered into inNovember 2020 . Under each ASR, a financial institution delivered 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, was determined based on the volume-weighted average price of our common stock during the purchase period. The shares received were recorded in the period they were delivered, and the up-front payment was accounted for as a reduction to stockholders' equity in our consolidated balance sheet in the period the payment was made. In 2023, we plan to continue to use excess cash generated by our operations to repay debt, including debt incurred to finance a part of the Acquisition and, as such, we intend for our share repurchase program to remain suspended until such time that our gross leverage is under 2.0x. See Note 11 - Equity in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for more information on our repurchases and repurchase authorizations.
Contractual Obligations
We believe we have sufficient liquidity to fund our operations and meet our
short-term and long-term obligations. Our material future cash obligations as of
Less than 1
Year Thereafter Total
(approximately, in thousands)
Debt-related:
Debt obligations $ 33,400 $ 2,346,000 $ 2,379,400
Interest on debt obligations (1) 139,300 247,600 386,900
Purchase commitments (2) 370,300 - 370,300
Lease-related (3):
Lease obligations 60,800 251,700 312,500
Obligations for leases not yet commenced - 75,000 75,000
Other:
Distribution and logistics obligations (4) 18,100 - 18,100 Total$ 621,900 $ 2,920,300 $ 3,542,200 (1) Represents future interest payment obligations, which are estimated by assuming the amounts outstanding under our Term Loan B Facility, Notes, and Citibank Facility and the interest rates in effect as ofDecember 31, 2022 , will remain constant into the future. This is only an estimate, as actual amounts borrowed and rates may vary over time for certain borrowing instruments, as described in Note 10 - Borrowings. (2) Represents purchase commitments to our third-party manufacturers, primarily for materials and supplies used in the manufacture of our products. We expect to fulfill our commitments under these agreements in the next twelve months in the normal course of business and are only liable for the portion of the purchase obligations that have been purchased by the third-party manufacturer or manufactured by the vendor, with the remainder cancellable without penalty. Refer to Note 16 - Commitments and Contingencies in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for more information. (3) Our operating lease obligations consist of leases for real estate, which includes retail, warehouse, distribution center, and office spaces and represent the minimum cash commitment under contract to various third parties for operating lease obligations. For more information on our lease obligations and obligations for leases not yet commenced, refer to Note 7 - Leases in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for more information. (4) Represents material contractual obligations associated with global distribution and logistics projects.
We had no material off-balance sheet arrangements as of
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Critical Accounting Policies and Estimates
General
Our discussion and analysis of financial condition and results of operations, outside of discussions regarding constant currency, is based on the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an on-going basis. An accounting policy is considered to be critical if it is important to our results of operations, financial condition, and cash flows, and requires significant judgment and estimates on the part of management in its application. Our estimates are often based on historical experience, complex judgments, assessments of probability, and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. We believe that the following discussion represents those accounting policies that are the most critical to the reporting of our financial condition and results of operations. For a discussion of our significant accounting policies, see Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Business Combinations
We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all of 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 tangible assets and intangible assets based upon internal estimates of cash flows and consideration. We may also utilize third-party valuation specialists to assist in our determination of the fair value of assets acquired and liabilities assumed. Management estimates of fair value require a significant amount of management judgment, as the determination of fair values of identifiable assets and liabilities 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 year endedDecember 31, 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 management with the assistance of third-party valuation specialists. For certain assets and liabilities, those fair values were consistent with historical carrying values. The trademark was valued using the Multi Period Excess Earnings approach, and the customer relationships were valued using the distributor method. Key assumptions by management were used in valuing the trademark and customer relationships such as future revenue growth rates, earnings before interest, taxes, depreciation, and amortization ("EBITDA"), and market-based discount rates.
Refer to Note 3 - Acquisition of HEYDUDE in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional details on the Acquisition.
Impairment of
Our goodwill and indefinite-lived intangible assets, which primarily consist of the HEYDUDE trademark, are not amortized. We evaluate the carrying value of our goodwill and indefinite-lived intangible assets at least annually or when an interim triggering event has occurred indicating potential impairment. During the year endedDecember 31, 2022 , we changed our annual goodwill impairment testing date from the last day of our fiscal fourth quarter to the first day of our fiscal fourth quarter. Our impairment evaluations represent a critical accounting policy as they require significant judgments and assumptions that we believe to be reasonable but that are inherently uncertain and unpredictable. We perform our goodwill impairment testing for each reporting unit that has goodwill. During the year endedDecember 31, 2022 , we had two reporting units, comprised of a reporting unit within the HEYDUDE Brand segment and a reporting unit within the EMEALA segment. During the years endedDecember 31, 2021 and 2020, we had one reporting unit in our EMEALA segment. We perform our indefinite-lived intangible impairment testing at the asset level. 46
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When performing our annual test for impairment, we may assess goodwill and indefinite-lived intangible assets for potential impairment using either a qualitative or quantitative assessment. The qualitative assessment may evaluate factors such as macroeconomic conditions, industry and market considerations, and overall financial performance, among other factors. If we determine that it is more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset is less than its carrying value, a quantitative assessment is performed. For the quantitative assessment, we compare the estimated fair value of a reporting unit with its carrying value, including the goodwill assigned to the reporting unit. If carrying value of the reporting unit exceeds its estimated fair value, an impairment charge is recorded. For the year endedDecember 31, 2022 , we elected to bypass the qualitative assessment for the HEYDUDE Brand reporting unit goodwill and indefinite-lived trademark intangible asset and proceed directly to performing the quantitative goodwill and indefinite-lived intangible asset impairment tests with the assistance of third-party valuation specialists. We performed the quantitative assessments for the HEYDUDE Brand reporting unit goodwill using the discounted cash flow method and the guideline public company method. For the impairment testing of the indefinite-lived trademark, we used the Multi Period Excess Earnings approach. The primary assumptions developed by management and used in the quantitative analysis of the HEYDUDE Brand reporting unit and indefinite-lived trademark included future revenue growth rates and market-based discount rates. Changes in the assumptions used to estimate the fair value of our goodwill and indefinite-lived intangible assets could result in impairment charges in future periods as the key assumptions are inherently uncertain, require significant judgment and are subject to change based on, among others, industry and geopolitical conditions, our ability to navigate changing macroeconomic conditions and trends as well as the timing and success of strategic initiatives. Certain factors, such as failure to achieve forecasted revenue growth rates or increases in the discount rates, have the potential to create variances in the estimated fair values of our goodwill and indefinite-lived intangible assets that could result in impairment charges. Additionally for the years endedDecember 31, 2022 , 2021, and 2020, we performed a qualitative assessment for the goodwill in our EMEALA segment, which indicated that it was more likely than not that the estimated fair value exceeded its carrying value. We did not record any impairment charges in the years endedDecember 31, 2022 , 2021, or 2020 based on the results of our goodwill and indefinite-lived intangible assets impairment testing. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies and Note 5 -Goodwill and Intangible Assets, Net in the accompanying notes to the consolidated financial statements included in Part II - Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information related to our goodwill and indefinite-lived intangible assets.
Impairment of Long-Lived Assets
Property and equipment, right-of-use assets, and definite-lived intangible assets, such as customer relationships and capitalized software, are evaluated for impairment whenever events or changes in circumstances indicate that their carrying values may not be fully recoverable. This represents a critical accounting policy as our impairment evaluations include significant judgments and assumptions that we believe to be reasonable but that are inherently uncertain and unpredictable. Testing of long-lived assets for impairment is at the level of an asset group, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. In our retail business, the asset group for impairment testing is each individual retail store. For customer relationships, impairment testing is performed at the customer group level. In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition, where applicable. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan of disposal are reported at the lower of carrying value or fair value, less costs to sell. In determining future cash flows, we take various factors into account, including the remaining useful life of each asset group, forecasted growth rates, pricing, working capital, capital expenditures, and other cash needs specific to the asset group. Additional considerations when assessing impairment include changes in our strategic operational and financial decisions, global and regional economic conditions, demand for our product and other corporate initiatives which may eliminate or significantly decrease the realization of future benefits from our long-lived assets. Since the determination of future cash flows is an estimate of future performance, future impairments may arise in the event that future cash flows do not meet expectations. In 2022 and 2021, we did not record impairments to reduce the net carrying value of certain long-lived assets. In 2020, we recorded non-cash impairments of$20.0 million to reduce the net carrying value of certain long-lived assets to their estimated fair values for a retail store inNew York City and$1.1 million for our former corporate headquarters. See Note 4 - Property 47
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and Equipment, Net in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information related to long-lived asset impairments.
Revenues and Reserves for Sales Returns and Allowances
While our revenue recognition does not involve significant judgment, it does represent a key accounting policy as it is important to our results of operations. Revenues are recognized in the amount expected to be received in exchange for when control of the products transfers to customers. Revenues are reported net of various promotions, which range from contractually-fixed percentage price reductions to sales returns, discounts, rebates, and other incentives that may vary in amount, must be estimated, and are reported as a reduction in revenues. An area of judgment affecting our reported revenues and net income involves estimating reserves for sales returns and allowances, which represent a portion of revenues not expected to be realized. Revenues in our direct-to-consumer channels are reduced by an estimate of returns. We may also accept returns from our wholesale customers, on an exception basis, to ensure that our products are merchandised in the proper assortments and may provide markdown allowances at our sole discretion to key wholesalers and distributors to facilitate sales of slower moving products. Wholesale revenues are reduced by estimates of returns and allowances. Our estimated sales returns and allowances are based on customer return history and actual outstanding returns yet to be received. Changes to our estimates for customer returns and allowances may be caused by many factors, including, but not limited to whether customers accept our new styles, customer inventory levels, shipping delays or errors, known or suspected product defects, the seasonal nature of our products, and macroeconomic factors affecting our customers. Historically, actual amounts of customer returns, allowances, discounts, and rebates have not differed significantly from our estimates. A hypothetical 1% increase in our reserves for returns and allowances as ofDecember 31, 2022 would have had an insignificant impact on our 2022 revenues. See Schedule II in Part IV - Item 15. Exhibits, Financial Statement Schedule to the accompanying consolidated financial statements of this Annual Report on Form 10-K for an analysis of the activity in our reserves for uncollectible accounts receivable, sales returns, allowances, and discounts.
Income Taxes
Intellectual Property Income Tax Implications
In 2020 and in 2021, we completed changes to our international legal structure
that created an amortizable step-up in tax basis of the intangible asset and a
corresponding increase in foreign deferred tax assets based on the fair value of
the intellectual property ("IP"). These transactions were executed using
transfer pricing guidelines issued by the relevant taxing authorities.
Significant estimates and assumptions were required to compute the valuation of
these transactions. These estimates and assumptions include, but are not limited
to, estimated future revenue growth and discount rates, which by their nature
are inherently uncertain and, therefore, may ultimately differ materially from
our actual results. As of December 31, 2021 , the related net deferred tax asset
is $490.2 million , net of a reserve for uncertain tax positions of $206.0
million . As of December 31, 2022 , the related net deferred tax asset is $438.5
million , net of a reserve for uncertain tax positions of $194.4 million .
In order to support and sustain the amortizable tax basis (and associated
deferred tax asset, net of uncertain tax position), we must demonstrate economic
ownership, including the appropriate authority and expertise to manage the IP
owned and serviced in the Netherlands . The determination of economic substance
is a judgment that has to be evaluated by management on a continual basis
requiring understanding and expertise of local laws of each associated tax
jurisdiction. The Netherlands subsidiary serves as the principal Crocs corporate
headquarters outside of the U.S. and already performs significant functions in
support of the economic ownership of the IP in the Netherlands . In 2021 and
2022, we undertook many additional activities to align business operations that
support the economic substance of the IP in the Netherlands .
We have also recorded certain tax reserves to address potential differences
involving our income tax positions. These potential tax liabilities result from
the varying application of statutes, rules, regulations and interpretations by
different taxing jurisdictions. While our tax position is not uncertain, because
of the significant estimates used in the value of certain intellectual property
rights, our tax reserves contain assumptions based on past experiences and
judgments about the interpretation of statutes, rules and regulations by taxing
jurisdictions. It is possible that the costs of the ultimate tax liability or
benefit from these matters may be materially more or less than the amount that
we estimated.
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Table of Contents Income Tax Accounting We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of other assets and liabilities. We provide for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. We account for the tax effects of GILTI as a component of income tax expense in the period the tax arises, to the extent applicable. We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. The impact of an uncertain tax position that is more likely than not to be sustained upon examination by the relevant taxing authority must be recognized at the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained. Interest expense is recognized on the full amount of deferred benefits for uncertain tax positions. While the validity of any tax position is a matter of tax law, the body of statutory, regulatory and interpretive guidance on the application of the law is complex and often ambiguous. We recognize interest and penalties related to unrecognized tax benefits within the 'Income tax expense (benefit)' line in the accompanying consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies. A valuation allowance is required unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset. We determine on a regular basis the amount of undistributed earnings that will be indefinitely reinvested in our non-U.S. operations. This assessment is based on the cash flow projections and operational and fiscal objectives of each of ourU.S. and foreign subsidiaries. Foreign withholding taxes have not been provided on cumulative undistributed foreign earnings of the non-U.S. subsidiaries as ofDecember 31, 2022 , which are considered to be indefinitely reinvested outside of theU.S.
See Note 14 - Income Taxes in the accompanying notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information related to income taxes.
Recent Accounting Pronouncements
See Note 2 - Recent Accounting Pronouncements in the accompanying notes to the
consolidated financial statements included in Item 8. Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for a description of
recently adopted accounting pronouncements and issued accounting pronouncements
that we believe may have an impact on our consolidated financial statements when
adopted.
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