UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________________

FORM 10-Q

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

For the quarterly period ended September 30, 2019

or

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

For the transition period from            to            

Commission File No. 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.)

7477 East Dry Creek Parkway, Niwot, Colorado 80503

(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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	Accelerated filer	Non-accelerated filer	Smaller reporting company	Emerging growth company
☒	☐	☐	☐	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

As of October 23, 2019, Crocs, Inc. had 68,607,426 shares of its common stock, par value $0.001 per share, outstanding.

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, selling, general and administrative cost savings, expectations, and performance of our business;

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

• our expectations about the impact of our strategic plans; and

• our expectations regarding our level of capital expenditures in 2019 and beyond.

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, 2018, and our subsequent filings with the Securities and Exchange Commission. 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.

i

Crocs, Inc.

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

For the Quarterly Period Ended September 30, 2019

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	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	38
PART II — Other Information		39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	40
Signatures		41

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PART I — Financial Information

ITEM 1. Financial Statements

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues	$	312,766		$	261,064		$	967,614		$	872,216
Cost of sales	148,942			122,005			476,796			411,884
Gross profit	163,824			139,059			490,818			460,332
Selling, general and administrative expenses	123,940			125,164			370,525			383,451
Income from operations	39,884			13,895			120,293			76,881
Foreign currency gains (losses), net	585			233			(893		)	1,587
Interest income	167			422			493			847
Interest expense	(2,505		)	(126		)	(6,743		)	(371		)
Other income (expense), net	(34		)	160			(48		)	229
Income before income taxes	38,097			14,584			113,102			79,173
Income tax expense	2,421			4,092			13,518			17,850
Net income	35,676			10,492			99,584			61,323
Dividends on Series A convertible preferred stock	—			(3,000		)	—			(9,000		)
Dividend equivalents on Series A convertible preferred stock related to redemption value accretion and beneficial conversion feature	—			(972		)	—			(2,854		)
Net income attributable to common stockholders	$	35,676		$	6,520		$	99,584		$	49,469
Net income per common share:
Basic	$	0.52		$	0.08		$	1.40		$	0.60
Diluted	$	0.51		$	0.07		$	1.38		$	0.58
Weighted average common shares outstanding:
Basic	69,097			67,821			71,003			68,223
Diluted	70,176			72,774			72,342			71,104

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

1

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)

  

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income	$	35,676		$	10,492		$	99,584		$	61,323
Other comprehensive income:
Foreign currency translation gains (losses), net	(8,730		)	3,415			(8,679		)	(7,140		)
Reclassification of foreign currency translation loss to income (1)	—			(3,572		)	—			(4,412		)
Total comprehensive income	$	26,946		$	10,335		$	90,905		$	49,771

⁽¹⁾ For the three and nine months ended September 30, 2018, represents reclassification of cumulative foreign currency translation adjustment of manufacturing subsidiaries.

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

2

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and par value amounts)

	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	87,909		$	123,367
Accounts receivable, net of allowances of $20,921 and $20,477, respectively	121,716			97,627
Inventories	139,839			124,491
Income taxes receivable	7,380			3,041
Other receivables	9,523			7,703
Restricted cash - current	1,469			1,946
Prepaid expenses and other assets	23,427			22,123
Total current assets	391,263			380,298
Property and equipment, net of accumulated depreciation and amortization of $83,750 and $80,956, respectively	42,266			22,211
Intangible assets, net	47,222			45,690
Goodwill	1,534			1,614
Deferred tax assets, net	10,174			8,663
Restricted cash	1,757			2,217
Right-of-use assets	183,040			—
Other assets	8,259			8,208
Total assets	$	685,515		$	468,901
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	85,938		$	77,231
Accrued expenses and other liabilities	88,762			102,171
Income taxes payable	13,266			5,089
Current operating lease liabilities	45,486			—
Total current liabilities	233,452			184,491
Long-term income taxes payable	5,633			4,656
Long-term borrowings	185,000			120,000
Long-term operating lease liabilities	143,632			—
Other liabilities	274			9,446
Total liabilities	567,991			318,593
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 4.0 million shares authorized, none outstanding	—			—
Common stock, par value $0.001 per share, 250.0 million shares authorized, 104.0 million and 103.0 million issued, 68.6 million and 73.3 million outstanding, respectively	104			103
Treasury stock, at cost, 35.4 million and 29.7 million shares, respectively	(532,220		)	(397,491		)
Additional paid-in capital	492,399			481,133
Retained earnings	220,572			121,215
Accumulated other comprehensive loss	(63,331		)	(54,652		)
Total stockholders’ equity	117,524			150,308
Total liabilities and stockholders’ equity	$	685,515		$	468,901

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

3

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

	Common Stock				Treasury Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	Shares		Amount		Shares	Amount
Balance at June 30, 2019	69,615		$	104	34,350	$	(507,193	)	$	488,730	$	184,896	$	(54,601	)	$	111,936
Share-based compensation	—		—		—	—			3,619		—		—			3,619
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units	30		—		1	(27		)	50		—		—			23
Repurchases of common stock	(1,042	)	—		1,042	(25,000		)	—		—		—			(25,000		)
Net income	—		—		—	—			—		35,676		—			35,676
Other comprehensive income	—		—		—	—			—		—		(8,730		)	(8,730		)
Balance at September 30, 2019	68,603		$	104	35,393	$	(532,220	)	$	492,399	$	220,572	$	(63,331	)	$	117,524

	Common Stock				Treasury Stock					Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	Shares		Amount		Shares		Amount
Balance at June 30, 2018	68,109		$	96	27,802		$	(360,032	)	$	379,571	$	233,380		$	(54,789	)	$	198,226
Share-based compensation	—		—		—		—			3,305		—			—			3,305
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units	89		—		(1	)	25			214		—			—			239
Repurchases of common stock	(604	)	—		604		(11,100		)	—		—			—			(11,100		)
Series A convertible preferred stock dividends	—		—		—		—			—		(3,000		)	—			(3,000		)
Series A convertible preferred stock accretion	—		—		—		—			—		(972		)	—			(972		)
Net income	—		—		—		—			—		10,492			—			10,492
Other comprehensive loss	—		—		—		—			—		—			(157		)	(157		)
Balance at September 30, 2018	67,594		$	96	28,405		$	(371,107	)	$	383,090	$	239,900		$	(54,946	)	$	197,033

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

4

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

	Common Stock				Treasury Stock				Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	Shares		Amount		Shares	Amount
Balance at December 31, 2018	73,306		$	103	29,656	$	(397,491	)	$	481,133	$	121,215		$	(54,652	)	$	150,308
Adjustments to beginning retained earnings (1)	—		—		—	—			—		(227		)	—			(227		)
Share-based compensation	—		—		—	—			11,020		—			—			11,020
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units	984		1		50	(1,254		)	246		—			—			(1,007		)
Repurchases of common stock	(5,687	)	—		5,687	(133,475		)	—		—			—			(133,475		)
Net income	—		—		—	—			—		99,584			—			99,584
Other comprehensive income	—		—		—	—			—		—			(8,679		)	(8,679		)
Balance at September 30, 2019	68,603		$	104	35,393	$	(532,220	)	$	492,399	$	220,572		$	(63,331	)	$	117,524

⁽¹⁾ Decrease to beginning retained earnings as a result of the adoption of new lease accounting standards as of January 1, 2019, as discussed in Note 2 — Recent Accounting Pronouncements.

	Common Stock				Treasury Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	Shares		Amount		Shares	Amount
Balance at December 31, 2017	68,791		$	95	25,987	$	(334,312	)	$	373,045		$	190,431		$	(43,394	)	$	185,865
Share-based compensation	—		—		—	—			9,040			—			—			9,040
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units	1,184		1		37	251			(221		)	—			—			31
Repurchases of common stock	(2,381	)	—		2,381	(37,046		)	—			—			—			(37,046		)
Series A convertible preferred stock dividends	—		—		—	—			—			(9,000		)	—			(9,000		)
Series A convertible preferred stock accretion	—		—		—	—			—			(2,854		)	—			(2,854		)
Net income	—		—		—	—			—			61,323			—			61,323
Other comprehensive loss	—		—		—	—			—			—			(11,552		)	(11,552		)
Other	—		—		—	—			1,226			—			—			1,226
Balance at September 30, 2018	67,594		$	96	28,405	$	(371,107	)	$	383,090		$	239,900		$	(54,946	)	$	197,033

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

5

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	99,584		$	61,323
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17,508			21,535
Operating lease cost	44,776			—
Share-based compensation	11,020			9,320
Other non-cash items	(688		)	6,076
Changes in operating assets and liabilities:
Accounts receivable, net of allowances	(30,619		)	(37,394		)
Inventories	(17,178		)	4,468
Prepaid expenses and other assets	(3,501		)	5,271
Accounts payable, accrued expenses and other liabilities	1,955			15,271
Operating lease liabilities	(49,668		)	—
Cash provided by operating activities	73,189			85,870
Cash flows from investing activities:
Purchases of property, equipment, and software	(32,852		)	(5,224		)
Proceeds from disposal of property and equipment	302			1,325
Cash used in investing activities	(32,550		)	(3,899		)
Cash flows from financing activities:
Proceeds from bank borrowings	310,000			—
Repayments of bank borrowings	(245,000		)	(680		)
Dividends—Series A convertible preferred stock (1)	(2,985		)	(9,000		)
Repurchases of common stock	(133,475		)	(37,046		)
Other	(3,275		)	31
Cash used in financing activities	(74,735		)	(46,695		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(2,299		)	(5,133		)
Net change in cash, cash equivalents, and restricted cash	(36,395		)	30,143
Cash, cash equivalents, and restricted cash—beginning of period	127,530			177,055
Cash, cash equivalents, and restricted cash—end of period	$	91,135		$	207,198

⁽¹⁾ Represents $3.0 million paid to induce conversion of Series A Convertible Preferred Stock to common stock for the nine months ended September 30, 2019 and $9.0 million paid in Series A Convertible Preferred Stock cash dividends for the nine months ended September 30, 2018.

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

6

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 its consolidated subsidiaries within our reportable operating segments and corporate operations. The Company is engaged in the design, development, worldwide marketing, distribution, and sale of casual lifestyle footwear and accessories for men, women, and children. We strive to be the global leader in the sale of molded footwear characterized by functionality, comfort, color, and lightweight design.

Our reportable operating segments include: the Americas, operating in North and South America; Asia Pacific, operating throughout Asia, Australia, and New Zealand; and Europe, Middle East, and Africa (“EMEA”), operating throughout Europe, Russia, the Middle East, and Africa. See Note 14 — Operating Segments and Geographic Information for additional information.

The accompanying unaudited condensed consolidated interim financial statements include the Company’s accounts and those of its 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, 2018 (“Annual Report”), and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes to the Audited Consolidated Financial Statements included in our Annual Report. Our accounting policies did not change during the nine months ended September 30, 2019, other than for the new accounting pronouncements adopted as described in Note 2 — Recent Accounting Pronouncements and “Critical Accounting Policies and Estimates” within Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q.

Reclassifications

The Company has reclassified certain amounts on the condensed consolidated statements of cash flows to conform to current period presentation.

Seasonality of Business

Due to the seasonal nature of our footwear, which is more heavily focused on styles suitable for warm weather, revenues generated during our fourth quarter, when the northern hemisphere is experiencing cooler weather, are typically less than revenues generated during our first three quarters. Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of new model introductions, general economic conditions, and consumer confidence. Accordingly, results of operations and cash flows for any one quarter are not necessarily indicative of expected results for any other quarter or for any other year.

Transactions with Affiliates

The Company receives services from three affiliates of Blackstone Capital Partners VI L.P. (“Blackstone”). Blackstone and certain of its permitted transferees beneficially owned 6,896,548 shares of the Company’s common stock as of September 30, 2019. Blackstone also has the future right to designate for nomination one director to our Board, and currently has two designees serving on the Board.

Certain Blackstone affiliates provide various services to the Company, including inventory count services, cybersecurity and consulting, and workforce management services. The Company incurred expenses for services from these affiliates of $0.3 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $1.3 million and $0.5 million for the nine months ended September 30, 2019 and 2018, respectively. Expenses related to these services are reported in ‘Selling, general and administrative expenses’ in the condensed consolidated statements of operations.

7

2. RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncement Adopted

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that permits reclassification of the income tax effects of the U.S. Tax Cuts and Job Act (“Tax Act”) on accumulated other comprehensive income (“AOCI”) to retained earnings. This guidance may be adopted retrospectively to each period (or periods) in which the income tax effects of the Tax Act related to items remaining in AOCI are recognized, or at the beginning of the period of adoption. The guidance became effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. This guidance became effective during the first quarter of 2019; however, the Company did not elect to make the optional reclassification. Our policy is to release stranded tax effects from AOCI using either a specific identification approach or portfolio approach based on the nature of the underlying item.

Leases

In February 2016, the FASB issued authoritative guidance related to accounting for leases. On January 1, 2019, the Company adopted the guidance using the modified retrospective method applied as of the date of adoption. The comparative information presented in the condensed consolidated financial statements was not restated and is reported under the accounting standards in effect for the periods presented.

The Company has elected all of the available transition practical expedients, including the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The Company has elected not to apply ‘hindsight’ when adopting the standard for determining the reasonably certain lease term and in assessing impairments. The Company has elected the short-term lease exemption, which means the Company has not and will not recognize a right-of-use asset or liability for leases that qualify for the short-term exemption and will recognize those lease expenses on a straight-line basis over the lease term in its condensed consolidated statements of operations. Further, the Company has elected to combine lease and non-lease components for all of its leases.

Adoption of the new standard resulted in the recognition of right-of-use assets and liabilities of approximately $176.1 million and $187.4 million, respectively, as of January 1, 2019, with additional adjustments to ‘Prepaid expenses and other assets’, ‘Accrued expenses and other liabilities’, and ‘Retained earnings’. As a result of the adoption of new lease accounting standards, the Company assessed the initial right-of-use assets for impairment and recorded non-cash impairments of $0.2 million within ‘Retained earnings’ in the Company’s condensed consolidated balance sheet. The adoption of this guidance did not have a significant impact on the condensed consolidated statements of operations or cash flows.

New Accounting Pronouncements Not Yet Adopted

Implementation Costs Incurred in Cloud Computing Arrangements

In August 2018, the FASB issued authoritative guidance related to the treatment of implementation costs incurred in a hosting arrangement that is considered a service contract. This guidance becomes effective for annual reporting periods beginning after December 15, 2019, including interim periods within those periods, with early adoption permitted, and will be applied prospectively to all implementation costs incurred after the date of adoption. The Company does not expect this standard to have a material impact on its condensed consolidated financial statements.

Other Pronouncements

Other new pronouncements issued but not effective until after September 30, 2019 are not expected to have a material impact on the Company’s condensed consolidated financial statements.

8

3. ACCRUED EXPENSES AND OTHER LIABILITIES

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

	September 30, 2019		December 31, 2018
	(in thousands)
Accrued compensation and benefits	$	33,081	$	43,970
Fulfillment, freight, and duties	9,731		12,234
Professional services	14,498		11,124
Accrued rent and occupancy (1)	4,219		6,956
Return liabilities	8,523		6,429
Sales/use and value added taxes payable	5,605		5,601
Royalties payable and deferred revenue	2,365		3,356
Other (2)	10,740		12,501
Total accrued expenses and other liabilities	$	88,762	$	102,171

⁽¹⁾ At September 30, 2019, includes accrued rent and occupancy costs for leases with original terms of one year or less, which are excluded from recognition under the new lease accounting standards adopted as of January 1, 2019. See Note 2 — Recent Accounting Pronouncements for more information.

⁽²⁾ At December 31, 2018, includes accrued payments of $3.0 million to induce the conversion of Series A Convertible Preferred Stock into shares of common stock.

4. LEASES

The Company adopted authoritative guidance related to leases effective January 1, 2019 using the modified retrospective method. The comparative information presented in the condensed consolidated financial statements was not restated and is reported under the accounting standards in effect for the periods presented. See ‘Leases’ in Note 2 — Recent Accounting Pronouncements for a discussion of the significant changes resulting from adoption of the guidance.

The Company’s lease portfolio consists primarily of real estate assets, which includes retail, warehouse, distribution center, and office spaces, under operating leases expiring at various dates through 2033. Leases with an original term of twelve months or less are not reported in the condensed consolidated balance sheet; expense for these short-term leases is recognized on a straight-line basis over the lease term.

Many leases include one or more options to renew, with renewal terms that, if exercised by us, may extend the lease term. The exercise of these renewal options is at the Company’s discretion. When assessing the likelihood of a renewal or termination, the Company considers the significance of leasehold improvements, availability of alternative locations, and the cost of relocation or replacement, among other considerations. The depreciable lives of leasehold improvements are the shorter of the useful lives of the improvements or the expected lease term. The Company determines the lease term for each lease based on the terms of each contract and factors in renewal and early termination options if such options are reasonably certain to be exercised.

Due to the Company’s centralized treasury function, the Company utilizes a portfolio approach to discount its lease obligations. The Company assesses the expected lease term at lease inception and discounts the lease using a fully-secured annual incremental borrowing rate, adjusted for time value corresponding with the expected lease term.

Certain of our retail store leases include rental payments based upon a percentage of retail sales in excess of a minimum fixed rental. In some cases, there is no fixed minimum rental and the entire rental payment is based upon a percentage of sales. Certain of our warehouse leases have rental payments that vary based upon the volume of product placed in storage. In addition, certain leases include rental payments adjusted periodically for changes in price level indexes. We recognize expense for these types of payments as incurred and report them as variable lease expense.

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Right-of-Use Assets and Operating Lease Liabilities

Amounts reported in the condensed consolidated balance sheet were:

	September 30, 2019
	(in thousands)
Assets:
Right-of-use assets	$	183,040
Liabilities:
Current operating lease liabilities	$	45,486
Long-term operating lease liabilities	143,632
Total operating lease liabilities	$	189,118

Lease Costs and Other Information

Lease-related costs reported in the Company’s condensed consolidated statement of operations were:

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
	(in thousands)
Operating lease cost	$	15,097	$	44,776
Short-term lease cost	982		2,729
Variable lease cost	6,643		13,932
Total lease costs	$	22,722	$	61,437

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

	Nine Months Ended September 30, 2019
	(in thousands)
Cash paid for operating leases	$	48,569
Right-of-use assets obtained in exchange for operating lease liabilities (1)	222,401

⁽¹⁾ Includes $176.1 million for operating leases existing on January 1, 2019 and $46.3 million for operating leases that commenced in the nine months ended September 30, 2019.

	As of September 30, 2019
Weighted average remaining lease term (in years)	6.1
Weighted average discount rate	4.8	%

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Maturities

The maturities of the Company’s operating lease liabilities were:

	As of September 30, 2019
	(in thousands)
2019 (remainder of year)	$	9,628
2020	52,107
2021	44,573
2022	31,423
2023	22,591
Thereafter	61,881
Total future minimum lease payments	222,203
Less: imputed interest	(33,085		)
Total operating lease liabilities	$	189,118

Lease Commencements

In the third quarter of 2019, the Company began recognition of its lease for a new distribution center in Dayton, Ohio, the impact of which is included in the above lease disclosures.

Leases That Have Not Yet Commenced

As of September 30, 2019, the Company had significant obligations for a lease that has not yet commenced related to our office relocation project. In the first quarter of 2019, the Company entered into a lease for its new corporate headquarters and regional office in Broomfield, Colorado. The contractual commitment related to this lease, with payments beginning in March 2020 and continuing through August 2030, is approximately $20.4 million, with expected net capital investments totaling $7.0 million.

Comparative Information as Reported Under Previous Accounting Standards

The following comparative information is reported based upon previous accounting standards in effect for the periods presented.

Future minimum lease payments under operating leases were:

	As of December 31, 2018
	(in thousands)
2019	$	42,455
2020	36,299
2021	29,714
2022	20,721
2023	15,334
Thereafter	54,149
Total minimum lease payments (1)	$	198,672

⁽¹⁾ Includes future minimum lease payments of $25.4 million related to the new distribution center in Dayton, Ohio.

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Rent expense for operating leases was:

	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
	(in thousands)
Minimum rentals (1)	$	15,070	$	50,841
Contingent rentals	4,175		11,870
Total rent expense	$	19,245	$	62,711

⁽¹⁾ Minimum rentals include all lease payments as well as fixed and variable common area maintenance, parking, and storage fees, which were approximately $2.3 million and $7.1 million in the three and nine months ended September 30, 2018, respectively.

5. FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

All of the Company’s derivative instruments are classified as Level 2 of the fair value hierarchy and are reported in the condensed consolidated balance sheets within ‘Accrued expenses and other liabilities’ at September 30, 2019 and December 31, 2018. The fair values of the Company’s derivative instruments were liabilities of $0.9 million and $1.3 million at September 30, 2019 and December 31, 2018, respectively. See Note 6 — Derivative Financial Instruments for more information.

The carrying amounts of the Company’s 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.

The Company’s borrowing instruments are recorded at their carrying values in the condensed consolidated balance sheets, which may differ from their respective fair values. The fair values of the Company’s outstanding borrowings approximate their carrying values at September 30, 2019 and December 31, 2018, based on interest rates currently available to the Company for similar borrowings and were:

	September 30, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Borrowings	$	185,000	$	185,000	$	120,000	$	120,000

Non-Financial Assets and Liabilities

The Company’s non-financial assets, which primarily consist of property and equipment, goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. The fair values of these assets are determined based on Level 3 measurements, including estimates of the amount and timing of future cash flows based upon historical experience, expected market conditions, and management’s plans. Impairment expense is reported in ‘Selling, general and administrative expenses’ in the Company’s condensed consolidated statements of operations. The Company did not record impairment expense in the three and nine months ended September 30, 2019. During the three and nine months ended September 30, 2018, the Company recorded non-cash impairment expenses of $0.2 million and $0.9 million, respectively, to reduce the carrying values of certain retail store assets. During the three and nine months ended September 30, 2018, the Company recorded non-cash impairment expenses of $0.1 million and $1.3 million, respectively, to reduce the carrying values of certain supply chain assets, included in ‘Other businesses,’ to their estimated fair values.

6. DERIVATIVE FINANCIAL INSTRUMENTS

The Company transacts business in various foreign countries and is 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, the Company enters into forward contracts to buy and sell foreign currency. By policy, the Company does not enter into these contracts for trading purposes or speculation.

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Counterparty default risk is considered low because the forward contracts that the Company enters into are over-the-counter instruments transacted with highly-rated financial institutions. The Company was not required to and did not post collateral as of September 30, 2019 or December 31, 2018.

The Company’s derivative instruments are recorded at fair value as a derivative asset or liability in the condensed consolidated balance sheets. The Company reports derivative instruments with the same counterparty on a net basis when a master netting arrangement is in place. Changes in fair value are recognized within ‘Foreign currency gains (losses), net’ in the condensed consolidated statements of operations. For the condensed consolidated statements of cash flows, the Company classifies cash flows from derivative instruments at settlement in the same category as the cash flows from the related hedged items within ‘Cash provided by operating activities.’

Results of Derivative Activities

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

	September 30, 2019						December 31, 2018
	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
	(in thousands)
Forward foreign currency exchange contracts	$	771		$	(1,704	)	$	943		$	(2,256	)
Netting of counterparty contracts	(771		)	771			(943		)	943
Foreign currency forward contract derivatives	$	—		$	(933	)	$	—		$	(1,313	)

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

	September 30, 2019					December 31, 2018
	Notional		Fair Value			Notional		Fair Value
	(in thousands)
Euro	$	45,086	$	(532	)	$	34,959	$	(92	)
Singapore Dollar	36,023		(489		)	34,584		254
Japanese Yen	22,337		75			25,561		(178		)
British Pound Sterling	10,377		(54		)	22,185		183
South Korean Won	13,297		128			9,408		63
Other currencies	38,762		(61		)	67,885		(1,543		)
Total	$	165,882	$	(933	)	$	194,582	$	(1,313	)
Latest maturity date	October 2019					January 2019

Amounts reported in ‘Foreign currency 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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(in thousands)
Foreign currency transaction gains (losses)	$	1,743		$	(1,382	)	$	835		$	(894	)
Foreign currency forward exchange contracts gains (losses)	(1,158		)	1,615			(1,728		)	2,481
Foreign currency gains (losses), net	$	585		$	233		$	(893	)	$	1,587

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7. REVOLVING CREDIT FACILITIES AND BANK BORROWINGS

The Company’s borrowings were as follows:

	September 30, 2019		December 31, 2018
	(in thousands)
Revolving credit facilities	$	185,000	$	120,000
Less: Current portion of borrowings	—		—
Total long-term borrowings	$	185,000	$	120,000

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, which provides for a revolving credit facility of $450.0 million, which can be increased by an additional $150.0 million subject to certain conditions (the “Facility”). Borrowings under the Credit Agreement bear interest at a variable rate based on a domestic base rate or a LIBOR rate, plus an applicable margin ranging from 0.00% to 1.875% based on the Company’s leverage ratio. Borrowings under the Credit Agreement are secured by all of the assets of the Borrowers, and guaranteed by certain other subsidiaries of the Borrowers.

The Credit Agreement requires the Company to maintain a minimum interest coverage ratio of 4.00 to 1.00, and a maximum leverage ratio of (i) 3.50 to 1.00 from September 30, 2019 to September 30, 2020, and (ii) 3.25 to 1.00 from December 31, 2020 and thereafter (subject to an increase to 4.00 to 1.00 in the event of certain permitted acquisitions or stock repurchases). The Credit Agreement permits (i) stock repurchases so long as after giving effect to such stock repurchases, the maximum leverage ratio does not exceed the applicable maximum leverage ratio, less 0.25; and (ii) certain acquisitions so long as there is borrowing availability under the Credit Agreement of at least $40.0 million. As of September 30, 2019, the Company was in compliance with all financial covenants under the Credit Agreement.

As of September 30, 2019, the total commitments available from the lenders under the Facility were $450.0 million. At September 30, 2019, the Company had $185.0 million in outstanding borrowings, which are due when the Facility matures in July 2024, and $4.6 million in outstanding letters of credit under the Facility, which reduces amounts available for borrowing under the Facility. As of September 30, 2019 and December 31, 2018, the Company had $260.4 million and $129.4 million, respectively, of available borrowing capacity under the Facility.

The Company also has a suspended revolving credit facility in Asia, under which the Company had no borrowings during the nine months ended September 30, 2019 and year ended December 31, 2018 or borrowings outstanding at September 30, 2019 and December 31, 2018.

8. COMMON STOCK REPURCHASE PROGRAM 

During the three and nine months ended September 30, 2019, the Company repurchased 1.0 million and 5.7 million shares of its common stock at a cost of $25.0 million and $133.5 million, including commissions, respectively. During the three and nine months ended September 30, 2018, the Company repurchased 0.6 million and 2.4 million shares of its common stock at a cost of $11.1 million and $37.0 million, including commissions, respectively. As of September 30, 2019, the Company had remaining authorization to repurchase approximately $522.3 million of its common stock, subject to restrictions under its Credit Agreement.

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9. REVENUES

Revenues by reportable operating segment and by channel were:

Fiscal Year 2019

	Three Months Ended September 30, 2019
	Americas		Asia Pacific		EMEA		Other Businesses		Total
	(in thousands)
Channel:
Wholesale	$	75,660	$	36,655	$	34,058	$	49	$	146,422
Retail	78,141		20,133		9,347		—		107,621
E-commerce	31,391		17,463		9,869		—		58,723
Total revenues	$	185,192	$	74,251	$	53,274	$	49	$	312,766

	Nine Months Ended September 30, 2019
	Americas		Asia Pacific	EMEA	Other Businesses	Total
	(in thousands)
Channel:
Wholesale	$	216,846	$