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 March 31, 2020

or

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

For the transition period from            to            

Commission File No. 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 April 16, 2020, Crocs, Inc. had 67,374,960 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 the impact of the novel coronavirus disease (“COVID-19”) on our business, financial condition, operating results, and liquidity;

•our expectations regarding future trends, selling, general and administrative cost savings, expectations, and performance of our business;

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

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

•our expectations regarding our level of capital expenditures in 2020 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, 2019, 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.

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Crocs, Inc.

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

For the Quarterly Period Ended March 31, 2020

PART I — Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations	1
	Condensed Consolidated Statements of Comprehensive Income (Loss)	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
PART II — Other Information		31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 6.	Exhibits	33
Signatures		34

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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 March 31,
	2020		2019
Revenues	$	281,160	$	295,949
Cost of sales	146,998		158,334
Gross profit	134,162		137,615
Selling, general and administrative expenses	113,350		105,037
Income from operations	20,812		32,578
Foreign currency losses, net	(231)		(1,217)
Interest income	97		195
Interest expense	(1,921)		(1,817)
Other income, net	21		590
Income before income taxes	18,778		30,329
Income tax expense	7,687		5,619
Net income	$	11,091	$	24,710
Net income per common share:
Basic	$	0.16	$	0.34
Diluted	$	0.16	$	0.33
Weighted average common shares outstanding:
Basic	67,931		73,009
Diluted	69,218		74,875

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

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)

	Three Months Ended March 31,
	2020		2019
Net income	$	11,091	$	24,710
Other comprehensive income (loss):
Foreign currency translation losses, net	(11,366)		(941)
Reclassification of foreign currency translation loss to income (1)	(164)		—
Total comprehensive income (loss)	$	(439)	$	23,769

⁽¹⁾ Represents the reclassification of cumulative foreign currency translation adjustment upon liquidation of foreign subsidiaries during the quarter ended March 31, 2020.

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)

	March 31, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	107,038	$	108,253
Accounts receivable, net of allowances of $19,922 and $18,797, respectively	172,398		108,199
Inventories	195,755		172,028
Income taxes receivable	3,174		1,341
Other receivables	12,533		8,711
Restricted cash - current	1,595		1,500
Prepaid expenses and other assets	21,508		25,350
Total current assets	514,001		425,382
Property and equipment, net of accumulated depreciation and amortization of $81,127 and $79,604, respectively	47,019		47,405
Intangible assets, net of accumulated amortization of $86,722 and $82,760, respectively	46,393		47,095
Goodwill	1,552		1,578
Deferred tax assets, net	24,108		24,747
Restricted cash	1,959		2,292
Right-of-use assets	193,070		182,228
Other assets	8,138		8,075
Total assets	$	836,240	$	738,802
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	104,893	$	95,754
Accrued expenses and other liabilities	71,309		108,677
Income taxes payable	9,803		4,207
Current operating lease liabilities	50,026		48,585
Total current liabilities	236,031		257,223
Long-term income taxes payable	4,039		4,522
Long-term borrowings	350,000		205,000
Long-term operating lease liabilities	152,139		140,148
Other liabilities	2		4
Total liabilities	742,211		606,897
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 5.0 million shares authorized including 1.0 million authorized as Series A Convertible Preferred Stock, none outstanding	—		—
Common stock, par value $0.001 per share, 250.0 million shares authorized, 104.8 million and 104.0 million issued, 67.4 million and 68.2 million outstanding, respectively	105		104
Treasury stock, at cost, 37.5 million and 35.8 million shares, respectively	(587,940)		(546,208)
Additional paid-in capital	500,197		495,903
Retained earnings	251,576		240,485
Accumulated other comprehensive loss	(69,909)		(58,379)
Total stockholders’ equity	94,029		131,905
Total liabilities and stockholders’ equity	$	836,240	$	738,802

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 December 31, 2019	68,232	$	104	35,796	$	(546,208)	$	495,903	$	240,485	$	(58,379)	$	131,905
Share-based compensation	—	—		—	—		3,964		—		—		3,964
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units	702	1		115	(2,573)		330		—		—		(2,242)
Repurchases of common stock	(1,559)	—		1,559	(39,159)		—		—		—		(39,159)
Net income	—	—		—	—		—		11,091		—		11,091
Other comprehensive loss	—	—		—	—		—		—		(11,530)		(11,530)
Balance at March 31, 2020	67,375	$	105	37,470	$	(587,940)	$	500,197	$	251,576	$	(69,909)	$	94,029

	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 retailed earnings (1)	—	—		—	—		—		(227)				(227)
Share-based compensation	—	—		—	—		3,634		—		—		3,634
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units	836	1		49	(1,227)		165		—		—		(1,061)
Repurchases of common stock	(2,133)	—		2,133	(53,478)		—		—		—		(53,478)
Net income	—	—		—	—		—		24,710		—		24,710
Other comprehensive loss	—	—		—	—		—		—		(941)		(941)
Balance at March 31, 2019	72,009	$	104	31,838	$	(452,196)	$	484,932	$	145,698	$	(55,593)	$	122,945

⁽¹⁾ The decrease to beginning retained earnings in the three months ended March 31, 2019 is a result of the prior year adoption of new lease accounting standards.

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

4

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Three Months Ended March 31,
	2020		2019
Cash flows from operating activities:
Net income	$	11,091	$	24,710
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,907		6,136
Operating lease cost	14,994		14,930
Share-based compensation	3,964		3,634
Other non-cash items	5,877		(911)
Changes in operating assets and liabilities:
Accounts receivable, net of allowances	(73,232)		(80,722)
Inventories	(29,268)		(15,099)
Prepaid expenses and other assets	3,294		6,875
Accounts payable, accrued expenses and other liabilities	(16,218)		(3,658)
Operating lease liabilities	(12,323)		(19,610)
Cash used in operating activities	(84,914)		(63,715)
Cash flows from investing activities:
Purchases of property, equipment, and software	(16,076)		(10,553)
Proceeds from disposal of property and equipment	25		225
Other	(116)		—
Cash used in investing activities	(16,167)		(10,328)
Cash flows from financing activities:
Proceeds from bank borrowings	145,000		95,000
Dividends—Series A convertible preferred stock (1)	—		(2,985)
Repurchases of common stock	(39,159)		(53,478)
Other	(2,717)		(1,662)
Cash provided by financing activities	103,124		36,875
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(3,496)		(22)
Net change in cash, cash equivalents, and restricted cash	(1,453)		(37,190)
Cash, cash equivalents, and restricted cash—beginning of period	112,045		127,530
Cash, cash equivalents, and restricted cash—end of period	$	110,592	$	90,340

⁽¹⁾ For the three months ended March 31, 2019, represents $3.0 million paid to induce conversion of Series A Convertible Preferred Stock to common stock.

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

5

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unless otherwise noted in this report, any description of the “Company,” “Crocs,” “we,” “us,” or “our” includes Crocs, Inc. and our consolidated subsidiaries within our reportable operating segments and corporate operations. We are engaged in the design, development, worldwide marketing, distribution, and sale of casual lifestyle footwear and accessories for 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 our accounts and those of our wholly-owned subsidiaries, and reflect all adjustments which are necessary for a fair statement of the financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Such unaudited condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.

These unaudited condensed consolidated interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 (“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 three months ended March 31, 2020, other than with respect to the new accounting pronouncements adopted as described in Note 2 — Recent Accounting Pronouncements.

Use of Estimates

U.S. GAAP requires us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. Management believes that the estimates, judgments, and assumptions made when accounting for items and matters such as, but not limited to, the allowance for doubtful accounts, customer rebates, sales returns, impairment assessments and charges, recoverability of long-lived assets, deferred tax assets, uncertain tax positions, income tax expense, share-based compensation expense, the assessment of lower of cost or net realizable value on inventory, useful lives assigned to long-lived assets, and depreciation and amortization, are reasonable based on information available at the time they are made.

Additionally, the full impact of COVID-19 is unknown and cannot be reasonably estimated. However, we have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.

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.

6

Transactions with Affiliates

In 2019, we received services from three affiliates of Blackstone Capital Partners VI L.P. (“Blackstone”). Blackstone and certain of its permitted transferees beneficially owned 6,899,027 shares of our common stock until Blackstone sold 6,864,545 shares of common stock held directly by Blackstone and its affiliates in an underwritten public offering on November 4, 2019. The other 34,482 shares of common stock were held by Gregg S. Ribatt, our former Chief Executive Officer and former member of our Board of Directors, which Blackstone may have been deemed to beneficially own, and were sold by Mr. Ribatt in October 2019. We incurred expenses to Blackstone’s legal counsel of $0.3 million in relation to this offering.

Certain Blackstone affiliates provide various services to us, including inventory count services, cybersecurity and consulting, and workforce management services. We incurred expenses for services from these affiliates of $0.7 million for the three months ended March 31, 2019. Expenses related to these services are reported in ‘Selling, general and administrative expenses’ in the condensed consolidated statements of operations.

2. RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncement Adopted

Measurement of Credit Losses

In June 2016, and through subsequent amendments, the FASB issued guidance that requires the measurement and recognition of expected credit losses for financial assets. This new model replaces the existing “current incurred loss” model with a forward-looking “current expected credit loss” model. On January 1, 2020, we adopted this guidance on a modified retrospective basis. Based on the nature of our financial instruments included within the scope of this standard, which are primarily trade and other receivables, the adoption did not have a material effect on our condensed consolidated financial statements.

Implementation Costs Incurred in Cloud Computing Arrangements

In August 2018, the FASB issued authoritative guidance related to the treatment of implementation costs incurred in a hosting arrangement that is considered a service contract. On January 1, 2020, we adopted this guidance on a prospective basis. The adoption did not have a material effect on our condensed consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

Simplifying Accounting for Income Taxes

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The standard will be effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those periods. We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.

Reference Rate Reform

In March 2020, the FASB issued optional guidance related to reference rate reform, which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for our borrowing instruments, which use LIBOR as a reference rate, and is effective immediately, but is only available through December 31, 2022. We are currently evaluating the potential impact of this standard on our condensed consolidated financial statements.

Other Pronouncements

Other new pronouncements issued but not effective until after March 31, 2020 are not expected to have a material impact on our condensed consolidated financial statements.

7

3. ACCRUED EXPENSES AND OTHER LIABILITIES

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

	March 31, 2020		December 31, 2019
	(in thousands)
Accrued compensation and benefits	$	16,464	$	42,460
Fulfillment, freight, and duties	18,122		20,110
Professional services	10,584		13,361
Accrued rent and occupancy	3,757		4,682
Return liabilities	3,469		7,090
Sales/use and value added taxes payable	5,624		6,843
Royalties payable and deferred revenue	2,913		3,740
Other	10,376		10,391
Total accrued expenses and other liabilities	$	71,309	$	108,677

4. LEASES

Right-of-Use Assets and Operating Lease Liabilities

Amounts reported in the condensed consolidated balance sheet were:

	March 31, 2020		December 31, 2019
	(in thousands)
Assets:
Right-of-use assets	$	193,070	$	182,228
Liabilities:
Current operating lease liabilities	$	50,026	$	48,585
Long-term operating lease liabilities	152,139		140,148
Total operating lease liabilities	$	202,165	$	188,733

Lease Costs and Other Information

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

	Three Months Ended March 31,
	2020		2019
	(in thousands)
Operating lease cost	$	14,994	$	14,930
Short-term lease cost	1,325		1,360
Variable lease cost	1,500		2,989
Total lease costs	$	17,819	$	19,279

8

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

	Three Months Ended March 31,
	2020		2019
	(in thousands)
Cash paid for operating leases	$	12,293	$	18,574
Right-of-use assets obtained in exchange for operating lease liabilities (1)	24,790		177,509

⁽¹⁾ In the three months ended March 31, 2019, we implemented ASC 842, Leases. The previously reported amount includes $176.1 million for operating leases existing on January 1, 2019 and $1.4 million for operating leases that commenced in the first quarter of 2019.

The weighted average remaining lease term and discount rate related to our lease liabilities as of March 31, 2020 were 6.3 years and 4.7%, respectively. As of March 31, 2019, the weighted average remaining lease term and discount rate related to our lease liabilities were 5.7 years and 4.7%, respectively.

Maturities

The maturities of our operating lease liabilities were:

	As of March 31, 2020
	(in thousands)
2020 (remainder of year)	$	42,343
2021	50,196
2022	35,832
2023	26,650
2024	17,013
Thereafter	65,102
Total future minimum lease payments	237,136
Less: imputed interest	(34,971)
Total operating lease liabilities	$	202,165

Lease Commencements

In the first quarter of 2020, the lease for our new corporate headquarters and regional office commenced, the impact of which is included in the above lease disclosures. We are currently evaluating when to physically relocate our headquarters, in consideration of the continuing impacts of the COVID-19 pandemic.

Leases That Have Not Yet Commenced

As of March 31, 2020, we had significant obligations for a lease that has not yet commenced related to our new EMEA distribution center. In the fourth quarter of 2019, we entered into a lease for a new distribution center in Dordrecht, the Netherlands, which is expected to replace our existing distribution center in Rotterdam by the end of 2021. The total contractual commitment related to this lease, with payments expected to begin in January 2021 and continuing through December 2030, is approximately €21.9 million, or $24.2 million, with expected total capital investments of approximately €20.0 million, or $22.1 million, through 2021.

5. FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

All of our derivative instruments are classified as Level 2 of the fair value hierarchy and are reported in the condensed consolidated balance sheets within ‘Accrued expenses and other liabilities’ at March 31, 2020 and within ‘Prepaid expenses and other assets’ at December 31, 2019. The fair values of our derivative instruments were a liability of $1.0 million and an asset of $0.1 million at March 31, 2020 and December 31, 2019, respectively. See Note 6 — Derivative Financial Instruments for more information.

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

Our borrowing instruments are recorded at their carrying values in the condensed consolidated balance sheets, which may differ from their respective fair values. The fair values of our outstanding borrowings approximate their carrying values at March 31, 2020 and December 31, 2019, based on interest rates currently available to us for similar borrowings and were:

	March 31, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Borrowings	$	350,000	$	350,000	$	205,000	$	205,000

Non-Financial Assets and Liabilities

Our non-financial assets, which primarily consist of property and equipment, goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. 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 our condensed consolidated statements of operations. We did not record impairment expense in the three months ended March 31, 2020 or 2019.

6. DERIVATIVE FINANCIAL INSTRUMENTS

We transact business in various foreign countries and are therefore exposed to foreign currency exchange rate risk that impacts the reported U.S. Dollar amounts of revenues, expenses, and certain foreign currency monetary assets and liabilities. In order to manage exposure to fluctuations in foreign currency and to reduce the volatility in earnings caused by fluctuations in foreign exchange rates, we enter into forward contracts to buy and sell foreign currency. By policy, we do not enter into these contracts for trading purposes or speculation.

Counterparty default risk is considered low because the forward contracts that we enter into are over-the-counter instruments transacted with highly-rated financial institutions. We were not required to and did not post collateral as of March 31, 2020 or December 31, 2019.

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

Results of Derivative Activities

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

	March 31, 2020				December 31, 2019
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
	(in thousands)
Forward foreign currency exchange contracts	$	1,990	$	(2,983)	$	535	$	(424)
Netting of counterparty contracts	(1,990)		1,990		(424)		424
Foreign currency forward contract derivatives	$	—	$	(993)	$	111	$	—

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

	March 31, 2020				December 31, 2019
	Notional		Fair Value		Notional		Fair Value
	(in thousands)
Euro	$	27,818	$	(82)	$	46,757	$	36
Singapore Dollar	37,416		(1,730)		31,255		344
Japanese Yen	28,022		(517)		11,823		63
South Korean Won	22,453		458		10,328		(82)
British Pound Sterling	4,816		192		9,155		(104)
Other currencies	23,219		686		24,969		(146)
Total	$	143,744	$	(993)	$	134,287	$	111
Latest maturity date	April 2020				January 2020

Amounts reported in ‘Foreign currency 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 March 31,
	2020		2019
	(in thousands)
Foreign currency transaction gains (losses)	$	1,027	$	(1,433)
Foreign currency forward exchange contracts gains (losses)	(1,258)		216
Foreign currency losses, net	$	(231)	$	(1,217)

7. REVOLVING CREDIT FACILITIES AND BANK BORROWINGS

Our borrowings were as follows:

	March 31, 2020		December 31, 2019
	(in thousands)
Revolving credit facilities	$	350,000	$	205,000
Less: Current portion of borrowings	—		—
Total long-term borrowings	$	350,000	$	205,000

Senior Revolving Credit Facility

In July 2019, the Company and certain of our 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 provided for a revolving credit facility of $450.0 million. In March 2020, we amended the Credit Agreement to, among other things, increase the total commitments under the Credit Agreement by $50.0 million, resulting in total commitments of $500.0 million, which can be increased by an additional $100.0 million subject to certain conditions (the “Facility”). Borrowings under the Credit Agreement bear interest at a variable rate based on (A) a domestic base rate (defined as the highest of (i) the Federal Funds open rate, plus 0.25%, (ii) the Prime Rate, and (iii) the Daily LIBOR rate, plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio, or (B) a LIBOR rate, plus an applicable margin ranging from 1.25% to 1.875% based on our leverage ratio. Borrowings under the Credit Agreement are secured by all of the assets of the Borrowers and guaranteed by certain other subsidiaries of the Borrowers.

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The Credit Agreement requires us to maintain a minimum interest coverage ratio of 4.00 to 1.00, and a maximum leverage ratio of (i) 4.00 to 1.00 until September 30, 2020, (ii) 3.50 to 1.00 from December 31, 2020 to December 31, 2021, and (iii) 3.25 to 1.00 from March 31, 2022 and thereafter (subject to adjustment in certain circumstances). The Credit Agreement permits (i) stock repurchases subject to certain restrictions, including after giving effect to such stock repurchases, the maximum leverage ratio does not exceed certain levels; and (ii) certain acquisitions so long as there is borrowing availability under the Credit Agreement of at least $40.0 million. As of March 31, 2020, we were in compliance with all financial covenants under the Credit Agreement.

As of March 31, 2020, the total commitments available from the lenders under the Facility were $500.0 million. At March 31, 2020, we had $350.0 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 March 31, 2020 and December 31, 2019, we had $145.4 million and $240.4 million, respectively, of available borrowing capacity under the Facility.

We also have a suspended revolving credit facility in Asia, under which we had no borrowings during the three months ended March 31, 2020 and year ended December 31, 2019 or borrowings outstanding at March 31, 2020 and December 31, 2019.

8. COMMON STOCK REPURCHASE PROGRAM 

During the three months ended March 31, 2020, we repurchased 1.6 million shares of our common stock at a cost of $39.2 million, including commissions. During the three months ended March 31, 2019, we repurchased 2.1 million shares of our common stock at a cost of $53.5 million, including commissions. As of March 31, 2020, we had remaining authorization to repurchase approximately $469.5 million of our common stock, subject to restrictions under our Credit Agreement, and we have suspended share repurchases to preserve maximum liquidity and flexibility.

9. REVENUES

Revenues by reportable operating segment and by channel were:

Fiscal Year 2020

	Three Months Ended March 31, 2020
	Americas		Asia Pacific		EMEA		Other Businesses		Total
	(in thousands)
Channel:
Wholesale	$	90,805	$	45,580	$	56,711	$	76	$	193,172
Retail	34,618		10,187		3,994		—		48,799
E-commerce	22,300		9,693		7,196		—		39,189
Total revenues	$	147,723	$	65,460	$	67,901	$	76	$	281,160

Fiscal Year 2019

	Three Months Ended March 31, 2019
	Americas		Asia Pacific		EMEA		Other Businesses		Total
	(in thousands)
Channel:
Wholesale	$	71,229	$	68,950	$	64,491	$	52	$	204,722
Retail	38,076		13,903		5,417		—		57,396
E-commerce	19,821		8,194		5,816		—		33,831
Total revenues	$	129,126	$	91,047	$	75,724	$	52	$	295,949

During the three months ended March 31, 2020 and 2019, we recognized increases of $0.5 million and less than $0.1 million, respectively, to wholesale revenues due to changes in estimates related to products transferred to customers in prior periods. There were no changes to estimates for retail or e-commerce revenues during the three months ended March 31, 2020 or 2019.

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There were no material changes in contract liabilities or refund liabilities in the three months ended March 31, 2020 and 2019.

10. SHARE-BASED COMPENSATION

Our share-based compensation awards are issued under the 2015 Equity Incentive Plan (“2015 Plan”) and predecessor plan, the 2007 Equity Incentive Plan (“2007 Plan”). Any awards that expire or are forfeited under the 2007 Plan become available for issuance under the 2015 Plan.

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

	Three Months Ended March 31,
	2020		2019
	(in thousands)
Cost of sales	$	146	$	88
Selling, general and administrative expenses	3,818		3,546
Total share-based compensation expense	$	3,964	$	3,634

11. INCOME TAXES

Income tax expense and effective tax rates were:

	Three Months Ended March 31,
	2020			2019
	(in thousands, except effective tax rate)
Income before income taxes	$	18,778		$	30,329
Income tax expense	7,687			5,619
Effective tax rate	40.9		%	18.5		%

The increase in the effective tax rate for the three months ended March 31, 2020, compared to the same period in 2019, was driven primarily by tax expense recorded in profitable jurisdictions and by operating losses in certain jurisdictions where we have determined that it is not more likely than not to realize the associated tax benefits. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate primarily due to differences in income tax rates between U.S. and foreign jurisdictions. There were no significant or unusual discrete tax items during the three months ended March 31, 2020. We had unrecognized tax benefits of $4.3 million and $4.6 million at March 31, 2020 and December 31, 2019, respectively, and we do not expect any significant changes in tax benefits in the next twelve months.

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

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12. EARNINGS PER SHARE

Basic and diluted earnings per common share (“EPS”) for the three months ended March 31, 2020 and 2019 were:

	Three Months Ended March 31,
	2020		2019
	(in thousands, except per share data)
Numerator:
Net income	$	11,091	$	24,710
Denominator:
Weighted average common shares outstanding - basic	67,931		73,009
Plus: Dilutive effect of stock options and unvested restricted stock units	1,287		1,866
Weighted average common shares outstanding - diluted	69,218		74,875
Net income per common share:
Basic	$