ACQUISITION OF HEYDUDE

12 Months Ended

Dec. 31, 2023

Business Combination and Asset Acquisition [Abstract]

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

The aggregate preliminary purchase price at the closing of the Acquisition was $2.3 billion. We paid aggregate consideration of $2.05 billion in cash (the “Cash Consideration”), subject to adjustment based on, among other things, the cash, indebtedness, transaction expenses, and working capital of the companies comprising HEYDUDE and their respective subsidiaries as of the Acquisition Date, and issued 2,852,280 shares of the Company’s common stock to one of the sellers (the “Equity Consideration Shares”). The Equity Consideration Shares were subject to a lock-up period beginning on the Acquisition Date, which has since expired so all of the Equity Consideration Shares have been released from the lock-up. The purchase price paid to the sellers is final.

The Cash Consideration was financed via the Company’s entry into the $2.0 billion Term Loan B Facility (as defined below) and $50.0 million of borrowings under the Revolving Facility (as defined below). As a result of the Acquisition, HEYDUDE has become wholly owned by us.

Purchase Price Allocation

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

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


	February 17, 2022
	(in thousands)
Cash and cash equivalents	$	6,232
Accounts receivable, net	68,698
Inventories	155,773
Prepaid expenses and other assets (1)	7,880
Intangible assets	1,780,000
Goodwill (1) (2)	710,034
Right-of-use assets	2,844
Accounts payable (2)	(30,017)
Accrued expenses and other liabilities	(18,860)
Income taxes payable	(30,572)
Long-term deferred tax liability	(312,656)
Long-term income taxes payable	(13,004)
Operating lease liabilities	(2,843)
Net assets acquired	$	2,323,509

(1) Includes a valuation adjustment that increased prepaid expenses and other assets by $3.5 million and decreased goodwill by $3.5 million during the three months ended March 31, 2023.

(2) Includes a valuation adjustment that increased goodwill by $0.2 million and increased accounts payable by $0.2 million during the three months ended March 31, 2023.

Intangible Assets

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


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

Goodwill

The excess of the purchase price over the fair value of the acquired business’ net assets represents goodwill. The goodwill amount of $710.0 million at December 31, 2023 includes an aggregate adjustment of $3.3 million recorded in the three months March 31, 2023 as a result of changes to preliminary valuation estimates. The total goodwill amount acquired was assigned to the HEYDUDE reporting segment. None of the goodwill will be deductible for income tax purposes. The purchase price allocation was finalized during the three months ended March 31, 2023.

Escrow and Holdback Amounts

Additionally, $125.0 million of the Cash Consideration (the “Escrow Amount”) was placed in an escrow account to partially secure the indemnification obligations of the sellers. As of December 31, 2023, a substantial portion of the Escrow Amount remained in the escrow account in connection with claims that were noticed prior to the date that was 18 months after the Acquisition Date but was not yet resolved by that date, as provided in the SPA. Further, $8.5 million of the Cash Consideration (the “Adjustment Holdback Amount”) was held back and retained as security (but not as the sole source of recovery) for any downward adjustments to the purchase price made in accordance with the SPA. During the year ended December 31, 2022, the Adjustment Holdback Amount was paid to the sellers.

Acquisition-related Costs

Costs incurred to complete the Acquisition are expensed as incurred and included in ‘Selling, general, and administrative expenses’ in our consolidated statement of operations. During the year ended December 31, 2023, no Acquisition-related costs were recognized. During the year ended December 31, 2022, there were approximately $25.7 million of Acquisition-related costs recognized. These costs represent legal, professional, and transaction fees.

Unaudited Pro Forma Information

The following unaudited pro forma financial information for the year ended December 31, 2022 and 2021 combines the historical results of the Crocs and HEYDUDE Brands, assuming that the companies were combined as of January 1, 2021 and include business combination accounting effects from the Acquisition, including amortization charges from acquired intangible assets, adjustments to the fair value of inventory, interest expense on the financing transactions used to fund the Acquisition, and Acquisition-related transaction costs and tax-related effects. The pro forma information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the Acquisition had taken place on January 1, 2021.


	Year Ended December 31,
	2022		2021
	(in thousands)
Revenues	$	3,645,291	$	2,894,094
Net income	614,463		706,853