crox-20240331

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, 2024

☐ 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.)

500 Eldorado Blvd., Building 5, Broomfield, Colorado 80021

(Address, including zip code, of registrant’s principal executive offices)

(303) 848-7000

(Registrant’s telephone number, including area code)

_____________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading symbol:

Name of each exchange on which registered:

Common Stock, par value $0.001 per share

CROX

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☒

☐

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

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

As of April 30, 2024, Crocs, Inc. had 60,702,500 shares of its common stock, par value $0.001 per share, outstanding.

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.

Statements that refer to industry trends, projections of our future financial performance, anticipated trends in our business and other characterizations of future events or circumstances are forward-looking statements. These statements, which express management’s current views concerning future events or results, use words like “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “future,” “intend,” “plan,” “project,” “strive,” and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will,” “would,” and similar expressions or variations. Examples of forward-looking statements include, but are not limited to, statements we make regarding

•our expectations regarding future trends, expectations, and performance of our business;

•our expectations regarding the impact on our business of economic trends;

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

•our expectations about the impact of our strategic plans.

Forward-looking statements are subject to risks, uncertainties, and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation, those described in the section entitled “Risk Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2023 and our subsequent filings with the Securities and Exchange Commission, including those described in the section entitled “Risk Factors” under Item 1A in this report. Caution should be taken not to place undue reliance on any such forward-looking statements. Moreover, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements, except as required by applicable law.

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Crocs, Inc.

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

For the Quarterly Period Ended March 31, 2024


PART I — Financial Information

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Income	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	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29

PART II — Other Information		30

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30

Item 5.	Other Information	30
Item 6.	Exhibits	31
Signatures		32

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PART I — Financial Information

ITEM 1. Financial Statements

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share data)


	Three Months Ended March 31,
	2024		2023
Revenues	$	938,633	$	884,166
Cost of sales	416,556		407,796
Gross profit	522,077		476,370
Selling, general and administrative expenses	295,648		241,442

Income from operations	226,429		234,928
Foreign currency losses, net	(2,273)		(403)
Interest income	416		171
Interest expense	(30,563)		(42,637)
Other income (expense), net	20		(293)
Income before income taxes	194,029		191,766
Income tax expense	41,575		42,223
Net income	$	152,454	$	149,543
Net income per common share:
Basic	$	2.52	$	2.42
Diluted	$	2.50	$	2.39
Weighted average common shares outstanding:
Basic	60,564		61,836
Diluted	61,054		62,629

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

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)


	Three Months Ended March 31,
	2024		2023
Net income	$	152,454	$	149,543
Other comprehensive income (loss), net of tax:
Derivatives designated as hedging instruments:
Unrealized gains (losses) on derivative instruments	426		(379)
Reclassification adjustment for realized (gains) losses on derivative instruments	(170)		383
Net increase (decrease) from derivatives designated as hedging instruments	256		4
Foreign currency translation gains (losses), net	(11,413)		3,953

Total comprehensive income, net of tax	$	141,297	$	153,500

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

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and par value amounts)


	March 31, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	159,286	$	149,288
Restricted cash - current	2		2
Accounts receivable, net of allowances of $28,463 and $27,591, respectively	481,521		305,747
Inventories	391,953		385,054
Income taxes receivable	2,972		4,413
Other receivables	26,352		21,071
Prepaid expenses and other assets	44,313		45,129
Total current assets	1,106,399		910,704
Property and equipment, net of accumulated depreciation of $129,109 and $120,510, respectively	242,859		238,315
Intangible assets, net of accumulated amortization of $144,384 and $138,611, respectively	1,787,600		1,792,562
Goodwill	711,553		711,588
Deferred tax assets, net	647,748		667,972
Restricted cash	3,734		3,807
Right-of-use assets	280,182		287,440
Other assets	15,530		31,446
Total assets	$	4,795,605	$	4,643,834

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	236,289	$	260,978
Accrued expenses and other liabilities	247,268		285,771
Income taxes payable	82,247		65,952
Current borrowings	—		23,328
Current operating lease liabilities	62,757		62,267
Total current liabilities	628,561		698,296
Deferred tax liabilities, net	12,874		12,912
Long-term income taxes payable	558,913		565,171
Long-term borrowings	1,727,153		1,640,996
Long-term operating lease liabilities	267,785		269,769
Other liabilities	3,264		2,767
Total liabilities	3,198,550		3,189,911
Commitments and contingencies
Stockholders’ equity:

Common stock, par value $0.001 per share, 250.0 million shares authorized, 110.3 million and 110.1 million issued, 60.7 million and 60.5 million outstanding, respectively	110		110
Treasury stock, at cost, 49.6 million and 49.6 million shares, respectively	(1,894,782)		(1,888,869)
Additional paid-in capital	834,433		826,685
Retained earnings	2,764,219		2,611,765
Accumulated other comprehensive loss	(106,925)		(95,768)
Total stockholders’ equity	1,597,055		1,453,923
Total liabilities and stockholders’ equity	$	4,795,605	$	4,643,834

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

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)


	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2023	60,495	$	110	49,558	$	(1,888,869)	$	826,685	$	2,611,765	$	(95,768)	$	1,453,923
Share-based compensation	—	—		—	—		7,582		—		—		7,582
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	201	—		47	(5,913)		166		—		—		(5,747)


Net income	—	—		—	—		—		152,454		—		152,454
Other comprehensive loss	—	—		—	—		—		—		(11,157)		(11,157)
Balance at March 31, 2024	60,696	$	110	49,605	$	(1,894,782)	$	834,433	$	2,764,219	$	(106,925)	$	1,597,055


	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, 2022	61,749	$	110	47,730	$	(1,695,501)	$	797,614	$	1,819,199	$	(103,491)	$	817,931
Share-based compensation	—	—		—	—		7,464		—		—		7,464
Exercises of stock options, issuance of restricted stock awards, and vests of restricted stock units, net of shares withheld for taxes	274	—		83	(10,395)		—		—		—		(10,395)


Net income	—	—		—	—		—		149,543		—		149,543
Other comprehensive income	—	—		—	—		—		—		3,957		3,957
Balance at March 31, 2023	62,023	$	110	47,813	$	(1,705,896)	$	805,078	$	1,968,742	$	(99,534)	$	968,500

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

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CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net income	$	152,454	$	149,543
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,161		13,136
Operating lease cost	20,244		18,199


Share-based compensation	7,582		7,464
Asset impairment	24,081		—

Other non-cash items	11,950		383
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Accounts receivable	(179,899)		(122,144)
Inventories	(8,309)		(5,220)
Prepaid expenses and other assets	(7,843)		(35,859)
Accounts payable, accrued expenses and other liabilities	(62,563)		(31,824)
Right-of-use assets and operating lease liabilities	(20,265)		(17,421)
Income taxes	18,833		33,674
Cash provided by (used in) operating activities	(27,574)		9,931
Cash flows from investing activities:
Purchases of property, equipment, and software	(15,750)		(27,581)



Cash used in investing activities	(15,750)		(27,581)
Cash flows from financing activities:

Proceeds from borrowings	78,156		214,634
Repayments of borrowings	(16,405)		(256,000)
Deferred debt issuance costs	(1,173)		(545)

Repurchases of common stock for tax withholding	(5,913)		(10,395)
Other	166		—
Cash provided by (used in) financing activities	54,831		(52,306)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1,582)		4,000
Net change in cash, cash equivalents, and restricted cash	9,925		(65,956)
Cash, cash equivalents, and restricted cash—beginning of period	153,097		194,885
Cash, cash equivalents, and restricted cash—end of period	$	163,022	$	128,929

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

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CROCS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unless otherwise noted in this report, any description of the “Company,” “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 all. We strive to be the global leader in the sale of casual footwear characterized by functionality, comfort, color, and lightweight design.

Our reportable operating segments include: (i) the Crocs Brand and (ii) the HEYDUDE Brand. See Note 13 — 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, 2023 (“Annual Report”) and have been prepared on a consistent basis with the accounting policies described in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report. Our accounting policies did not change during the three months ended March 31, 2024, other than with respect to the new accounting pronouncements adopted, as applicable, as described in Note 2 — Recent Accounting Pronouncements.

Reclassifications

We have reclassified certain amounts in Note 3 — Accrued Expenses and Other Liabilities, Note 9 — Revenues, and Note 13 — Operating Segments and Geographic Information to conform to current period presentation.

Use of Estimates

U.S. GAAP requires us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions used to determine certain amounts that affect the financial statements are reasonable, based on information available at the time they are made. Management believes that the estimates, judgments, and assumptions made when accounting for items and matters such as, but not limited to, the allowance for doubtful accounts, customer rebates, sales returns and allowances, impairment assessments and charges, recoverability of long-lived assets, deferred tax assets, valuation allowances, uncertain tax positions, income tax expense, share-based compensation expense, the assessment of lower of cost or net realizable value on inventory, useful lives assigned to long-lived assets, goodwill, and indefinite-lived intangible assets are reasonable based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our condensed consolidated financial statements may be materially affected.

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Condensed Consolidated Statements of Cash Flows - Supplemental Disclosures


	Three Months Ended March 31,
	2024		2023
	(in thousands)
Cash paid for interest	$	35,054	$	47,729
Cash paid for income taxes	18,122		8,011
Cash paid for operating leases	21,364		17,436

Non-Cash Investing and Financing Activities:
Right-of-use assets obtained in exchange for operating lease liabilities, net of terminations	$	15,386	$	9,108
Accrued purchases of property, equipment, and software	9,640		11,720

2. RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncement Not Yet Adopted

Pillar Two Global Minimum Tax

The Organization for Economic Co-operation and Development (“OECD”) has released Pillar Two model rules introducing a 15% global minimum tax rate for large multinational corporations to be effective starting with tax periods ending in 2024. Various jurisdictions we operate in have enacted or plan to enact legislation beginning in 2024 or in subsequent years. There remains uncertainty as to the final Pillar Two rules as the OECD continues to release guidance and modifications to the rules. We do not anticipate the Pillar Two rules will have a material impact on our 2024 consolidated financial statements.

Income Taxes: Improvements to Income Tax Disclosure

In December 2023, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance related to the disclosure of rate reconciliation and income taxes paid. This guidance becomes effective for annual periods beginning after December 15, 2024 with early adoption permitted and should be applied on a prospective basis. We do not expect this standard to have a material impact on our consolidated financial statements, but it will require increased disclosures within the notes to our consolidated financial statements.

Segment Reporting: Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued authoritative guidance related to the segment disclosures. This guidance becomes effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted and should be applied on a retrospective basis. We do not expect this standard to have a material impact on our consolidated financial statements, but it will require increased disclosures within the notes to our consolidated financial statements.

Other new pronouncements issued but not effective until after March 31, 2024 are not expected to have a material impact on our condensed consolidated financial statements.

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3. ACCRUED EXPENSES AND OTHER LIABILITIES

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


	March 31, 2024		December 31, 2023
	(in thousands)
Professional services	$	58,700	$	80,986
Accrued compensation and benefits	47,073		70,245
Return liabilities	30,213		38,644
Sales/use and value added taxes payable	26,476		23,768
Fulfillment, freight, and duties	28,472		22,269
Royalties payable (1)	10,254		10,097
Accrued rent and occupancy	6,755		8,246
Customer deposit liability and deferred revenue (1)	11,026		7,568
Accrued legal fees	4,555		2,546
Other (1)	23,744		21,402
Total accrued expenses and other liabilities	$	247,268	$	285,771

(1) Amounts as of December 31, 2023 have been reclassified to conform to current period presentation.

4. LEASES

Right-of-Use Assets and Operating Lease Liabilities

Amounts reported in the condensed consolidated balance sheets were:


	March 31, 2024		December 31, 2023
	(in thousands)
Assets:
Right-of-use assets	$	280,182	$	287,440
Liabilities:
Current operating lease liabilities	$	62,757	$	62,267
Long-term operating lease liabilities	267,785		269,769
Total operating lease liabilities	$	330,542	$	332,036

Lease Costs and Other Information

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


	Three Months Ended March 31,
	2024		2023
	(in thousands)
Operating lease cost	$	20,244	$	18,199
Short-term lease cost	4,798		3,042
Variable lease cost	7,363		5,548
Total lease costs	$	32,405	$	26,789

The weighted average remaining lease term and discount rate related to our lease liabilities as of March 31, 2024 were 6.9 years and 6.2%, respectively. As of March 31, 2023, the weighted average remaining lease term and discount rate related to our lease liabilities were 6.7 years and 4.0%, respectively.

We impaired our right-of-use assets for our former HEYDUDE Brand warehouses in Las Vegas, Nevada and our former Crocs Brand warehouse in Oudenbosch, the Netherlands, as described in Note 5 — Fair Value Measurements.

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Maturities

The maturities of our operating lease liabilities were:


	As of March 31, 2024
	(in thousands)
2024 (remainder of year)	$	54,494
2025	67,206
2026	56,163
2027	49,104
2028	40,932
Thereafter	142,287
Total future minimum lease payments	410,186
Less: imputed interest	(79,644)
Total operating lease liabilities	$	330,542

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 either ‘Prepaid expenses and other assets’ or ‘Accrued expenses and other liabilities’ at March 31, 2024 and December 31, 2023. The fair values of our derivative instruments were an insignificant asset and insignificant liability at March 31, 2024 and an insignificant asset and insignificant liability at December 31, 2023. See Note 6 — Derivative Financial Instruments for more information.

The carrying amounts of our cash, cash equivalents, and restricted cash, accounts receivable, accounts payable, current accrued expenses and other liabilities, and our Citibank Facility 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 Term Loan B Facility (as defined below) and the Notes (as defined below) are classified as Level 1 of the fair value hierarchy and are reported in our condensed consolidated balance sheet at face value, less unamortized issuance costs. The fair value of our Revolving Facility (as defined below) approximates its carrying value at March 31, 2024 and December 31, 2023 based on interest rates currently available to us for similar borrowings. The carrying value and fair value of our borrowing instruments as of March 31, 2024 and December 31, 2023 were:


	March 31, 2024				December 31, 2023
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Term Loan B Facility	$	810,000	$	813,038	$	820,000	$	824,100
2029 Notes	350,000		320,308		350,000		313,987
2031 Notes	350,000		303,580		350,000		296,742
Revolving Facility	265,000		265,000		190,000		190,000

Non-Financial Assets and Liabilities

Our non-financial assets, which primarily consist of property and equipment, right-of-use assets, goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value.

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The fair values of these assets are determined, as required, based on Level 3 measurements, including estimates of the amount and timing of future cash flows based upon historical experience, expected market conditions, and management’s plans. We recorded impairments within ‘Selling, general and administrative expenses’ in our condensed consolidated statements of income as follows:


	Three Months Ended March 31,
	2024		2023
	(in thousands)
Information technology systems impairment (1)	$	18,172	$	—
Right-of-use assets impairment (2)	5,909		—
Total asset impairments	$	24,081	$	—

(1) During the three months ended March 31, 2024, we recognized an impairment charge for information technology systems related to the HEYDUDE integration of $17.4 million to prepaid assets and $0.8 million to intangible assets.

(2) During the three months ended March 31, 2024, we recognized an impairment of $5.5 million for our former HEYDUDE Brand warehouses in Las Vegas, Nevada and $0.4 million for our former Crocs Brand warehouse in Oudenbosch, the Netherlands.

6. DERIVATIVE FINANCIAL INSTRUMENTS

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

Counterparty default risk is considered low because the forward contracts 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, 2024 or December 31, 2023.

Our derivative instruments are recorded at fair value as a derivative asset or liability in the condensed consolidated balance sheets within either ‘Prepaid expenses and other assets’ or ‘Accrued expenses and other liabilities’ at March 31, 2024 and December 31, 2023. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain components of its risk, even though hedge accounting does not apply, or we elect not to apply hedge accounting.

We report derivative instruments with the same counterparty on a net basis when a master netting arrangement is in place. 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 (used in) operating activities.’

As of March 31, 2024, we have derivatives not designated as hedging instruments (“non-hedged derivatives”), which consist of foreign currency forward contracts primarily used to hedge monetary assets and liabilities denominated in non-functional currencies. For our non-hedged derivatives, changes in fair value are recognized within ‘Foreign currency losses, net’ in the condensed consolidated statements of income.

We also have cash flow hedges (“hedged derivatives”) as of March 31, 2024. We are exposed to fluctuations in various foreign currencies against our functional currency, the U.S. Dollar. Specifically, we have subsidiaries that transact in currencies other than their functional currency. We use cash flow hedges to minimize the variability in cash flows caused by fluctuations in foreign currency exchange rates related to our external sales and external purchases of inventory. Currency forward agreements involve fixing the exchange rates for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in USD for their fair value at or close to their settlement date. We may also use currency option contracts under which we will pay a premium for the right to sell a specified amount of a foreign currency prior to the maturity date of the option.

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For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in ‘Accumulated other comprehensive loss’ in the condensed consolidated balance sheets. In the period during which the hedged transaction affects earnings, the related gain or loss is subsequently reclassified to ‘Revenues’ or ‘Cost of sales’ in the condensed consolidated statement of income, which is consistent with the nature of the hedged transaction. During the three months ended March 31, 2024, there was a gain of $0.2 million recognized due to reclassification from ‘Accumulated other comprehensive loss’ to ‘Revenues’ or ‘Cost of sales’ related to our hedged derivatives. During the next twelve months, we estimate that a gain of $0.3 million will be reclassified to our condensed consolidated statement of income.

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


	March 31, 2024				December 31, 2023
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
	(in thousands)
Non-hedged derivatives:
Forward foreign currency exchange contracts	$	391	$	(360)	$	2,850	$	(1,333)
Hedged derivatives:
Cash flow foreign currency contracts	606		(351)		142		(229)
Total derivatives	997

SEC Form 10-Q filed by Crocs Inc.