Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2013

 

or

 

o  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
(State or other jurisdiction of
incorporation or organization)

 

20-2164234
(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)

 


 

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 x   No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes  x   No o

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o
(do not check if a smaller reporting company)

 

Smaller reporting company o

 

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

 

As of October 25, 2013, Crocs, Inc. had 88,435,783 shares of its $0.001 par value common stock outstanding.

 

 

 



Table of Contents

 

Crocs, Inc.

Form 10-Q

Quarter Ended September 30, 2013

Table of Contents

 

PART I — Financial Information

2

Item 1.

Financial Statements

2

 

Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2013 and 2012

2

 

Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012

3

 

Unaudited Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012

4

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

39

 

 

 

PART II — Other Information

 

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 6.

Exhibits

42

Signatures

 

43

 

1



Table of Contents

 

PART I — Financial Information

 

ITEM 1. Financial Statements

 

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

($ thousands, except per share data)

 

2013

 

2012

 

2013

 

2012

 

Revenues

 

$

288,524

 

$

295,569

 

$

964,007

 

$

898,309

 

Cost of sales

 

134,943

 

134,826

 

443,710

 

396,682

 

Gross profit

 

153,581

 

160,743

 

520,297

 

501,627

 

Selling, general and administrative expenses

 

135,674

 

120,729

 

414,119

 

349,737

 

Asset impairment

 

 

 

202

 

819

 

Income from operations

 

17,907

 

40,014

 

105,976

 

151,071

 

Foreign currency transaction losses, net

 

1,043

 

21

 

4,457

 

2,670

 

Interest income

 

(853

)

(151

)

(1,676

)

(1,057

)

Interest expense

 

44

 

377

 

519

 

556

 

Other (income) expense, net

 

13

 

71

 

180

 

(690

)

Income before income taxes

 

17,660

 

39,696

 

102,496

 

149,592

 

Income tax expense (benefit)

 

4,624

 

(5,384

)

25,143

 

14,642

 

Net income

 

$

13,036

 

$

45,080

 

$

77,353

 

$

134,950

 

Net income per common share (Note 11):

 

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

$

0.50

 

$

0.88

 

$

1.50

 

Diluted

 

$

0.15

 

$

0.49

 

$

0.87

 

$

1.48

 

 

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

 

2



Table of Contents

 

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

($ thousands)

 

2013

 

2012

 

2013

 

2012

 

Net income

 

$

13,036

 

$

45,080

 

$

77,353

 

$

134,950

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

6,030

 

7,563

 

(4,537

)

3,118

 

Reclassification of cumulative foreign exchange translation adjustments to net income, net of tax of $0, $0, $(3), and $7, respectively

 

 

 

299

 

(658

)

Total comprehensive income

 

$

19,066

 

$

52,643

 

$

73,115

 

$

137,410

 

 

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

 

3



Table of Contents

 

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30,

 

December 31,

 

($ thousands, except number of shares)

 

2013

 

2012

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

332,491

 

$

294,348

 

Accounts receivable, net of allowances of $14,626 and $13,315, respectively

 

120,079

 

92,278

 

Inventories

 

176,118

 

164,804

 

Deferred tax assets, net

 

5,647

 

6,284

 

Income tax receivable

 

16,666

 

5,613

 

Other receivables

 

17,201

 

24,821

 

Prepaid expenses and other current assets

 

30,869

 

24,967

 

Total current assets

 

699,071

 

613,115

 

Property and equipment, net

 

94,233

 

82,241

 

Intangible assets, net

 

69,081

 

59,931

 

Deferred tax assets, net

 

33,529

 

34,112

 

Other assets

 

50,672

 

40,239

 

Total assets

 

$

946,586

 

$

829,638

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

66,198

 

$

63,976

 

Accrued expenses and other current liabilities

 

99,277

 

81,371

 

Deferred tax liabilities, net

 

2,383

 

2,405

 

Income taxes payable

 

27,868

 

8,147

 

Current portion of long-term borrowings and capital lease obligations

 

4,262

 

2,039

 

Total current liabilities

 

199,988

 

157,938

 

Long term income tax payable

 

32,457

 

36,343

 

Long-term borrowings and capital lease obligations

 

9,345

 

4,596

 

Other liabilities

 

14,571

 

13,361

 

Total liabilities

 

256,361

 

212,238

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred shares, par value $0.001 per share, 5,000,000 shares authorized, none outstanding

 

 

 

Common shares, par value $0.001 per share, 250,000,000 shares authorized, 91,643,474 and 88,426,104 shares issued and outstanding, respectively, at September 30, 2013 and 91,047,297 and 88,662,845 shares issued and outstanding, respectively, at December 31, 2012

 

92

 

91

 

Treasury stock, at cost, 3,217,370 and 2,384,452 shares, respectively

 

(56,198

)

(44,214

)

Additional paid-in capital

 

319,516

 

307,823

 

Retained earnings

 

411,365

 

334,012

 

Accumulated other comprehensive income

 

15,450

 

19,688

 

Total stockholders’ equity

 

690,225

 

617,400

 

Total liabilities and stockholders’ equity

 

$

946,586

 

$

829,638

 

 

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

 

4



Table of Contents

 

CROCS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

($ thousands)

 

2013

 

2012

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

77,353

 

$

134,950

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

31,167

 

26,815

 

Unrealized loss on foreign exchange, net

 

761

 

5,530

 

Provision for doubtful accounts, net

 

1,420

 

1,619

 

Share-based compensation

 

9,987

 

8,971

 

Other non-cash items

 

1,067

 

2,158

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(31,783

)

(34,568

)

Inventories

 

(15,030

)

(57,180

)

Prepaid expenses and other assets

 

(8,645

)

(19,791

)

Accounts payable

 

2,388

 

6,619

 

Accrued expenses and other liabilities

 

20,755

 

26,849

 

Income taxes

 

4,869

 

5,294

 

Cash provided by operating activities

 

94,309

 

107,266

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of marketable securities

 

 

(2,630

)

Cash paid for purchases of property and equipment

 

(30,753

)

(25,866

)

Proceeds from disposal of property and equipment

 

551

 

855

 

Cash paid for intangible assets

 

(22,665

)

(14,254

)

Business acquisitions, net of cash

 

 

(5,152

)

Restricted cash

 

(1,187

)

(1,858

)

Cash used in investing activities

 

(54,054

)

(48,905

)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from bank borrowings

 

18,568

 

89,505

 

Repayment of bank borrowings and capital lease obligations

 

(11,654

)

(90,617

)

Issuances of common stock

 

2,017

 

3,358

 

Purchase of treasury stock

 

(12,533

)

 

Repurchase of common stock for tax withholding

 

(256

)

(493

)

Cash provided by (used in) financing activities

 

(3,858

)

1,753

 

Effect of exchange rate changes on cash

 

1,746

 

(5,121

)

Net increase in cash and cash equivalents

 

38,143

 

54,993

 

Cash and cash equivalents—beginning of period

 

294,348

 

257,587

 

Cash and cash equivalents—end of period

 

$

332,491

 

$

312,580

 

Supplemental disclosure of cash flow information—cash paid during the period for:

 

 

 

 

 

Interest

 

$

719

 

$

542

 

Income taxes

 

$

17,134

 

$

16,937

 

Supplemental disclosure of non-cash, investing, and financing activities:

 

 

 

 

 

Assets acquired under capitalized leases

 

$

61

 

$

35

 

Accrued purchases of property and equipment

 

$

2,493

 

$

3,996

 

Accrued purchases of intangibles

 

$

209

 

$

4,281

 

 

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

 

5



Table of Contents

 

CROCS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. GENERAL

 

Organization - Crocs, Inc. and its subsidiaries (collectively the “Company,” “we,” “our” or “us”) are engaged in the design, development, manufacturing, marketing and distribution of footwear, apparel and accessories for men, women and children.

 

Basis of Presentation & Summary of Significant Accounting Policies - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, these statements do not include all of the information and disclosures required by GAAP or SEC rules and regulations for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting solely of normal recurring matters) considered necessary for a fair presentation of the results for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year.

 

These statements should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”). The accounting policies used in preparing these unaudited condensed consolidated financial statements are the same as those described in Note 1 — “Organization and Summary of Significant Accounting Policies” to the consolidated financial statements in the 2012 Form 10-K.

 

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. 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, sales returns and discounts, impairment assessments and charges, recoverability of assets (including deferred tax assets), uncertain tax positions, share-based compensation expense, useful lives assigned to long-lived assets, depreciation and provisions for contingencies are reasonable based on information available at the time they are made. Management also makes estimates in the assessments of potential losses in relation to threatened or pending legal and tax matters (see Note 12 — “Commitments & Contingencies” and Note 14 — “Legal Proceedings”). Actual results could materially differ from these estimates. For matters not related to income taxes, if a loss is considered probable and the amount can be reasonably estimated, the Company recognizes an expense for the estimated loss.

 

Noncontrolling Interests - As of September 30, 2013, all of our subsidiaries were, in substance, wholly owned.

 

Accumulated Other Comprehensive Income - Activity within our accumulated other comprehensive income (“AOCI”) balance consists solely of gains and losses resulting from the translation of foreign subsidiary financial statements to our reporting currency. Foreign currency translation resulting in changes to other comprehensive income and related reclassification adjustments are presented net of tax effects on the condensed consolidated statements of other comprehensive income. Foreign currency reclassification adjustments are included within the line item entitled ‘Foreign currency transaction gains (losses), net’ on the condensed consolidated statements of income.

 

Recently Issued Accounting Standards

 

In July 2013, the FASB issued ASU No. 2013-11 Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU No. 2013-11”). This pronouncement provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This pronouncement is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2013. The Company will adopt the provisions of ASU No. 2013-11 on January 1, 2014. We do not anticipate the provisions of ASU No. 2013-11 to have a material impact on to the Company’s condensed consolidated financial statements.

 

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Table of Contents

 

2. INVENTORIES

 

The following table summarizes inventories by major classification as of September 30, 2013 and December 31, 2012:

 

($ thousands)

 

September 30, 2013

 

December 31, 2012

 

Finished goods

 

$

165,468

 

$

155,833

 

Work-in-progress

 

853

 

911

 

Raw materials

 

9,797

 

8,060

 

Inventories

 

$

176,118

 

$

164,804

 

 

3. PROPERTY & EQUIPMENT

 

During the nine months ended September 30, 2013, we incurred gross capital expenditures related to property and equipment of $30.9 million primarily due to the expansion of our retail channel through leasehold improvements and equipment.

 

During the three months ended September 30, 2013 and 2012, we recorded $6.2 million and $5.8 million, respectively, in depreciation expense of which $0.7 million and $1.1 million, respectively, was recorded in ‘Cost of sales’, with the remaining amounts recorded in ‘Selling, general and administrative expenses’ in the condensed consolidated statements of income. During the nine months ended September 30, 2013 and 2012, we recorded $18.2 million and $17.2 million, respectively, in depreciation expense of which $2.3 million and $3.7 million, respectively, was recorded in ‘Cost of sales’, with the remaining amounts recorded in ‘Selling, general and administrative expenses’ in the condensed consolidated statements of income.

 

We periodically evaluate all of our long-lived assets for impairment when events or circumstances would indicate the carrying value of a long-lived asset may not be fully recoverable. We recorded no asset impairment charges during the three months ended September 30, 2013 and 2012. During the nine months ended September 30, 2013 and 2012, we recorded $0.2 million and $0.8 million, respectively, of asset impairment charges related to certain underperforming domestic stores in the Americas segment that were unlikely to generate sufficient cash flows to fully recover the carrying value of the stores’ assets over the remaining economic life of those assets.

 

7



Table of Contents

 

4. GOODWILL & INTANGIBLE ASSETS

 

The following table summarizes the goodwill and identifiable intangible assets as of September 30, 2013 and December 31, 2012:

 

 

 

September 30, 2013

 

December 31, 2012

 

($ thousands)

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Net Carrying
Amount

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Net Carrying
Amount

 

Capitalized software

 

$

108,586

(1)

$

(45,840

)(2)

$

62,746

 

$

87,426

(1)

$

(33,933

)(2)

$

53,493

 

Customer relationships

 

6,930

 

(6,372

)

558

 

7,145

 

(6,222

)

923

 

Patents, copyrights, and trademarks

 

6,453

 

(3,946

)

2,507

 

6,161

 

(3,522

)

2,639

 

Core technology

 

4,698

 

(4,698

)

 

4,856

 

(4,856

)

 

Other

 

1,503

 

(1,126

)

377

 

670

 

(636

)

34

 

Total finite lived intangible assets

 

128,170

 

(61,982

)

66,188

 

106,258

 

(49,169

)

57,089

 

Indefinite lived intangible assets

 

102

 

 

102

 

113

 

 

113

 

Goodwill

 

2,791

 

 

2,791

 

2,729

 

 

2,729

 

Intangible assets

 

$

131,063

 

$

(61,982

)

$

69,081

 

$

109,100

 

$

(49,169

)

$

59,931

 

 


(1)         Includes $4.1 million of software held under a capital lease classified as capitalized software as of September 30, 2013 and December 31, 2012.

(2)         Includes $1.8 million and $1.3 million of accumulated amortization of software held under a capital lease as of September 30, 2013 and December 31, 2012, respectively, which is amortized using the straight-line method over the useful life.

 

During the three months ended September 30, 2013 and 2012, amortization expense recorded for intangible assets with finite lives was $4.4 million and $3.8 million, respectively, of which $1.6 million and $1.0 million, respectively, was recorded in ‘Cost of sales’, with the remaining amounts recorded in ‘Selling, general and administrative expenses’ in the condensed consolidated statements of income. During the nine months ended September 30, 2013 and 2012, amortization expense recorded for intangible assets with finite lives was $13.0 million and $9.6 million, respectively, of which $4.7 million and $2.7 million, respectively, was recorded in ‘Cost of sales’, with the remaining amounts recorded in ‘Selling, general and administrative expenses’ in the condensed consolidated statements of income.

 

The following table summarizes estimated future annual amortization of intangible assets as of September 30, 2013:

 

 

 

Amortization

 

Fiscal years ending December 31,

 

($ thousands)

 

Remainder of 2013

 

$

8,814

 

2014

 

12,899

 

2015

 

12,825

 

2016

 

12,781

 

2017

 

9,285

 

Thereafter

 

9,584

 

Total

 

$

66,188

 

 

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Table of Contents

 

5. ACCRUED EXPENSES & OTHER CURRENT LIABILITIES

 

The following table summarizes accrued expenses and other current liabilities as of September 30, 2013 and December 31, 2012:

 

 

 

September 30,

 

December 31,

 

($ thousands)

 

2013

 

2012

 

Accrued compensation and benefits

 

$

28,829

 

$

19,714

 

Professional services

 

16,653

 

13,588

 

Sales/use and VAT tax payable

 

15,051

 

12,444

 

Fulfillment, freight and duties

 

12,869

 

8,621

 

Accrued rent and occupancy

 

10,710

 

10,226

 

Customer deposits

 

6,222

 

2,593

 

Entrusted loan payable(1)

 

 

7,943

 

Other(2)

 

8,943

 

6,242

 

Total accrued expenses and other current liabilities

 

$

99,277

 

$

81,371

 

 


(1)         A corresponding entrusted loan receivable of $7.9 million is recorded in ‘Other receivables’ as of December 31, 2012 as amounts are related to our subsidiaries in China. The entrusted loan was paid in full during the second quarter of 2013 and as such, the entrusted loan payable, and corresponding receivable, was removed from the condensed consolidated balance sheet as of September 30, 2013.

(2)         The amounts in ‘Other’ consist of various accrued expenses and no individual item accounted for more than 5% of the total balance at September 30, 2013 or December 31, 2012.

 

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6. FAIR VALUE MEASUREMENTS

 

Recurring Fair Value Measurements

 

The following tables summarize the financial instruments required to be measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012:

 

 

 

Fair Value as of September 30, 2013

 

 

 

 

 

Quoted prices in

 

Significant

 

 

 

 

 

 

 

 

 

active markets

 

other

 

Significant

 

 

 

 

 

 

 

for identical

 

observable

 

unobservable

 

 

 

 

 

 

 

assets or liabilities

 

inputs

 

inputs

 

 

 

 

 

($ thousands)

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Balance Sheet Classification

 

Cash equivalents

 

$

121,052

 

$

 

$

 

$

121,052

 

Cash and cash equivalents and restricted cash

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

11,071

 

 

11,071

 

Prepaid expenses and other current assets and other assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

$

 

$

1,199

 

$

 

$

1,199

 

Accrued expense and other current liabilities

 

 

 

 

Fair Value as of December 31, 2012

 

 

 

 

 

Quoted prices in

 

Significant

 

 

 

 

 

 

 

 

 

active markets

 

other

 

Significant

 

 

 

 

 

 

 

for identical

 

observable

 

unobservable

 

 

 

 

 

 

 

assets or liabilities

 

inputs

 

inputs

 

 

 

 

 

($ thousands)

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Balance Sheet Classification

 

Cash equivalents

 

$

14,800

 

$

 

$

 

$

14,800

 

Cash and cash equivalents

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

 

5,548

 

 

5,548

 

Prepaid expenses and other current assets and other assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

$

 

$

295

 

$

 

$

295

 

Accrued expense and other current liabilities

 

 

Non-Recurring Fair Value Measurements

 

The majority of our non-financial instrument assets, which include inventories, property and equipment and intangible assets, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur such that a non-financial instrument is required to be evaluated for impairment and the carrying value is not recoverable, the carrying value would be adjusted to the lower of its cost or fair value and an impairment charge would be recorded.

 

7. DERIVATIVE FINANCIAL INSTRUMENTS

 

We transact business in various foreign countries and are therefore exposed to foreign currency exchange rate risk inherent in revenues, costs, and monetary assets and liabilities denominated in non-functional currencies. We have entered into foreign currency exchange forward contracts and currency swap derivative instruments to selectively protect against volatility in the value of non-functional currency denominated monetary assets and liabilities, and of future cash flows caused by changes in foreign currency exchange rates. We do not designate these derivative instruments as hedging instruments under the accounting standards for derivatives and hedging. Accordingly, these instruments are recorded at fair value as a derivative asset or liability on the balance sheet

 

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with their corresponding change in fair value recognized in ‘Foreign currency transaction (gains) losses, net’ in our condensed consolidated statements of income. For purposes of the condensed consolidated statement of cash flows, we classify the cash flows at settlement from undesignated instruments in the same category as the cash flows from the related hedged items, generally within ‘Cash provided by (used in) operating activities’. See Note 6 — “Fair Value Measurements” for further details regarding the fair values of the corresponding derivative assets and liabilities.

 

The following table summarizes the notional amounts of the outstanding foreign currency exchange contracts at September 30, 2013 and December 31, 2012. The notional amounts of the derivative financial instruments shown below are denominated in their U.S. dollar equivalents and represent the amount of all contracts of the foreign currency specified. These notional values do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the foreign currency exchange risks.

 

 

 

September 30,

 

December 31,

 

($ thousands)

 

2013

 

2012

 

Foreign currency exchange forward contracts by currency:

 

 

 

 

 

Japanese Yen

 

$

73,584

 

$

112,500

 

Euro

 

48,063

 

5,159

 

Pound Sterling

 

24,653

 

8,742

 

Singapore Dollar

 

23,256

 

 

Mexican Peso

 

18,700

 

11,400

 

Russian Ruble

 

11,892

 

 

Australian Dollar

 

5,682

 

4,178

 

New Taiwan Dollar

 

4,353

 

 

South African Rand

 

3,250

 

 

South Korean Won

 

2,083

 

 

Swedish Krona

 

1,959

 

 

Canadian Dollar

 

1,698

 

 

Indian Rupee

 

1,600

 

 

Hong Kong Dollar

 

1,451

 

 

New Zealand Dollar

 

1,200

 

1,137

 

Norwegian Krone

 

551

 

 

Total notional value, net

 

$

223,975

 

$

143,116

 

 

 

 

 

 

 

Latest maturity date

 

December 2015

 

December 2015

 

 

The following table presents the amounts affecting the consolidated statements of income from derivative instruments for the three and nine months ended September 30, 2013 and 2012:

 

 

 

Three Months Ended

 

Nine Months Ended September

 

 

 

 

 

September 30,

 

30,

 

Location of (Gain) Loss Recognized in Income

 

($ thousands)

 

2013

 

2012

 

2013

 

2012

 

on Derivatives

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange forwards

 

$

2,588

 

$

2,793

 

$

(8,064

)

$

4,977

 

Foreign currency transaction (gains) losses, net

 

 

Foreign currency transaction gains and losses recognized on the condensed consolidated statements of income include both realized and unrealized gains/losses from underlying foreign currency activity and derivative contracts. These gains and losses are reported on a net basis. For the three months ended September 30, 2013, the net loss recognized of $1.0 million recorded on the condensed consolidated statements of income is comprised of a $2.6 million net loss associated with our derivative instruments partially offset by a $1.6 million net gain associated with exposure from day-to-day business transactions in various foreign currencies. For the three months ended September 30, 2012, the immaterial net loss recorded on the condensed consolidated statements of income is comprised of a $2.8 million net loss associated with our derivative instruments fully offset by a $2.8 million net gain associated with exposure from day-to-day business transactions in various foreign currencies. For the nine months ended September 30, 2013, the net loss recognized of $4.5 million recorded on the condensed consolidated statements of income is comprised of a $12.6 million net loss associated with exposure from day-to-day business transactions in various foreign currencies partially offset by a $8.1 million net gain

 

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associated with our derivative instruments. For the nine months ended September 30, 2012, the net loss recognized of $2.7 million recorded on the condensed consolidated statements of income is comprised of a $5.0 million net loss associated with our derivative instruments partially offset by a $2.3 million net gain associated with exposure from day-to-day business transactions in various foreign currencies.

 

8. BANK BORROWINGS & CAPITAL LEASE OBLIGATIONS

 

Bank borrowings and capital lease obligations as of September 30, 2013 and December 31, 2012 consist of the following:

 

 

 

September 30,

 

December 31,

 

($ thousands)

 

2013

 

2012

 

Bank borrowings(1)

 

$

13,529

 

$

6,582

 

Capital lease obligations for equipment bearing interest rates ranging from 5.3% to 73.3% and maturities through 2016

 

78

 

53

 

Total bank borrowings and capital lease obligations

 

$

13,607

 

$

6,635

 

 


(1)         Bank borrowings represent the outstanding debt balance related to four separate notes payable issued by PNC Equipment Finance, LLC (“PNC”) for our new ERP implementation. The notes bear interest rates ranging from 2.45% to 2.79% and maturities ranging from September 2016 to June 2017. Interest rates and payment terms are subject to change as further financing occurs.

 

Revolving Credit Facility

 

On June 12, 2013, we entered into a Second Amendment to Amended and Restated Credit Agreement (the “Second Amendment”) with the lenders named therein and PNC Bank, National Association (“PNC”), as a lender and administrative agent for the lenders, pursuant to which certain terms of the Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) dated December 16, 2011, were amended. The Second Amendment, among other things, amends certain restrictive covenants to be more favorable to the Company, including the leverage ratio.

 

As of September 30, 2013 and December 31, 2012, we had no outstanding borrowings under the Credit Agreement. As of September 30, 2013 and December 31, 2012, we had issued and outstanding letters of credit of $7.2 million and $6.4 million, respectively, which were reserved against the borrowing base under the terms of the Credit Agreement. As of September 30, 2013, we were in compliance with all restrictive financial and other covenants under the Credit Agreement.

 

9. STOCK-BASED COMPENSATION

 

Options granted generally vest over four years with the first year vesting on a cliff basis followed by monthly vesting for the remaining three years. Restricted stock awards (“RSA”) and restricted stock units (“RSU”) granted generally vest over three or four years depending on the terms of the grant. Stock-based compensation expense is recognized on a straight-line basis over the applicable vesting period. During the three months ended September 30, 2013 and 2012, $3.0 million and $2.8 million, respectively, of stock-based compensation expense was recorded, of which $0.5 million and $0.0 million, respectively, related to the implementation of our ERP system was capitalized to intangible assets. During the nine months ended September 30, 2013 and 2012, $10.5 million and $9.0 million, respectively, of stock-based compensation expense was recorded, of which $0.5 million and $0.0 million, respectively, related to the implementation of our ERP system was capitalized to intangible assets.

 

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Table of Contents

 

Stock Options

 

The following table summarizes the stock option activity for the three and nine months ended September 30, 2013 and 2012:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Options

 

Options

 

Weighted
Average
Exercise
Price

 

Options

 

Weighted
Average
Exercise
Price

 

Options

 

Weighted
Average
Exercise
Price

 

Options

 

Weighted
Average
Exercise
Price

 

Outstanding at June 30, 2013 and 2012, respectively, and December 31, 2012 and 2011, respectively

 

2,370,085

 

$

13.42

 

2,974,613

 

$

12.48

 

2,621,686

 

$

13.03

 

3,331,031

 

$

11.91

 

Granted

 

10,000

 

13.52

 

69,500

 

17.19

 

167,000

 

15.75

 

183,400

 

17.18

 

Exercised

 

(87,730

)

6.59

 

(257,570

)

7.10

 

(291,820

)

6.91

 

(543,014

)

6.18

 

Forfeited or expired

 

(63,089

)

20.18

 

(55,886

)

17.13

 

(267,600

)

17.59

 

(240,760

)

16.42

 

Outstanding at September 30

 

2,229,266

 

$

13.50

 

2,730,657

 

$

13.01

 

2,229,266

 

$

13.50

 

2,730,657

 

$

13.01

 

 

Restricted Stock Awards and Units

 

From time to time, we grant RSAs and RSUs to our employees. Unvested RSAs have the same rights as those of common shares including voting rights and non-forfeitable dividend rights. However, ownership of unvested RSAs cannot be transferred until they are vested. An unvested RSU is a contractual right to receive a share of common stock only upon its vesting. RSUs have dividend equivalent rights which accrue over the term of the award and are paid if and when the RSUs vest, but they have no voting rights.

 

During the three months ended September 30, 2013 and 2012, the Board of Directors approved an immaterial amount of RSU grants. During the nine months ended September 30, 2013 and 2012, the Board of Directors approved RSU grants of 1.6 million and 0.9 million, respectively, of which 0.7 million and 0.4 million, respectively, were granted to certain executives as part of our performance incentive program. Half of these performance incentive program grants vest ratably on each of the first three anniversaries of the grant date; 25% will vest upon achievement of certain performance metrics; and the remaining 25% will vest one year from the date upon which certain performance metrics are achieved. If actual performance metrics exceed the targeted performance metrics by a predetermined amount, the executives are eligible to receive up to 200% of the performance-based portion of their award. During the three months ended September 30, 2013 and 2012, $2.2 million and $1.9 million, respectively, of stock-based compensation expense related to RSUs were recorded. During the nine months ended September 30, 2013 and 2012, $8.1 million and $5.1 million, respectively, of stock-based compensation expense related to RSUs were recorded.

 

The following table summarizes the RSA activity for the three and nine months ended September 30, 2013 and 2012:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Restricted Stock Awards

 

Shares

 

Weighted
Average
Grant Date
Fair Value

 

Shares

 

Weighted
Average
Grant Date
Fair Value

 

Shares

 

Weighted
Average
Grant Date
Fair Value

 

Shares

 

Weighted
Average
Grant Date
Fair Value

 

Outstanding at June 30, 2013 and 2012, respectively, and December 31, 2012 and 2011, respectively

 

288,087

 

$

13.32

 

383,410

 

$

13.53

 

355,509

 

$

13.37

 

571,175

 

$

11.87

 

Granted

 

 

 

 

 

21,590

 

16.56

 

18,813

 

16.48

 

Vested

 

(5,396

)

16.56

 

(7,600

)

16.77

 

(83,608

)

14.70

 

(187,078

)

9.04

 

Forfeited or expired

 

(15,000

)

14.34

 

(5,100

)

12.51

 

(25,800

)

13.57

 

(32,200

)

12.51

 

Outstanding at September 30

 

267,691

 

$

13.20

 

370,710

 

$

13.47

 

267,691

 

$

13.20

 

370,710

 

$

13.47

 

 

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The following table summarizes the RSU activity for the three and nine months ended September 30, 2013 and 2012:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Restricted Stock Units

 

Units

 

Weighted
Average
Grant Date
Fair Value

 

Units

 

Weighted
Average
Grant Date
Fair Value

 

Units

 

Weighted
Average
Grant Date
Fair Value

 

Units

 

Weighted
Average
Grant Date
Fair Value

 

Outstanding at June 30, 2013 and 2012, respectively, and December 31, 2012 and 2011, respectively

 

2,456,014

 

$

16.72

 

1,465,715

 

$

21.00

 

1,414,661

 

$

20.61

 

711,980

 

$

23.43

 

Granted

 

26,500

 

13.52

 

59,500

 

17.19

 

1,589,614

 

15.01

 

948,059

 

19.28

 

Vested

 

(8,231

)

24.17

 

(7,984

)

26.81

 

(295,215

)

22.32

 

(113,225

)

24.65

 

Forfeited or expired

 

(90,285

)

18.08

 

(29,996

)

19.19

 

(325,062

)

21.10

 

(59,579

)

20.22

 

Outstanding at September 30

 

2,383,998

 

$

16.59

 

1,487,235

 

$

20.86

 

2,383,998

 

$

16.59

 

1,487,235

 

$

20.86

 

 

10. INCOME TAXES

 

During the three months ended September 30, 2013, we recognized an income tax expense of $4.6 million on pre-tax income of $17.7 million, representing an effective income tax rate of 26.2% compared to an income tax benefit of $5.4 million on pre-tax income of $39.7 million, representing an effective income tax rate of (13.6%) for the same period in 2012. During the nine months ended September 30, 2013, we recognized an income tax expense of $25.1 million on pre-tax income of $102.5 million, representing an effective income tax rate of 24.6% compared to an income tax expense of $14.6 million on pre-tax income of $149.6 million, representing an effective income tax rate of 9.8% for the same period in 2012.

 

The increase in effective tax rate for the three and nine months ended September 30, 2013 compared to the same period in 2012 is principally the result of the release of certain valuation allowances associated with deferred tax assets that occurred in 2012 and did not reoccur in 2013. Our effective tax rates for all periods presented also differ from the federal U.S. statutory rate due to differences between income tax rates between U.S. and foreign jurisdictions. We had unrecognized tax benefits of $28.0 million at September 30, 2013 and $31.9 million at December 31, 2012.

 

We are regularly subject to, and are currently undergoing, audits by tax authorities in the United States and foreign jurisdictions for prior tax years. Please refer to Note 12 — “Commitments & Contingencies” for further details regarding these audits.

 

11. EARNINGS PER SHARE

 

The following table illustrates the basic and diluted earnings per share (“EPS”) computations for the three and nine months ended September 30, 2013 and 2012:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

($ thousands, except share and per share data)

 

2013

 

2012

 

2013

 

2012

 

Numerator

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

$

13,036

 

$

45,080

 

$

77,353

 

$

134,950

 

Less: income allocated to participating securities

 

(41

)

(188

)

(276

)

(702

)

Net income attributable to common stockholders - basic and diluted

 

$

12,995

 

$

44,892

 

$

77,077

 

$

134,248

 

Denominator

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

88,109,088

 

89,947,641

 

87,919,351

 

89,592,430

 

Plus: dilutive effect of stock options and unvested restricted stock units

 

798,725

 

902,313

 

970,970

 

1,079,586

 

Weighted average common shares outstanding - diluted

 

88,907,813

 

90,849,954

 

88,890,321

 

90,672,016

 

Net income attributable per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

$

0.50

 

$

0.88

 

$

1.50

 

Diluted

 

$

0.15

 

$

0.49

 

$

0.87

 

$

1.48

 

 

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For the three and nine months ended September 30, 2013, approximately 1.4 million options and RSUs in total were not included in the calculation of diluted EPS as their effect would have been anti-dilutive. For the three and nine months ended September 30, 2012, approximately 1.7 million and 1.5 million, respectively, options and RSUs in total were not included in the calculation of diluted EPS as their effect would have been anti-dilutive.

 

We continue to evaluate options to maximize the returns on our cash and maintain an appropriate capital structure, including, among other alternatives, repurchases of our common stock. As of September 30, 2013, we had approximately 2.8 million shares available for repurchase under previously announced repurchase authorizations.

 

On October 29, 2013, our Board of Directors authorized the repurchase of up to an additional 15.0 million shares of Company common stock under the Company’s previously announced stock repurchase authorization. This brings the total shares available for repurchase by the Company under the existing board authorization to approximately 17.8 million shares. The number, price and timing of the repurchases, if any, will be at the Company’s sole discretion and future repurchases will be evaluated depending on market conditions, liquidity needs and other factors. The Company’s Board of Directors may suspend, modify or terminate the program at any time without prior notice.

 

For the three months ended September 30, 2013, we did not repurchase any shares associated with a publicly-announced repurchase plan. For the nine months ended September 30, 2013, we repurchased approximately 0.8 million shares at an average price of $14.99 for an aggregate price of approximately $12.5 million excluding related commission charges, under a publicly-announced repurchase plan.

 

12. COMMITMENTS & CONTINGENCIES

 

Rental Commitments and Contingencies

 

We rent space for our retail stores, offices, warehouses, vehicles, and equipment under operating leases expiring at various dates through 2033. Certain leases contain rent escalation clauses (step rents) that require additional rental amounts in the later years of the term. Rent expense for leases with step rents or rent holidays is recognized on a straight-line basis over the lease term. Deferred rent is included in the condensed consolidated balance sheets in ‘Accrued expenses and other current liabilities.’

 

The following table summarizes the composition of rent expense under operating leases for the three and nine months ended September 30, 2013 and 2012 (in thousands):

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Minimum rentals

 

$

26,047

 

$

21,458

 

$

75,093

 

$

61,177

 

Contingent rentals

 

5,596

 

4,864

 

15,240

 

13,610

 

Less: Sublease rentals

 

(158

)

(228

)

(469

)

(667

)

Total rent expense

 

$

31,485

 

$

26,094

 

$

89,864

 

$

74,120

 

 

Purchase Commitments

 

As of September 30, 2013, we had purchase commitments with certain third party manufacturers for $176.9 million, which includes an immaterial amount of yet-to-be-received finished product where title passes to us upon receipt. As of December 31, 2012, we had purchase commitments with certain third party manufacturers for $152.8 million, of which $5.9 million was for yet-to-be-received finished product where title passes to us upon receipt.

 

Government Tax Audits

 

We are regularly subject to, and are currently undergoing, audits by tax authorities in the United States and foreign jurisdictions for prior tax years.

 

In April 2013, the State of Sao Paulo, Brazil government (“Brazil”) assessed sales taxes, interest and penalties for the period April 2009 to May 2011. We had previously tendered these taxes using Brazil obligations purchased at a discount from third parties. On May 22, 2013, we applied for amnesty in order to receive a significant reduction in penalties and interest, agreed to amend our 2009 through 2012 tax returns to remove the Brazil obligations, and agreed to settle the assessment in cash to Brazil. In June 2013, cash payment was made to Brazil, in full satisfaction of the Brazil assessment. Brazil is making court-ordered payments to holders of the Brazil obligations along with accrued interest.   The Company anticipates that the Brazil obligations (plus accrued interest) will be paid by Brazil in accordance with the court-orders.  The Company is carrying the Brazil obligations at the original discounted cost

 

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Table of Contents

 

to the Company and intends to hold the Brazil obligations until paid by Brazil. The net impact of the above is a $6.1 million charge to operating income, and the carrying balance of the Brazil obligations in investments is $3.5 million.

 

The Company is currently undergoing a tax audit in Canada. We recently received an economic report on certain transfer pricing items from the Canadian tax authorities. While the audit is in its preliminary stages, we believe the results of the economic report to be overstated and intend to assert that any amount due to the Canadian tax authorities is substantially less than reflected in the economic report provided. We expect the resolution of this matter to be long term in nature if assessments and appeals are necessary. We intend to defend our position through litigation if necessary, however, the final outcome of tax audits and related litigation, including the assessment of potentially significant penalties and interest, is inherently uncertain and could be materially different than that reflected in our historical income tax provisions and accruals and could have a material adverse impact on our financial position, results of operations or cash flows.

 

13. OPERATING SEGMENTS & GEOGRAPHIC INFORMATION

 

During the first quarter of 2013, we adjusted our operating segment structure for internal reports reviewed by the chief operating decision maker (“CODM”) by presenting Japan separate from the Asia Pacific segment. This change was made due to recurring amounts of substantial business activity as well as the macroeconomic environment within Japan, which resulted in the need for a regular review of Japan operating results by management and the CODM in order to better evaluate performance and allocate resources for the consolidated business. Segment information for all periods presented has been reclassified to conform to the fiscal 2013 presentation.

 

As a result of the changes discussed above, we have four reportable operating segments based on the geographic nature of our operations: Americas, Asia Pacific, Japan and Europe. We also have an “Other businesses” category which aggregates insignificant operating segments that do not meet the reportable segment threshold and represent manufacturing operations located in Mexico, Italy and Asia. The composition of our reportable operating segments is consistent with that used by our CODM to evaluate performance and allocate resources.

 

Each of our reportable operating segments derives its revenues from the sale of footwear, apparel and accessories to external customers as well as intersegment sales. Revenues of the “Other businesses” category are primarily made up of intersegment sales. The remaining revenues for the “Other businesses” represent non-footwear product sales to external customers. Intersegment sales are not included in the measurement of segment operating income or regularly reviewed by the CODM and are eliminated when deriving total consolidated revenues.

 

The primary financial measure utilized by the CODM to evaluate performance and allocate resources is segment operating income. Segment performance evaluation is based primarily on segment results without allocating corporate expenses, or indirect general, administrative and other expenses. Segment profits or losses of our reportable operating segments include adjustments to eliminate intersegment profit or losses on intersegment sales. As such, reconciling items for segment operating income represent unallocated corporate and other expenses as well as intersegment eliminations. Segment assets consist of cash and cash equivalents, accounts receivable and inventory as these balances are regularly reviewed by the CODM.

 

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Table of Contents

 

The following table sets forth information related to our reportable operating business segments during the three and nine months ended September 30, 2013 and 2012:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

($ thousands)

 

2013

 

2012

 

2013

 

2012

 

Revenues:

 

 

 

 

 

 

 

 

 

Americas

 

$

116,194

 

$

131,948

 

$

391,878

 

$

383,866

 

Asia Pacific

 

79,406

 

72,964

 

281,695

 

232,240

 

Japan

 

38,984

 

50,731

 

114,815

 

140,336

 

Europe

 

53,903

 

39,765

 

175,419

 

141,534

 

Total segment revenues

 

288,487

 

295,408

 

963,807

 

897,976

 

Other businesses

 

37

 

161

 

200

 

333

 

Total consolidated revenues

 

$

288,524

 

$

295,569

 

$

964,007

 

$

898,309

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

Americas(1)

 

$

17,969

 

$

27,610

 

$

61,787

 

$

77,299

 

Asia Pacific

 

13,690

 

18,014

 

76,478

 

65,488

 

Japan

 

11,656

 

20,999

 

36,679

 

61,666

 

Europe

 

6,860

 

1,351

 

31,188

 

27,730

 

Total segment operating income

 

50,175

 

67,974

 

206,132

 

232,183

 

Reconciliation of total segment operating income to income before income taxes:

 

 

 

 

 

 

 

 

 

Other businesses

 

(5,495

)

(2,690

)

(14,907

)

(8,598

)

Intersegment eliminations

 

15

 

15

 

45

 

54

 

Unallocated corporate and other(2)

 

(26,788

)

(25,285

)

(85,294

)

(72,568

)

Total consolidated operating income

 

17,907

 

40,014

 

105,976

 

151,071

 

Foreign currency transaction losses, net

 

1,043

 

21

 

4,457

 

2,670

 

Interest income

 

(853

)

(151

)

(1,676

)

(1,057

)

Interest expense

 

44

 

377

 

519

 

556

 

Other (income) expense, net

 

13

 

71

 

180

 

(690

)

Income before income taxes

 

$

17,660

 

$

39,696

 

$

102,496

 

$

149,592

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

Americas

 

$

2,690

 

$

2,347

 

$

7,663

 

$

7,530

 

Asia Pacific

 

1,244

 

1,256

 

3,722

 

3,557

 

Japan

 

346

 

575

 

1,122

 

1,474

 

Europe

 

1,367

 

787

 

3,798

 

2,079

 

Total segment depreciation and amortization

 

5,647

 

4,965

 

16,305

 

14,640

 

Other businesses

 

2,045

 

1,704

 

6,285

 

4,765

 

Unallocated corporate and other(2)

 

2,953

 

2,890

 

8,577

 

7,410

 

Total consolidated depreciation and amortization

 

$

10,645

 

$

9,559

 

$

31,167

 

$

26,815

 

 


(1)         Includes $0.2 million and $0.8 million for the nine months ended September 30, 2013 and 2012, respectively, of asset impairment charges related to certain underperforming retail locations.

(2)        Includes a corporate component consisting primarily of corporate support and administrative functions, costs associated with share-based compensation, research and development, brand marketing, legal, depreciation and amortization of corporate and other assets not allocated to operating segments and costs of the same nature related to certain corporate holding companies.

 

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The following table sets forth asset information related to our reportable operating business segments as of September 30, 2013 and December 31, 2012:

 

 

 

September 30,

 

December 31,

 

($ thousands)

 

2013

 

2012

 

Assets:

 

 

 

 

 

Americas

 

$

132,960

 

$

143,236

 

Asia Pacific

 

211,789

 

170,426

 

Japan

 

88,130

 

111,785

 

Europe

 

165,013

 

85,756

 

Total segment current assets

 

597,892

 

511,203

 

Other businesses

 

16,977

 

14,489

 

Unallocated corporate and other(1) 

 

13,819

 

25,738

 

Deferred tax assets, net

 

5,647

 

6,284

 

Income tax receivable

 

16,666

 

5,613

 

Other receivables

 

17,201

 

24,821

 

Prepaid expenses and other current assets

 

30,869

 

24,967

 

Total current assets

 

699,071

 

613,115

 

Property and equipment, net

 

94,233

 

82,241

 

Intangible assets, net

 

69,081

 

59,931

 

Deferred tax assets, net

 

33,529

 

34,112

 

Other assets

 

50,672

 

40,239

 

Total consolidated assets

 

$

946,586

 

$

829,638

 

 


(1)         Corporate assets primarily consist of cash and equivalents.

 

14. LEGAL PROCEEDINGS

 

We and certain current and former officers and directors have been named as defendants in complaints filed by investors in the United States District Court for the District of Colorado. The first complaint was filed in November 2007 and several other complaints were filed shortly thereafter. These actions were consolidated and, in September 2008, the district court appointed a lead plaintiff and counsel. An amended consolidated complaint was filed in December 2008. The amended complaint purports to state claims under Section 10(b), 20(a), and 20A of the Exchange Act on behalf of a class of all persons who purchased our common stock between April 2, 2007 and April 14, 2008 (the “Class Period”). The amended complaint also added our independent auditor as a defendant. The amended complaint alleges that, during the Class Period, the defendants made false and misleading public statements about us and our business and prospects and, as a result, the market price of our common stock was artificially inflated. The amended complaint also claims that certain current and former officers and directors traded in our common stock on the basis of material non-public information. The amended complaint seeks compensatory damages on behalf of the alleged class in an unspecified amount, including interest, and also added attorneys’ fees and costs of litigation. On February 28, 2011, the District Court granted motions to dismiss filed by the defendants and dismissed all claims. A final judgment was thereafter entered. Plaintiffs subsequently appealed to the United States Court of Appeals for the Tenth Circuit.  We and those current and former officers and directors named as defendants have entered into a Stipulation of Settlement with the plaintiffs that would, if approved by the United States District Court for the District of Colorado, resolve all claims asserted against us by the plaintiffs on behalf of the putative class, and plaintiffs’ appeal would be dismissed. Our independent auditor is not a party to the Stipulation of Settlement. The Stipulation of Settlement received preliminary approval from the District Court on August 28, 2013.  It remains subject to customary conditions, including final court approval following notice to stockholders. The District Court has scheduled a final settlement hearing for February 13, 2014.  If the settlement becomes final, all amounts required by the settlement will be paid by our insurers. There can be no assurance that the settlement will be finally approved by the District Court, or that approval by the District Court will, if challenged, be upheld by the Tenth Circuit.

 

On October 27, 2010, Spectrum Agencies (“Spectrum”) filed suit against our subsidiary, Crocs Europe B.V. (“Crocs Europe”), in the High Court of Justice, Queen’s Bench Division, Royal Courts of Justice in London, United Kingdom (“UK”). Spectrum acted as an agent for Crocs products in the UK from 2005 until Crocs Europe terminated the relationship on July 3, 2008 due to Spectrum’s breach of its duty to act in good faith towards Crocs Europe. Spectrum alleges that Crocs Europe unlawfully terminated the agency relationship and failed to pay certain sales commissions. A trial on the liability, not quantum (compensation and damages), was held at the High Court in London from November 30, 2011 to December 5, 2011. On December 16, 2011, the High Court of Justice issued a judgment that found that although Spectrum’s actions were a breach of its duty to act in good faith towards Crocs Europe the breach

 

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was not sufficiently severe to justify termination. We believe that the trial judge erred in his findings and subsequently appealed the judgment.  On October 30, 2012, the Court of Appeal handed down its judgment confirming the trial judge’s findings. We submitted a request to the Supreme Court seeking permission to appeal.  On April 24, 2013 the Supreme Court declined to grant permission to appeal.  Given that to date the legal proceedings in this case have only addressed liability, there have been no findings in relation to the amount of compensation or damages other than with respect to legal fees. Under English law, the prevailing party is entitled to reimbursement of reasonable legal fees incurred in the proceedings. We expect that Spectrum will now request to move to the damages phase via a case management conference, during which the Court will provide instructions and schedules leading up to the trial on damages.  Spectrum has not formally filed a court claim for compensation and damages and the amount will be assessed later in the proceedings.  A trial and judgment on damages could take up to 12 months.

 

We are currently subject to an audit by U.S. Customs & Border Protection (“CBP”) in respect of the period from 2006 to 2010.  In August 2013, CBP issued a revised draft audit report to which we filed comments and objections.  CBP has stated that a final report will be issued before the end of 2013.  CBP has provided us with projections that reflect unpaid duties totaling approximately $12.4 million during the period under review (a reduction from $14.3 million in the preliminary draft report issued in 2012).  We have responded that these projections are erroneous and provided arguments that demonstrate the amount due in connection with this matter is considerably less than the preliminary projection.  CBP is currently reviewing this response.  It is not possible at this time to predict whether our arguments will be successful in eliminating or reducing the amount in dispute.  CBP has stated that the final report will recommend collection of the duties due.  At this time, it is not possible to determine when a notice of claim will be received from CBP but currently we do not anticipate a notice of claim will be received prior to the first quarter of 2014.  Likewise, it is not possible to predict whether CBP may seek to assert a claim for penalties in addition to any unpaid duties.

 

Mexico’s Federal Tax Authority (“SAT”) audited the period from January 2006 to July 2011.  There were two phases to the audit, the first for capital equipment and finished goods and the second for raw materials.  The first phase was completed and no major discrepancies were noted by the SAT.  On January 9, 2013, Crocs received a notice for the second phase in which the SAT issued a tax assessment (taxes and penalties) of roughly 280.0 million pesos (approximately $22.0 million) based on the value of all of Crocs’ imported raw materials during the audit period.  We believe that the proposed penalty amount is unfounded and without merit. With the help of local counsel we filed an appeal by the deadline of March 15, 2013.  We have argued that the amount due in connection with the matter, if any, is substantially less than that proposed by the SAT.  In connection with the appeal, the SAT required us to post an appeal surety bond in the amount of roughly 321.0 million pesos (approximately $26.0 million), which amount reflects estimated additional penalties and interest if we are not successful on our appeal.  This amount will be adjusted on an annual basis. We expect it to take between two and three years for resolution of this matter in the Mexican courts.  It is not possible at this time to predict the outcome of this matter or reasonably estimate any potential loss.

 

As of September 30, 2013, we have accrued a total of $6.0 million relating to these litigation matters and other disputes.  We estimate that the ultimate resolution of these litigation matters and other disputes could result in a loss that is reasonably possible between $0 and $10.2 million in the aggregate, in excess of the amount accrued.

 

Although we are subject to other litigation from time to time in the ordinary course of business, including employment, intellectual property and product liability claims, we are not party to any other pending legal proceedings that we believe will have a material adverse impact on our business, financial position, results of operations or cash flows.

 

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ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Special Note Regarding Forward Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to industry trends, our future expectations and other matters that do not relate strictly to historical facts and are based on certain assumptions of our management. These statements are often identified by the use of words such as “may,” “strive,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Further, these statements are based on the beliefs and assumptions of our management based on information currently available. Such forward-looking statements are subject to risks, uncertainties and other factors that could 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, the risks described in the section entitled “Risk Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2012 and subsequent filings with the Securities and Exchange Commission. We caution the reader to carefully consider such factors. 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.

 

Business Overview

 

We are a designer, manufacturer, distributor, worldwide marketer and brand manager of innovative casual lifestyle footwear, apparel and accessories for men, women and children. We strive to be the global leader in molded footwear design and development. We design, manufacture and sell a broad product offering that provides new and exciting molded footwear products that feature comfort, fun, color and functionality. Our products include footwear and accessories that utilize our proprietary closed cell-resin, called Croslite. Our Croslite material is unique in that it enables us to produce an innovative, lightweight, non-marking, and odor-resistant shoe.

 

Since the initial introduction and popularity of our Beach and Crocs Classic designs, we have expanded our Croslite products to include a variety of new styles and products and have extended our product reach through the acquisition of brand platforms such as Jibbitz and Ocean Minded. We intend to continue to expand the breadth of our footwear product lines, bringing a unique and original perspective to the consumer in styles that may be unexpected from Crocs. We believe this will help us to continue to build a stable year-round business as we move toward becoming a four-season brand.

 

We currently sell our Crocs-branded products globally through domestic and international retailers and distributors. We also sell our products directly to consumers through our company-operated retail stores, outlets, kiosks and webstores. The broad appeal of our footwear has allowed us to market our products to a wide range of distribution channels, including department stores and traditional footwear retailers as well as a variety of specialty and independent retail channels.

 

As a global company, we have significant revenues and costs denominated in currencies other than the U.S. dollar. Sales in international markets in foreign currencies are expected to continue to represent a substantial portion of our revenues. Likewise, we expect our subsidiaries with functional currencies other than the U.S. dollar will continue to represent a substantial portion of our overall gross margin and related expenses. Accordingly, changes in foreign currency exchange rates could materially affect revenues and costs or the comparability of revenues and costs from period to period as a result of translating our financial statements into our reporting currency.

 

Q3 Financial Highlights

 

During the three months ended September 30, 2013, we experienced strong results in our Asia Pacific segment, which remains a key component of the business and fundamental driver of our growth strategy as all channels in the region continue to exceed expectations, and marked improvement in our Europe segment, which has shown slow signs of a macroeconomic recovery. This positive performance was counterbalanced by overall weakness in the Americas and Japan segments, in which all channels performed below prior year levels. The underperformance was especially acute in the Americas segment where we were impacted by wholesale accounts trimming at-once orders to remain lean on inventory coupled with weak consumer confidence affecting our direct-to-consumer channel performance. In the Japan segment, we continued to experience unfavorable exchange rates. As of September 30, 2013, the Japanese Yen has declined 26.6% compared to the same date in 2012, which has reduced quarter-over-quarter and year-over-year revenue by $10.0 million and $25.4 million, respectively.

 

Globally, our direct-to-consumer channel continues to be a key component of our success, which grew 8.7% on a constant currency basis, with positive same-store sales in Asia Pacific and Europe. Gross margins in the direct-to-consumer channel were improved partly due to less promotional activity within the quarter; however, this negatively impacted our conversion rates.

 

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Overall, the third quarter turned out to be a difficult quarter; however, we have confidence in the fundamentals of the business and long-term growth strategy that has been implemented and new product lines that will be offered in the upcoming months.

 

The following are significant developments in our businesses during the three and nine months ended September 30, 2013:

 

·                  Revenues decreased $7.0 million, or 2.4%, to $288.5 million during the three months ended September 30, 2013 and increased $65.7 million, or 7.3%, to $964.0 million during the nine months ended September 30, 2013 compared to the same periods in 2012. Revenue in the three months ended September 30, 2013 was down compared to the same period in 2012 mainly due to a soft wholesale market in our Americas segment as a result of conservative customer inventory demands throughout the United States as well as unfavorable foreign currency fluctuations in our Japan segment. Revenue growth for the nine months ended September 30, 2013 compared to the same period in 2012 was driven by increased sales volume through retail expansion and balanced sales growth throughout the globe with our classic and new product styles as we continue to transform Crocs brand awareness into an all-season footwear brand.

 

·                  Gross profit decreased $7.2 million, or 4.5%, to $153.6 million during the three months ended September 30, 2013 and increased $18.7 million, or 3.7%, to $520.3 million during the nine months ended September 30, 2013 compared to the same periods in 2012. Gross margin percentage decreased 120 basis points during the three months ended September 30, 2013 and decreased 180 basis points during the nine months ended September 30, 2013 compared to the same periods in 2012. The gross margin decline was mainly driven by an increase in product input costs through the expansion of our product line, which utilizes more expensive material such as textile fabric and leather, and we experienced unfavorable foreign currency fluctuations in our Japan segment. Gross margins for the three months ended September 30, 2013 were down compared to the same period in 2012 due to lower than anticipated at-once wholesale revenue which resulted in an offsetting increase in average footwear selling price during the quarter. Gross margins for the nine months ended September 30, 2013 were down compared to the same period in 2012 due to relatively flat average footwear selling prices, lower than anticipated at-once wholesale revenue and increased discount activity in the first half of the year reflecting our intentions to sell through inventory. Partially offsetting these decreases in year-to-date gross margin were positive impacts on gross margin from increased supply chain and manufacturing efficiency resulting in decreased expenses related to fulfillment, freight and duties, direct labor and overhead costs.

 

·                  Selling, general, and administrative expenses increased $14.9 million, or 12.4%, to $135.7 million during the three months ended September 30, 2013, and increased $64.4 million, or 18.4%, to $414.1 million during the nine months ended September 30, 2013 compared to the same periods in 2012. Selling, general, and administrative expenses continued to rise as we increased our global retail presence to solidify the long-term growth model of the Company and increased marketing spend to help drive demand as well as create demand within the consumer base. In addition to the general increase in operational costs, we incurred one-time, non-recurring expenses of $3.1 million during the three months ended September 30, 2013 and $6.8 million during the nine months ended September 30, 2013 related to the implementation of our enterprise resource planning (“ERP”) system, which includes non-cash accelerated depreciation and cash expenses for program management, training and other non-capitalized costs. We also experienced a one-time net expense of $6.1 million related to the resolution of a statutory tax audit in Brazil in the second quarter of 2013.

 

·                  Net income decreased $32.0 million, or 71.1%, to $13.0 million during the three months ended September 30, 2013 and decreased $57.6 million, or 42.7%, to $77.4 million during the nine months ended September 30, 2013 compared to the same periods in 2012 driving our diluted earnings per share from $0.49 to $0.15 and from $1.48 to $0.87, respectively. This decrease was primarily the result of decreases in both gross margins and operating margins, which were driven by increased cost of sales as we expand our product line and increased selling, general and administrative costs related to our retail expansion, the implementation of our ERP system, the impact of a higher tax rate in 2013, and a one-time net expense in the second quarter of 2013 of $6.1 million related to the resolution of a statutory tax audit in Brazil.

 

·                  We continue to expand our retail channel through the net addition of 95 stores since September 30, 2012 in order to further increase brand recognition and create opportunities to present new and classic product lines. We also continue to close certain kiosks as branded stores allow us to better merchandise the full breadth and depth of our product line.

 

·                  We continue to fund the implementation of our customized and fully integrated operations, accounting, and finance ERP system, which is expected to launch in the second half of 2014. The introduction of the new ERP system to our current environment will allow for seamless and high-quality data across the Company. As of September 30, 2013, total costs to date related to the ERP implementation were $29.5 million, of which $24.3 million was capitalized and $5.2 million was

 

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Table of Contents

 

expensed. As of September 30, 2013, we had $13.5 million in outstanding borrowings related to the ERP system under a Master Installment Payment Agreement (“Master IPA”) with PNC Equipment Finance, LLC (“PNC Equipment”).

 

·                  During the three months ended September 30, 2013, we did not repurchase any shares of our common stock under our publicly announced repurchase plan. During the nine months ended September 30, 2013, we repurchased approximately 0.8 million shares at an average price of $14.99 per share for a total value of $12.5 million, excluding related commission charges.

 

Future Outlook

 

In the remainder of 2013, we do not believe that we will see a marked improvement in consumer attitudes, specifically in North America, through the end of the year as the fourth quarter is typically our lowest revenue quarter. As the fall and winter months approach, we are expecting 1 to 2 product launch phases throughout the remainder of 2013, which will emphasize the growth of the brand and promote year-round sustainability. We currently have 594 retail locations globally and plan to open approximately 10 more retail locations across the globe by the end of the year. Retail expansion will resume in 2014 as we plan to open between 65 and 100 new stores, including our state-of-the-art, three-story flagship store which will be located in the heart of New York City. In addition, we plan to expand our wholesale operations with our key partners to attract new customers and retain loyalists through popular wholesale outlets through visual merchandising and product-driven expansion.

 

The following table summarizes wholesale backlog sales by reportable operating segment as of September 30, 2013 and 2012:

 

 

 

September 30,

 

($ thousands)

 

2013

 

2012

 

Americas

 

$

120,913

 

$

137,999

 

Asia Pacific

 

150,350

 

136,382

 

Japan

 

52,000

 

70,655

 

Europe

 

75,338

 

50,433

 

Total backlog (1)

 

$

398,601

 

$

395,469

 

 


(1)         We receive a significant portion of orders as preseason orders, generally four to six months prior to shipment date. We provide customers with price incentives to participate in such preseason programs to enable us to better plan our production schedule, inventory and shipping needs. Unfulfilled customer orders as of any date are referred to as backlog and represent orders scheduled to be shipped at a future date. Backlog as of a particular date is affected by a number of factors, including seasonality, manufacturing schedule and the timing of product shipments. Further, the mix of future and immediate delivery orders can vary significantly period over period. Due to these factors and since the unfulfilled orders can be canceled at any time prior to shipment by our customers, backlog may not be a reliable measure of future sales and comparisons of backlog from period to period may be misleading. In addition, our historical cancellation experience may not be indicative of future cancellation rates. While all orders in the backlog are subject to cancellation by customers, we expect that the majority of these orders will be fulfilled within one year.

 

We have implemented several investment strategies that we believe will drive revenue growth while improving the operational and technological efficiency of the business. We remain in the testing and development phase of our ERP system implementation. This implementation represents the beginning of a transformational change intended to improve our operational efficiency as we adapt as a global company. We plan on continuing to improve the metrics of our retail stores by focusing on high traffic, outlet locations with an emphasis on increased size and visibility.

 

As noted above and backed by our strong balance sheet, we intend to continue to manage and invest in the business for the long-term by expanding our direct-to-consumer channel. Throughout the year, we noticed a strong rebound in our direct-to-consumer channel, which led to positive comparable store growth during the quarter and year.

 

Selling, general, and administrative expenses will continue to increase as we increase our global retail presence and make strategic purchases to improve the operational efficiency of the Company.

 

Overall, the organization is focused on delivering shareholder value through our focus on casual lifestyle footwear sales and balancing long-term global growth between company-operated retail locations, partner store and multiband independent wholesale accounts and internet sites in local languages.

 

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Results of Operations

 

Comparison of the Three Months Ended September 30, 2013 and 2012

 

 

 

Three Months Ended September 30,

 

Change

 

($ thousands, except per share data and average footwear selling price)

 

2013

 

2012

 

$

 

%

 

Revenues

 

$

288,524

 

$

295,569

 

$

(7,045

)

(2.4

)%

Cost of sales

 

134,943

 

134,826

 

117

 

0.1

 

Gross profit

 

153,581

 

160,743

 

(7,162

)

(4.5

)

Selling, general and administrative expenses

 

135,674

 

120,729

 

14,945

 

12.4

 

Income from operations

 

17,907

 

40,014

 

(22,107

)

(55.2

)

Foreign currency transaction losses, net

 

1,043

 

21

 

1,022

 

4,866.7

 

Interest income

 

(853

)

(151

)

(702

)

464.9

 

Interest expense

 

44

 

377

 

(333

)

(88.3

)

Other expense, net

 

13

 

71

 

(58

)

(81.7

)

Income before income taxes

 

17,660

 

39,696

 

(22,036

)

(55.5

)

Income tax expense (benefit)

 

4,624

 

(5,384

)

10,008

 

(185.9

)

Net income

 

$

13,036

 

$

45,080

 

$

(32,044

)

(71.1

)%

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

$

0.50

 

$

(0.35

)

(70.5

)%

Diluted

 

$

0.15

 

$

0.49

 

$

(0.34

)

(70.2

)%

Gross margin

 

53.2

%

54.4

%

(120

)bps

(2.2

)%

Operating margin

 

6.2

%

13.5

%

(730

)bps

(54.1

)%

Footwear unit sales

 

12,012

 

12,420

 

(408

)

(3.3

)%

Average footwear selling price

 

$

23.11

 

$

22.77

 

$

0.34

 

1.5

%

 

Revenues. During the three months ended September 30, 2013, revenues decreased $7.0 million, or 2.4%, compared to the same period in 2012, primarily due to a decrease of 0.4 million, or 3.3%, in global footwear unit sales partially offset by an increase of $0.34 per unit, or 1.5%, in average footwear selling price. For the three months ended September 30, 2013, revenues from our wholesale channel decreased $15.9 million, or 10.2%, compared to the same period in 2012, which was primarily driven by decreased wholesale sales in Americas and Japan partially offset by increased wholesale sales in Europe and Asia Pacific. We experienced a strong commitment by wholesale accounts in both Asia Pacific and Europe. Despite continued strong commitments by wholesale accounts in both Asia Pacific and Europe, we experienced underperformance in Americas and Japan wholesale primarily due to conservative customer inventory demands and macroeconomic decreases in consumer spending. Revenues from our retail channel increased $12.5 million, or 11.2%, compared to the same period in 2012, primarily driven by opening 19 company-operated stores (net of store closures) in the three months ended September 30, 2013 through the continued expansion of our retail presence which led to increased retail sales in Europe, Asia Pacific and Americas partially offset by decreased retail sales in Japan. We continue to close certain kiosks as branded stores allow us to better merchandise the full breadth and depth of our product line. Revenues from our internet channel decreased $3.7 million, or 13.7%, compared to the same period in 2012, which was primarily driven by decreased internet sales in Americas and Japan partially offset by increased internet sales in Europe and Asia Pacific.

 

Impact on Revenues due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translate revenues from our functional currencies to our reporting currency during the three months ended September 30, 2013 decreased our revenues by $9.6 million compared to the same period in 2012. The majority of this decrease was related to the decrease in value of the Japanese Yen compared to the U.S. Dollar due to the political and macroeconomic environment in Japan.

 

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The following table summarizes our total revenue by channel for the three months ended September 30, 2013 and 2012:

 

 

 

Three Months Ended September 30,

 

Change

 

Constant Currency Change(1)

 

($ thousands)

 

2013

 

2012

 

$

 

%

 

$

 

%

 

Channel revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$

45,134

 

$

56,445

 

$

(11,311

)

(20.0

)%

$

(10,504

)

(18.6

)%

Asia Pacific

 

43,268

 

42,291

 

977

 

2.3

 

1,352

 

3.2

 

Japan

 

24,536

 

34,685

 

(10,149

)

(29.3

)

(3,807

)

(11.0

)

Europe

 

27,414

 

22,667

 

4,747

 

20.9

 

3,463

 

15.3

 

Other businesses

 

37

 

161

 

(124

)

(77.0

)

(118

)

(73.3

)

Total Wholesale

 

140,389

 

156,249

 

(15,860

)

(10.2

)

(9,614

)

(6.2

)

Consumer-direct:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

59,839

 

58,798

 

1,041

 

1.8

 

1,369

 

2.3

 

Asia Pacific

 

33,469

 

28,549

 

4,920

 

17.2

 

5,013

 

17.6

 

Japan

 

12,397

 

13,277

 

(880

)

(6.6

)

2,285

 

17.2

 

Europe

 

18,995

 

11,550

 

7,445

 

64.5

 

6,985

 

60.5

 

Total Retail

 

124,700

 

112,174

 

12,526

 

11.2

 

15,652

 

14.0

 

Internet:

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

11,221

 

16,705

 

(5,484

)

(32.8

)

(5,414

)

(32.4

)

Asia Pacific

 

2,669

 

2,124

 

545

 

25.7

 

573

 

27.0

 

Japan

 

2,051

 

2,769

 

(718

)

(25.9

)

(192

)

(6.9

)

Europe

 

7,494

 

5,548

 

1,946

 

35.1

 

1,548

 

27.9

 

Total Internet

 

23,435

 

27,146

 

(3,711

)

(13.7

)

(3,485

)

(12.8

)

Total revenues:

 

$

288,524

 

$

295,569

 

$

(7,045

)

(2.4

)%

$

2,553

 

0.9

%

 


(1)         Reflects quarter over quarter change as if the current period results were in “constant currency,” which is a non-GAAP financial measure. See “Non-GAAP Financial Measures” below for more information.

 

The table below illustrates the overall growth in the number of our company-operated retail locations by type of store and reportable operating segment as of September 30, 2013 and 2012:

 

 

 

September 30,

 

 

 

 

 

September 30,

 

Company-operated retail locations:

 

2012

 

Opened

 

Closed

 

2013

 

Type:

 

 

 

 

 

 

 

 

 

Kiosk/Store in Store

 

133

 

26

 

(37

)

122

 

Retail Stores

 

245

 

95

 

(25

)

315

 

Outlet Stores

 

121

 

40

 

(4

)

157

 

Total

 

499

 

161

 

(66

)

594

 

Operating segment:

 

 

 

 

 

 

 

 

 

Americas

 

189

 

45

 

(26

)

208

 

Asia Pacific

 

197

 

59

 

(35

)

221

 

Japan

 

36

 

15

 

(1

)

50

 

Europe

 

77

 

42

 

(4