# Crocs, Inc.: Form 10-Q for the period ended Jun 30, 2021

- Company: [Crocs, Inc.](/companies/crox.md) (CIK 1334036)
- Form: 10-Q
- Filed: 2021-07-22
- Accepted by EDGAR: Jul 22, 2021, 13:46 ET
- Period: 2021-06-30
- Accession: 0001334036-21-000129
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1334036/000133403621000129/crox-20210630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1334036/000133403621000129/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-04-01 to 2021-06-30 | $640.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2021-01-01 to 2021-06-30 | $1.10bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-04-01 to 2021-06-30 | $245.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2021-01-01 to 2021-06-30 | $452.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2021-04-01 to 2021-06-30 | $395.2m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2021-01-01 to 2021-06-30 | $648.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2021-04-01 to 2021-06-30 | $199.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2021-01-01 to 2021-06-30 | $328.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-04-01 to 2021-06-30 | $195.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2021-01-01 to 2021-06-30 | $320.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-04-01 to 2021-06-30 | $4.7m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2021-01-01 to 2021-06-30 | $6.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-04-01 to 2021-06-30 | −$128.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2021-01-01 to 2021-06-30 | −$104.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-04-01 to 2021-06-30 | $319.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2021-01-01 to 2021-06-30 | $417.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-04-01 to 2021-06-30 | $4.93 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2021-01-01 to 2021-06-30 | $6.35 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-04-01 to 2021-06-30 | $5.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2021-01-01 to 2021-06-30 | $6.47 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-04-01 to 2021-06-30 | 64,640,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2021-01-01 to 2021-06-30 | 65,744,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2021-01-01 to 2021-06-30 | $242.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2021-01-01 to 2021-06-30 | $21.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2021-01-01 to 2021-06-30 | $350.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2021-06-30 | $197.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-06-30 | $678.5m | us-gaap:AssetsCurrent |
| Total assets | at 2021-06-30 | $1.49bn | us-gaap:Assets |
| Current liabilities | at 2021-06-30 | $380.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-06-30 | $1.14bn | us-gaap:Liabilities |
| Long-term debt | at 2021-06-30 | $386.4m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2021-06-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2021-06-30 | $358.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 52,688 characters.

### Business Overview

Crocs, Inc. and our consolidated subsidiaries (collectively the “Company,” “Crocs,” “we,” “us,” or “our”) are engaged in the design, development, worldwide marketing, distribution, and sale of casual lifestyle footwear and accessories for women, men, and children. We strive to be the world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers want. The vast majority of shoes within our collection contain Croslite™ material, a proprietary, molded footwear technology, delivering extraordinary comfort with each step.

### Known or Anticipated Trends

Based on our recent operating results and current perspectives on our operating environment, we anticipate certain trends will continue to impact our operating results:

- We have committed to several Environmental, Social, and Governance (“ESG”) initiatives, including a plan to achieve net zero emissions by 2030 through sustainable ingredients and packaging as well as responsible resource use and exploring innovative product afterlife solutions. We continue to expand efforts to help serve our communities and create a welcoming environment for everyone, rooted in a culture of transparency and accountability. As such, we launched a new Brand Purpose section on our Crocs.com site and a new ESG section on our investor site to share our progress.
- Global industry-wide logistics challenges have continued to impact us, including the blockage of the Suez Canal, which primarily impacted our EMEA segment in the second quarter of 2021, and significant bottlenecks in West Coast ports, which have impacted 2021 operations, and we expect this to continue to impact future quarters this year. We are exploring various options related to global logistics congestion, including additional port locations and air freight. To date, we also have benefited and believe we will continue to benefit from efficiencies in our U.S. distribution network.
- Beginning in the third quarter of 2021, COVID-19 spikes in Vietnam, where we have significant third-party manufacturing operations, have begun to impact production and distribution, as some factories and ports are temporarily closed or are operating at reduced hours. We continue to be proactive in the supervision of factory operations.
- In 2021, we have invested, and plan to continue to invest, in selling, general and administrative expenses (“SG&A”), including marketing, talent, and digital commerce, to fuel long-term growth, while continuing to leverage revenue growth.
- Capital expenditures for supply chain investments to support our growth are expected to be between $80 million and $100 million for the year ended December 31, 2021.
- We continued to experience store closures in Western Europe and Southeast Asia throughout much of the second quarter as a result of the COVID-19 pandemic. Additionally, our year-over-year results discussed below were, and we expect for the remainder of 2021 will be, impacted to some extent by prior year store closures and operating hour reductions as a result of the COVID-19 impact in 2020.

### Use of Non-GAAP Financial Measures

In addition to financial measures presented on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”), we present certain information related to our results of operations through “constant currency,” which is a non-GAAP financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under U.S. GAAP. Constant currency represents current period results that have been retranslated using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rates on reported amounts.

Management uses constant currency to assist in comparing business trends from period to period on a consistent basis in communications with the Board, stockholders, analysts, and investors concerning our financial performance. We believe constant currency is useful to investors and other users of our condensed consolidated financial statements as an additional tool to evaluate operating performance and trends. Investors should not consider constant currency in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

### Second Quarter 2021 Financial and Operational Highlights

Revenues were $640.8 million for the second quarter of 2021, a 93.3% increase compared to the second quarter of 2020. The increase was due to the net effects of: (i) higher unit sales volumes, which increased revenues by $234.5 million, or 70.7%, driven by increased consumer demand for our products, a portion of which was due to improved sales in our DTC businesses as the pandemic continued to subside; (ii) higher average selling prices, driven primarily by reduced promotions and higher pricing, as well as favorable product mix, including increased sales of charms per shoe, which increased revenues by $58.5 million, or 17.7%; and (iii) favorable changes in exchange rates, which increased revenues by $16.3 million, or 4.9%.

The following were significant developments affecting our businesses and capital structure during the three months ended June 30, 2021:

- Revenues nearly doubled compared to the second quarter of 2020, led by our Americas segment, which grew by 136.4%, or 135.6% on a constant currency basis. Our EMEA segment revenues grew by 63.1%, or 52.6% on a constant currency basis, and our Asia segment revenues grew by 35.5%, or 27.1% on a constant currency basis, compared to the second quarter of 2020.
- We sold 29.1 million pairs of shoes worldwide, an increase from 16.3 million pairs in the second quarter of 2020.
- Gross margin was 61.7%, an increase of 740 basis points from last year’s second quarter, as a result of increased pricing and fewer promotions and discounts, favorable channel mix, and favorable product mix.
- SG&A was $199.9 million compared to $123.3 million in the second quarter of 2020. As a percent of revenues, SG&A decreased to 31.2% of revenues compared to 37.2% of revenues in the second quarter of 2020.
- Income from operations increased to $195.3 million from $56.6 million in last year’s second quarter. Net income was $319.0 million, or $4.93 per diluted share, compared to $56.6 million, or $0.83 per diluted share, in last year’s second quarter.
- We entered into an accelerated share repurchase arrangement (“ASR”) in April 2021 that concluded in June 2021, under which we repurchased 2.9 million shares of our common stock at a cost of $300.0 million, including commissions.

### Results of Operations

*(in thousands, except per share, margin, and average selling price data)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 | % Change Favorable (Unfavorable) Q2 2021-2020 | YTD 2021-2020 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $640,773 | $331,549 | $1,100,871 | $612,709 | 93.3% | 79.7% |
| Cost of sales | 245,592 | 151,616 | 452,471 | 298,614 | (62.0)% | (51.5)% |
| Gross profit | 395,181 | 179,933 | 648,400 | 314,095 | 119.6% | 106.4% |
| Selling, general and administrative expenses | 199,859 | 123,338 | 328,392 | 236,688 | (62.0)% | (38.7)% |
| Income from operations | 195,322 | 56,595 | 320,008 | 77,407 | 245.1% | 313.4% |
| Foreign currency losses, net | (117) | (687) | (621) | (918) | 83.0% | 32.4% |
| Interest income | 71 | 49 | 98 | 146 | 44.9% | (32.9)% |
| Interest expense | (4,712) | (2,170) | (6,344) | (4,091) | (117.1)% | (55.1)% |
| Other income, net | 2 | 907 | 13 | 928 | (99.8)% | 98.6% |
| Income before income taxes | 190,566 | 54,694 | 313,154 | 73,472 | 248.4% | 326.2% |
| Income tax expense (benefit) | (128,388) | (1,857) | (104,198) | 5,830 | 6,813.7% | 1,887.3% |
| Net income | $318,954 | $56,551 | $417,352 | $67,642 | 464.0% | 517.0% |
| Net income per common share: |  |  |  |  |  |  |
| Basic | $5.02 | $0.84 | $6.47 | $1.00 | 497.6% | 547.0% |
| Diluted | $4.93 | $0.83 | $6.35 | $0.99 | 494.0% | 541.4% |
| Gross margin (1) | 61.7% | 54.3% | 58.9% | 51.3% | 740 bp | 760 bp |
| Operating margin (1) | 30.5% | 17.1% | 29.1% | 12.6% | 1,340 bp | 1,650 bp |
| Footwear unit sales | 29,085 | 16,269 | 54,992 | 33,369 | 78.8% | 64.8% |
| Average footwear selling price - nominal basis (2) | $21.84 | $20.23 | $19.86 | $18.24 | 8.0% | 8.9% |

(1) Changes for gross margin and operating margin are shown in basis points (“bp”).

(2) Average footwear selling price is calculated as footwear and charms revenues divided by footwear units.

### Revenues By Channel

*(in thousands)*

| Wholesale: | Three Months Ended June 30, 2021 | Favorable (Unfavorable) 2020 | Six Months Ended June 30, 2021 | 2020 | % Change Q2 2021-2020 | YTD 2021-2020 | Constant Currency % Change (1) Q2 2021-2020 | YTD 2021-2020 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Americas | $168,069 | $67,428 | $312,842 | $158,233 | 149.3% | 97.7% | 148.7% | 98.0% |
| Asia Pacific | 62,268 | 35,282 | 120,891 | 80,863 | 76.5% | 49.5% | 67.5% | 42.5% |
| EMEA | 76,981 | 42,166 | 163,585 | 98,877 | 82.6% | 65.4% | 70.2% | 55.3% |
| Unallocated corporate and other | 9 | 16 | 48 | 92 | (43.8)% | (47.8)% | (43.8)% | (47.8)% |
| Total wholesale | 307,327 | 144,892 | 597,366 | 338,065 | 112.1% | 76.7% | 106.0% | 72.2% |
| Direct-to-consumer (2): |  |  |  |  |  |  |  |  |
| Americas | 237,611 | 104,156 | 369,247 | 161,075 | 128.1% | 129.2% | 127.2% | 128.5% |
| Asia Pacific | 64,566 | 58,291 | 88,535 | 78,170 | 10.8% | 13.3% | 2.7% | 5.4% |
| EMEA | 31,269 | 24,210 | 45,723 | 35,399 | 29.2% | 29.2% | 21.9% | 22.7% |
| Total direct-to-consumer | 333,446 | 186,657 | 503,505 | 274,644 | 78.6% | 83.3% | 74.6% | 79.8% |
| Total revenues | $640,773 | $331,549 | $1,100,871 | $612,709 | 93.3% | 79.7% | 88.4% | 75.6% |

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

(2) Direct-to-consumer revenues consist of sales generated through our company-operated retail stores (previously our “Retail” channel) and company-operated e-commerce websites and third-party e-commerce marketplaces (previously our “E-commerce” channel).

The primary drivers of changes in revenue were:

*(in thousands)*

|  | Three Months Ended June 30, 2021 vs. 2020 Volume $ Change | % Change | Price (1) $ Change | % Change | Foreign Exchange $ Change | % Change | Total $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total revenues | $234,497 | 70.7% | $58,473 | 17.7% | $16,254 | 4.9% | $309,224 | 93.3% |

(1) The change due to price is based on the change in average selling price on a constant currency basis (“ASP”).

*(in thousands)*

|  | Six Months Ended June 30, 2021 vs. 2020 Volume $ Change | % Change | Price (1) $ Change | % Change | Foreign Exchange $ Change | % Change | Total $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total revenues | $392,997 | 64.1% | $70,266 | 11.5% | $24,899 | 4.1% | $488,162 | 79.7% |

(1) The change due to price is based on the change in ASP.

***Revenues.*** In the three months ended June 30, 2021, revenues increased compared to the same period in 2020. This was mostly driven by sales volume increases in all regions, most significantly in our Americas segment. The volume increase was due to increased consumer demand, attributable in part to the negative impact of the COVID-19 pandemic on prior year wholesale and retail store revenues. Higher ASP, due to less promotional activity and higher pricing, as well as favorable product mix, including increased sales of charms per shoe, led to higher revenues in all regional segments and almost all channels. Foreign exchange fluctuations also increased revenues, primarily due to favorable changes in the Euro, Korean Won, and Chinese Yuan.

Revenues also increased in the six months ended June 30, 2021, primarily as a result of volume increases in all regions, led by the Americas segment, as a result of increased consumer demand, attributable in part to the negative impact of the COVID-19 pandemic on prior year wholesale and retail store revenues. Higher ASP, primarily in the DTC channel in our Americas and

Asia Pacific segments, also contributed to higher revenues. Foreign exchange favorability to revenue was driven by the Euro, Korean Won, and Chinese Yuan.

***Cost of sales.*** In the three months ended June 30, 2021, compared to the same period in 2020, cost of sales increased due to higher volume of $102.2 million, or 67.4%, primarily in our Americas segment, and foreign currency fluctuations, which increased cost of sales by $7.2 million, or 4.7%, offset in part by lower average cost per unit on a constant currency basis (“AUC”), driven by channel mix, efficiencies in our distribution and logistics network, and the non-recurrence of a prior year COVID-19 inventory write-off, which decreased cost of sales by $15.4 million, or 10.1%.

In the six months ended June 30, 2021, compared to the same period in 2020, cost of sales increased primarily due to higher volume of $177.5 million, or 59.4%. Foreign currency fluctuations further increased cost of sales by $11.4 million, or 3.8%. These increases were partially offset by lower AUC of $35.0 million, or 11.7%, as a result of favorable product mix and increased efficiencies in our distribution and logistics network.

***Gross profit.*** Gross margin increased in the three months ended June 30, 2021 to 61.7%, compared to 54.3% in the same period in 2020, driven by increased pricing and fewer promotions and discounts, favorable channel mix, and favorable product mix. Gross profit increased $215.2 million, or 119.6%, as a result of higher volume of $132.3 million, or 73.6%, the combined impact of lower AUC and higher ASP, of $73.8 million, or 41.0%, and favorable foreign currency changes of $9.1 million, or 5.0%.

Gross margin in the six months ended June 30, 2021 was 58.9% compared to 51.3% in 2020, due to favorable channel and product mix, increased pricing, and fewer promotions and discounts. Gross profit increased $334.3 million, or 106.4%, as a result of higher volumes of $215.6 million, or 68.6%, the combined impact of lower AUC and higher ASP of $105.2 million, or 33.5%, and positive foreign currency changes of $13.5 million, or 4.3%.

***Selling, general and administrative expenses.*** SG&A as a percent of revenue improved to 31.2% in the three months ended June 30, 2021 from 37.2% in the same period in 2020 as a result of strong sales growth and our continued efforts to leverage operating costs. SG&A expenses increased $76.5 million, or 62.0%, in the three months ended June 30, 2021 compared to the same period in 2020. This was primarily due to a $39.9 million increase in compensation expense, which was driven by a combination of investments in employee headcount to support the growth of the business, the impact of the prior year temporary and permanent elimination of certain roles in response to COVID-19, and higher variable and executive compensation. Marketing expense increased by $26.4 million, in part as an investment to fuel future growth and in part as a result of prior year COVID-19 savings. Facilities expense was higher by $8.4 million as a result of variable rent associated with an increase in retail sales, particularly in the Americas. Services costs, including consulting and legal fees, as well as variable costs associated with higher sales, were higher by $7.9 million and information technology and other net costs were higher by $5.8 million. These increases were offset in part by $7.6 million lower donations of inventory as a result of prior year COVID-19 donations to frontline healthcare workers and other organizations that did not recur at the same magnitude in the current year and decreases in bad debt expense of $4.4 million from the prior year COVID-19 related impact on our distributors that did not recur in the current year, as well as collections on previously reserved bad debt expense.

SG&A increased $91.7 million, or 38.7%, during the six months ended June 30, 2021, compared to the same period in 2020. This was driven in large part by higher compensation expense of $52.1 million as a result of increased employee headcount and higher variable and executive compensation and by additional investments in marketing of $28.1 million, both of which support the growth of the business. Services costs, including consulting and legal fees, as well as variable costs associated with higher sales, were up $11.4 million, facilities expense was up $10.6 million as a result of variable rent associated with higher sales, and information technology and other net costs were up by $7.9 million. These increases were offset in part by $9.3 million lower donations of inventory as a result of prior year COVID-19 donations to frontline healthcare workers and other organizations that did not recur at the same magnitude in the current year and decreases in bad debt expense of $9.1 million primarily due to the prior year COVID-19 related impact on our distributors that did not recur in the current year, as well as collections on previously reserved bad debt expense.

***Foreign currency losses, net.*** Foreign currency losses, net, consist of realized and unrealized foreign currency gains and losses from the remeasurement and settlement of monetary assets and liabilities denominated in non-functional currencies as well as realized and unrealized gains and losses on foreign currency derivative instruments. During the three months ended June 30, 2021, we recognized realized and unrealized net foreign currency losses of $0.1 million, compared to losses of $0.7 million during the three months ended June 30, 2020.

During the six months ended June 30, 2021, we recognized realized and unrealized net foreign currency losses of $0.6 million, compared to losses of $0.9 million during the six months ended June 30, 2020.

***Income tax expense.*** During the three months ended June 30, 2021, income tax benefit increased $126.5 million compared to the same period in 2020. The effective tax rate for the three months ended June 30, 2021 was (67.4)% compared to an effective tax rate of (3.4)% for the same period in 2020, a 64.0% decrease. This decrease in the effective rate was driven primarily by a $176.9 million discrete tax benefit during the three months ended June 30, 2021 for the release of valuation allowances resulting from the enactment of a tax law change. Our effective income tax rate for each period presented also differs from the federal U.S. statutory rate primarily due to the release of valuation allowances, as well as differences in income tax rates between U.S. and foreign jurisdictions.

During the six months ended June 30, 2021, income tax expense decreased $110.0 million compared to the same period in 2020. The effective tax rate for the six months ended June 30, 2021 was (33.3)% compared to an effective tax rate of 7.9% for the same period in 2020, a 41.2% decrease. This decrease in the effective rate was driven primarily by the release of valuation allowances resulting from the enactment of a tax law change. Our effective income tax rate, for each period presented, also differs from the federal U.S. statutory rate primarily due to the release of valuation allowances, as well as differences in income tax rates between U.S. and foreign jurisdictions.

The Company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will be realized. In making such determination, the Company considers all available (both positive and negative) evidence, including future reversals of temporary differences, tax-planning strategies, projected future taxable income, and results of operations.

### Reportable Operating Segments

The following table sets forth information related to our reportable operating segments, including a comparison of revenues and operating income by segment:

*(in thousands)*

| Revenues: | Three Months Ended June 30, 2021 | Favorable (Unfavorable) 2020 | Six Months Ended June 30, 2021 | 2020 | % Change Q2 2021-2020 | YTD 2021-2020 | Constant Currency % Change (1) Q2 2021-2020 | YTD 2021-2020 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Americas | $405,680 | $171,584 | $682,089 | $319,308 | 136.4% | 113.6% | 135.6% | 113.4% |
| Asia Pacific | 126,834 | 93,573 | 209,426 | 159,033 | 35.5% | 31.7% | 27.1% | 24.3% |
| EMEA | 108,250 | 66,376 | 209,308 | 134,276 | 63.1% | 55.9% | 52.6% | 46.7% |
| Total segment revenues | 640,764 | 331,533 | 1,100,823 | 612,617 | 93.3% | 79.7% | 88.4% | 75.6% |
| Unallocated corporate and other (3) | 9 | 16 | 48 | 92 | (43.8)% | (47.8)% | (43.8)% | (47.8)% |
| Total consolidated revenues | $640,773 | $331,549 | $1,100,871 | $612,709 | 93.3% | 79.7% | 88.4% | 75.6% |
| Income from operations: |  |  |  |  |  |  |  |  |
| Americas (2) | $192,781 | $52,974 | $308,848 | $91,191 | 263.9% | 238.7% | 263.2% | 238.5% |
| Asia Pacific (2) | 32,016 | 12,726 | 54,131 | 19,193 | 151.6% | 182.0% | 135.5% | 165.5% |
| EMEA (2) | 36,787 | 22,431 | 73,432 | 39,831 | 64.0% | 84.4% | 54.2% | 74.1% |
| Total segment income from operations | 261,584 | 88,131 | 436,411 | 150,215 | 196.8% | 190.5% | 191.6% | 185.5% |
| Unallocated corporate and other (2)(3) | (66,262) | (31,536) | (116,403) | (72,808) | (110.1)% | (59.9)% | (109.2)% | (59.1)% |
| Total consolidated income from operations | $195,322 | $56,595 | $320,008 | $77,407 | 245.1% | 313.4% | 237.4% | 304.5% |

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

(2) In the first quarter of 2021, certain costs previously reported within ‘Other Businesses’ were shifted to the Americas, Asia Pacific, and EMEA segments. Additionally, any costs remaining in ‘Other Businesses,’ including depreciation and amortization, have been consolidated into ‘Unallocated corporate and other.’ In the second quarter of 2021, certain marketing expenses previously reported within ‘Unallocated corporate and other’ were shifted to the Americas, Asia Pacific, and EMEA segments. The previously reported amounts for income from operations for the three and six months ended June 30, 2020 have been revised to conform to current period presentation. See the ‘Impacts of segment composition change’ and ‘Impacts of marketing expense allocations’ tables below for more information.

(3) Unallocated corporate and other includes corporate support and administrative functions, certain royalty income, costs associated with share-based compensation, research and development, brand marketing, legal, and depreciation and amortization of corporate and other assets not allocated to operating segments.

### Impacts of segment composition change:

*(in thousands)*

| Impacts on income from operations: | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 |
| --- | ---: | ---: |
| Americas | $(9,343) | $(16,059) |
| Asia Pacific | (4) | (183) |
| EMEA | 2,491 | 2,691 |
| Total impact on segment income from operations | $(6,856) | $(13,551) |
| Unallocated corporate and other | $6,856 | $13,551 |

### Impacts of marketing expense allocations:

*(in thousands)*

| Impacts on income from operations: | Three Months Ended March 31, 2021 |
| --- | ---: |
| Americas | $(2,277) |
| Asia Pacific | (1,178) |
| EMEA | (468) |
| Total impact on segment income from operations | $(3,923) |
| Unallocated corporate and other | $3,923 |

*(in thousands)*

| Impacts on income from operations: | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 |
| --- | ---: | ---: |
| Americas | $(1,941) | $(3,670) |
| Asia Pacific | (3,588) | (6,366) |
| EMEA | (413) | (858) |
| Total impact on segment income from operations | $(5,942) | $(10,894) |
| Unallocated corporate and other | $5,942 | $10,894 |

29

The primary drivers of changes in revenues by operating segment were:

*(in thousands)*

| Segment Revenues: | Three Months Ended June 30, 2021 vs. 2020 Volume $ Change | % Change | Price (1) $ Change | % Change | Foreign Exchange $ Change | % Change | Total $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Americas | $187,044 | 109.0% | $45,672 | 26.6% | $1,380 | 0.8% | $234,096 | 136.4% |
| Asia Pacific | 17,532 | 18.7% | 7,852 | 8.4% | 7,877 | 8.4% | 33,261 | 35.5% |
| EMEA | 29,928 | 45.1% | 4,949 | 7.5% | 6,997 | 10.5% | 41,874 | 63.1% |
| Total segment revenues | $234,504 | 70.7% | $58,473 | 17.7% | $16,254 | 4.9% | $309,231 | 93.3% |

(1) The change due to price for revenues is based on ASP, as defined earlier in this section.

*(in thousands)*

| Segment Revenues: | Six Months Ended June 30, 2021 vs. 2020 Volume $ Change | % Change | Price (1) $ Change | % Change | Foreign Exchange $ Change | % Change | Total $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Americas | $311,744 | 97.6% | $50,305 | 15.8% | $732 | 0.3% | $362,781 | 113.6% |
| Asia Pacific | 19,783 | 12.4% | 18,770 | 11.8% | 11,840 | 7.5% | 50,393 | 31.7% |
| EMEA | 61,514 | 45.8% | 1,191 | 0.9% | 12,327 | 9.2% | 75,032 | 55.9% |
| Total segment revenues | $393,041 | 64.1% | $70,266 | 11.5% | $24,899 | 4.1% | $488,206 | 79.7% |

(1) The change due to price for revenues is based on ASP, as defined earlier in this section.

### Americas Operating Segment

***Revenues.*** Americas revenues increased in the three months ended June 30, 2021, compared to the same period in 2020, most significantly as a result of higher volumes in both our wholesale and DTC channels, driven by increased consumer demand, partially due to the prior year impact of COVID-19 on our wholesale brick-and-mortar and partner stores and our retail stores. Higher ASP of 26.6% also contributed to higher sales, mostly from higher pricing and less promotions in our DTC channel, as well as favorable product mix, including increased sales of charms per shoe. Favorable foreign currency fluctuations were driven by the Canadian Dollar.

The increase in Americas revenues in the six months ended June 30, 2021, compared to the same period in 2020, was primarily due to higher volumes in both channels as a result of increased consumer demand, partially due to the prior year impact of COVID-19 on our brick-and-mortar stores. Higher ASP also contributed to higher sales, mostly from higher pricing and fewer promotions in our DTC channel, particularly in retail, as well as favorable product mix, including increased sales of charms per shoe. Favorable foreign currency fluctuations were driven by the Canadian Dollar, offset in part by unfavorable changes in the Brazilian Real in the first part of the year.

***Income from Operations.*** Income from operations for our Americas segment was $192.8 million for the three months ended June 30, 2021, an increase of $139.8 million, or 263.9%, compared to the same period in 2020. Gross profit increased $164.7 million, or 170.3%, as a result of higher volume of $108.6 million, or 112.3%, in both channels, and higher ASP, supplemented by lower AUC, of $55.6 million, or 57.5%, due to increased efficiencies in our U.S. distribution network, product mix, including increased sales of charms per shoe, higher prices and less promotions, and channel mix. There were also insignificant favorable currency changes.

SG&A for our Americas segment increased $24.9 million, or 57.0%, during the three months ended June 30, 2021 compared to the same period in 2020. We invested an additional $14.9 million in marketing compared to prior year to support our growth. Additionally, compensation expense was higher by $11.2 million, due to increased employee headcount in 2021, compounded by the prior year temporary and permanent elimination of certain roles in response to COVID-19, facilities expense was higher by $5.7 million primarily as a result of variable rent associated with an increase in retail sales, and other net costs were higher by $3.9 million, mostly as a result of variable costs associated with higher DTC sales. These increases were partially offset by lower donations of inventory of $7.8 million as a result of prior year COVID-19 donations to frontline healthcare workers that did not recur in the current year and decreases in bad debt expense of $3.0 million from the prior year COVID-19 related impact on our distributors that did not recur in the current year, as well as collections on previously reserved bad debt expense.

Income from operations for our Americas segment was $308.8 million for the six months ended June 30, 2021, an increase of $217.7 million, or 238.7%, compared to the same period in 2020. Gross profit increased $249.8 million, or 144.7%, primarily due to volume increases of $175.9 million, or 101.9%, in both our wholesale and DTC channels, and due to $73.6 million, or 42.6%, of higher ASP, primarily in our DTC channel, and lower AUC, as a result of increased efficiencies in our U.S. distribution network, product mix including increased sales of charms per shoe, higher prices and less promotions, and channel mix. Insignificant favorable currency changes also impacted gross profit.

SG&A for our Americas segment increased $32.1 million, or 39.4%, during the six months ended June 30, 2021 compared to the same period in 2020, due to an investment in marketing of $18.2 million to support growth, including some variable costs associated with higher revenues, higher compensation expense of $13.0 million primarily due to the prior year temporary and permanent elimination of certain roles in response to COVID-19, higher facilities costs of $7.1 million associated with variable rent driven by higher retail sales, higher services costs of $3.3 million mostly from variable costs associated with higher DTC sales, and other net costs of $2.9 million. These increases were offset by lower donations of inventory of $8.3 million as a result of prior year COVID-19 donations to frontline healthcare workers that did not recur in the current year and lower bad debt expense of $4.1 million as a result of the prior year impact of COVID-19 on our distributors and subsequent collections in the current year.

### Asia Pacific Operating Segment

***Revenues.*** Asia Pacific revenues increased in the three months ended June 30, 2021, compared to the same period in 2020, primarily as a result of volume increases in our wholesale channel driven by the prior year COVID-19 impact on our distributor markets, while higher ASP, as a result of increased pricing and fewer promotions, was the largest contributor to DTC growth. Favorable foreign currency fluctuations, primarily in the Korean Won and Chinese Yuan, also increased revenues.

Revenues in the six months ended June 30, 2021, compared to the same period in 2020, in our Asia Pacific segment increased as a result of volume increases in our wholesale channel. Additionally, ASP increases in both channels, as a result of increased pricing and fewer promotions, and favorable foreign currency fluctuations in the Korean Won, Chinese Yuan, and Singapore Dollar also resulted in higher revenues.

***Income from Operations.*** Income from operations for the Asia Pacific segment was $32.0 million for the three months ended June 30, 2021, an increase of $19.3 million, or 151.6%, compared to the same period in 2020. Gross profit increased by $27.7 million, or 55.3%, mostly from ASP growth, combined with AUC savings, of $16.1 million, or 32.3%, driven by increased pricing and less promotional activity, favorable product mix, and greater purchasing power from currency changes, partially offset by unfavorable channel mix as a result of increased wholesale share. Increases in sales volume of $6.4 million, or 12.7%, and favorable changes in foreign currency of $5.2 million, or 10.3%, led by the Korean Won and Chinese Yuan, also contributed to higher gross profit.

SG&A for our Asia Pacific segment increased $8.4 million, or 22.5%, during the three months ended June 30, 2021, compared to the same period in 2020, primarily due to an investment in marketing of $5.8 million and increases in facilities expense, compensation expense, and other net costs of $2.6 million.

Income from operations for the Asia Pacific segment was $54.1 million for the six months ended June 30, 2021, an increase of $34.9 million, or 182.0%, compared to the same period in 2020. Gross profit increased by $39.7 million, or 48.3%, mostly due to the net impact of higher ASP and lower AUC of $25.1 million, or 30.6%, resulting from price increases and less promotional activity, favorable product mix, and greater purchasing power from currency changes. Favorable currency impacts of $7.4 million, or 9.0%, and higher volumes of $7.2 million, or 8.7%, also increased gross profit.

SG&A for our Asia Pacific segment increased $4.8 million, or 7.6% in the six months ended June 30, 2021 compared to the same period in 2020, primarily due to an investment in marketing of $5.4 million and an increase in facilities expense of $2.8 million associated with variable rent driven by higher retail sales. There were also increases in compensation and other net costs of $1.5 million. These increases were partially offset by lower bad debt expense of $3.5 million, primarily from a charge taken in the prior year in response to COVID-19, and prior year inventory donations to healthcare workers and other organizations of $1.4 million, neither of which recurred in 2021.

### EMEA Operating Segment

***Revenues.*** Revenues increased in our EMEA segment in the three months ended June 30, 2021, compared to the same period in 2020, driven mostly by increased volume in our wholesale channel. This increase was a result of higher demand for our products, as well as the prior year impact of the COVID-19 pandemic on our wholesale brick-and-mortar and distributor markets. Positive net foreign currency fluctuations in the Euro and higher ASP, driven by favorable product mix and price increases, also increased revenues.

During the six months ended June 30, 2021, EMEA revenues increased compared to the same period in 2020, primarily due to higher wholesale revenues resulting from increased product demand and prior year COVID-19 impacts. Higher ASP in our DTC channel resulted from increased pricing and less promotions. Favorable foreign currency fluctuations in the Euro, partially offset by negative fluctuations in the Russian Ruble, also contributed to higher revenues.

***Income from Operations.*** Income from operations for the EMEA segment was $36.8 million for the three months ended June 30, 2021, an increase of $14.4 million, or 64.0%, compared to the same period in 2020. Gross profit increased $21.0 million, or 59.3%, due mostly to higher volume of $15.4 million, or 43.5%. ASP growth outpaced AUC growth, leading to higher gross profit of $2.1 million, or 6.0%. This was driven by favorable purchasing power from currency changes, favorable product mix, and increased pricing, offset in part by higher freight costs from global supply chain challenges including the blockage in the Suez Canal and in part by a channel mix shift towards wholesale. Foreign currency changes, primarily in the Euro, were favorable, impacting gross profit by $3.5 million, or 9.8%.

SG&A for our EMEA segment increased $6.6 million, or 50.7%, during three months ended June 30, 2021, compared to the same period in 2020, primarily from increases in marketing investments to support growth of $4.6 million, compensation expense of $1.6 million, and facilities and other net costs of $1.4 million. These were offset in part by $1.0 million lower bad debt expense as a result of collections on previously reserved bad debt.

Income from operations for the EMEA segment was $73.4 million for the six months ended June 30, 2021, an increase of $33.6 million, or 84.4%, compared to the same period in 2020. Gross profit increased $41.4 million, or 62.9%, due to higher sales volumes of $28.8 million, or 43.8%. Higher ASP and lower AUC, led to a net impact on gross profit of $6.5 million, or 9.9%, as a result of favorable purchasing power, price increases, and fewer promotions, offset in part by higher freight costs from global supply chain challenges. Positive currency changes led to increases of $6.1 million, or 9.2%.

SG&A for our EMEA segment increased $7.8 million, or 30.0%, during the six months ended June 30, 2021, compared to the same period in 2020. Additional investments in marketing to support growth of $5.7 million, higher compensation expense of $2.1 million, and higher facilities and other net costs of $1.3 million were offset in part by $1.3 million lower bad debt expense.

### Unallocated Corporate and Other

During the three months ended June 30, 2021, total net costs within ‘Unallocated Corporate and Other’ increased $34.7 compared to the same period in 2020, driven mostly by higher compensation costs of $26.0 million as a result of increased employee headcount, compounded by the prior year temporary and permanent elimination of certain roles in response to COVID-19, as well as higher variable and executive compensation in 2021. Higher services costs including consulting fees and legal fees resulted in $6.1 million of additional costs and information technology costs were higher by $2.5 million. There were also higher other net costs of $0.1 million.

During the six months ended June 30, 2021, total net costs within ‘Unallocated Corporate and Other’ increased $43.6 million compared to the same period in 2020, primarily driven by an increase in compensation expense of $35.9 million due to increased employee headcount and higher variable and executive compensation, higher services costs including consulting and legal fees of $8.0 million, and higher information technology costs of $4.5 million. These increases were offset in part by lower other net costs of $4.8 million.

### Store Locations and Digital Sales Percentage

The tables below illustrate the overall change in the number of our company-operated retail locations by reportable operating segment for the three and six months ended June 30, 2021:

| Company-operated retail locations: | March 31, 2021 | Opened | Closed | June 30, 2021 |
| --- | ---: | ---: | ---: | ---: |
| Americas | 165 | — | 1 | 164 |
| Asia Pacific | 135 | 7 | — | 142 |
| EMEA | 49 | — | 3 | 46 |
| Total | 349 | 7 | 4 | 352 |

| Operating segment: | December 31, 2020 | Opened | Closed | June 30, 2021 |
| --- | ---: | ---: | ---: | ---: |
| Americas | 165 | — | 1 | 164 |
| Asia Pacific | 137 | 7 | 2 | 142 |
| EMEA | 49 | — | 3 | 46 |
| Total | 351 | 7 | 6 | 352 |

Digital sales, which includes sales through our company-owned websites, third party marketplaces, and e-tailers (which are reported in our wholesale channel), as a percent of total revenues, by operating segment were:

| Digital sales as a percent of total revenues: | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| Americas | 30.9% | 58.4% | 30.2% | 44.8% |
| Asia Pacific | 40.5% | 46.6% | 36.7% | 37.5% |
| EMEA | 52.5% | 63.4% | 47.4% | 50.7% |
| Global | 36.4% | 56.1% | 34.7% | 44.2% |

### Financial Condition, Capital Resources, and Liquidity

### Liquidity

Our liquidity position as of June 30, 2021 was:

*(in thousands)*

|  | June 30, 2021 |
| --- | ---: |
| Cash and cash equivalents | $197,853 |
| Available borrowings | 454,725 |

As of June 30, 2021, we had $197.9 million in cash and cash equivalents and up to $454.7 million of remaining borrowing availability under our Facility (as defined below). We believe that cash flows from operations, our cash and cash equivalents on hand, and available borrowings under our Facility will be sufficient to meet our ongoing liquidity needs and capital expenditure requirements for at least the next twelve months. We will also continue to be opportunistic with respect to our capital structure and our capital returns. Additionally, in March 2021, we completed the issuance and sale of $350.0 million aggregate principal amount of Notes (as defined below). A portion of the net proceeds were used to repay the then-outstanding balance of $115.0 million under our Facility and the remainder was used for general corporate purposes and share repurchases. See “Senior Notes Issuance” below for more information. Further, in April 2021, the Board approved a $712.2 million increase to our share repurchase authorization, after which $1.0 billion remained available for future common stock repurchases. As of June 30, 2021, we had remaining authorization to repurchase approximately $700.0 million of our common stock, subject to restrictions under our Notes and Credit Agreement.

Additional future financing may be necessary to fund our operations, and there can be no assurance that, if needed, we will be able to secure additional debt or equity financing on terms acceptable to us or at all. Although we believe we have adequate sources of liquidity over the long term, the success of our operations, the global economic outlook, and the pace of sustainable growth in our markets, among other factors, could each impact our business and liquidity.

### Repatriation of Cash

As a global business, we have cash balances in various countries and amounts are denominated in various currencies. Fluctuations in foreign currency exchange rates impact our results of operations and cash positions. Future fluctuations in foreign currencies may have a material impact on our cash flows and capital resources. Cash balances held in foreign countries may have additional restrictions and covenants associated with them which could adversely impact our liquidity and our ability to timely access and transfer cash balances between entities.

All of the cash held outside of the U.S. could be repatriated to the U.S. without incurring additional U.S. federal income taxes. As of June 30, 2021, we held $117.1 million of our total $197.9 million in cash in international locations. This cash is primarily used for the ongoing operations of the business in the locations in which the cash is held. The repatriation of the $117.1 million held in international locations is not limited by local regulations.

### Senior Revolving Credit Facility

In July 2019, the Company and certain of our subsidiaries (the “Borrowers”) entered into a Second Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), with the lenders named therein and PNC Bank, National Association, as a lender and administrative agent for the lenders, which provided for a revolving credit facility of $500.0 million, which can be increased by an additional $100.0 million subject to certain conditions (the “Facility”). Borrowings under the Credit Agreement bear interest at a variable rate based on (A) a domestic base rate (defined as the highest of (i) the Federal Funds open rate, plus 0.25%, (ii) the Prime Rate, and (iii) the Daily LIBOR rate, plus 1.00%), plus an applicable margin ranging from 0.25% to 0.875% based on our leverage ratio, or (B) a LIBOR rate, plus an applicable margin ranging from 1.25% to 1.875% based on our leverage ratio. Borrowings under the Credit Agreement are secured by all of the assets of the Borrowers and guaranteed by certain other subsidiaries of the Borrowers.

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

As of June 30, 2021, the total commitments available from the lenders under the Facility were $500.0 million. At June 30, 2021, we had $45.0 million outstanding borrowings and $0.3 million in outstanding letters of credit under the Facility, which reduces amounts available for borrowing under the Facility. As of June 30, 2021 and December 31, 2020, we had $454.7 million and $319.4 million, respectively, of available borrowing capacity under the Facility.

### Senior Notes Issuance

On March 12, 2021, the Company completed the issuance and sale of $350.0 million aggregate principal amount of 4.250% Senior Notes due March 15, 2029 (the “Notes”), pursuant to the indenture related thereto (“the Indenture”). Interest on the Notes is payable semi-annually.

The Notes rank pari passu in right of payment with all of the Company’s existing and future senior debt, including the Credit Agreement, and are senior in right of payment to any of the Company’s future debt that is, by its term, expressly subordinated in right of payment to the Notes. The Notes are unconditionally guaranteed by each of the Company’s restricted subsidiaries that is a borrower or guarantor under the Credit Agreement and by each of the Company’s wholly-owned restricted subsidiaries that guarantees any debt of the Company or any guarantor under any syndicated credit facility or capital markets debt in an aggregate principal amount in excess of $25.0 million.

The Company will have the option to redeem all or any portion of the Notes, at once or over time, at any time on or after March 15, 2024, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably on an annual basis to par and accrued and unpaid interest, if any, to, but excluding, the date of redemption. The Company will also have the option to redeem some or all of the Notes at any time before March 15, 2024 at a redemption price of 100% of the principal amount of the Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, at any time before March 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the Notes at a redemption price of 104.250% of the principal amount of the Notes with the proceeds from certain equity issuances, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

The Indenture contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to incur additional debt or issue certain preferred stock; pay dividends or repurchase or redeem capital stock or make other restricted payments; declare or pay dividends or other payments; incur liens; enter into certain types of transactions with the Company’s affiliates; and consolidate or merge with or into other companies. As of June 30, 2021, we were in compliance with all financial covenants under the Notes.

### Cash Flows

*(in thousands)*

|  | Six Months Ended June 30, 2021 | 2020 | $ Change Favorable (Unfavorable) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cash provided by operating activities | $242,366 | $40,267 | $202,099 | 501.9% |
| Cash used in investing activities | (21,323) | (24,010) | 2,687 | 11.2% |
| Cash provided by (used in) financing activities | (155,344) | 28,877 | (184,221) | (638.0)% |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (1,793) | (2,360) | 567 | 24.0% |
| Net change in cash, cash equivalents, and restricted cash | $63,906 | $42,774 | $21,132 | 49.4% |

***Operating Activities.*** Cash provided by operating activities consists of net income adjusted for noncash items and changes in working capital. Cash provided by operating activities increased $202.1 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, driven by higher net income, adjusted for non-cash items, of $169.6 million and by net increases in operating assets and liabilities of $32.5 million.

***Investing Activities.*** There was an $2.7 million decrease in cash used in investing activities for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The decrease is primarily due to a decrease in the purchases of property, equipment, and software, mainly from expenditures in 2020 that did not recur in the current year related to the relocation of our Corporate headquarters.

***Financing Activities.*** Cash provided by financing activities decreased by $184.2 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. This decrease was primarily driven by a $205.0 million decrease in borrowings, net of repayments, on our Facility. Increases in repurchases of our common stock and repurchases of common stock for tax withholding of $310.9 million and $9.0 million, respectively, also contributed to the overall decrease of cash provided by financing activities. The overall decrease was offset by an increase of $350.0 million in proceeds from the Notes issuance, net of cash used in other financing activities of $9.3 million, which is primarily due to deferred debt issuance costs related to the Notes.

### Contractual Obligations

There have been no significant changes to the contractual obligations reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, other than (i) borrowings and repayments on the Facility and the issuance of the Notes, as described above; and (ii) in the six months ended June 30, 2021, we signed contracts to further expand our U.S. distribution center, resulting in (a) future lease payments of approximately $31 million through 2030, as described in Note 4 — Leases in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. *Financial Statements* of this Quarterly Report on Form 10-Q, and (b) other contractual commitments of approximately $48 million through 2022, the majority of which is expected to be paid during 2021.

### Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of June 30, 2021, other than certain purchase commitments, which are described in Note 13 — Commitments and Contingencies in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. *Financial Statements* of this Quarterly Report on Form 10-Q.

### Critical Accounting Policies and Estimates

The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, and expenses, and related disclosure of contingent assets and liabilities. We evaluate our assumptions and estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

For a complete discussion of our critical accounting policies, please refer to our Annual Report on Form 10-K for the year ended December 31, 2020 and Note 2 — Recent Accounting Pronouncements in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. *Financial Statements* of this Quarterly Report on Form 10-Q. There have been no other significant changes in our critical accounting policies or their application since December 31, 2020.

### Recent Accounting Pronouncements

See Note 2 — Recent Accounting Pronouncements in the accompanying notes to the condensed consolidated financial statements included in Part I - Item 1. *Financial Statements* of this Quarterly Report on Form 10-Q for a description of recently adopted accounting pronouncements and issued accounting pronouncements that we believe may have an impact on our condensed consolidated financial statements when adopted.

## Market risk

As filed, 3,865 characters.

### Interest Rate Risk

We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax consequences, and overall financing strategies. Our exposure to market risk includes interest rate fluctuations in connection with our Facility and certain financial instruments.

Borrowings under our Facility bear interest at a variable rate and are therefore subject to risk based upon prevailing market interest rates. Interest rates fluctuate as a result of many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control.

As of June 30, 2021, we had long-term borrowings with a face value of $395.0 million, mainly comprised of the Notes, which carry a fixed rate, and $0.3 million in outstanding letters of credit under our Facility. As of December 31, 2020, we had $180.0 million in outstanding borrowings and $0.6 million in outstanding letters of credit under our Facility.

A hypothetical increase of 1% in the interest rate on the Facility borrowings would have increased interest expense by $0.2 million and $0.5 million for the three and six months ended June 30, 2021, respectively.

### Foreign Currency Exchange Risk

Changes in exchange rates have a direct effect on our reported U.S. Dollar condensed consolidated financial statements because we translate the operating results and financial position of our international subsidiaries to U.S. Dollars using current period exchange rates. Specifically, we translate the statements of operations of our foreign subsidiaries into the U.S. Dollar reporting currency using exchange rates in effect during each reporting period. As a result, comparisons of reported results between reporting periods may be impacted significantly due to differences in the exchange rates in effect at the time such exchange rates are used to translate the operating results of our international subsidiaries.

An increase of 1% of the value of the U.S. Dollar relative to foreign currencies would have decreased our revenues during the three and six months ended June 30, 2021 by $2.5 million and $4.5 million, respectively. The volatility of the exchange rates is dependent on many factors that cannot be forecasted with reliable accuracy.

We may enter into forward foreign exchange contracts to buy or sell various foreign currencies to selectively protect against volatility in the value of non-functional currency denominated monetary assets and liabilities. Changes in the fair value of these forward contracts are recognized in earnings in the period that the changes occur. As of June 30, 2021, the U.S. Dollar notional value of our outstanding foreign currency forward exchange contracts was approximately $152.3 million. The net fair value of these contracts at June 30, 2021 was a liability of $0.8 million.

We perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our foreign currency forward exchange contracts. To perform the sensitivity analysis, we assess the risk of changes in fair values from the effect of hypothetical changes in foreign currency exchange rates. This analysis assumes a like movement by the foreign currencies in our hedge portfolio against the U.S. Dollar. As of June 30, 2021, a 10% appreciation in the value of the U.S. Dollar would result in a net increase in the fair value of our derivative portfolio of approximately $0.9 million.

See Part I - Item 2. *Management’s Discussion and Analysis of Financial Condition and Results of Operations* of this Quarterly Report on Form 10-Q for a discussion of the impact of the change in foreign exchange rates on our U.S. Dollar condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020.

## Controls and procedures

As filed, 1,573 characters.

### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures as such item is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021, to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures that, by their nature, can only provide reasonable assurance regarding management’s control objectives.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the three months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 137 characters.

There have been no material changes to the risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2020.

Filed Jul 22, 2021.
Source: SEC EDGAR, the filing index for accession 0001334036-21-000129. Last ingested by Listed: Nov 6, 2026, 18:01 ET. No prices; not investment advice.