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 towards 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.

2012 Financial Highlights

Our business continues to experience positive results primarily from higher sales volumes and higher average shoe prices. Results for 2012 reflect increases in both consolidated revenues and earnings driven by balanced international growth, operational efficiency, and customer focus.

The following are the more significant developments in our businesses during the year ended December 31, 2012:

• Revenues increased $122.4 million, or 12.2%, from 2011 to $1,123.3 million in 2012. Revenue growth was driven by increased sales volume and focused improvements on average footwear selling prices with new product styles as we continue to transform Crocs brand awareness into an all-season footwear brand.

• Gross profit increased $71.6 million, or 13.3%, from 2011 to $608.0 million in 2012. Gross margin percentage increased slightly compared to last year driven by higher average selling prices and higher footwear unit sales, which are results of the continued growth and expansion of our retail and internet channels as the growth in combined sales from these channels began to outpace our wholesale channel. These drivers were offset by higher costs primarily from the expansion of our

• Selling, general, and administrative expenses increased $55.6 million, or 13.7%, from 2011 to $460.4 million in 2012, which consists of $229.8 million in indirect expenses and $230.6 million in direct expenses. Selling, general, and administrative expenses continue to increase as we continue to increase our retail store locations and continue to make strategic purchases to improve the operational efficiency of the Company.

• Net income increased $18.6 million, or 16.5%, from 2011 to $131.3 million in 2012 driving our basic and diluted earnings per share from $1.27 to $1.46 and $1.24 to $1.44, respectively, due to higher operating results and to a lesser extent a lower effective tax rate.

• In October 2012, we began the implementation of a customized and fully integrated operations, accounting, and finance enterprise resource planning ("ERP") system which is expected to launch in the first half of 2014. The introduction of the new ERP to our current environment will allow for seamless, high-quality, and compliant data across the Company. As of December 31, 2012, total costs related to the ERP implementation were $9.9 million, of which $9.0 million was capitalized and $0.9 million was expensed. We have financed $6.6 million of our total costs related to the ERP under a Master Installment Payment Agreement with PNC Bank National Association ("PNC"). Our total anticipated expenses to complete the ERP implementation are $25.0 million.

• In December 2012, we renegotiated our Credit Agreement to increase our credit line to $100 million, extending the agreement until December 2017, reducing our interest rate by 50 basis points for both domestic and LIBOR rate loans, as well as allowing for up to $50 million per quarter, or $150 million per year, to be used towards share repurchases.

• In the fourth quarter of 2012, approximately 1.9 million shares were repurchased at an average price of $13.27 for a total of value of $25.0 million, excluding related commission charges.

2013 Outlook

In 2013, we expect another year of increased revenue and earnings as indicated by increased year-over-year global preseason orders from our wholesale customers for spring and summer and an estimated expansion of retail locations across the globe by 70 to 95 net stores. We expect to have increased revenues driven by continued higher volumes as a result of improving selling conditions, higher average selling prices, and positive market acceptance on new products contributing to the continued expansion of our reputation as a four season brand. We anticipate margins to continually increase in 2013 as we expand our retail and internet channels. These channels give us the ability to focus on visual merchandising of new products.

During 2013, we plan to make significant investments in the operational and technological efficiency of the Company as well as consumer marketing. These investments include a new ERP system, as discussed above, which we currently expect to reduce our 2013 earnings per share by $0.08-$0.10 per diluted share and represents a transformational change intended to improve our operational efficiency as we adapt as a global company, retail store metrics including increased size of stores and visual merchandising with a focus on high traffic, outlet locations, and the launching of new web designs in certain regions complimented by suggestive selling tactics and mobile point of sale systems to better assist customers. We intend to focus on organic growth including the launch of new innovative products, attracting new consumers, retail excellence and wholesale channel expansion with key partners.

Results of Operations

Comparison of the Years Ended December 31, 2012 and 2011



                                                                                Year Ended
                                                                               December 31,                             Change
($ thousands, except per share data and average footwear selling
price)                                                                   2012                2011                 $                 %
Revenues                                                              $ 1,123,301         $ 1,000,903         $  122,398             12.2  %
Cost of sales                                                             515,324             464,493             50,831             10.9

Gross profit                                                              607,977             536,410             71,567             13.3
Selling, general and administrative expenses                              460,393             404,803             55,590             13.7
Asset impairments                                                           1,410                 528                882            167.0

Income from operations                                                    146,174             131,079             15,095             11.5
Foreign currency transaction (gains) losses, net                            2,500              (4,886 )            7,386           (151.2 )
Other income, net                                                          (2,711 )            (1,578 )           (1,133 )           71.8
Interest expense                                                              837                 853                (16 )           (1.9 )

Income before income taxes                                                145,548             136,690              8,858              6.5
Income tax expense                                                         14,205              23,902             (9,697 )          (40.6 )

Net income                                                            $   131,343         $   112,788         $   18,555             16.5  %

Net income per common share:
Basic                                                                 $      1.46         $      1.27         $     0.19             15.0  %

Diluted                                                               $      1.44         $      1.24         $     0.20             16.1  %

Gross margin                                                                54.1%               53.6%             50 bps              0.9  %
Operating margin                                                            13.0%               13.1%           (10) bps             (0.8 )%
Footwear unit sales                                                        49,947              47,736              2,211              4.6  %
Average footwear selling price                                        $     21.55         $     20.04         $     1.51              7.5  %

Revenues. The following table sets forth revenues by channel for the years ended December 31, 2012 and 2011. During the year ended December 31, 2012, revenues increased $122.4 million, or 12.2%, compared to the same period in 2011, primarily due to an increase of 2.2 million, or 4.6%, in global footwear unit sales and an increase of $1.51, or 7.5%, in footwear average selling price. For the year ended December 31, 2012, revenues from our wholesale channel increased $47.5 million, or 7.9%, which was primarily driven by increased wholesale sales in Americas and Asia. Revenues from our retail channel increased $68.2 million, or 22.2%, primarily driven by strong demand in all three reportable segments as well as continued growth of our retail presence by opening 107 retail stores net during 2012. We also 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 increased $6.7 million, or 7.0%, compared to 2011 primarily driven by increased brand awareness in the Americas and Asia operating segments and focus on improving our regional webstore presence.

The following table summarizes our total revenue by channel for the years ended December 31, 2012 and 2011.

                                         Year Ended                                            Constant  Currency
                                        December 31,                     Change                     Change(1)
($ thousands)                       2012            2011             $             %             $              %
Channel revenues:
Wholesale:
Americas                         $   235,988     $   214,062     $  21,926         10.2 %    $   25,920         12.1  %
Asia                                 298,350         259,104        39,246         15.1          38,984         15.0
Europe                               110,947         124,995       (14,048 )      (11.2 )        (5,168 )       (4.1 )
Other businesses                         574             191           383        200.5             406        212.4

Total Wholesale                      645,859         598,352        47,507          7.9          60,142         10.1
Consumer-direct:
Retail:
Americas                             196,711         174,840        21,871         12.5          22,691         13.0
Asia                                 143,062         111,650        31,412         28.1          32,543         29.1
Europe                                35,052          20,167        14,885         73.8          16,093         79.8

Total Retail                         374,825         306,657        68,168         22.2          71,327         23.3
Internet:
Americas                              63,153          59,175         3,978          6.7           4,069          6.9
Asia                                  15,999          11,012         4,987         45.3           5,049         45.8
Europe                                23,465          25,707        (2,242 )       (8.7 )          (163 )       (0.6 )

Total Internet                       102,617          95,894         6,723          7.0           8,955          9.3

Total revenues:                  $ 1,123,301     $ 1,000,903     $ 122,398         12.2 %    $  140,424         14.0  %

(1) Reflects year over year 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 as of December 31, 2012 and 2011.

                          December 31,                                       December 31,
                               2012            Opened        Closed               2011
 Type:
 Kiosk/Store in Store                 121            39           (76 )                  158
 Retail Stores                        287           120           (13 )                  180
 Outlet Stores                        129            42            (5 )                   92

 Total                                537           201           (94 )                  430
 Geography:
 Americas                             199            44           (42 )                  197
 Asia                                 241            94           (51 )                  198
 Europe                                97            63            (1 )                   35

Gross profit. During the year ended December 31, 2012, gross profit increased $71.6 million, or 13.3%, compared to the same period in 2011, which was primarily attributable to the 4.6% increase in sales volume and a 7.5% increase in footwear average selling price. Higher prices and sales volume are the result of the continued growth and expansion of our retail and internet channels as the growth in combined sales from these channels began to outpace our wholesale channel. These drivers were offset by higher costs primarily from the expansion of our product offerings in 2012 which utilize traditional materials, such as textile fabric and leather, and increased offerings of discounted products and promotional items through our wholesale and direct-to-consumer channels.

Impact on Gross Profit due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translate revenues and costs of sales from our functional currencies to our reporting currency during the year ended December 31, 2012 decreased our gross profit by $7.8 million compared to the same period in 2011.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $55.6 million, or 13.7%, during the year ended December 31, 2012 compared to the same period in 2011 primarily due to:

(i) an increase of $23.7 million in rent and building related costs, both of which resulted from continued growth in the number of company operated retail stores;

(ii) an increase of $14.4 million in salaries and related costs, including variable compensation, resulting from higher global headcount including those needed for new retail store openings and increased stock compensation;

(iii) an increase of $9.7 million in other expenses primarily from increases in depreciation and amortization expenses related to additional retail store locations, and capitalized software as well as bad debt and sales tax expense increases;

(iv) an increase of $9.8 million in professional service expenses resulting from increased use of outside accounting and finance services, consulting for our new ERP implementation which began in October 2012, certain legal contingency accruals, increased outside IT costs related to the implementation of new networking devices in our corporate headquarters, and increased costs associated with contracted customer service, sales support, and performance improvement; and

(v) the remaining difference is primarily a result of $2.1 million of net decreases in selling, general, and administrative expenses including travel, as we continue to be conscious of operating expenses throughout the company.

As a percentage of revenues, selling, general and administrative expenses increased 1.5%, or 60 basis points, to 41.0% in 2012 from 40.4% in 2011.

Impact on Selling, General, and Administrative Expenses due to Foreign Exchange Rate Fluctuations. Changes in average foreign currency exchange rates used to translate expenses from our functional currencies to our reporting currency during the year ended December 31, 2012, decreased selling, general and administrative expenses by approximately $4.8 million as compared to the same period in 2011.

Asset Impairments. Asset impairments increased $0.9 million, or 167%, during the year ended December 31, 2012 primarily due to the impairment of $1.4 million of long-lived assets related to retail stores in the United States and Canada. During 2012, we recorded impairments related to four retail locations as our projected discounted future cash flows of these locations is currently not sufficient to cover our fixed asset investments for these stores.

Foreign Currency Transaction (Gains)/Losses. The line item entitled "Foreign currency transaction (gains)/losses, net" is comprised of foreign currency gains and losses from the re-measurement and settlement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments. In 2012, we recognized a loss of $2.5 million related to foreign currency transactions, compared to a $4.9 million gain in 2011, primarily due to a $4.3 million loss in the first quarter of 2012 as a result of large currency fluctuations and an increase in international business. We implemented a foreign currency hedging strategy in the second quarter of 2012. As a result of this strategy, we have been able to reduce the impacts of foreign currency fluctuations on our financial statements.

Income tax (benefit) expense. During the year ended December 31, 2012, income tax expense decreased $9.7 million resulting in a 7.7% decrease in effective tax rate compared to the same period in 2011, which was primarily due to a reversal of certain tax provisions and the release of certain valuation allowances associated with deferred tax assets. Our effective tax rate of 9.8% for the year ended December 31, 2012 differs from the federal U.S. statutory rate primarily because of the above releases as well as differences between income tax rates between U.S. and foreign jurisdictions.

Comparison of the Years Ended December 31, 2011 and 2010



                                                                                 Year Ended December 31,                        Change
($ thousands, except per share data and average footwear selling price)          2011                2010                 $                 %
Revenues                                                                     $  1,000,903          $ 789,695          $  211,208             26.7  %
Cost of sales                                                                     464,493            364,631              99,862             27.4
Restructuring charges                                                                   -              1,300              (1,300 )         (100.0 )

Gross profit                                                                      536,410            423,764             112,646             26.6
Selling, general and administrative expenses                                      404,803            342,961              61,842             18.0
Restructuring charges                                                                   -              2,539              (2,539 )         (100.0 )
Asset impairments                                                                     528                141                 387            274.5

Income from operations                                                            131,079             78,123              52,956             67.8
Foreign currency transaction gains, net                                            (4,886 )           (2,325 )            (2,561 )          110.2
Other income, net                                                                  (1,578 )           (1,001 )              (577 )           57.6
Interest expense                                                                      853                657                 196             29.8

Income before income taxes                                                        136,690             80,792              55,898             69.2
Income tax expense                                                                 23,902             13,066              10,836             82.9

Net income                                                                   $    112,788          $  67,726          $   45,062             66.5  %

Net income per common share:
Basic                                                                        $       1.27          $    0.78          $     0.49             62.8  %

Diluted                                                                      $       1.24          $    0.76          $     0.48             63.2  %

Gross margin                                                                         53.6  %            53.7  %         (10) bps             (0.2 )%
Operating margin                                                                     13.1  %             9.9  %          320 bps             32.3  %
Footwear unit sales                                                                47,736             42,618               5,118             12.0  %
Average footwear selling price                                               $      20.04          $   17.69          $     2.35             13.3  %

Revenues. During the year ended December 31, 2011, revenues from our wholesale channel increased $118.3 million, or 24.6%, which was primarily driven by strong demand in all three operating segments, particularly Asia. Revenues from our retail channel increased $72.0 million, or 30.7%, as we continued to grow our retail presence by opening new retail stores. We also closed certain kiosks as branded stores allow us to better merchandise the full breadth and depth of our product line. Revenues from our internet channel increased $20.9 million, or 27.9%, primarily driven by increased internet sales in the Americas and Europe operating segments.

The following table summarizes our total revenue by channel for the years ended December 31, 2011 and 2010.

                                        Year Ended                                            Constant Currency
                                       December, 31                    Change                     Change(1)
($ thousands)                       2011           2010            $             %              $             %
Channel revenues:
Wholesale:
Americas                         $   214,062     $ 182,149     $  31,913         17.5  %    $  29,914         16.4  %
Asia                                 259,104       200,013        59,091         29.5          40,317         20.2
Europe                               124,995        95,806        29,189         30.5          23,629         24.7
Other businesses                         191         2,119        (1,928 )      (91.0 )        (1,927 )      (90.9 )

Total Wholesale                      598,352       480,087       118,265         24.6          91,934         19.1
Consumer-direct:
Retail:
Americas                             174,840       141,892        32,948         23.2          32,369         22.8
Asia                                 111,650        77,319        34,331         44.4          27,561         35.6
Europe                                20,167        15,426         4,741         30.7           3,799         24.6

Total Retail                         306,657       234,637        72,020         30.7          63,729         27.2
Internet:
Americas                              59,175        50,832         8,343         16.4           8,246         16.2
Asia                                  11,012         7,685         3,327         43.3           2,382         31.0
Europe                                25,707        16,454         9,253         56.2           7,890         48.0

Total Internet                        95,894        74,971        20,923         27.9          18,518         24.7

Total revenues:                  $ 1,000,903     $ 789,695     $ 211,208         26.7  %    $ 174,181         22.1  %

(1) Reflects year over year 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 as of December 31, 2011 and 2010.

                          December 31,                                       December 31,
                               2011            Opened        Closed               2010
 Type:
 Kiosk/Store in Store                 158            30           (25 )                  153
 Retail Stores                        180            57           (13 )                  136
 Outlet Stores                         92            14             -                     78

 Total                                430           101           (38 )                  367
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