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ACQUISITION OF HEYDUDE | 12 Months Ended
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Dec. 31, 2022
Business Combination and Asset Acquisition [Abstract] |
ACQUISITION OF HEYDUDE | ACQUISITION OF HEYDUDE On February 17, 2022, (the “Acquisition Date”), we acquired 100% of the equity of HEYDUDE, pursuant to the SPA. HEYDUDE is engaged in the business of distributing and selling casual footwear under the brand name “HEYDUDE.” The Acquisition allows us to diversify and expand our business by adding a second brand to the Crocs, Inc. portfolio. The aggregate preliminary purchase price at the closing of the Acquisition was $2.3 billion. We paid aggregate consideration of $2.05 billion in cash (the “Cash Consideration”), subject to adjustment based on, among other things, the cash, indebtedness, transaction expenses, and working capital of the companies comprising HEYDUDE and their respective subsidiaries as of the Acquisition Date, and issued 2,852,280 shares of the Company’s common stock to one of the sellers (the “Equity Consideration Shares”). The Equity Consideration Shares are subject to a lock-up period beginning on the Acquisition Date and continuing to, and including, the date that is 12 months after the Acquisition Date, provided that (a) on the date that is six months after the Acquisition Date, 50% of the Equity Consideration Shares were released from the lock-up, and (b) on the date that is twelve months after the Acquisition Date, the remaining 50% of the Equity Consideration Shares will be released from the lock-up. In the year ended December 31, 2022, the purchase price paid to the sellers was finalized. The Cash Consideration was financed via the Company’s entry into the $2.0 billion Term Loan B Facility (as defined below) and $50.0 million of borrowings under the Revolving Facility (as defined below). As a result of the Acquisition, HEYDUDE has become wholly owned by us. Accordingly, the results of HEYDUDE are included in our consolidated financial statements from the Acquisition Date through December 31, 2022 (the “Partial Period”) and are reported in the HEYDUDE operating segment. HEYDUDE contributed revenues of $895.9 million and income from operations of $211.4 million during the Partial Period. Purchase Price Allocation The Acquisition was accounted for in accordance with the ASC Topic 805 Business Combinations. As a result, we have applied acquisition accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their estimated fair values as of the Acquisition Date. For certain assets and liabilities, those fair values were consistent with historical carrying values. The fair value of inventory was determined using both a market approach and a cost approach. With respect to intangible assets, the estimated fair value was based on the Multi Period Excess Earnings approach for the trademark and the distributor method for the customer relationships. These models used primarily Level 2 and Level 3 inputs, including an estimate of future revenues, future cash flows, and discount rates. The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the Acquisition Date:
| February 17, 2022 |
| (in thousands) |
Cash and cash equivalents | $ | 6,232 |  |
Accounts receivable, net (1) | 68,698 |  |
Inventories (2) | 155,773 |  |
Prepaid expenses and other assets (3) | 4,380 |  |
Intangible assets (4) | 1,780,000 |  |
Goodwill (5) | 713,308 |  |
Right-of-use assets | 2,844 |  |
Accounts payable (3) | (29,791) |  |
Accrued expenses and other liabilities (6) | (18,860) |  |
Income taxes payable (7) | (30,572) |  |
Long-term deferred tax liability (7) | (312,656) |  |
Long-term income taxes payable (7) | (13,004) |  |
Operating lease liabilities | (2,843) |  |
Net assets acquired (8) | $ | 2,323,509 |  |
(1) Includes a valuation adjustment that decreased accounts receivable, net by $0.3 million during the Partial Period. (2) Includes valuation adjustments that decreased inventories by $20.2 million and decreased accrued expenses by $20.2 million during the Partial Period, partially offset by a valuation adjustment that increased inventories by $4.7 million and decreased goodwill by $4.7 million. (3) Includes a valuation adjustment of $1.4 million that increased prepaid expenses and other assets and increased accounts payable by $1.4 million during the Partial Period. (4) Includes a decrease of $90.0 million due to a valuation adjustment related to customer relationships during the Partial Period. (5) During the Partial Period, goodwill increased $72.8 million, $66.2 million of which relates to the valuation and tax adjustments described in footnotes (1), (2), (3), (6), (7) and $6.6 million of which relates to a working capital adjustment, as described in footnote (8). (6) Includes a net decrease of $20.8 million made during the Partial Period, comprised of net valuation adjustments of $21.8 million, partially offset by non-income tax adjustments of $1.0 million. (7) Includes the impact of tax adjustments: a decrease of $2.4 million to income taxes payable, a decrease of $17.1 million to long-term deferred tax liability, and an increase of $0.6 million to long-term income taxes payable. (8) During the Partial Period, the purchase price consideration was increased by $6.6 million associated with the finalization of purchase price. The purchase price allocation for the Acquisition is preliminary. Valuation by management of certain assets and liabilities, is still in process, and therefore, the actual fair values may vary from these preliminary estimates. Final valuations are expected to be completed within one year of the Acquisition Date. Intangible Assets The components of intangible assets acquired in connection with the Acquisition were as follows:
| Weighted-Average Useful Life | Amortization Method | Estimated Fair Value
|  |  | (in thousands)
Customer relationships | 15 | Straight-line | $ | 210,000 |
Trademark | Indefinite | — | 1,570,000 |
Total intangible assets |  |  | $ | 1,780,000 |
Goodwill The goodwill amount of $713.3 million at December 31, 2022 includes an aggregate adjustment of $72.8 million recorded in the year ended December 31, 2022 as a result of changes to preliminary valuation estimates and a working capital adjustment. The total goodwill amount acquired was assigned to the HEYDUDE reporting segment. None of the goodwill will be deductible for income tax purposes. Escrow and Holdback Amounts Additionally, $125.0 million of the Cash Consideration (the “Escrow Amount”) was placed in an escrow account to partially secure the indemnification obligations of the sellers, which will be released to the sellers, less any amounts that have been released to compensate the Company as provided in the SPA, after the date that is 18 months after the Acquisition Date. As of December 31, 2022, certain receivables have been recorded related to the Escrow Amount. Further, $8.5 million of the Cash Consideration (the “Adjustment Holdback Amount”) was held back and retained as security (but not as the sole source of recovery) for any downward adjustments to the purchase price made in accordance with the SPA. During the year ended December 31, 2022, the Adjustment Holdback Amount was paid to the sellers. Acquisition-related Costs Costs incurred to complete the Acquisition are expensed as incurred and included in ‘Selling, general, and administrative expenses’ in our consolidated statement of operations. During the year ended December 31, 2022, there were approximately $25.7 million of Acquisition-related costs recognized. These costs represent legal, professional, and transaction fees. Unaudited Pro Forma Information The following unaudited pro forma financial information for the year ended December 31, 2022 and 2021 combines the historical results of the Crocs and HEYDUDE Brands, assuming that the companies were combined as of January 1, 2021 and include business combination accounting effects from the Acquisition, including amortization charges from acquired intangible assets, adjustments to the fair value of inventory, interest expense on the financing transactions used to fund the Acquisition, and Acquisition-related transaction costs and tax-related effects. The pro forma information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the Acquisition had taken place on January 1, 2021.
| Year Ended December 31,
| 2022 |  | 2021
| (in thousands)
Revenues | $ | 3,645,291 |  |  | $ | 2,894,094 |
Net income | 614,463 |  |  | 706,853 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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