UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017,2021, or
◻ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ............... to ...............
Commission file number 0-9068000-09068
WEYCO GROUP, INC.
(Exact name of registrant as specified in its charter)
Wisconsin | 39-0702200 | |
(State or other jurisdiction of | (I.R.S. Employer |
333 W. Estabrook Boulevard
, P. O. Box 1188
, Milwaukee, WI53201
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:(414) (414) 908-1600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock | | WEYS | | The |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YesoAct. Yes ◻ Nox⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.YesoAct. Yes ◻ Nox⌧
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesxdays. Yes ⌧ Noo◻
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yesx. Yes ⌧ Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ Accelerated filer ⌧ Non-accelerated filer ◻ Smaller reporting company ☒ Emerging growth company ◻
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Acto◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ⌧
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yeso. Yes ◻ Nox⌧
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the close of business on June 30, 2017,2021, was $169,906,000.$131,643,000. This was based on the closing price of $27.88$22.37 per share as reported by Nasdaq on June 30, 2017,2021, the last business day of the registrant’s most recently completed second fiscal quarter.
As of March 1, 2018,2022, there were 10,243,8699,664,756 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for itsthe Annual Meeting of Shareholders scheduled for May 8, 2018,3, 2022, are incorporated by reference in Part III of this report.
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | | 10 | |||
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | | 48 | |||
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ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | | 48 | |||
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ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | | 49 | |||
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | | 49 | |||
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CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements with respect to Weyco Group, Inc.’s (the “Company”) outlook for the future. These statements represent the Company’s reasonablegood faith judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially. Such statements can be identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” or variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Therefore, the reader is cautioned that these forward-looking statements are subject to a number of risks, uncertainties or other factors that may cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risk factors described in this report under Item 1A, “Risk Factors.”
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PART 1
ITEM 1BUSINESS
Weyco Group, Inc. is a Wisconsin corporation incorporated in the year 1906 as Weyenberg Shoe Manufacturing Company. Effective April 25, 1990, the name of the corporation was changed to Weyco Group, Inc.
Weyco Group, Inc. and its subsidiaries (the “Company”) engage in one line of business: the design and distribution of quality and innovative footwear. The Company designs and markets footwear principally for men, but also for women and children, under a portfolio of well-recognized brand names including: Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Umi.Forsake. Trademarks maintained by the Company on its brands are important to the business. The Company’s products consist primarily of mid-priced leather dress shoes and casual footwear composed of man-made materials or leather. In addition, the Company addedleather, as well as outdoor boots, shoes, and sandals in 2011 with the acquisition of the BOGS and Rafters brands.sandals. The Company’s footwear is available in a broad range of sizes and widths, primarily purchased to meet the needs and desires of the general American population.
On June 7, 2021, the Company acquired substantially all of the operating assets and certain liabilities of Forsake, Inc. Forsake will join BOGS as part of the Company's outdoor division. Forsake designs and markets modern outdoor footwear, including hiking shoes and sneakerboots, under the brand name "Forsake." Its products are sold primarily in outdoor specialty stores and on e-commerce websites throughout North America. Management believes that Forsake fits well into the Company's strategy to diversify its product mix and build its presence in the outdoor footwear market. See Note 3 in the Notes to Consolidated Financial Statements for more information regarding the acquisition.
The Company purchases finished shoes from outside suppliers, primarily located in China and India.India, but has also expanded into Cambodia, Vietnam, and the Dominican Republic. Almost all of these foreign-sourced purchases are denominated in U.S. dollars. TheWhile the Company continues to experiencesources from more than 60 suppliers, two individual suppliers each accounted for slightly more than 10% of its total inventory purchases in 2021. Costs from the Company’s suppliers have historically been relatively stable although, in recent years, there have been upward cost pressures from its suppliers relateddue to a variety of factors, including higher freight, labor, and materials costs, as well as due to tariffs and other trade protection measures. In particular, during 2021 the Company experienced higher freight costs.costs due to supply chain bottlenecks, which have not yet fully resolved.
The Company’s business is separated into two reportable segments —– the North American wholesale segment (“wholesale”Wholesale”) and the North American retail segment (“retail”Retail”). The Company also has other wholesale and retail businesses overseas which include its businesses in Australia, South Africa and Asia Pacific (collectively, “Florsheim Australia”), and its wholesale and retail businesses in Europe (“Florsheim Europe”). In late 2020, the Company decided to close Florsheim Europe and management is in the final stages of winding down this business.
Sales of the Company’s wholesale segment, which include both wholesale sales and worldwide licensing revenues, constituted 77% of total net sales in each of the years 2017 and 2016, and 78% of total net sales in 2015.2021 and 2020, respectively. At wholesale, shoes are marketed throughout the United States and Canada in more than 10,000 shoe, clothing and department stores. In 2017, 2016,2021 and 20152020, no individual customer represented 10% or more than 10% of the Company’s total net sales. The Company employs traveling salespeople and independent sales representatives who sell the Company’s products to retail outlets. Shoes are shipped to these retailers primarily from the Company’s distribution center in Glendale, Wisconsin. In the men’s footwear business, there is generally no identifiable seasonality, although new styles are historically developed and shown twice each year, in spring and fall. With the BOGS brand, which mainly sells winter and outdoor boots, there is seasonality in its business due to the nature of the product; the majority of BOGS sales occur in the third and fourth quarters. Consistent with industry practices, the Company carries significant amounts of inventory to meet customer delivery requirements and periodically provides extended payment terms to customers. The Company also has licensing agreements with third parties who sell its branded shoes outside of the United States, as well as licensing agreements with specialty shoe, apparel and accessory manufacturers in the United States.
Sales of the Company’s retail segment constituted 7%12% and 11% of total net sales in each of the years 2017, 2016,2021 and 2015. As of December 31, 2017, the2020, respectively. The retail segment consistedconsists of 10e-commerce businesses and four brick and mortar stores and internet businesses in the United States. Sales in retail storesRetail sales are made directly to consumers on the consumerCompany’s websites, or by Company employees. The Company believes that as a result of the reduction in brick and mortar stores, the future results of its U.S. retail segment will be driven by its more profitable e-commerce businesses. Management intends to continue to focus on investing in and growing the e-commerce businesses.
Sales of the Company’s other businesses represented 16%constituted 11% of total net sales in each of the years 2017both 2021 and 2016, and 15% of total sales in 2015.2020. These sales relate to the Company’s wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe.
As of December 31, 2017, the Company had a backlog of $35 million in orders compared with $38 million as of December 31, 2016. This does not include unconfirmed blanket orders from customers, which account for the majority of the Company’s orders, particularly from its larger accounts. All orders are expected to be filled within one year.
As of December 31, 2017,2021, the Company employed 626608 persons worldwide, of whom 26439 were members of collective bargaining units. Future wage and benefit increases under the collective bargaining contracts are not expected to have a significant impact on the future operations or financial position of the Company.full-time employees.
Price, quality, service and brand recognition are all important competitive factors in the shoe industry. The Company has a design department that continually reviews and updates product designs. Compliance with environmental and other government regulations
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historically hashave not had, and isare not expected to have, a material adverse effect on the Company’s results of operations, financial position or cash flows, although there can be no assurances.
The Company makes available, free of charge, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A and all amendments to those reports upon written or telephone request. Investors can also access these reports through the Company’s website,www.weycogroup.com,, as soon as reasonably practical after the Company files or furnishes those reports to the Securities and Exchange Commission (“SEC”). The contents of the Company’s website are not incorporated by reference and are not a part of this filing. Also available on the Company’s website are various documents relating to the corporate governance of the Company, including its Code of Business Ethics.
ITEM 1ARISK FACTORS
There are various factors that affect or might affect the Company’s business, results of operations and financial condition, many of which are beyond the Company’s control. The following is a description of some of the significantmaterial factors that mightcould materially and adversely affect the Company’s reputation, business, results of operations and financial condition.
Spending patterns in the footwear market, particularly those in the moderate-priced market in which a majority of the Company’s products compete, have historically been correlated with consumers’ disposable income. As a result, the success of the Company is affected by changes in general economic conditions, especially in the United States. Factors affecting discretionary income for the moderate consumer include, among others, general business conditions, gas and energy costs, employment, consumer confidence, interest rates and taxation. Additionally, the economy and consumer behavior can impact the financial strength and buying patterns of retailers, which can also affect the Company’s results. Volatile, unstable or weak economic conditions, or a worsening of conditions, could adversely affect the Company’s sales volume and overall performance.
U.S. and global financial markets have recently been, and continue to be, unstable and unpredictable, which has generally resulted in tightened credit markets with heightened lending standards and terms. Volatility and instability in the credit markets pose various risks to the Company, including, among others, negatively impacting retailer and consumer confidence, limiting the Company’s customers’ access to credit markets and interfering with the normal commercial relationships between the Company and its customers. Increased credit risks associated with the financial condition of some customers in the retail industry affects their level of purchases from the Company and the collectability of amounts owed to the Company, and in some cases, causes the Company to reduce or cease shipments to certain customers who no longer meet the Company’s credit requirements.
In addition, weak economic conditions and unstable and volatile financial markets could lead to certain of the Company’s customers experiencing cash flow problems, which may force them into higher default rates or to file for bankruptcy protection which may increase the Company’s bad debt expense or further negatively impact the Company’s business.
The Company is subject to risks associated with doing business in the retail environment, primarily in the United States. The U.S. retail industry has experienced a growing trend toward consolidation of large retailers. The merger of major retailers could result in the Company losing sales volume or increasing its concentration of business with a few large accounts, resulting in reduced bargaining power, which could increase pricing pressures and lower the Company’s margins.our operations
As the popularity of online shopping for consumer goods increases, the Company’s retail partners may experience decreased foot traffic which could negatively impact their businesses. This may, in turn, negatively impact the Company’s sales to those customers, and adversely affect the Company’s results of operations.
The Company’s success is dependent upon its ability to accurately anticipate and respond to rapidly changing fashion trends and consumer preferences. Failure to predict or respond to trends or preferences could have an adverse impact on the Company’s sales volume and overall performance.
The Company purchases all of its products from independent foreign manufacturers, primarily in China and India. Although the Company believes that it has good working relationships with its manufacturers, the Company does not have long-term contracts with them. Thus, the Company could experience increases in manufacturing costs, disruptions in the timely supply of products or unanticipated reductions in manufacturing capacity, any of which could negatively impact the Company’s business, results of operations and financial condition. The Company has the ability to move production to different suppliers; however, the transition may not occur smoothly or quickly, which could result in the Company missing customer delivery date requirements and, consequently, the Company could lose future orders.orders and its reputation may be harmed.
The Company’s use of foreign sources of production results in relatively long production and delivery lead times. Therefore, the Company typically forecasts demand at least five months in advance. If the Company’s forecasts are wrong or there are significant changes in demand, it couldwould result in thea loss of sales if the Company does not have enough product on hand or in reduced margins if the Company has excess inventory that needs to be sold at discounted prices.
The Company’s ability to import products in a timely and cost-effective manner may be affected by disruptions at U.S. or foreign ports or other transportation facilities, such as those due to labor disputes and work stoppages, political unrest, trade protection measures or trade wars, severe weather (climate change may increase the frequency and severity of severe weather conditions or events), outbreaks of infectious diseases, or security requirements in the United States and other countries. These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to its customers. These alternatives may not be available on short notice or could result in higher transportation costs, which could have a material adverse impact on the Company’s overall profitability.
The Company’s products depend on the availability of raw materials, especially leather and rubber. Any significant shortages of quantities or increases in the cost of leather or rubber couldwould have a materialan adverse effect on the Company’s business and results of operations.operations, unless the Company was able to pass such costs along to its customers.
Additional risks associated with foreign sourcing that could negatively impact the Company’s business include adverse changes in foreign economic conditions, import regulations, restrictions on the transfer of funds, duties, tariffs, quotas and political or labor interruptions, foreign currency fluctuations, expropriation and nationalization.
Asources a significant portion of its products. Although this tariff did not have a material adverse effect on the Company’s revenues and expenses are denominated in currencies other than the U.S. dollar. The Company is therefore subjectresults of operations due to foreign currency risks and foreign exchange exposure. The Company’s primary exposures are to the Australian dollar and the Canadian dollar. Exchange rates can be volatile and could adversely impact the Company’s financial results.
The Company is exposed to other risks of doing business in foreign jurisdictions, including political, economic or social instability, acts of terrorism, changes in government policies and regulations, and exposure to liabilities under anti-corruption laws (such as the U.S. Foreign Corrupt Practices Act). The Company is also exposed to risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. Legislation or other changes in the U.S. tax laws or interpretations could increase the Company’s U.S. income tax liability and adversely affect the Company’s after-tax profitability. Changes in tax policy or trade regulations, such as the disallowance of tax deductions on imported merchandise orvarious mitigation efforts, the imposition of newadditional tariffs on importedthe Company’s products could have a material adverse effect on the Company’s future results of operations. It is difficult to predict the effects of current or future tariffs and other trade barriers and disputes, and the Company's efforts to reduce the effects of tariffs through pricing and other measures may not be effective.
A disruption in the Company's supply chain could adversely affect its profitability.
Most of the Company's products for North American distribution are shipped to the Company via ocean freight carriers to ports primarily on the west coast of North America. The Company’s reliance on ocean freight transportation for the delivery of its inventory exposes it
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to various inherent risks, including port congestion, severe weather conditions, natural disasters, and terrorism, any of which could result in delivery delays and inefficiencies, increased costs and disruption of business. In 2021, the Company's supply chain was disrupted by congestion throughout the supply chain, domestic port and warehousing delays, and container shortages, resulting in the Company incurring premium freight charges on a portion of its imports. In addition to these factors, global inflation has also contributed to already higher incremental freight costs. Severe disruptions of the supply chain may force the Company to use more expensive methods to ship its products, and it may not be able to meet its customers delivery requirements which may result in loss of sales.
Any severe and prolonged disruption to ocean freight transportation could force the Company to rely on alternate and more expensive transportation systems. Efficient and timely inventory deliveries and proper inventory management are important factors in the Company's operations. Extended delays and disruptions in shipments could result in negative impacts to the pricing of the Company's products due to changes in the availability of inventory, increased shipping costs, or missed sales that may materially adversely impact its business and results of operations.
Thomas W. Florsheim, Jr., the Company’s Chairman and Chief Executive Officer, and John W. Florsheim, the Company’s President, Chief Operating Officer and Assistant Secretary, each have a strong heritage within the Company and the footwear industry. They possess knowledge, relationships and reputations based on their lifetime exposure to and experience in the Company and the industry. The unexpected loss of operations, financial condition and cash flow.
On December 22, 2017, a comprehensive tax reform bill commonly referred to as the Tax Cuts and Jobs Act (“TCJA”) was enacted. The TCJA made significant changes to the U.S. federal income tax laws. The Company has performed a preliminary assessmenteither one or both of the impact of the TCJA. However, as the TCJA is complex and far-reaching, there could be future effects that the Company has not identified, or future regulatory guidance, thatCompany’s top executives could have an adverse impact on the Company’s performance. A loss of the skills, industry knowledge, contacts and expertise of any of the Company's senior executives could cause a setback to its operating plan and strategy. In addition, transitions of important responsibilities to new individuals include the possibility of disruptions, which could negatively impact the Company’s business and results of operations.
The Company may not be able to successfully integrate new brands and businesses.
The Company continues to look for acquisition opportunities. Those search efforts could be unsuccessful and costs could be incurred in any failed efforts. Further, if and when an acquisition occurs, the Company cannot guarantee that it will be able to successfully integrate the brand into its current operations, or that any acquired brand would achieve results in line with the Company’s historical performance or its specific expectations for the brand.
Risk factors related to our business and industry
Decreases in disposable income and general market volatility in the U.S. and global economy may adversely affect the Company.
Spending patterns in the footwear market, particularly those in the moderate-priced market in which a majority of the Company’s products compete, have historically been correlated with consumers’ disposable income. As a result, the success of the Company is affected by changes in general economic conditions, especially in the United States. Factors affecting discretionary income for the moderate consumer include, among others, general business conditions, gas and energy costs, inflation rates, employment rates, consumer confidence, interest rates and taxation. Additionally, the economy and consumer behavior generally impact the financial strength and buying patterns of retailers, which can also affect the Company’s results. Volatile, unstable or weak economic conditions, or a worsening of conditions, could adversely affect the Company’s sales volume and overall performance.
The Company is subject to risks related to operating in the retail environment that could adversely impact the Company’s business.
The Company is subject to risks associated with doing business in the retail environment, primarily in the United States. The U.S. retail industry has experienced a growing trend toward consolidation of large retailers. The merger of additional major retailers could result in the Company losing sales volume or increasing its concentration of business with a few large accounts, resulting in reduced bargaining power, which could increase pricing pressures and lower the Company’s margins.
The Company regularly assesses its retail locations in the U.S. and overseas and, at times, including during fiscal 2021, has closed unprofitable retail locations and incurred costs related to such closures. Future closures could have a material adverse effect on our business,results.
As the popularity of online shopping for consumer goods continues to increase, the Company’s retail partners in the U.S. and abroad may experience decreased foot traffic, which could negatively impact their businesses. In addition, the COVID-19 pandemic has caused, and is expected to continue to cause, a decrease in foot traffic; other significant health pandemic or outbreaks of infectious diseases could also lead to a similar decrease in foot traffic. Decreases in foot traffic have, and in the future may, in turn, negatively impact the Company’s sales to those customers, and adversely affect the Company’s results of operations, financial condition and cash flow.operations.
The Company operates in a highly competitive environment, which may result in lower prices and reduced profits.
The footwear market is extremely competitive. The Company competes with numerous manufacturers, distributors and retailers of men’s, women’s and children’s shoes, some of which are larger and have substantially greater resources than the Company. The
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Company competes with these companies primarily on the basis of price, quality, service and brand recognition, all of which are important competitive factors in the shoe industry. The Company’s ability to maintain its competitive edge depends upon these factors, as well as its ability to deliver new products at the best value for the consumer, maintain positive brand recognition, and obtain sufficient retail floor space and effective product presentation at retail. If the Company does not remain competitive, future prospects, results of operations and financial condition could decline.
Changes in fashion trends and consumer preferences could negatively impact the Company.
The Company’s success is dependent upon its ability to accurately anticipate and respond to rapidly changing fashion trends and consumer preferences. For example, as a result of the COVID-19 pandemic, purchases of dress and other dress-casual footwear were negatively affected in 2020 and early 2021 as many consumers worked from home due to stay-at-home orders or otherwise, and social as well as other occasion-related events were cancelled. Failure to predict or effectively respond to trends or preferences could have an adverse impact on the Company’s sales volume and overall performance, as well as have a negative impact on the Company’s reputation.
The Company conducts business globally, which exposes it to the impact of foreign currency fluctuations as well as political, economic and social risks.
A portion of the Company’s revenues and expenses are denominated in currencies other than the U.S. dollar, with its primary exposures being to the Australian dollar and the Canadian dollar. The Company is therefore subject to foreign currency risks and foreign exchange exposure. Exchange rates can be volatile and could adversely impact the Company’s financial results.
The Company is exposed to other risks of doing business in foreign jurisdictions, including political, economic or social instability, armed conflicts, acts of terrorism, civil unrest, changes in government policies and regulations, outbreaks of infectious diseases (such as the COVID-19 pandemic), severe weather events, natural disasters, and exposure to liabilities under anti-corruption laws (such as the U.S. Foreign Corrupt Practices Act). The Company is also exposed to risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. Additional legislation or other changes in the U.S. tax laws or interpretations could increase the Company’s U.S. income tax liability and adversely affect the Company’s after-tax profitability. Changes in tax policy or trade regulations, such as the disallowance of tax deductions on imported merchandise or the imposition of new tariffs on imported products, could have a material adverse effect on the Company’s business and results of operations.
In connection with increasing tensions related to the ongoing conflict between Russia and Ukraine, governments in the U.S., U.K. and the EU have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia. Further escalation of geopolitical tensions could have a broader impact that expands into other markets where the Company does business, which could adversely affect its business and/or supply chain, international subsidiaries, business partners or customers in the broader region. The Company’s business may be impacted as a result of various factors, including inflation, increased energy prices, a slowing U.S. economy, more ocean freight disruptions, increased cyber-attacks, and reduced consumer confidence.
Risk factors related to cybersecurity
The Company is dependent on information and communication systems to support its business and internete-commerce sales. Significant interruptions could disrupt its business.business and damage its reputation.
The Company accepts and fills the majority of its larger customers’ orders through the use of Electronic Data Interchange (EDI). It, and it relies on its warehouse management system to efficiently process orders. The Company’s corporate office relies on computer systems to efficiently process and record transactions. Significant interruptions in the Company’s EDI, information and communication systems from power loss, telecommunications failure, malicious attacks, or computer system failure could significantly disrupt the Company’s business and operations.operations, as well as damage its reputation. In addition, the Company sells footwear on its websites, and failures of the Company’s or other retailers’ websites could adversely affect the Company’s sales, results, and results.reputation.
The Company, particularly its retail segment and its internete-commerce businesses, is subject to the risk of data loss and security breaches.
The Company sells footwear in its retail stores and on its websites, and therefore the Company and/or its third partythird-party credit card processors must process, store, and transmit large amounts of data, including personal information of its customers. Failure to prevent or mitigate data loss or other security breaches, including breaches of Company technology and systems, could expose the Company or its customers to a risk of loss or misuse of such information, adversely affect the Company’s operating results, result in litigation or potential liability for the Company, and otherwise harm the Company’s business and/or reputation. InThe Company’s technology and systems, as well as those of its partners have, and in the future may, become the target of cyberattacks. To this point, the Company has not experienced a material breach; however, in order to address these risks, the Company has secured cyber insurance and it uses third party technology and systems for a variety of reasons,to aid in safeguarding the Company’s data and systems, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions. Although the Company has developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches,
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including systems and processes designed to reduce the impact of a security breach at a third partythird-party vendor, such measures cannot provide absolute security.
Risk factors related to COVID-19 and other infectious diseases
The duration and scope of the impacts of the COVID-19 pandemic are uncertain and may continue to adversely affect the Company’s operations, supply chain, distribution, and demand for its products.
The global outbreak of COVID-19 and related variants has created significant uncertainty within the global markets that the Company serves. The Company has operations, customers and suppliers in countries significantly impacted by COVID-19. Governmental authorities around the world have taken a variety of measures to slow the spread of COVID-19, including travel bans and restrictions, increased border controls and closures, quarantines, shelter-in-place orders and business shutdowns, and such authorities may impose additional restrictions in the future. The Company has also taken actions to protect its employees and to mitigate the spread of COVID-19 within its business. There can be no assurance that the measures implemented by governmental authorities or the Company’s actions will be effective or achieve their desired results in a timely fashion.
The impact of COVID-19 has resulted in disruptions to the Company’s supply chain, and may continue to do so, which could negatively impact its ability to meet customer demand. In particular, the Company’s suppliers located in China are subject to a heightened risk of temporary or permanent shutdowns due to China’s zero-tolerance COVID-19 policy. The duration of the disruption to the Company’s supply chain, and the related financial impact, cannot be estimated at this time, although the Company expects these challenges to continue to impact it at least through the first part of 2022. Should such disruption continue for an extended period of time, or if the Company encounters significant work stoppages or outbreaks due to COVID-19 at one or more of its locations or suppliers in the future, the Company may not be able to successfully integrate new brandssatisfy customer demand for a period of time.
Furthermore, the impact of COVID-19 on the economy, demand for the Company’s products and businesses.
The Company has completedimpacts to its operations, including the measures taken by governmental authorities to address it, may precipitate or exacerbate other risks and/or uncertainties, including specifically many of the risk factors set forth in this Annual Report, including inflationary costs, disruptions due to labor shortages, and supply chain disruptions, which may have a numbersignificant impact on the Company's operating results and financial condition, although it is unable to predict the extent or nature of acquisitionsthese impacts at this time.
Risks related to financing, investment and pension matters
Volatility and uncertainty in the pastU.S. and intends to continue to look for new acquisition opportunities. Those search efforts could be unsuccessful and costs could be incurred in any failed efforts. Further, if and when an acquisition occurs, the Company cannot
guarantee that it will be able to successfully integrate the brand into its current operations, or that any acquired brand would achieve results in line with the Company’s historical performance or its specific expectations for the brand.
Thomas W. Florsheim, Jr.,U.S. and global financial markets have at times been unstable and unpredictable, which has generally resulted in tightened credit markets with heightened lending standards and terms. The ultimate impact on the U.S. and global financial markets of the Russian invasion of Ukraine cannot yet be predicted, and will depend on the severity and duration of the conflict and the sanctions imposed by the U.S. and other countries. Volatility and instability in the credit markets pose various risks to the Company, including, among others, a negative impact on retailer and consumer confidence, limits to the Company’s Chairmancustomers’ access to credit markets and Chief Executive Officer,interference with the normal commercial relationships between the Company and John W. Florsheim,its customers. Increased credit risks associated with the Company’s President, Chief Operating Officer and Assistant Secretary, have a strong heritage withinfinancial condition of some customers in the retail industry affects their level of purchases from the Company and the footwear industry. They possess knowledge, relationships and reputations based on their lifetime exposurecollectability of amounts owed to and experience in the Company, and in some cases, causes the industry. The loss of either oneCompany to reduce or bothcease shipments to certain customers who no longer meet the Company’s credit requirements.
In addition, weak economic conditions and unstable and volatile financial markets could lead to certain of the Company’s top executives could have ancustomers experiencing cash flow problems, which may force them into higher default rates or to file for bankruptcy protection which may increase the Company’s bad debt expense or further negatively impact the Company’s business.
Interest rate volatility may increase the cost of financing. The Company’s U.S. dollar variable rate debt currently uses London Interbank Offered Rate (“LIBOR”) as a benchmark for determining interest rates. In connection with the Company’s line of credit amendment in November 2021, language was added to the agreement to include a benchmark replacement rate, selected by the bank and the Company, as a replacement to LIBOR that would take affect at the time LIBOR ceases.
Deterioration of the municipal bond market in general or of specific municipal bonds held by the Company or its pension plan may result in a material adverse impacteffect on the Company’s performance.financial condition, results of operations, and liquidity.
The Company maintains an investment portfolio consisting primarily of investment-grade municipal bond investments. The Company’s investment policy only permits the purchase of investment-grade securities. The Company’s investment portfolio totaled $10.2 million as of December 31, 2021, or approximately 4% of total assets. If the value of municipal bonds in general or any of the Company’s municipal bond holdings deteriorate, the performance of the Company’s investment portfolio, financial condition, results of operations, and liquidity may be materially and adversely affected.
6
Risk factors related to our capital structure
The limited public float and trading volume for the Company’s stock may have an adverse impact on the stock price or make it difficult to liquidate.
The Company’s common stock is held by a relatively small number of shareholders. The Florsheim family owns approximately 35%50% of the stock and one institutional shareholder holds a significant block. Other officers, directors, and members of management own stock or have the potential to own stock through previously granted stock options and restricted stock. Consequently, the Company has a relatively small public float and low average daily trading volume, which could affect a shareholder’s ability to sell stock or the price at which it can be sold. In addition, future sales of substantial amounts of the Company’s common stock in the public market by large shareholders, or the perception that these sales could occur, may adversely impact the market price of the stock and the stock could be difficult for the shareholder to liquidate.
The Company maintains an investment portfolio consisting primarily of investment-grade municipal bond investments. The Company’s investment policy only permits the purchase of investment-grade securities. The Company’s investment portfolio totaled approximately $24 million as of December 31, 2017, or approximately 9% of total assets. If the value of municipal bonds in general or any of the Company’s municipal bond holdings deteriorate, the performance of the Company’s investment portfolio, financial condition, results of operations, and liquidity may be materially and adversely affected.
Goodwill represents the excess of cost over the fair market value of net assets acquired in a business combination. Indefinite-lived intangible assets are comprised of trademarks on certain of the Company’s principal shoe brands. The Company’s goodwill and trademarks totaled approximately $44 million as of December 31, 2017, or approximately 17% of total assets.
The Company analyzes its goodwill and trademarks for impairment on an annual basis or more frequently when, in the judgment of management, an event has occurred that may indicate that additional analysis is required. Impairment may result from, among other things, deterioration in the Company’s performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products sold by the Company, and a variety of other factors. The amount of any quantified impairment must be expensed as a charge to results of operations in the period in which the asset becomes impaired.
The Company did not record any goodwill or trademark impairment charges following the 2017 and 2015 impairment tests. In the fourth quarter of 2016, the Company evaluated the current state of
its Umi business and determined the brand did not fit the long-term strategic objectives of the Company. As a result, the Company recorded a $1.8 million impairment charge ($1.1 million after tax) to write off the majority of the value of the Umi trademark in 2016. Other than this write-off, the Company did not record any other goodwill or trademark impairment charges in 2016. Any future determination of impairment of a significant portion of goodwill or other identifiable intangible assets could have an adverse effect on the Company’s financial condition and results of operations.
Goodwill and trademarks are being deducted for tax purposes in accordance with the U.S. tax policy. Any changes in the U.S. tax policy, limiting or eliminating the deductibility of such assets, could have a material adverse effect on the Company’s financial results.
Significant changes in actual investment return on defined benefit plan assets, discount rates, mortality assumptions and other factors could adversely affect the Company’s results of operations and the amounts of contributions the Company must make to its defined benefit plan in future periods. As the Company marks-to-market its defined benefit plan assets and liabilities on an annual basis, large non-cash gains or losses could be recorded in the fourth quarter of each fiscal year. Generally accepted accounting principles in the U.S. require that the Company calculate income or expense for the plan using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements for the Company’s defined benefit plans are dependent upon, among other things, interest rates, underlying asset returns and the impact of legislative or regulatory changes related to defined benefit funding obligations. For a discussion regarding the significant assumptions used to determine net periodic pension cost, refer to “Critical Accounting Policies” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The Company’s facilities and operations, as well as those of the Company’s suppliers and customers, may be impacted by natural disasters. In the event of such disasters, and if the Company or its suppliers or customers are not adequately insured, the Company’s business could be harmed due to the event itself or due to its inability to effectively manage the effects of the particular event; potential harms include the loss of business continuity, the loss of inventory or business data and damage to infrastructure, warehouses or distribution centers.
ITEM 1BUNRESOLVED STAFF COMMENTS
None
ITEM 2PROPERTIES
The following facilities were operated by the Company or its subsidiaries as of December 31, 2017:2021:
Location | Character | Owned/ Leased | Square Footage | % Utilized | ||||||||||||
Glendale, Wisconsin(2) | Two story office and distribution center | Owned | 1,100,000 | 80 | % | |||||||||||
Portland, Oregon(2) | Two story office | Leased | (1) | 6,300 | 100 | % | ||||||||||
Montreal, Canada(2) | Multistory office and distribution center | Owned | (4) | 75,800 | 100 | % | ||||||||||
Florence, Italy(3) | Two story office and distribution center | Leased | (1) | 15,100 | 100 | % | ||||||||||
Fairfield Victoria, Australia(3) | Office and distribution center | Leased | (1) | 54,400 | 100 | % | ||||||||||
Honeydew Park, South Africa(3) | Distribution center | Leased | (1) | 8,600 | 85 | % | ||||||||||
Hong Kong, China(3) | Office and distribution center | Leased | (1) | 14,000 | 100 | % | ||||||||||
Dongguan City, China(2) | Office | Leased | (1) | 4,400 | 100 | % |
| | | | | | | | | |
|
| |
| Owned/ |
| Square |
|
|
|
Location | | Character | | Leased | | Footage | | % Utilized |
|
Glendale, Wisconsin (1) | | Two story office and distribution center | | Owned | | 1,100,000 | | 80 | % |
Montreal, Canada (1) |
| Multistory office and distribution center |
| Owned (3) |
| 92,800 |
| 90 | % |
Fairfield Victoria, Australia (2) |
| Office and distribution center |
| Leased |
| 54,400 |
| 100 | % |
(1) |
These properties are used principally by the Company’s North American wholesale segment. |
(2) |
(3) | The Company owns a 50% interest in this property. See Note |
In addition to the above-described offices and distribution facilities, the Company also operates offices, distribution facilities, and retail shoe stores under various rental agreements. All of these facilities are suitable and adequate for the Company’s current operations. See Note 138 of the Notes to Consolidated Financial Statements and Item 1, “Business”, above.
ITEM 3LEGAL PROCEEDINGS
None
ITEM 4MINE SAFETY DISCLOSURES
Not Applicable
7
INFORMATION ABOUT EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals were executive officers of Company as of December 31, 2017:2021:
Name | Position | Age | ||
Thomas W. Florsheim, Jr.(1) | Chairman and Chief Executive Officer | 63 | ||
John W. Florsheim(1) | President, Chief Operating Officer and Assistant Secretary | 58 | ||
John F. Wittkowske(2) (3) | Senior Vice President, Chief Financial Officer and Secretary | 62 | ||
Judy Anderson(3) | Vice President, Finance and Treasurer | 54 | ||
Kate Destinon | Vice President, and President of Nunn Bush Brand | 46 | ||
Dustin Combs | Vice President, and President of BOGS and Rafters Brands | 39 | ||
Brian Flannery | Vice President, and President of Stacy Adams Brand | 60 | ||
Kevin Schiff | Vice President, and President of Florsheim Brand | 53 | ||
George Sotiros(2) | Vice President, Information Technology and Distribution | 55 | ||
Allison Woss | Vice President, Supply Chain | 49 |
(1) | Thomas W. Florsheim, Jr. and John W. Florsheim are brothers, and Chairman Emeritus Thomas W. Florsheim is their father. |
(2) | John F. Wittkowske and George Sotiros are brothers-in-law. |
(3) | As announced on Form 8-K dated November 2, 2021, John F. Wittkowske will retire from the Company effective May 6, 2022. Judy Anderson will become the Company's new Chief Financial Officer and Secretary. |
Thomas W. Florsheim, Jr. has served as Chairman and Chief Executive Officer for more than 5 years.
John W. Florsheim has served as President, Chief Operating Officer and Assistant Secretary for more than 5 years.
John F. Wittkowske has served as Senior Vice President, Chief Financial Officer and Secretary for more than 5 years.
Judy Anderson has served as Vice President of Finance and Treasurer for more than 5 years.
Mike BernsteenKate Destinon has served as a Vice President of the Company and President of the Nunn Bush Brand since January 1, 2021. Prior to this role, Ms. Destinon served as Vice President of Nunn Bush from 2019 to 2020, and Strategic Account Analyst for more than 5 years.the Florsheim Brand from 2015 – 2018.
Dustin Combs has served as a Vice President of the Company and President of the BOGS and Rafters Brands since January 2015. Prior to this role, Mr. Combs served as Vice President of Sales for the BOGS and Rafters Brands from March 2011 to January 2015.5 years.
Brian Flannery has served as a Vice President of the Company and President of the Stacy Adams Brand for more than 5 years.
Kevin Schiff has served as a Vice President of the Company and President of the Florsheim Brand for more than 5 years.
George Sotiros has served as Vice President of Information Technology and Distribution since June 2017. Prior to this role, Mr. Sotiros served as Vice President of Information Technology for more than 5 years.
Allison Woss has served as Vice President of Supply Chain since August 2016. Prior to this role, Ms. Woss served as Vice President of Purchasing from January 2007 to August 2016.for more than 5 years.
8
PART II
ITEM 5MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The shares of the Company’s common stock are traded on the Nasdaq Stock Market (“Nasdaq”) under the symbol “WEYS.”
2017 | 2016 | |||||||||||||||||||||||
Stock Prices | Cash Dividends Declared | Stock Prices | Cash Dividends Declared | |||||||||||||||||||||
Quarter: | High | Low | High | Low | ||||||||||||||||||||
First | $ | 32.30 | $ | 23.75 | $ | 0.21 | $ | 28.23 | $ | 22.94 | $ | 0.20 | ||||||||||||
Second | $ | 29.30 | $ | 26.51 | $ | 0.22 | $ | 28.50 | $ | 25.84 | $ | 0.21 | ||||||||||||
Third | $ | 29.00 | $ | 26.68 | $ | 0.22 | $ | 29.05 | $ | 24.52 | $ | 0.21 | ||||||||||||
Fourth | $ | 29.95 | $ | 27.00 | $ | 0.22 | $ | 31.58 | $ | 24.91 | $ | 0.21 | ||||||||||||
$ | 0.87 | $ | 0.83 |
The stock prices shown above are the high and low actual trades on the Nasdaq for the calendar periods indicated.
There were 130134 holders of record of the Company’s common stock as of March 1, 2018.
The following line graph compares the cumulative total shareholder return on the Company’s common stock during the five years ended December 31, 2017 with the cumulative return on the Nasdaq-100 Index and the Russell 3000 — RGS Textiles Apparel & Shoe Index. The comparison assumes $100 was invested on December 31, 2012, in the Company’s common stock and in each of the foregoing indices and assumes reinvestment of dividends.
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
Weyco Group, Inc. | 100 | 126 | 126 | 118 | 143 | 148 | ||||||||||||||||||
Nasdaq-100 Global Index | 100 | 137 | 163 | 179 | 192 | 256 | ||||||||||||||||||
Russell 3000 – RGS Textiles Apparel & Shoe Index | 100 | 147 | 164 | 160 | 141 | 175 |
TABLE OF CONTENTS2022.
In 1998, the Company’s stock repurchase program was established.established and approved by the Board of Directors. On several occasions since the program’s inception, the Board of Directors has extendedincreased the number of shares authorized for repurchase under the program. In total, 7.5 million shares have been authorized for repurchase. This includes the additional 1.0 million shares that the Company’s Board of Directors authorized for repurchase on October 31, 2017. The table below presents information pursuant to Item 703 of Regulation S-K regarding the repurchase of the Company’s common stock by the Company in the three-month period ended December 31, 2017.2021.
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of the Publicly Announced Program | Maximum Number of Shares that May Yet Be Purchased Under the Program | ||||||||||||
10/01/2017 – 10/31/2017 | 7,623 | $ | 27.95 | 7,623 | 1,136,841 | |||||||||||
11/01/2017 – 11/30/2017 | 86,005 | $ | 27.93 | 86,005 | 1,050,836 | |||||||||||
12/01/2017 – 12/31/2017 | 34,200 | $ | 27.87 | 34,200 | 1,016,636 | |||||||||||
Total | 127,828 | 27.91 | 127,828 |
| | | | | | | | | |
|
| |
| | |
|
|
| Maximum Number |
| | Total | | Average | | Total Number of | | of Shares | |
| | Number | | Price | | Shares Purchased as | | that May Yet Be | |
| | of Shares | | Paid | | Part of the Publicly | | Purchased Under | |
Period | | Purchased | | Per Share | | Announced Program | | the Program | |
10/01/2021 - 10/31/2021 |
| — | | $ | — |
| — |
| 252,235 |
11/01/2021 - 11/30/2021 |
| 16,622 | | $ | 23.89 |
| 16,622 |
| 235,613 |
12/01/2021 - 12/31/2021 |
| 25,037 | | $ | 23.66 |
| 25,037 |
| 210,576 |
Total |
| 41,659 | | $ | 23.75 |
| 41,659 |
|
|
ITEM 6 SELECTED FINANCIAL DATARESERVED
The following selected financial data reflects the results
9
As of or for the Years Ended December 31, | ||||||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Net Sales | $ | 283,749 | $ | 296,933 | $ | 320,617 | $ | 320,488 | $ | 300,284 | ||||||||||
Net earnings attributable to Weyco Group, Inc. | $ | 16,491 | $ | 16,472 | $ | 18,212 | $ | 19,020 | $ | 17,601 | ||||||||||
Diluted earnings per share | $ | 1.60 | $ | 1.56 | $ | 1.68 | $ | 1.75 | $ | 1.62 | ||||||||||
Weighted average diluted shares outstanding | 10,314 | 10,572 | 10,859 | 10,888 | 10,865 | |||||||||||||||
Cash dividends per share | $ | 0.87 | $ | 0.83 | $ | 0.79 | $ | 0.75 | $ | 0.54 | ||||||||||
Total assets at year end | $ | 262,832 | $ | 268,240 | $ | 298,997 | $ | 277,446 | $ | 267,533 | ||||||||||
Bank borrowings at year end | $ | — | $ | 4,268 | $ | 26,649 | $ | 5,405 | $ | 12,000 |
ITEM 7MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company designs and markets quality and innovative footwear principally for men, but also for women and children, under a portfolio of well-recognized brand names, including: Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Umi.Forsake. Inventory is purchased from third-party overseas manufacturers. The majority of foreign-sourced purchases are denominated in U.S. dollars. The Company has two reportable segments, North American wholesale operations (“wholesale”Wholesale”) and North American retail operations (“retail”Retail”). In the wholesale segment, the Company’s products are sold to leading footwear, department, and specialty stores, as well as e-commerce retailers, primarily in the United States and Canada. The Company also has licensing agreements with third parties who sell its branded apparel, accessories and specialty footwear in the United States, as well as its footwear in Mexico and certain markets overseas. Licensing revenues are included in the Company’s wholesale segment. The Company’s retail segment consisted of 10e-commerce businesses and four brick and mortar retail stores and internet businesses in the United States as of December 31, 2017. Sales in retail outlets2021. Retail sales are made directly to consumers on the Company’s websites, or by Company employees. The Company’s “other” operations include the Company’s wholesale and retail businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”), and Europe (“Florsheim Europe”). The majority of the Company’s operations are in the United States, and its results are primarily affected by the economic conditions and the retail environment in the United States.
This discussion summarizes the significant factors affecting the consolidated operating results, financial position and liquidity of the Company for the three-yeartwo-year period ended December 31, 2017.2021. This discussion should be read in conjunction with Item 8, “Financial Statements and Supplementary Data” below.
ThereEXECUTIVE OVERVIEW
The Company’s 2021 results were mixed. Business recovery was sluggish in early 2021 with the first quarter still being significantly impacted by the pandemic, but operations improved after Covid vaccinations were rolled out in the second quarter. Demand accelerated in the third quarter, although at wholesale, supply chain delays hindered the Company’s ability to fulfill orders timely. The Company ended the year strong, with record fourth quarter wholesale shipments and strong performances across all of its brands. The positive fourth quarter results reflected two underlying trends. First, the slow unwinding of the supply chain bottleneck, as the Company started to receive significant quantities of footwear in the final months of the year. The incoming shipments allowed the Company to fill a portion of the demand pipeline, as the Company is still in the process of getting retailers back to their natural inventory models. Second, the Company is seeing strong consumer response to its product offerings in both its outdoor and legacy brands.
The BOGS outdoor brand has been solid throughout the pandemic, and ended 2021 with a record fourth quarter. BOGS’ classic weather boot styles experienced elevated demand in multiple distribution channels, ranging from department stores in cities, to farm and agricultural stores in rural communities. In addition, BOGS greatly expanded sales of its casual and lifestyle footwear from a wholesale and direct-to-consumer perspective. Relative to 2019, BOGS’ e-commerce business in North America was up over 100% for both the fourth quarter and for all of 2021.
In June 2021, the Company acquired the Forsake brand, which joined BOGS as part of the Company’s outdoor division. Over the past few months, management has been working with Forsake’s founders to onboard the brand and determine opportunities to expand Forsake’s reach both in the wholesale and direct-to-consumer channels. Along with the Company’s other brands, Forsake faced certain supply chain constraints and delays during 2021, but management believes good progress is being made to put the right structure in place for future growth.
The Company’s legacy brands, Florsheim, Stacy Adams, and Nunn Bush, had a robust fourth quarter. Over the course of the year, these brands were impacted by fluctuating consumer demand for dress and dress-casual footwear, from very low demand early in the year, to strong interest a few months later, with that trend continuing through the end of 2021. The falloff in the refined footwear category early in the pandemic followed a long period where the category had already been under pressure due to the increased importance of athletic and athleisure-casual footwear in today’s lifestyle. As a result, at the onset of the pandemic, many competitors pulled back or exited from the dress-shoe business, which put the Company in a strong position to pick up market share when the business bounced back. While the Company remains committed to diversifying its legacy product mix, it also recognizes that it has a tremendous opportunity to be the leader in a still sizeable category in the footwear world.
10
The legacy brands also experienced success in introducing new casual and athleisure footwear. For example, the number two collection in Florsheim’s e-commerce business in 2021 was a sneaker program, and four non-recurring adjustments that impactedof the comparison of earnings resultstop fifteen shoes were true casuals. The Company had similar success with Nunn Bush, as its number two wholesale package in 2017, 20162021 was a sneaker collection. Looking back over the last two years, management is pleased with how the Company has gained market share in its traditional business, while at the same time, has pushed into new categories and 2015. The first adjustment, which was recordedpositioned itself for additional opportunities.
In the retail segment, the Company posted its highest ever quarterly sales in the fourth quarter of 2017, reduced2021, driven by a 52% increase in e-commerce sales. Online transactions account for the vast majority of the Company’s income tax provision by $1.5 million dueretail sales. The Company’s online businesses are trending well above industry e-commerce growth numbers, which speaks to both the changestrength of its brands as well as its execution in this space. The Company continues to invest resources in marketing and analytical tools to build its e-commerce platform.
Overseas, the Company experienced an increase in fourth quarter sales and profitability at Florsheim Australia, which includes the markets of New Zealand, South Africa and the Pacific Rim. Australia reopened retail in October 2021 after months of lockdowns, which put the Company in the U.S. federal corporate tax rate and its impactposition to end the year on a stronger note. Overall, 2021 was a turnaround year for the Company’s deferred tax balances, which resulted fromoverseas businesses. The Company exited its European Florsheim business and signed a long-term licensing deal for the enactmentbrand in that region. Management also reset its Australian business with more favorable retail leases, increased its wholesale sales for BOGS and Florsheim, and experienced solid growth in its e-commerce business.
The Company is continuing to see strong demand for its brands across the board, and expects that both pipeline fill and strong consumer demand will drive its business in 2022. Management expects first quarter 2022’s volume to be significantly better than 2021, not only because demand is up, but also because the first quarter of 2021 was still somewhat impacted by the TCJA on December 22, 2017. The second adjustment, whichpandemic. As of March 1, 2022, the Company’s North American wholesale backlog was recordedthe highest in the fourth quarter of 2016, was a charge for the impairment of long-lived assets of $1.8 million ($1.1 million after tax) relatedCompany’s history. The Company has bought aggressively, especially on its core product, to the Umi trademark. The third adjustment, which was also recorded in the fourth quarter of 2016, was a $3.1 million adjustmentensure that it can fulfill this demand as well as build its “in stock” inventory back to reverse the deferred tax liability on corporate-owned life insurance policies. The fourth adjustment, which was recorded in the fourth quarter of 2015, was a $458,000 ($279,000 after tax) adjustment to the final earnout payment related to the 2011 acquisition of the BOGS/Rafters brands. The final earnout payment was paid in March 2016. All non-recurring adjustments were recorded within the Company’s wholesale segment.normal levels.
For a tabular presentation of the impact of non-recurring adjustments on the Company’s results, see the “Reconciliation of Non-GAAP Financial Measures” table in the “OTHER” section below.
Consolidated net sales were $283.7.totaled $267.6 million in 2017, a decrease of 4%2021 compared to $296.9$195.4 million in 2016.2020. Consolidated gross earnings as a percent of net sales were 40.1% and 40.2% in 2021 and 2020, respectively, Operating earnings rose to $25.7 million, up from operating losses of $7.6 million last year. Net sales in the Company’s wholesale segment decreased $10.3earnings were $20.6 million, or 5%$2.12 per diluted share, in 2021, compared to net losses of $8.5 million, or $0.87 per diluted share, in 2020.
The Company’s 2020 results were significantly impacted by the pandemic, due to most brick-and-mortar retailers being closed for a majority of the second quarter and an overall decrease in consumer demand. Additionally, last year’s operating results included non-recurring charges totaling $11.9 million. As such, comparisons of 2021 financial performance to 2020 may have limited utility. Therefore, selected comparisons to 2019 are included as appropriate. Consolidated net sales for the year, primarily due to lower sales of the Nunn Bush and BOGS brands, partially offset by higher sales of the Florsheim brand. Net sales in the Company’s retail segment were down 5% for the year, and net sales of the Company’s other businesses (Florsheim Australia and Florsheim Europe) were down 4% for the year.
Consolidated earnings from operations were $23.4 million in 2017, up 3% from $22.8 million in 2016. Excluding non-recurring adjustments, consolidated earnings from operations, as adjusted, were down 5% for the year. Wholesale earnings from operations were up 13% for the year; excluding non-recurring adjustments, wholesale earnings from operations, as adjusted, were up 3% for the year, due to higher gross margins and lower selling and administrative expenses. This increase, however, was more than offset by lower earnings from operations in the Company’s retail segment and in the Company’s other businesses. Retail earnings from operations were down this year due mainly to lower sales of the Company’s domestic websites. Earnings from operations of the Company’s other businesses were down primarily due to lower sales at Florsheim Australia.
Net earnings attributable to Weyco Group, Inc. were flat at $16.5 million in both 2017 and 2016. As adjusted, net earnings attributable to the Company, were up 4% for the year. While adjusted consolidated earnings from operations were down in 2017, reductions in certain non-operating expenses, mainly in interest and pension expense, resulted in higher net earnings, as adjusted, compared to last year.
Onyear-ended December 31, 2016, the Company froze its pension plan which resulted in reducing pension expense by approximately $2.2 million in 2017. Also, in 2017, the Company retrospectively adopted a new accounting rule that required the Company2021 recovered to reclassify the non-service cost components88% of pension expense from selling2019 levels and administrative expenses to other expense in the Consolidated Statementsoperating earnings reached 95% of Earnings. Accordingly, $1.1 million of the cost savings was recognized in selling and administrative expenses and the remaining $1.1 million of cost savings was recognized in other expense, net in the Consolidated Statements of Earnings.
TABLE OF CONTENTS2019 levels.
Diluted earnings per share were $1.60 per share in 2017, compared to $1.56 per share in 2016. Excluding the non-recurring adjustments described above, diluted earnings per share, as adjusted, were $1.45 per share in 2017 and $1.36 per share in 2016.
At December 31, 2017,2021, cash, short-term investments, and marketable securities totaled $47.1$38.0 million and there waswere no debt outstanding.amounts outstanding on the Company’s line of credit. During 2017,2021, the Company generated $33.5$6.4 million of cash from operations, and collected $4.3 million in proceeds from stock option exercises.operations. The Company used funds to pay off $4.3$9.3 million on its revolving line of credit,in dividends and repurchase $15.2$2.5 million of its common stock, pay $9.1company stock. The Company also spent $2.6 million to acquire the Forsake brand and had $1.0 million of dividends,capital expenditures.
Recent Acquisitions
On June 7, 2021, the Company acquired substantially all of the operating assets and certain liabilities of Forsake, a distributor of outdoor footwear, under the brand name “Forsake.” The principal assets acquired were inventory, accounts receivable, and intellectual property, including the Forsake brand name. The aggregate purchase price was approximately $2.6 million, plus contingent payments to be paid annually over a netperiod of $2.0five years, depending on Forsake achieving certain performance measures. The Company’s estimate of the discounted fair value of the contingent payments was approximately $1.3 million in marketable securities. In addition,total. The $2.6 million purchase price was funded with the Company spent $1.6 million on capital expenditures.Company’s available cash.
11
SEGMENT ANALYSIS
Net sales and earnings (loss) from operations for the Company’s segments, as well as its “other” operations, in the years ended December 31, 20172021 and 2016,2020, were as follows:
Years ended December 31, | ||||||||||||
2017 | 2016 | % Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Net Sales | ||||||||||||
North American Wholesale | $ | 217,276 | $ | 227,537 | -5 | % | ||||||
North American Retail | 20,860 | 21,883 | -5 | % | ||||||||
Other | 45,613 | 47,513 | -4 | % | ||||||||
Total | $ | 283,749 | $ | 296,933 | -4 | % | ||||||
Earnings from Operations | ||||||||||||
North American Wholesale | $ | 20,224 | $ | 17,944 | 13 | % | ||||||
North American Retail | 1,374 | 2,109 | -35 | % | ||||||||
Other | 1,814 | 2,729 | -34 | % | ||||||||
Total | $ | 23,412 | $ | 22,782 | 3 | % |
| | | | | | | | | |
| | Years ended December 31, | | ||||||
| | 2021 | | 2020 | | % Change |
| ||
| | (Dollars in thousands) | | |
| ||||
Net Sales | |
| | |
| | |
|
|
North American Wholesale | | $ | 205,386 | | $ | 152,186 |
| 35 | % |
North American Retail | |
| 31,595 | |
| 21,499 |
| 47 | % |
Other | |
| 30,660 | |
| 21,690 |
| 41 | % |
Total | | $ | 267,641 | | $ | 195,375 |
| 37 | % |
| | | | | | | | | |
Earnings (Loss) from Operations | |
| | |
| |
|
| |
North American Wholesale | | $ | 19,455 | | $ | 975 |
| NM | |
North American Retail | |
| 6,651 | |
| (1,073) |
| NM | |
Other | |
| (404) | |
| (7,500) |
| NM | |
Total | | $ | 25,702 | | $ | (7,598) |
| NM | |
*NM = Not Meaningful
North American Wholesale Segment
Wholesale Net Sales
Net sales in the Company’s North American wholesale segment for the years ended December 31, 20172021 and 2016,2020, were as follows:
Years ended December 31, | ||||||||||||
2017 | 2016 | % Change | ||||||||||
(Dollars in thousands) | ||||||||||||
North American Net Sales | ||||||||||||
Stacy Adams | $ | 65,578 | $ | 66,620 | -2 | % | ||||||
Nunn Bush | 51,544 | 58,229 | -11 | % | ||||||||
Florsheim | 54,239 | 51,563 | 5 | % | ||||||||
BOGS/Rafters | 41,993 | 46,075 | -9 | % | ||||||||
Umi | 1,379 | 2,265 | -39 | % | ||||||||
Total North American Wholesale | $ | 214,733 | $ | 224,752 | -4 | % | ||||||
Licensing | 2,543 | 2,785 | -9 | % | ||||||||
Total North American Wholesale Segment | $ | 217,276 | $ | 227,537 | -5 | % |
| | | | | | | | | |
| | Years ended December 31, | | |
| ||||
| | 2021 | | 2020 | | % Change |
| ||
| | (Dollars in thousands) | | |
| ||||
North American Wholesale Net Sales | |
| | |
| | |
|
|
Stacy Adams | | $ | 41,750 | | $ | 31,997 |
| 30 | % |
Nunn Bush | |
| 39,209 | |
| 29,741 |
| 32 | % |
Florsheim | |
| 63,980 | |
| 40,011 |
| 60 | % |
BOGS/Rafters | |
| 57,534 | |
| 49,263 |
| 17 | % |
Forsake | |
| 1,176 | |
| - |
| 100 | % |
Total North American Wholesale | | $ | 203,649 | | $ | 151,012 |
| 35 | % |
Licensing | |
| 1,737 | |
| 1,174 |
| 48 | % |
Total North American Wholesale Segment | | $ | 205,386 | | $ | 152,186 |
| 35 | % |
Stacy Adams net sales were downAs discussed above in 2017 due to lower sales to department stores, partially offset by higher sales to online retailers. Net sales of the Nunn Bush brand were down for the year, due mainly to lower sales to department stores. Net sales of the BOGS/Rafters brands were down, due mostly to lower sales to outdoor retailers. Umi sales were down in 2017 as the Company continues to wind down operations of this brand. These sales decreases were partly offset by increased sales of the Florsheim brand this year. Florsheim“Executive Overview,” 2021 net sales were up mainly with national shoe chains and department stores.
Licensing revenues consistacross all of royalties earned on sales of branded apparel, accessories and specialty footwear in the United States and on branded footwear in Mexico and certain overseas markets.
Gross earnings as a percent of net sales were 33.6% in 2017 versus 32.1% in 2016. The Company’s cost of sales does not include distribution costs (e.g., receiving, inspection or warehousing costs) or shipping and handling expenses. The Company’s wholesale distribution costs were $10.6 million and $11.2 million in the years ended December 31, 2017 and 2016, respectively. The Company’s wholesale shipping and handling expenses were $1.4 million and $1.6 million in the years ended December 31, 2017 and 2016, respectively. These costs were included in selling and administrative expenses. The Company’s gross earnings may not be comparable to other companies, as some companies may include distribution costs and shipping and handling expenses in cost of sales.
The North American wholesale segment’s selling and administrative expenses include, and primarily consist of: distribution costs, salaries and commissions, advertising costs, employee benefit costs, and depreciation. Wholesale selling and administrative expenses were $52.8 million in 2017, down 4% compared to $55.1 million in 2016. Last year’s wholesale selling and administrative expenses included an impairment charge of $1.8 million related to the Umi trademark. Excluding this adjustment, wholesale selling and administrative expenses were down 1% between years, due mainly to lower pension and advertising expenses. Wholesale selling and administrative expenses were 24% of net sales in both 2017 and 2016. Excluding last year’s non-recurring adjustment related to the Umi trademark, wholesale selling and administrative expenses were 23% of net sales in 2016.
Earnings from operations in the North American wholesale segment were $20.2 million in 2017, up 13% compared to $17.9 million in 2016. Excluding last year’s non-recurring adjustment related to the Umi trademark, wholesale earnings from operations were up 3% for the year, due to higher gross margins and lower selling and administrative expenses.
Net sales in the Company’s North American retail segment were $20.9 million in 2017, down 5% compared to $21.9 million in 2016. Same store sales, which include U.S. internet sales, were down 5% for the year, due mainly to lower sales on the Company’s websites. There were three fewer domestic bricklegacy brands (Stacy Adams, Nunn Bush, and mortar locations operating at December 31, 2017 than there were at December 31, 2016. Stores are included in same store sales beginning in the store’s 13th month of operations after its grand opening.
Retail gross earnings as a percent of net sales were 64.0% in 2017 and 65.0% in 2016. Selling and administrative expenses for the retail segment include, and are primarily related to, rent and occupancy costs, employee costs, advertising expense and freight. Retail selling and administrative expenses were $12.0 million, or 57% of net sales in 2017 as compared to $12.1 million, or 55% of net sales, in 2016. Earnings from operations in the North American retail segment were $1.4 million in 2017, down 35% compared to $2.1 million in 2016. The decrease in retail earnings from operations was primarily due to lower sales on the Company’s websites.
The Company reviews its long-lived assets for impairment annually in accordance with Accounting Standards Codification (“ASC”) 360,Property Plant and Equipment(“ASC 360”)Florsheim). No impairment charges were recorded following the 2017 and 2015 impairment tests. In 2016, the Company recorded a $113,000 impairment charge related to its retail fixed assets. See Note 2 in the Notes to Consolidated Financial Statements for further information.
The Company’s other businesses include its wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe. In 2017, netLast year’s sales of the Company’s other businesseslegacy brands were $45.6 million, down 4% from $47.5 million in 2016. This decrease was primarily due to lower netthan normal because the pandemic significantly impacted sales at Florsheim Australia. Florsheim Australia’s net sales were down 3% for the year. In local currency, Florsheim Australia’s net sales were down 6%, with lower sales in both its wholesaleof dress and retail businesses. Earnings from operations at Florsheim Australia and Florsheim Europe were $1.8 million in 2017, down 34% from $2.7 million last year. This decrease resulted mainly from lower sales, due to the challenging retail environments in these markets.
Net sales and earnings from operations for the Company’s segments, as well as its “other” operations, in the years ended December 31, 2016 and 2015, were as follows:
Years ended December 31, | ||||||||||||
2016 | 2015 | % Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Net Sales | ||||||||||||
North American Wholesale | $ | 227,537 | $ | 251,370 | -9 | % | ||||||
North American Retail | 21,883 | 22,121 | -1 | % | ||||||||
Other | 47,513 | 47,126 | 1 | % | ||||||||
Total | $ | 296,933 | $ | 320,617 | -7 | % | ||||||
Earnings from Operations | ||||||||||||
North American Wholesale | $ | 17,944 | $ | 26,335 | -32 | % | ||||||
North American Retail | 2,109 | 2,519 | -16 | % | ||||||||
Other | 2,729 | 2,994 | -9 | % | ||||||||
Total | $ | 22,782 | $ | 31,848 | -28 | % |
Net sales in the Company’s North American wholesale segment for the years ended December 31, 2016 and 2015, were as follows:
Years ended December 31, | ||||||||||||
2016 | 2015 | % Change | ||||||||||
(Dollars in thousands) | ||||||||||||
North American Net Sales | ||||||||||||
Stacy Adams | $ | 66,620 | $ | 67,655 | -2 | % | ||||||
Nunn Bush | 58,229 | 66,681 | -13 | % | ||||||||
Florsheim | 51,563 | 50,961 | 1 | % | ||||||||
BOGS/Rafters | 46,075 | 59,616 | -23 | % | ||||||||
Umi | 2,265 | 2,825 | -20 | % | ||||||||
Total North American Wholesale | $ | 224,752 | $ | 247,738 | -9 | % | ||||||
Licensing | 2,785 | 3,632 | -23 | % | ||||||||
Total North American Wholesale Segment | $ | 227,537 | $ | 251,370 | -10 | % |
The Company’s wholesale business faced a challenging retail environment in 2016. Foot traffic at the Company’s customers’ brick and mortar stores has been declining, as the popularity of online shopping continues to grow. Nunn Bush was particularly impacted because a significant amount of the brand’s business is with mid-tier department stores, a segment particularly struggling with this problem.dress-casual footwear. Sales of the BOGS outdoor brand, also declined, mainly duewhich were less affected by the pandemic in 2020, rose 17% for the year, with sales up across most distribution categories. Wholesale sales in 2021 recovered to the continued impact85% of the mild 2015/2016 winter season, as retailers carried over BOGS inventory into the 2016/2017 winter season.2019 levels.
Licensing revenues consist of royalties earned on sales of branded apparel, accessories and specialty footwear in the United States and on branded footwear in Mexico and certain overseas markets. The decreaseLicensing revenues increased in licensing revenues resulted mainly from licensee transitions that occurred2021, compared to 2020, in 2016.line with increased licensees’ sales of branded products.
Wholesale Earnings from Operations
GrossWholesale gross earnings as a percent of net sales were 32.1%33.8% in 20162021 versus 32.5%35.5% in 2015. Earnings from operations2020. The decrease in gross margins in 2021 was largely due to higher inbound freight costs, as the North AmericanCompany paid premium rates during the year. Management believes that gross margins will improve in mid to late 2022 as the supply chain stabilizes and as negotiated price increases with customers go into effect.
12
Selling and administrative expenses for the wholesale segment consist primarily of distribution costs, salaries and commissions, advertising costs, employee benefit costs, and depreciation. Wholesale selling and administrative expenses were $17.9$49.9 million, or 24% of net sales, in 2021, versus $53.1 million, or 35% of net sales, in 2020. 2021 expenses included income of $5.5 million in 2016, down 32% comparedwage subsidies received from the U.S. and Canadian governments, and expense of $1.1 million to $26.3write-off certain assets related to the closing of Florsheim Europe. 2020 expenses included the write-off of $4.3 million (net) in receivables related to the bankruptcy filings of two large customers, $2.0 million in 2015.employee costs related to restructuring and temporary closures, and $0.2 million in other related charges, partially offset by $1.7 million in wage subsidies received from the U.S. and Canadian governments.
Wholesale operating earnings rose to $19.5 million in 2021 from $975,000 in 2020, due mainly to higher sales. Wholesale operating earnings in 2016 included an impairment charge2021 reached 70% of $1.8 million related to the Umi trademark. Wholesale operating earnings in 2015 included $458,000 of income representing the final adjustment to the BOGS/Rafters earnout payment. Excluding these non-recurring adjustments, wholesale earnings from operations were down 24% in 2016, due mainly to the decrease in wholesale sales.2019 levels.
The Company’s cost of sales does not include distribution costs (e.g., receiving, inspection, or warehousing, costs) or shipping, and handling expenses. The Company’s wholesalecosts, which are included in selling and administrative expenses). Wholesale distribution costs were $11.2$10.8 million and $10.4$11.7 million infor the years ended December 31, 20162021 and 2015,2020, respectively. The Company’s wholesale shipping2021 and handling expenses2020 distribution costs were $1.6reduced by $1.5 million and $1.9 million in the years ended December 31, 2016 and 2015, respectively. These costs were included in selling and administrative expenses.$418,000, respectively, as a result of government wage subsidies. The Company’s gross earnings may not be comparable to other companies, as some companies may include distribution costs and shipping and handling expenses in cost of sales.
North American wholesale segment selling and administrative expenses include, and are primarily related to, distribution costs, salaries and commissions, advertising costs, employee benefit costs and depreciation. Wholesale selling and administrative expenses decreased $627,000 in 2016, compared to the prior year. Excluding the non-recurring adjustments related to the Umi trademark and the BOGS/Rafters earnout payment, wholesale selling and administrative expenses were down $2.3 million between years, primarily due to lower employee benefit costs and advertising costs. As a percent of net sales, wholesale selling and administrative expenses were 25% and 23% in 2016 and 2015, respectively. Excluding the non-recurring adjustments described above, wholesale selling and administrative expenses as a percent of netRetail Segment
Retail Net Sales
Net sales were 23% and 22% in 2016 and 2015, respectively.
Net sales in the Company’s North American retail segment were $21.9$31.6 million in 2016, down 1% compared to $22.12021, up 47% from $21.5 million in 2015.2020. Same store sales which include U.S. internetrose 53% for the year, due to a 43% increase in e-commerce sales (with sales up on all brands’ websites) and higher brick-and-mortar same store sales. Last year’s brick-and-mortar sales were up 1% fordown significantly as a result of the year. There werepandemic. The Company closed three fewer domesticunprofitable retail stores operating in 2016 than there were in 2015, as four stores closedthe third quarter of 2020 and one store opened. Stores are included in same store sales beginning in the store’s 13th monthfirst quarter of operations after its grand opening. The increase2021, and currently has just four active brick-and-mortar locations in same storeNorth America. Retail sales wasin 2021 surpassed 2019 levels by 25%, due primarily to an increasegrowth in the Company’s U.S. internet business.e-commerce.
Retail Earnings (Loss) from Operations
Earnings from operations in the North American retail segment were $2.1 million in 2016, down 16% compared to $2.5 million in 2015. Retail gross earnings as a percent of net sales were 65.0%66.4% in 20162021 and 65.7%64.8% in 2015.2020, with gross margins up at active brick-and-mortar locations and in e-commerce. Selling and administrative expenses for the retail segment include,consist primarily of freight, advertising expense, employee costs, and are
primarily related to, rent and occupancy costs, employee costs, advertising expense and freight. Sellingcosts. Retail selling and administrative expenses aswere $14.3 million in 2021 and $15.0 million in 2020. As a percent of net sales, retail selling and administrative expenses were 55%45% in 20162021 and 70% in 2020. 2020 expenses included $1.5 million in early lease termination charges, $1.0 million for the impairment of retail store fixed assets, and $0.3 million in employee costs related to restructuring and temporary closures, partially offset by $0.2 million of income from government wage subsidies.
The retail segment had operating earnings of $6.7 million in 2021 compared to 54%operating losses of $1.1 million in 2015.2020. The decreaseimprovement in retail earnings from operations2021 was primarily due to lower net salesthe benefit of closing unprofitable stores, higher e-commerce earnings, and improved performance at the Company’s brick and mortaractive brick-and-mortar locations. Retail operating earnings in 2021 exceeded 2019 levels by 138%.
The Company reviews its long-lived assets for impairment in accordance with Accounting Standards Codification (“ASC”) 360,Property Plant and Equipment(“ASC 360”). See Note 2 in the Notes to Consolidated Financial Statements for further information. A $113,000 impairment charge was recognized following the 2016 impairment test. No impairment charges were recognized in 2015.Other
The Company’s other businesses include its wholesale and retail operations inof Florsheim Australia South Africa, Asia Pacific and Florsheim Europe. In 2016, netNet sales of the Company’s other businesses were $47.5 million, up 1% compared with $47.1$30.7 million in 2015. This2021, up 41% from $21.7 million in 2020. The increase was primarily dueat Florsheim Australia, with sales up in both its retail and wholesale businesses. For the year, other net sales amounted to higher84% of 2019 levels, with Florsheim Australia reaching 93% of 2019 levels, offset by lower sales at Florsheim Europe, which is being wound down.
Gross earnings in the Company’s other businesses were 55.8% of net sales in Florsheim Europe’s wholesale business. Earnings from operations at2021 versus 48.8% of net sales in 2020. Collectively, Florsheim Australia and Florsheim Europe were $2.7had operating losses totaling $404,000 in 2021 compared to operating losses of $7.5 million last year. Despite the lockdowns that existed throughout much of 2021, Florsheim Australia had operating earnings of $118,000 in 2021, resulting from improved gross margins and cost reductions. Last year’s losses included $3.6 million in 2016, down 9% comparedemployee costs related to $3.0restructuring and temporary closures, $2.1 million for the impairment of retail store fixed assets and operating lease right-of-use assets, $2.0 million in 2015. This decreasereserves for obsolete and slow moving inventory due to COVID-19-related impacts, and $0.3 million in related charges, partially offset by $3.5 million of income from government wage and rent subsidies. The improvement in 2021 was primarily due to lower operating earningsthe stronger results at the Company’s retail store in Macau, resulting from lower sales.Florsheim Australia.
13
OTHER INCOME AND EXPENSE AND TAXES
The majority of the Company’s interest income comes fromis generated by investments in marketable securities.securities and highly liquid fixed income funds. Interest income was $773,000, $763,000totaled $641,000 and $936,000$527,000 in 2017, 20162021 and 2015,2020, respectively. The decrease from 2015 to 2016increase in 2021 was primarily due to lower average investment balances between years.
earnings on the new fixed income funds this year. Interest expense was $15,000, $436,000,$81,000 in 2021 and $181,000$79,000 in 2017, 2016, and 2015, respectively. In 2017, the Company paid off its revolving line of credit which resulted2020. Other income totaled $1.1 million in lower interest expense this year. In 2016, interest expense2021 versus $96,000 in 2020. The increase in 2021 was up mainlyprimarily due to interest recognized on a 2016 tax settlement.
The major components of other expense, net, were as follows:
2017 | 2016 | 2015 | ||||||||||
Foreign currency transaction gains/(losses) | $ | 146,000 | $ | 513,000 | $ | (961,000 | ) | |||||
Non-service cost components of pension expense | (431,000 | ) | (1,546,000 | ) | (2,063,000 | ) | ||||||
Operating losses and write-off of foreign joint venture | — | — | (473,000 | ) | ||||||||
Other | 37,000 | 1,000 | 9,000 | |||||||||
Other expense, net | $ | (248,000 | ) | $ | (1,032,000 | ) | $ | (3,488,000 | ) |
The Company adopted ASU 2017-07 in the first quarter of 2017 and retrospectively applied it to all periods presented. This required to Company to reclassify the non-service cost components of pension expense from selling and administrative expenses to other expense, net, in the Consolidated Statements of Earnings. The decrease in other expense from 2016 to 2017 was mainly due to a $1.1 million decrease in the non-service cost components of pension expense. Pension expense, decreased in 2017 as a result of freezing benefits under the pensionresulting from lower interest expense and higher expected return on plan effective December 31, 2016.
The decrease in other expense from 2015 to 2016 was due mainly to the change in foreign exchange gains/(losses) recognized in those years. In 2016, the Company recognized $513,000 in foreign currency transaction gains, which resulted mainly fromassets, and unrealized gains on foreign exchange contracts entered into by Florsheim Australia. In 2015, the Company recognized $961,000
The Company’s effective tax rate was 24.8% in foreign currency transaction losses, which resulted mainly from unrealized losses on foreign exchange contracts entered into by Florsheim Australia, as well as losses2021 versus (20.3%) in 2020. The current tax rate differs from the revaluationU.S. federal statutory rate of intercompany loans between the Company’s wholesale segment and Florsheim Australia. The non-service cost components of pension expense were also down in 2016, relative to 2015, mainly21% due to the adoptionimpact of state income taxes. The Company’s 2020 tax rate was impacted by the spot-rate approach on January 1, 2016. See further details regarding this approach in
Note 11 of the Consolidated Financial Statements. Finally, other expense in 2015 included $473,000 of expense related to the operating losses and write-off of an investment by Florsheim Australia$2.0 million in a foreign joint venture.
The effective tax rate for 2017 was 30.2%, compared with 23.0% in 2016 and 37.7% in 2015. In 2017, following the enactment of the TCJA on December 22, 2017, the Company recognized a $1.5 million tax benefit due to the revaluation of deferred tax assets and liabilities fromof its foreign subsidiaries. Additionally, last year the changeCompany did not record an income tax benefit on foreign losses, and, in the U.S., it carried back losses to a tax year when the U.S. federal corporatestatutory tax rate. This tax benefit reduced the Company’s effective rate for 2017. In 2016, the effective rate was lower due to the reversal of a deferred tax liability on corporate-owned life insurance policies. In 2015, the effective rate was up due to a higher state tax liability as well as higher effective tax rates at the Company’s foreign locations.35%.
LIQUIDITY &AND CAPITAL RESOURCES
The Company’s primary sources of liquidity are its cash, short-term investments, and short-term marketable securities, which aggregated $29.4to $28.1 million and $34.7 million at December 31, 2017,2021 and $18.3 million at December 31, 2016,2020, respectively, and its revolving line of credit. In 2017, theThe Company generated $33.5$6.4 million of cash from operations, compared with generating $46.9and $40.0 million of cash from operations in 2016,2021 and using $5.4 million of cash in operations in 2015.2020, respectively. Fluctuations in net cash from operating activities over the three-year period have mainly resulted from changes in net earnings (loss) and operating assets and liabilities, and most significantly, the year-end accounts receivable and inventory balances. In 2016, operating cash flows were up due largely to a reduction inThe Company’s inventory levels increased to $71.0 million at December 31, 2021 from $59.0 million at December 31, 2020. These figures include inventory that year;was both in-transit to the Company’s distribution facility and on-hand inventory. Before the supply chain issues experienced in 2021, typically about 10% to 20% of the Company’s inventory was in-transit. As of December 31, 2021, approximately 59% of the $71.0 million was in-transit, with the remaining 41% on-hand. In early 2022, the Company has continued to receive a much higher number of containers on a daily basis than normal, which has allowed it to maintain strong shipments to customers and start building back higher inventory levels were reduced in accordance with customer orders, and also to reflect a more conservative position based on the overall retail environment.core product that is needed for at-once business.
The Company’s capital expenditures were $1.6 million, $6.0$1.0 million and $2.5$3.4 million in 2017, 20162021 and 2015,2020, respectively. The Company’s 2020 capital expenditures included costs related to the expansion of office space within its corporate headquarters. In 2022, the Company plans to invest in its distribution center to enable it to process and ship more efficiently the large increase in e-commerce orders experienced over the past several years. Including these costs, the Company expects capital expenditures will be between $2.0 million and $3.0 million in 2018. In 2016, capital expenditures were up due to improvements that were made to the Company’s distribution center in Glendale, Wisconsin to increase its capacity, as well as remodeling projects to improve two of the Company’s Florida retail stores, and the build out of the new store opened in Florida in 2016.2022.
The Company paid cash dividends of $9.1 million, $8.9$9.3 million and $8.5$11.8 million in 2017, 20162021 and 2015,2020, respectively. The decrease in 2021 was due to a shift in timing of the Company’s regular quarterly dividend payment schedule; 2021 included four dividend payments while 2020 included five dividend payments, as the Company accelerated the timing of its January 2021 dividend payment into 2020.
The Company continues to repurchaserepurchases its common stock under its share repurchase program when the Companyit believes market conditions are favorable. In 2017,2021, the Company repurchased 548,539purchased 125,204 shares forat a total cost of $15.2 million.$2.5 million through its share repurchase program. In 2016,2020, the Company repurchased 410,983purchased 106,490 shares forat a total cost of $11.0 million. In 2015,$2.1 million through its share repurchase program. As of December 31, 2021, there were 210,576 authorized shares remaining under the Company repurchased 354,741 shares for a total cost of $9.9 million. program.
At December 31, 2017, the remaining total shares available to purchase under the program was approximately 1.0 million shares.
At December 31, 2017,2021, the Company had a $60$40 million unsecured revolving line of credit with a bank expiring November 4, 2018.that is secured by a lien against the Company’s general corporate assets. The line of credit bears interest at the daily London Interbank Offered Rate (“LIBOR”)LIBOR plus 0.75%.1.35% and expires on November 4, 2022. The related credit agreement contains customary representations, warranties, and covenants (including a minimum tangible net worth financial covenant) for a facility of this type. At December 31, 2017,2021 and 2020, there were no amounts outstanding borrowings on the Company’s line of credit. The highest balancecredit and the Company was in compliance with all financial covenants. There were also no amounts outstanding on the line of credit during 2017 was $4.8 million. At December 31, 2016, outstanding borrowings were approximately $4.3 million at an interest rate of 1.52%. The highest balance on the line of credit during 2016 was $28.4 million.2021.
In connection with the Bogs acquisition, the Company had two earn-out payments due to the former shareholders of Bogs. The Company made the first earn-out payment of $1,270,000 in the first quarter of 2013. The second and final earn-out payment of $5,217,000 was made in March 2016. For additional information, see Note 10 in the Notes to Consolidated Financial Statements.
As of December 31, 2017, $2.92021, approximately $3.5 million of cash and cash equivalents was held by the Company’s foreign subsidiaries.
In the fourth quarter of 2016, the Company reviewed its liquidity needs and sources of capital, including evaluating whether it would need the cash available under corporate-owned life insurance
policies on two former executives. It was determined that the chances were remote that the Company would need to surrender the policies to satisfy liquidity needs, and, as a result, the Company reversed the $3.1 million deferred tax liability related to the policies.
The Company will continue to evaluate the best uses for its available liquidity, including, among other uses, capital expenditures, continued stock repurchases and additional acquisitions.
The Company believes that available cash, andshort-term investments, marketable securities, cash provided by operations, and available borrowing facilities will provide adequate support for the cash needs of the business through March 2019,for at least one year, although there can be no assurances.
14
Off-Balance Sheet Arrangements
The Company does not utilize any special purpose entities or other off-balance sheet arrangements.
The Company’s significant contractual obligations are its supplemental pension plan and its operating leases. These obligations are discussed further in the Notes to Consolidated Financial Statements. The Company also has significant obligations to purchase inventory. Future obligations under operating leases are disclosed in Note 13 of the Notes to Consolidated Financial Statements. The table below provides summary information about these obligations as of December 31, 2017.
Payments Due by Period (dollars in thousands) | ||||||||||||||||||||
Total | Less Than a Year | 2 – 3 Years | 4 – 5 Years | More Than 5 Years | ||||||||||||||||
Pension obligations | $ | 32,605 | $ | 416 | $ | 936 | $ | 1,086 | $ | 30,167 | ||||||||||
Operating leases | 36,595 | 9,390 | 15,377 | 7,943 | 3,885 | |||||||||||||||
Purchase obligations* | 57,024 | 57,024 | — | — | — | |||||||||||||||
Total | $ | 126,224 | $ | 66,830 | $ | 16,313 | $ | 9,029 | $ | 34,052 |
The comparability of certain of the Company’s financial measures was impacted by non-recurring adjustments related to the Company’s income tax provision due to the change in the U.S. federal corporate tax rate resulting from the TCJA, the Umi trademark impairment, an adjustment to reverse the deferred tax liability on corporate-owned life insurance policies, and the gain from the final adjustment to the earnout payment related to the 2011 acquisition of Bogs. To provide additional information to investors to facilitate the comparison of past and present performance, the Company presented non-GAAP financial measures that exclude the financial impact of these non-recurring adjustments. These non-GAAP financial measures were used internally by management in evaluating the results of operations, but they are not intended to replace the presentation of financial results in accordance with GAAP. A reconciliation of the non-GAAP financial measures to their nearest comparable GAAP financial measures, as presented in the Consolidated Statements of Earnings, is provided in the table below.
The following is a reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures for the twelve-month periods ended December 31, 2017, 2016 and 2015.
Twelve Months Ended December 31, 2017 | Twelve Months Ended December 31, 2016 | Twelve Months Ended December 31, 2015 | ||||||||||||||||||||||||||||||||||
GAAP Measures (As Reported) | Adjustments | Non-GAAP Measures (As Adjusted) | GAAP Measures (As Reported) | Adjustments | Non-GAAP Measures (As Adjusted) | GAAP Measures (As Reported) | Adjustments | Non-GAAP Measures (As Adjusted) | ||||||||||||||||||||||||||||
Net sales | $ | 283,749 | $ | 283,749 | $ | 296,933 | $ | 296,933 | $ | 320,617 | $ | 320,617 | ||||||||||||||||||||||||
Cost of sales | 173,056 | 173,056 | 184,890 | 184,890 | 199,008 | 199,008 | ||||||||||||||||||||||||||||||
Gross earnings | 110,693 | 110,693 | 112,043 | 112,043 | 121,609 | 121,609 | ||||||||||||||||||||||||||||||
Selling and administrative expenses | 87,281 | 87,281 | 89,261 | (1,770 | )(2) | 87,491 | 89,761 | 458 | (4) | 90,219 | ||||||||||||||||||||||||||
Earnings from operations | 23,412 | 23,412 | 22,782 | 24,552 | 31,848 | 31,390 | ||||||||||||||||||||||||||||||
Interest income | 773 | 773 | 763 | 763 | 936 | 936 | ||||||||||||||||||||||||||||||
Interest expense | (15 | ) | (15 | ) | (436 | ) | (436 | ) | (181 | ) | (181 | ) | ||||||||||||||||||||||||
Other expense, net | (248 | ) | (248 | ) | (1,032 | ) | (1,032 | ) | (3,488 | ) | (3,488 | ) | ||||||||||||||||||||||||
Earnings before provision for income taxes | 23,922 | 23,922 | 22,077 | 23,847 | 29,115 | 28,657 | ||||||||||||||||||||||||||||||
Provision for income taxes | 7,223 | 1,492 | (1) | 8,715 | 5,084 | 3,832 | (3) | 8,916 | 10,962 | (179 | )(4) | 10,783 | ||||||||||||||||||||||||
Net earnings | 16,699 | 15,207 | 16,993 | 14,931 | 18,153 | 17,874 | ||||||||||||||||||||||||||||||
Net earnings (loss) attributable to noncontrolling interest | 208 | 208 | 521 | 521 | (59 | ) | (59 | ) | ||||||||||||||||||||||||||||
Net earnings attributable to Weyco Group, Inc. | $ | 16,491 | $ | 14,999 | $ | 16,472 | $ | 14,410 | $ | 18,212 | $ | 17,933 | ||||||||||||||||||||||||
Basic | $ | 1.61 | (0.15 | ) | $ | 1.46 | $ | 1.57 | (0.20 | ) | $ | 1.37 | $ | 1.69 | (0.03 | ) | $ | 1.66 | ||||||||||||||||||
Diluted | $ | 1.60 | (0.15 | ) | $ | 1.45 | $ | 1.56 | (0.20 | ) | $ | 1.36 | $ | 1.68 | (0.03 | ) | $ | 1.65 |
The Company’s accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements. As disclosed in Note 2, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the consolidated financial statements. The following policies are considered by management to be the most critical in understanding the significant accounting estimates inherent in the preparation of the Company’s consolidated financial statements and the uncertainties that could impact the Company’s results of operations, financial position and cash flows.
Sales Returns, Sales Allowances and Doubtful Accounts
The Company records reserves and allowances (“reserves”) for sales returns, sales allowances and discounts, cooperative advertising, and accounts receivable balances that it believes will ultimately not be collected. The reserves are based on such factors as specific customer situations, historical experience, a review of the current aging status of customer receivables and current and expected economic conditions. The reserve for doubtful accounts includes a specific reserve for accounts identified as potentially uncollectible, plus an additional reserve for the balance of accounts, determined based on historical trends. The Company evaluates the reserves and the estimation process and makes adjustments when appropriate. Historically,Prior to 2020, actual write-offs against the reserves havehad been within the Company’s expectations. ChangesHowever, in these2020, the Company wrote down $4.3 million (net) in receivables due to the bankruptcy filings of two large customers during the pandemic. Future changes in reserves may be required if actual returns, discounts and bad debt activity varies from the original estimates. These changes could impact the Company’s results of operations, financial position and cash flows.
Pension Plan Accounting
The Company’s net periodic pension cost(benefit) expense and corresponding obligation are determined on an actuarial basis and require certain actuarial assumptions. Management believes the two most critical of these assumptions are the discount rate and the expected rate of return on plan assets. The Company evaluates its actuarial assumptions annually on the measurement date (December 31) and makes modifications based on such factors as market interest rates and historical asset performance. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions.
Discount Rate — Net periodic pension cost– Pension expense and projected benefit obligation both increase as the discount rate is reduced. See Note 1112 of the Notes to Consolidated Financial Statements for discount rates used in determining the net periodic pension cost(benefit) expense for the years ended December 31, 2017, 20162021 and 20152020, and the funded status of the plans at December 31, 20172021 and 2016. Effective January 1, 2016, the2020. The Company adopteduses the spot-rate approach to determine the service and interest cost components of net periodic pension cost. Historically, the Company estimated the service and interest cost components using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation.(benefit) expense. Under the spot-rate approach, the service and interest costs were calculated by applying specific spot rates along the yield curve to the relevant projected cash flows, to provide a better estimate of future service and interest costs. This change does not affect the measurement of the benefit obligation. A 0.5% decrease in the discount rate would increasehave a nominal impact on annual net periodic pension cost(benefit) expense, and would increase the projected benefit obligation by approximately $27,000 and $4.5 million, respectively.
The Company considered the adoption of the spot-rate approach a change in accounting estimate and recognized the effects of the change on a prospective basis. The effect of adoption was a reduction in 2016’s net periodic pension cost by approximately $522,000 ($318,000 after tax, or $0.03 per diluted share), primarily due to a reduction in interest cost.
TABLE OF CONTENTS$4.7 million.
Expected Rate of Return —– Pension expense increases as the expected rate of return on pension plan assets decreases. In estimating the expected return on plan assets, the Company considers the historical returns on plan assets and future expectations of asset returns. The Company utilized an expected rate of return on plan assets of 7.00% in 2017, as compared to 7.50% infor both 20162021 and 2015.2020. This rate was based on the Company’s long-term investment policy of equity securities: 20% –- 80%; fixed income securities: 20% –- 80%; and other, principally cash: 0% –- 20%. A 0.5% decrease in the expected return on plan assets would increase annual pension expense by approximately $186,000.$216,000.
The Company’s unfunded benefit obligation was $28.2$28.3 million at both December 31, 2017 and $34.0 million at December 31, 2016.2021 and 2020, respectively.
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Goodwill and Trademarks
Goodwill and trademarks are testedrepresents the excess of the purchase price over fair value of identifiable net assets acquired from a business acquisition. Goodwill is not amortized, but is reviewed for impairment on an annual basis and more frequently when significant events or changes in circumstances indicate that their carrying values may not be recoverable. Conditions that would trigger anbetween annual tests if indicators of impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of the asset.
present. The Company’s $11.1 million of goodwill primarily resulted from the 2011 acquisition of the BOGS and Rafters brands, and, to a lesser extent, the 2021 acquisition of the Forsake brand. The Combsapplicable reporting units are the Company’s wholesale and retail segments.
The Company (“Bogs”). Thishas the option to assess goodwill is tested for impairment annually by comparingperforming either a qualitative assessment or quantitative test. The qualitative assessment is the applicable reporting unit’sfirst step and determines whether it is more likely than not that the fair value to its carrying value. If the carrying valuevalues of the reporting unit exceeds itsunits are less than the related carrying values. If the assessment indicates the fair values exceed the carrying values, then there is no impairment and the quantitative test is not required. However, if the assessment indicates the fair values are less than the carrying values, then the quantitative test is required. In the quantitative test, the fair value a goodwill impairment charge would be recordedestimated based upon an evaluation of the reporting unit’s estimated future discounted cash flows as well as the valuation multiples for comparable companies. In 2021, the difference (upCompany completed a qualitative assessment noting no indicators of impairment. In 2020, the Company performed a quantitative analysis which indicated a premium compared to the carrying value of net assets, including goodwill, at the goodwill).
reporting unit level. The Company conducted its annual impairment test of goodwill as of December 31, 2017. Fordid not record goodwill impairment testing,charges for any of its reporting units in 2021 or 2020.
In evaluating trademarks, the Company determined the applicable reporting unit is its wholesale segment. Fair valuecompleted a qualitative assessment in 2021 noting no indicators of the wholesale segmentimpairment. In 2020, a quantitative analysis was estimated based on a discounted cash flow methodology. The rate used, in determiningwhich estimated fair values were determined using discounted cash flows was a rate corresponding toand implied royalty rates. Based on the Company’s weighted average costresults of capital, adjusted for risk where appropriate. In determining the estimated future cash flows, current and future levels of income were considered as well as business trends and market conditions. In 2017,trademark assessments, the impairment test determinedCompany concluded that the fair value of the wholesale segment substantially exceeded its carrying value, therefore, goodwill was deemed not impaired. The Company has never recorded an impairment charge on this goodwill.
The Company conducted its annual impairment tests of trademarks as of December 31, 2017. The Company uses a discounted cash flow methodology to determine the fair value of its trademarks, and a loss would be recognized if the carrying values of the trademarks substantially exceeded their fairrespective carrying values. There wereTherefore, no impairment chargeswas recorded on the Company’s trademarks following the 2017 and 2015 impairment tests. In fourth quarter of 2016, the Company evaluated the current state of the Umi business and determined the brand did not fit the long-term strategic objectives of the Company. As a result, the Company recorded a $1,770,000 impairment charge to write off the majority of the value of the Umi trademark. This impairment charge was recorded within selling and administrative expenses in the 2016 Consolidated Statements of Earnings.2021 or 2020.
The Company can make no assurances that the goodwill or trademarks will not be impaired in the future. When preparing a discounted cash flow analysis, the Company makes a number of key estimates and assumptions. The Company estimates the future cash flows based on historical and forecasted revenues and operating costs. This, in turn, involves further estimates such as estimates of future growth rates and inflation rates. The discount rate is based on the estimated weighted average cost of capital for the business and may change from year to year. Weighted average cost of capital includes certain assumptions such as market capital structures, market beta, risk-free rate of return and estimated costs of borrowing. Changes in these key estimates and assumptions, or in other assumptions used in this process, could materially affect the Company’s impairment analysis for a given year.
Recent Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements.
ITEM 7AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign exchange and interest rates. To reduce the risk from changes in foreign exchange rates, the Company selectively uses foreign exchange contracts. The Company does not hold or issue financial instruments for trading purposes. The Company generally does not have significant market risk on its marketable securities as those investments consist of investment-grade securities and are held to maturity. The Company reviewed its portfolio of investments as of December 31, 2017, and determined that no other-than-temporary market value impairment exists.Not Applicable
The Company is also exposed to market risk related to the assets in its defined benefit pension plan. The Company reduces that risk by having a diversified portfolio of equity and fixed income investments and periodically reviews this allocation with its investment consultants.
The Company’s earnings are affected by fluctuations in the value of the U.S. dollar against foreign currencies, primarily as a result of the sale of product to Canadian customers, Florsheim Australia’s purchases of its inventory in U.S. dollars and the Company’s intercompany loans with Florsheim Australia. At December 31, 2017, the Company’s majority-owned subsidiary, Florsheim Australia, had foreign exchange contracts outstanding to buy $1.0 million U.S. dollars at a price of approximately $1.3 million Australian dollars. All contracts expire in 2018. Based on the Company’s outstanding foreign contracts and intercompany loans, a 10% appreciation in the U.S. dollar at December 31, 2017 would result in a loss of approximately $152,000.
The Company is exposed to interest rate fluctuations on borrowings under its revolving line of credit. At December 31, 2017, the Company had no amounts outstanding on its revolving line of credit. During the year, however, the Company used the line of credit from time to time to fund working capital needs. Interest expense on these borrowings totaled $7,000 in 2017. The highest balance of the line of credit during 2017 was $4.8 million. A 10% increase in the interest rate on these borrowings would not have a material effect on the Company’s financial position, results of operations or cash flows.
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ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
17 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting for the Company. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company’s independent registered public accounting firm has audited the Company’s consolidated financial statements and the effectiveness of internal controls over financial reporting as of December 31, 18 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders, Audit Committee and the Board of Directors of Weyco Group, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Weyco Group, Inc. (the “Company”) as of December 31, In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, Basis for The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures, as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our Definition and Limitations of Internal Control over Financial Reporting A accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 19 Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Goodwill Impairment Evaluation – Wholesale Reporting Unit – Refer to Notes 2 and 9 to the Consolidated Financial Statements Critical Audit Matter Description As described in Notes 2 and 9 to the consolidated financial statements, the Company’s goodwill balance which is allocated to the Company’s wholesale reporting unit was $11.5 million at December 31, 2021. Goodwill is tested for impairment at least annually, or more frequently as events occur or circumstances change, at the reporting unit level. The Company performed a qualitative assessment to determine whether it was more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the reporting unit was less than the carrying value, including goodwill. While the impairment test did not result in the recording of any impairment loss, the impairment analysis requires management to make significant judgments in performing its assessment including the evaluation of macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other entity-specific events, events affecting the reporting unit, and trends in the Company’s share price. Auditing management’s impairment analysis is complex due to the judgments required to evaluate management’s assessment of those factors identified above. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included:
Trademark Impairment Assessment - Refer to Notes 2 and 9 to the Consolidated Financial Statements Critical Audit Matter Description As described in Notes 2 and 9 to the consolidated financial statements, the Company’s consolidated trademark balance was $34.8 million at December 31, 2021, which is allocated to the Company’s three trademarks. Trademarks are tested for impairment at least annually, or more frequently as events occur or circumstances change, at the brand level. The Company performed a qualitative assessment to determine where it was more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the trademark was less than the carrying value. While the impairment test did not result in the recording of any impairment loss, the impairment analysis requires management to make significant judgments in performing its assessment including the evaluation of macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of each brand, other entity-specific events and events affecting the brands. 20 Auditing management’s impairment analysis is complex due to the judgments required to evaluate management’s assessment of those factors identified above. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included:
/s/ Baker Tilly We have served as the Company's auditor since 2015. Milwaukee, March 21 CONSOLIDATED STATEMENTS OF EARNINGS For the years ended December 31,
�� 22 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended December 31,
23 CONSOLIDATED BALANCE SHEETS
24 CONSOLIDATED STATEMENTS OF EQUITY For the years ended December 31, (In thousands, except per share amounts)
25 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31,
26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 20201. NATURE OF OPERATIONS Weyco Group, Inc. (the “Company”) designs and markets quality and innovative footwear principally for men, but also for women and children, under a portfolio of well-recognized brand names including: Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation Use of Estimates Cash and Cash Equivalents Investments Accounts Receivable
|
2017 | 2016 | |||||||
(Dollars in thousands) | ||||||||
Foreign currency translation adjustments | $ | (4,186 | ) | $ | (5,489 | ) | ||
Pension liability, net of tax | (13,673 | ) | (11,080 | ) | ||||
Total accumulated other comprehensive loss | $ | (17,859 | ) | $ | (16,569 | ) |
The noncontrolling interest as recorded in the Consolidated Balance Sheets at December 31, 2017 and 2016, included foreign currency translation losses of approximately ($639,000) and ($1.1 million), respectively.
The following presents a tabular disclosure about See Note 13 for more details regarding changes in accumulated other comprehensive loss (dollars in thousands):loss.
29
Foreign Currency Translation Adjustments | Defined Benefit Pension Items | Total | ||||||||||
Balance, December 31, 2015 | $ | (5,691 | ) | $ | (12,776 | ) | $ | (18,467 | ) | |||
Other comprehensive income before reclassifications | 202 | 765 | 967 | |||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 931 | 931 | |||||||||
Net current period other comprehensive income | 202 | 1,696 | 1,898 | |||||||||
Balance, December 31, 2016 | $ | (5,489 | ) | $ | (11,080 | ) | $ | (16,569 | ) | |||
Other comprehensive loss before reclassifications | 1,303 | (2,982 | ) | (1,679 | ) | |||||||
Amounts reclassified from accumulated other comprehensive loss | — | 389 | 389 | |||||||||
Net current period other comprehensive income (loss) | 1,303 | (2,593 | ) | (1,290 | ) | |||||||
Balance, December 31, 2017 | $ | (4,186 | ) | $ | (13,673 | ) | $ | (17,859 | ) |
The following presents a tabular disclosure about reclassification adjustments out of accumulated other comprehensive loss during the years ended December 31, 2017 and 2016 (dollars in thousands):
Amounts reclassified from accumulated other comprehensive loss for the year ended December 31, | Affected line item in the statement where net income is presented | |||||||||||
2017 | 2016 | |||||||||||
Amortization of defined benefit pension items | ||||||||||||
Prior service cost | $ | (63 | ) | $ | (262 | )(1) | Other Expense, net | |||||
Actuarial losses | 589 | 1,789 | (1) | Other Expense, net | ||||||||
Total before tax | 526 | 1,527 | ||||||||||
Tax benefit | (137 | ) | (596 | ) | ||||||||
Net of tax | $ | 389 | $ | 931 |
Stock-BasedShare-Based Compensation —- At December 31, 2017,2021, the Company had three stock-basedtwo share-based employee compensation plans, which are described more fully in Note 17.19. The Company accounts for these plans under the recognition and measurement principles of ASC 718,Compensation —– Stock Compensation, (“ASC 718”). The Company’s policy is to estimate the fair market value of each option award granted on the date of grant using the Black-Scholes option pricing model. The Company estimates the fair value of each restricted stock award based on the fair market value of the Company’s stock price on the grant date. The resulting compensation cost for both the options and restricted stock is amortized on a straight-line basis over the vesting period of the respective awards.
Concentration of Credit Risk — The Company had no single customer that represented more than 10% of the Company’s gross accounts receivable balance at December 31, 2017.– There was one individual customer accounts receivable balance outstanding that represented 11%13% of the Company’s gross accounts receivable balance at December 31, 2016. Additionally, there2021. There was one individual customer accounts receivable balance outstanding that was 15% of the Company’s gross accounts receivable balance at December 31, 2020. There were no individual customers with sales above 10% of the Company’s total sales in 2017, 20162021 and 2015.2020.
RecentNew Accounting Pronouncements —
In February 2018,Recently Adopted
On January 1, 2021, the Financial Accounting Standards Board (“FASB”) issuedCompany adopted Accounting Standards Update (“ASU”("ASU") 2018-02, “2019-12 Reclassification of Certain Tax Effects from Accumulated Other ComprehensiveSimplifying the Accounting for Income Taxes.” This new standard allows entities to reclassifyguidance removes certain tax effectsexceptions related to the enactmentapproach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of Accounting Standards Codification ("ASC") 740. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Tax Cuts and Jobs Act (“TCJA”) from accumulated other comprehensive loss (“AOCL”)Effects of Reference Rate Reform on Financial Reporting, which provided optional guidance for a limited time to retained earnings. Prior toease the issuance of the new guidance, a portion of the previously recognized deferred tax effects recordedpotential burden in AOCL was “left stranded” in AOCL, as the effect of remeasuring the deferred taxes using the reduced U.S. federal corporate income taxaccounting for reference rate was required to be recorded through income.reform. The new guidance allows these stranded tax effectsprovides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be reclassified from AOCLdiscontinued due to reference rate reform. These amendments are effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.
Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurements of Credit Losses on Financial Instruments. This ASU modifies the measurement of expected credit losses of certain financial instruments, and applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings. The new guidance will be effective on January 1, 2019, with early adoption permitted and is to be applied eitherearnings/(deficit) in the period of adoption or retrospectively to each period in whichadoption. This ASU will be effective for the effect of the changeCompany in the U.S. federal corporate income tax rate in the Tax Act is recognized.first quarter of 2023. The Company is still assessing which adoption method itcurrently evaluating the impact this ASU will choose but it does not expect either method to have a material effect on its consolidated financial statements and related disclosures.
In March 2017,
3. ACQUISITION
On June 7, 2021, the FASB issued ASU 2017-07,“ImprovingCompany acquired substantially all of the Presentationoperating assets and certain liabilities of Net Periodic Pension CostForsake, Inc. (“Forsake”) a distributor of outdoor footwear, under the brand name “Forsake.” The principal assets acquired were inventory, accounts receivable, and Net Periodic Post Retirement Benefit Cost”. This new standard requires that employers disaggregateintellectual property, including the service cost componentForsake brand name. The aggregate purchase price was approximately $2.6 million, plus contingent payments to be paid annually over a period of five years, depending on Forsake achieving certain performance measures. The Company’s estimate of the discounted fair value of the contingent payments was approximately $1.3 million in total. The $2.6 million purchase price was funded with the Company’s available cash. The establishment of the contingent consideration liability as of the acquisition date is considered a non-cash investing activity. Transaction costs incurred in connection with the acquisition were not material to the Company's financial statements.
30
The Company’s final allocation of the purchase price as of December 31, 2021 was as follows:
| | | |
|
| (Dollars in thousands) | |
| | | |
Accounts receivable, net | | $ | 143 |
Inventories | |
| 619 |
Prepaid expenses and other current assets | |
| 72 |
Property, plant and equipment, net | |
| 17 |
Goodwill | |
| 1,205 |
Trademark | |
| 1,900 |
Accrued Liabilities | |
| (48) |
Total | | $ | 3,908 |
The Company recorded $3.1 million of intangible assets, including $1.2 million of goodwill, which has been allocated to the wholesale and retail segments, as of the acquisition date. Goodwill reflects the excess purchase price over the fair value of net assets. All of this goodwill is deductible for tax purposes.The fair value of the trademark was determined using a discounted cash flow methodology. The trademark will not be amortized, but instead tested for impairment on an annual basis.
The accompanying consolidated financial statements include the results of Forsake from the other componentsdate of acquisition through December 31, 2021. During this period, Forsake's net periodic pension costsales totaled approximately $2.1 million, of which $1.2 million was recognized in the income statement. The service cost component should be includedwholesale segment and $0.9 million was recognized in the same line itemretail segment. Pro forma financial information is not presented as other compensation costs rendered by employees, while the other cost components should be presented outside of earnings from operations. The Company adopted ASU 2017-07 effective January 1, 2017 and retrospectively applied it to all periods presented. Accordingly, the service cost component of net periodic pension cost was included within selling and administrative expenses while the other cost components were classified in other expense, net, in the Consolidated Statements of Earnings. See Note 11.
In January 2017, the FASB issued ASU 2017-04,“Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This new standard simplified the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. The amendments in this update are effective for annual impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed on or after January 1, 2017. The Company early adopted ASU 2017-04 for its 2017 goodwill impairment test. The adoptioneffects of this standard had no impact onacquisition were not material to the Company’sCompany's results of operations or cash flows.financial position.
In March 2016, the FASB issued ASU 2016-09, “Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting.” This new standard simplified several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, and specifies the classification of certain cash flows associated with share-based payment transactions within the statements of cash flows. The Company adopted ASU 2016-09 effective January 1, 2017. The adoption of this standard did not have a material impact on the Company’s results of operations or cash flows.
ASU No. 2014-09, “Revenue from Contracts with Customers,” outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance.
Additional ASUs have also been issued as part of the overall new revenue guidance. The new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The Company completed an analysis of its revenue streams during the fourth quarter of 2017, and concluded that the adoption of the new revenue standard will not have a material impact on the Company’s consolidated financial position or results of operations. The effect is not material because the Company’s analysis of contracts under the new standard supports the recognition of revenue at a point in time for the majority of contracts, which is consistent with the current revenue recognition model. Revenue on the majority of contracts will continue to be recognized at a point in time because of the distinct transfer of control to the customer.
The Company’s analysis identified certain revenue components within its wholesale segment that were recorded within selling and administrative expenses through December 31, 2017, which, upon adoption of the new standard, would be recorded as Net Sales in the Consolidated Statements of Earnings. Additionally, certain provisions of the new standard provided clarification relating to the classification of certain costs incurred relating to revenue arrangements with customers. As a result, the Company will be classifying certain amounts in selling and administrative expenses that were previously classified as a reduction in Net Sales. The Company will adopt the new standard using the modified retrospective method in the first quarter of 2018.
In February 2016, the FASB issued ASU No. 2016-02 “Leases.” This new standard requires lessees to recognize the rights and obligations created by finance and operating leases with terms exceeding 12 months as assets and liabilities on their balance sheets. The amendments in this update are effective for fiscal years beginning after December 15, 2018 and interim periods therein. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.
Reclassifications — Certain prior year amounts in the Consolidated Statements of Earnings were reclassified to conform to current year presentation. For the twelve months ended December 31, 2016 and 2015, the Company reclassified $1,546,000 and $2,063,000 respectively, of expense from selling and administrative expenses to other expense, net. These amounts represent the non-service cost components of net periodic pension cost for the periods then ended, and were reclassified in connection with the adoption of ASU 2017-07. Additionally, certain prior year amounts in the Consolidated Statements of Cash Flows were reclassified to conform to current year presentation. These amounts represent the taxes paid related to the net share settlement of equity awards, and were reclassified in connection with the adoption of ASU 2016-09. Finally, certain prior year amounts within Accrued Liabilities in the Consolidated Balance Sheets were reclassified to conform to current year presentation.
ASC 820,Fair Value Measurements and Disclosures,(“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the sources of data and assumptions used to develop the fair value measurements:
Level 1 — unadjusted quoted market prices in active markets for identical assets or liabilities that are publicly accessible.
● | Level 1 - unadjusted quoted market prices in active markets for identical assets or liabilities that are publicly accessible. |
● | Level 2 - quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. |
● | Level 3 - unobservable inputs that reflect the Company’s assumptions, consistent with reasonably available assumptions made by other market participants. |
Level 2 — quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.
Level 3 — unobservable inputs that reflect the Company’s assumptions, consistent with reasonably available assumptions made by other market participants.
The carrying amounts of all short-term financial instruments, except marketable securities and foreign exchange contracts, approximate fair value due to the short-term nature of those instruments. Marketable securities are carried at amortized cost. The fair value disclosures of marketable securities are Level 2 valuations as defined by ASC 820, consisting of quoted prices for identical or similar assets in markets that are not active. See Note 4.5. Foreign exchange contracts are carried at fair value. The fair value measurements of foreign exchange contracts are based on observable market transactions of spot and forward rates, and thus represent levelLevel 2 valuations as defined by ASC 820.
5. INVESTMENTS
Investments, at fair value
During 2021, the Company invested $8.1 million of cash in highly liquid fixed income funds. The Company’s contingent consideration was measuredCompany classified these investments as trading securities and reported them at fair value. See Note 10.There were 0 significant unrealized gains or losses on these investments in 2021.
31
The fair value measurements of these investments are based on quoted market prices in active markets, and thus represent a level 1 valuation as defined by ASC 820.
Marketable securities, at amortized cost
The Company also invests in marketable securities. All the Company’s marketable securities are classified as held-to-maturity securities and reported at amortized cost pursuant to ASC Topic 320, Investments – Debt and Equity Securities, as the Company has the intent and ability to hold all investments to maturity.
Below is a summary of the amortized cost and estimated market values of the Company’s marketable securities as of December 31, 2017,2021 and 2016.2020. The estimated market values provided are Level 2 valuations as defined by ASC 820.
| | | | | | | | | | | | |
| | 2021 | | 2020 | ||||||||
|
| Amortized Cost |
| Market Value |
| Amortized Cost |
| Market Value | ||||
| | (Dollars in thousands) | ||||||||||
Municipal bonds: |
| |
|
| |
|
| |
|
| |
|
Current | | $ | 219 | | $ | 223 | | $ | 2,215 | | $ | 2,249 |
Due from one through five years | |
| 6,503 | |
| 6,805 | |
| 7,420 | |
| 7,830 |
Due from six through ten years | |
| 2,479 | |
| 2,790 | |
| 3,057 | |
| 3,608 |
Due from eleven through twenty years | |
| 1,014 | |
| 1,102 | |
| 2,323 | |
| 2,547 |
Total | | $ | 10,215 | | $ | 10,920 | | $ | 15,015 | | $ | 16,234 |
2017 | 2016 | |||||||||||||||
Amortized Cost | Market Value | Amortized Cost | Market Value | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Municipal bonds: | ||||||||||||||||
Current | $ | 5,970 | $ | 5,977 | $ | 4,601 | $ | 4,610 | ||||||||
Due from one through five years | 10,260 | 10,536 | 12,133 | 12,486 | ||||||||||||
Due from six through ten years | 5,005 | 5,197 | 7,705 | 7,804 | ||||||||||||
Due from eleven through twenty years | 2,404 | 2,539 | 1,223 | 1,222 | ||||||||||||
Total | $ | 23,639 | $ | 24,249 | $ | 25,662 | $ | 26,122 |
The unrealized gains and losses on marketable securities at December 31, 20172021 and 20162020 were as follows:
| | | | | | | | | | | | |
| | 2021 | | 2020 | ||||||||
|
| Unrealized |
| Unrealized |
| Unrealized |
| Unrealized | ||||
|
| Gains |
| Losses |
| Gains |
| Losses | ||||
| | (Dollars in thousands) | ||||||||||
Municipal bonds | | $ | 705 | | $ | — | | $ | 1,219 | | $ | — |
2017 | 2016 | |||||||||||||||
Unrealized Gains | Unrealized Losses | Unrealized Gains | Unrealized Losses | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Municipal bonds | $ | 634 | $ | (24 | ) | $ | 546 | $ | (86 | ) |
At each reporting date, the Company reviews its investments to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. To determine whether a decline in value is other-than-temporary, the Company considers all available evidence, including the issuer’s financial condition, the severity and duration of the decline in fair value, and the Company’s intent and ability to hold the investment for a reasonable period of time sufficient for any forecasted recovery. If a decline in value is deemed other-than-temporary, the Company records a reduction in the carrying value to the estimated fair value. The Company determined that no other-than-temporary impairment exists for the years ended December 31, 2017, 2016,2021 and 2015.2020.
6. INVENTORIES
At December 31, 20172021 and 2016,2020, inventories consisted of:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Finished shoes | | $ | 99,244 | | $ | 78,158 |
LIFO reserve | |
| (28,218) | |
| (19,133) |
Total inventories | | $ | 71,026 | | $ | 59,025 |
2017 | 2016 | |||||||
(Dollars in thousands) | ||||||||
Finished shoes | $ | 78,772 | $ | 88,277 | ||||
LIFO reserve | (18,502 | ) | (18,379 | ) | ||||
Total inventories | $ | 60,270 | $ | 69,898 |
Finished shoes included inventory in-transit of $17.3$52.6 million and $16.4$7.1 million at December 31, 20172021 and 2016,2020, respectively. At December 31, 2017,2021 and 2020, approximately 86%90% and 91% of the Company’s inventories were valued by the LIFO method of accounting while approximately 14%10% and 9% were valued by the first-in, first-out (“FIFO”) method of accounting. At December 31, 2016, approximately 89% of the Company’s inventories were valued by the LIFO method of accounting while approximately 11% were valued by the first-in, first-out (“FIFO”)FIFO method of accounting.
During 2017,2021, there were liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years compared to the cost of fiscal 2014 purchases. The2021 purchases; the effect of the liquidationliquidations decreased cost of sales by $301,000 in 2017.$181,000. During 2016,2020, there were liquidations of LIFO inventory quantities which resulted in immaterial decreases in cost of sales. During 2015, there were no liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years compared to the cost of fiscal 2015 purchases.2020 purchases; the effect of the liquidations decreased cost of sales by $261,000
32
7. PROPERTY, PLANT AND EQUIPMENT, NET
At December 31, 20172021 and 2016,2020, property, plant and equipment consisted of:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Land and land improvements | | $ | 3,793 | | $ | 3,793 |
Buildings and improvements | |
| 32,191 | |
| 32,154 |
Machinery and equipment | |
| 36,031 | |
| 36,380 |
Retail fixtures and leasehold improvements | |
| 3,732 | |
| 3,830 |
Construction in progress | |
| 701 | |
| 637 |
Property, plant and equipment | |
| 76,448 | |
| 76,794 |
Less: Accumulated depreciation | |
| (47,246) | |
| (46,035) |
Property, plant and equipment, net | | $ | 29,202 | | $ | 30,759 |
In early 2020, the Company completed a project to expand its office space within its corporate headquarters.
8. LEASES
The Company leases retail shoe stores, as well as several office and distribution facilities worldwide. The leases have original lease periods expiring between 2022 and 2029. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of the Company’s operating lease costs were as follows:
| | | | | | |
|
| Twelve Months Ended December 31, | ||||
|
| 2021 | | 2020 | ||
| | (Dollars in thousands) | ||||
Operating lease costs |
| $ | 5,045 | | $ | 6,714 |
Variable lease costs (1) | | | 82 | | | 30 |
Total lease costs |
| $ | 5,127 | | $ | 6,744 |
(1) | Variable lease costs primarily include percentage rentals based upon sales in excess of specified amounts. |
2017 | 2016 | |||||||
(Dollars in thousands) | ||||||||
Land and land improvements | $ | 3,778 | $ | 3,714 | ||||
Buildings and improvements | 26,912 | 26,912 | ||||||
Machinery and equipment | 31,940 | 30,906 | ||||||
Retail fixtures and leasehold improvements | 12,339 | 12,455 | ||||||
Construction in progress | 3 | 39 | ||||||
Property, plant and equipment | 74,972 | 74,026 | ||||||
Less: Accumulated depreciation | (43,329 | ) | (40,309 | ) | ||||
Property, plant and equipment, net | $ | 31,643 | $ | 33,717 |
TABLE OF CONTENTSShort-term lease costs, which were excluded from the above table, are not material to the Company’s financial statements.
The following is a schedule of maturities of operating lease liabilities as of December 31, 2017, 2016 and 2015
| | | |
|
| Operating Leases | |
| | (Dollars in thousands) | |
2022 |
| $ | 3,906 |
2023 |
|
| 2,963 |
2024 |
|
| 2,073 |
2025 |
|
| 1,358 |
2026 |
|
| 1,009 |
Thereafter |
|
| 719 |
Total lease payments |
|
| 12,028 |
Less imputed interest |
|
| (915) |
Present value of lease liabilities |
| $ | 11,113 |
33
The operating lease liabilities are classified in the consolidated balance sheets as follows:
| | | | | | |
| | December 31, | | December 31, | ||
|
| | 2021 |
| | 2020 |
| | (Dollars in thousands) | ||||
Operating lease liabilities - current | | $ | 3,593 | | $ | 4,245 |
Operating lease liabilities - non-current | | | 7,520 | | | 7,734 |
Total | | $ | 11,113 | | $ | 11,979 |
The Company determined the present value of its lease liabilities using a weighted-average discount rate of 4.25%. As of December 31, 2021, the Company’s leases have a weighted-average remaining lease term of 3.5 years.
Supplemental cash flow information related to the Company’s operating leases is as follows:
| | | | | | |
| | Twelve Months Ended December 31, | ||||
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Cash paid for amounts included in the measurement of lease liabilities | | $ | 4,888 | | $ | 6,746 |
Right-of-use assets obtained in exchange for new lease liabilities (noncash) | | $ | 5,334 | | $ | 216 |
9. INTANGIBLE ASSETS
The Company’s indefinite-lived intangible assets as recorded in the Consolidated Balance Sheets consisted of the following:were as follows:
| | | | | | |
| | December 31, 2021 | | December 31, 2020 | ||
|
| (Dollars in thousands) | ||||
Indefinite-lived intangibles: | | | | | | |
Goodwill | | $ | 12,317 | | $ | 11,112 |
Trademarks | |
| 34,768 | |
| 32,868 |
Total | | $ | 47,085 | | $ | 43,980 |
December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Impairment | Net | Gross Carrying Amount | Accumulated Impairment | Net | |||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||
Indefinite-lived intangible assets | ||||||||||||||||||||||||
Goodwill | $ | 11,112 | $ | — | $ | 11,112 | $ | 11,112 | $ | — | $ | 11,112 | ||||||||||||
Trademarks | 34,748 | (1,770 | ) | 32,978 | 34,748 | (1,770 | ) | 32,978 | ||||||||||||||||
Total indefinite-lived intangible assets | $ | 45,860 | $ | (1,770 | ) | $ | 44,090 | $ | 45,860 | $ | (1,770 | ) | $ | 44,090 |
The Company’sadditional goodwill and trademarks in 2021 resulted from the 2011Forsake acquisition. Goodwill resulting from the Forsake acquisition has been allocated to the Company’s wholesale and retail segments as of the BOGS/Rafters brands. Thisacquisition date. Changes in the carrying amount of the Company’s goodwill is testedby reportable segment for the year ended December 31, 2021, were as follows:
| | | | | | | | | |
|
| Wholesale |
| Retail |
| Total | |||
| | (Dollars in thousands) | |||||||
Balance, December 31, 2020 | | $ | 11,112 | | $ | 0 | | $ | 11,112 |
Acquisition of business | |
| 361 | |
| 844 | |
| 1,205 |
Balance, December 31, 2021 | | $ | 11,473 | | $ | 844 | | $ | 12,317 |
The Company evaluates goodwill for impairment annually by comparing the applicable reporting unit’s fair value to its carrying value. Fair valueas of the applicable reporting unit was estimated using a discounted cash flow methodology. IfDecember 31 or more frequently when an event occurs or circumstances change that indicates the carrying value may not be recoverable. In 2021, the Company completed a qualitative assessment noting no indicators of impairment. In 2020, the reporting unit exceeds its fair value,Company performed a goodwill impairment charge would be recorded for the difference (upquantitative analysis which indicated a premium compared to the carrying value of net assets, including goodwill, at the goodwill). The Company determined that the applicable reporting unit waslevel. The impairment assessment included comparing the carrying amount of net assets, including goodwill, of each reporting unit to its wholesale segment. In 2017, the impairment test determined that therespective fair value as of the wholesale segment substantially exceeded its carrying value, therefore, goodwill was deemed not impaired. The Company has never recorded an impairment charge on this goodwill.
The Company’s trademarks are tested for impairment annually by comparingdate of the fair value of each trademark to its related carrying value.assessment. Fair value was estimated using abased upon an evaluation of the reporting unit’s estimated future discounted cash flow methodology. flows as well as the valuation multiples for comparable companies. The Company did not record impairment charges for any of its reporting units in 2021 or 2020.
In 2017,evaluating trademarks, the impairment testsCompany completed a qualitative assessment in 2021 noting no indicators of impairment. In 2020, a quantitative analysis was used, in which estimated fair values were determined using discounted cash flows and implied royalty rates. Based on the results of the trademark assessments, the Company concluded that the fair valuevalues of the trademarks substantially exceeded their relatedrespective carrying values. There were noTherefore, 0 impairment chargeswas recorded on the Company’s trademarks following the 2017 and 2015 impairment tests. In the fourth quarterin 2021 or 2020.
34
The Company’s amortizable intangible assets as recorded in the Consolidated Balance Sheets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| December 31, 2021 | | December 31, 2020 | ||||||||||||||
| | Weighted | | Gross | | | | | | | | Gross | | | | | | | |||
| | Average | | Carrying | | Accumulated | | | | | Carrying | | Accumulated | | | | |||||
|
| Life (Years) |
| Amount |
| Amortization |
| Net |
| Amount |
| Amortization |
| Net | |||||||
| | | | | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||
Amortizable intangible assets | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Customer relationships |
| | 15 | | $ | 3,500 | | $ | (2,528) | | $ | 972 | | $ | 3,500 | | $ | (2,294) | | $ | 1,206 |
Total amortizable intangible assets | | | | | $ | 3,500 | | $ | (2,528) | | $ | 972 | | $ | 3,500 | | $ | (2,294) | | $ | 1,206 |
Weighted Average Life (Years) | December 31, 2017 | December 31, 2016 | ||||||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||
Amortizable intangible assets | ||||||||||||||||||||||||||||
Customer relationships | 15 | 3,500 | (1,594 | ) | 1,906 | 3,500 | (1,361 | ) | 2,139 | |||||||||||||||||||
Total amortizable intangible assets | $ | 3,500 | $ | (1,594 | ) | $ | 1,906 | $ | 3,500 | $ | (1,361 | ) | $ | 2,139 |
The amortizable intangible assets are included within other assets in the Consolidated Balance Sheets. See Note 8.10.
The Company recorded amortization expense for intangible assets of approximately $233,000 in 2017, $240,0002021 and in 2016, and $273,000 in 2015.2020, respectively. Excluding the impact of any future acquisitions, the Company anticipates future amortization expense towill be as follows:approximately $233,000 in each of the years 2022 through 2025, and approximately $40,000 thereafter.
(Dollars in thousands) | Intangible Assets | |||
2018 | $ | 233 | ||
2019 | 233 | |||
2020 | 233 | |||
2021 | 233 | |||
2022 | 233 | |||
Thereafter | 741 | |||
Total | $ | 1,906 |
10. OTHER ASSETS
Other assets included the following amounts at December 31, 20172021 and 2016:2020:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Cash surrender value of life insurance | | $ | 19,194 | | $ | 18,447 |
Amortizable intangible assets, net (See Note 9) | ��� |
| 972 | |
| 1,206 |
Investment in real estate | |
| 2,118 | |
| 2,173 |
Other | |
| 1,317 | |
| 2,175 |
Total other assets | | $ | 23,601 | | $ | 24,001 |
2017 | 2016 | |||||||
(Dollars in thousands) | ||||||||
Cash surrender value of life insurance | $ | 16,277 | $ | 15,604 | ||||
Amortizable intangible assets (See Note 7) | 1,906 | 2,139 | ||||||
Investment in real estate | 2,397 | 2,297 | ||||||
Other | 2,517 | 2,745 | ||||||
Total other assets | $ | 23,097 | $ | 22,785 |
The Company has five life insurance policies on current and former executives. Upon death of the insured executives, the approximate death benefit the Company would receive is $17.0$18.6 million in aggregate as of December 31, 2017.2021.
The decrease in "other" in 2021 was primarily due to a $1.1 million impairment to write-off certain assets in connection with the closing of Florsheim Europe upon determination that the assets would no longer be recoverable.
On May 1, 2013, the Company purchased a 50% interest in a building in Montreal, Canada for approximately $3.2 million. The building, which is classified as an investment in real estate in the above table, serves as the Company’s Canadian office and distribution center. The purchase was accounted for as an equity-method investment under ASC 323,Investments —– Equity Method and Joint Ventures., and continues to be accounted for under the equity method of accounting.
11. SHORT-TERM BORROWINGS
At December 31, 2017,2021, the Company had a $60$40 million unsecured revolving line of credit with a bank expiring November 4, 2018.that is secured by a lien against the Company’s general corporate assets. The line of credit bears interest at the daily London Interbank Offered Rate (“LIBOR”)LIBOR plus 0.75%. 1.35% and expires on November 4, 2022. The related credit agreement contains customary representations, warranties, and covenants (including a minimum tangible net worth financial covenant) for a facility of this type.
At December 31, 2017,2021 and 2020, there were 0 amounts outstanding on the Company’s line of credit. There were also no amounts outstanding on the line of credit. The highest balance on the line of credit during 2017 was $4.8 million. At December 31, 2016, outstanding borrowings totaled approximately $4.3 million at an interest rate of 1.52%.
Contingent consideration was comprised of two earn-out payments that the Company was obligated to pay the former shareholders of The Combs Company (“Bogs”) in connection with the Company’s acquisition of Bogs in 2011. The estimate of contingent consideration was formula-driven and was based on Bogs achieving certain levels of gross margin dollars between January 1, 2011, and December 31, 2015. The first earn-out payment was paid on March 28, 2013 in the amount of $1,270,000. The second and final earn-out payment was paid on March 23, 2016 in the amount of $5,217,000. In accordance with ASC 805,Business Combinations, the Company remeasured its
estimate of the fair value of the liability at each reporting date. The change in fair value was recognized within selling and administrative expenses in the consolidated statements of earnings for the year ended December 31, 2015.2021.
The total contingent consideration was reflected in the Company’s wholesale segment. The fair value measurement of the contingent consideration was based on significant inputs not observed in the market and thus represented a level 3 valuation as defined by ASC 820.
12. EMPLOYEE RETIREMENT PLANS
The Company has a defined benefit pension plan covering substantially all employees, as well aswhich was frozen effective December 31, 2016. No benefits have been accrued under the plan subsequent to that date. The Company also has an unfunded supplemental pension plan for key executives. Retirement benefits are provided based on employees’ years of credited service and average earnings or stated amounts for years of service. Normal retirement age is 65 with provisions for earlier retirement. The plan also has provisions for disability and death benefits. The plan closed to new participants as
35
The Company’s funding policy for the defined benefit pension plan is to make contributions to the plan such that all employees’ benefits will be fully provided by the time they retire. Plan assets are stated at marketfair value and consist primarily of equity securities and fixed income securities, mainly U.S. government and corporate obligations.
The Company follows ASC 715,Compensation —– Retirement Benefits,(“ASC 715”) which requires employers to recognize the funded status of defined benefit pension and other postretirement benefit plans as an asset or liability in their statements of financial position and to recognize changes in the funded status in the year in which the changes occur as a component of comprehensive income.income (loss). In addition, ASC 715 requires employers to measure the funded status of their plans as of the date of their year-end statements of financial position. ASC 715 also requires additional disclosures regarding amounts included in accumulated other comprehensive loss.
The Company’s pension plan’s weighted average asset allocation at December 31, 20172021 and 2016,2020, by asset category, was as follows:
| | | | | |
| | Plan Assets at December 31, |
| ||
|
| 2021 |
| 2020 |
|
Asset Category: |
|
|
|
| |
Equity Securities |
| 60 | % | 59 | % |
Fixed Income Securities |
| 30 | % | 32 | % |
Other |
| 10 | % | 9 | % |
Total |
| 100 | % | 100 | % |
Plan Assets at December 31, | ||||||||
2017 | 2016 | |||||||
Asset Category: | ||||||||
Equity Securities | 55 | % | 54 | % | ||||
Fixed Income Securities | 39 | % | 38 | % | ||||
Other | 6 | % | 8 | % | ||||
Total | 100 | % | 100 | % |
The Company has a Retirement Plan Committee, consisting of the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, to manage the operations and administration of all benefit plans and related trusts. The committee has an investment policy for the pension plan assets that establishes target asset allocation ranges for the above listed asset classes as follows: equity securities: 20% –- 80%; fixed income securities: 20% –- 80%; and other, principally cash: 0% –- 20%. On a semi-annual basis, the committee reviews progress towards achieving the pension plan’s performance objectives.
To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 7.00%long-term rate of return on assets assumption for 2017.
AssumptionsThe following discount rates were used in determiningto determine the funded status atof the pension plans as of December 31, 20172021 and 2016 were:2020:
| | | | | | | | | |
| | Defined Benefit Pension Plan | | Supplemental Pension Plan |
| ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | |
Discount rate for determining funded status |
| 2.83 | % | 2.47 | % | 2.86 | % | 2.51 | % |
36
2017 | 2016 | |||||||
Discount rate | 3.71 | % | 4.35 | % | ||||
Rate of compensation increase | — | 4.00 | % |
The rate of compensation increase was not applicable in 2017 as benefit accruals under the plan were frozen effective December 31, 2016.
The following is a reconciliation of the change in benefit obligation and plan assets of both the defined benefit pension plan and the unfunded supplemental pension plan for the years ended December 31, 20172021 and 2016:2020:
| | | | | | | | | | | | |
| | Defined Benefit Pension Plan | | Supplemental Pension Plan | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
| | (Dollars in thousands) | ||||||||||
Change in projected benefit obligation |
| |
|
| |
|
| |
|
| |
|
Projected benefit obligation, beginning of year | | $ | 56,026 | | $ | 50,552 | | $ | 21,125 | | $ | 18,460 |
Service cost | |
| 382 | |
| 383 | |
| 0 | |
| 0 |
Interest cost | |
| 1,047 | |
| 1,450 | |
| 440 | |
| 562 |
Actuarial (gain) loss | |
| (2,366) | |
| 6,067 | |
| (840) | |
| 2,485 |
Benefits paid | |
| (2,582) | |
| (2,426) | |
| (382) | |
| (382) |
Projected benefit obligation, end of year | | $ | 52,507 | | $ | 56,026 | | $ | 20,343 | | $ | 21,125 |
| | | | | | | | | | | | |
Change in plan assets | |
| | |
| | |
|
| |
|
|
Fair value of plan assets, beginning of year | | $ | 43,144 | | $ | 41,036 | | $ | 0 | | $ | 0 |
Actual return on plan assets | |
| 4,402 | |
| 4,917 | |
| 0 | |
| 0 |
Administrative expenses | |
| (382) | |
| (383) | |
| 0 | |
| 0 |
Contributions | |
| 0 | |
| 0 | |
| 382 | |
| 382 |
Benefits paid | |
| (2,582) | |
| (2,426) | |
| (382) | |
| (382) |
Fair value of plan assets, end of year | | $ | 44,582 | | $ | 43,144 | | $ | 0 | | $ | 0 |
Funded status of plan | | $ | (7,925) | | $ | (12,882) | | $ | (20,343) | | $ | (21,125) |
| | | | | | | | | | | | |
Amounts recognized in the consolidated balance sheets consist of: | |
|
| |
|
| |
|
| |
|
|
Accrued liabilities - other | | $ | 0 | | $ | 0 | | $ | (492) | | $ | (473) |
Long-term pension liability | |
| (7,925) | |
| (12,882) | |
| (19,851) | |
| (20,652) |
Net amount recognized | | $ | (7,925) | | $ | (12,882) | | $ | (20,343) | | $ | (21,125) |
| | | | | | | | | | | | |
Amounts recognized in accumulated other comprehensive loss consist of: | |
|
| |
|
| |
|
| |
|
|
Accumulated loss, net of income tax benefit of $4,331, $5,435, $1,976, and $2,275, respectively | | $ | 12,328 | | $ | 15,468 | | $ | 5,624 | | $ | 6,475 |
Prior service cost net of income tax benefit of $0, $0, $20 and $4, respectively | |
| 0 | |
| 0 | |
| 59 | |
| 12 |
Net amount recognized | | $ | 12,328 | | $ | 15,468 | | $ | 5,683 | | $ | 6,487 |
Defined Benefit Pension Plan | Supplemental Pension Plan | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Change in projected benefit obligation | ||||||||||||||||
Projected benefit obligation, beginning of year | $ | 45,079 | $ | 48,677 | $ | 15,409 | $ | 14,261 | ||||||||
Service cost | 378 | 1,328 | 185 | 310 | ||||||||||||
Interest cost | 1,616 | 1,833 | 591 | 616 | ||||||||||||
Plan curtailment | — | (5,098 | ) | — | (919 | ) | ||||||||||
Actuarial loss | 4,423 | 2,282 | 1,519 | 1,527 | ||||||||||||
Benefits paid | (2,121 | ) | (3,943 | ) | (528 | ) | (386 | ) | ||||||||
Projected benefit obligation, end of year | $ | 49,375 | $ | 45,079 | $ | 17,176 | $ | 15,409 | ||||||||
Change in plan assets | ||||||||||||||||
Fair value of plan assets, beginning of year | 32,278 | 32,345 | — | — | ||||||||||||
Actual return on plan assets | 4,590 | 1,791 | — | — | ||||||||||||
Administrative expenses | (378 | ) | (315 | ) | — | — | ||||||||||
Contributions | 4,000 | 2,400 | 528 | 386 | ||||||||||||
Benefits paid | (2,121 | ) | (3,943 | ) | (528 | ) | (386 | ) | ||||||||
Fair value of plan assets, end of year | $ | 38,369 | $ | 32,278 | $ | — | $ | — | ||||||||
Funded status of plan | $ | (11,006 | ) | $ | (12,801 | ) | $ | (17,176 | ) | $ | (15,409 | ) | ||||
Amounts recognized in the consolidated balance sheets consist of: | ||||||||||||||||
Accrued liabilities – other | $ | — | $ | — | $ | (416 | ) | $ | (409 | ) | ||||||
Long-term pension liability | (11,006 | ) | (12,801 | ) | (16,760 | ) | (15,000 | ) | ||||||||
Net amount recognized | $ | (11,006 | ) | $ | (12,801 | ) | $ | (17,176 | ) | $ | (15,409 | ) | ||||
Amounts recognized in accumulated other comprehensive loss consist of: | ||||||||||||||||
Accumulated loss, net of income tax benefit of $5,904, $5,373, $2,166 and $1,802, respectively | $ | 9,916 | $ | 8,403 | $ | 3,854 | $ | 2,820 | ||||||||
Prior service cost, net of income tax liability of $0, $0, ($75) and ($91), respectively | — | — | (97 | ) | (143 | ) | ||||||||||
Net amount recognized | $ | 9,916 | $ | 8,403 | $ | 3,757 | $ | 2,677 |
On November 7, 2016, the Board of Directors of the Company authorized the freezing ofAs noted above, benefit accruals under the pension plan whereby benefit accruals would bewere frozen, effective December 31, 2016. No curtailment gain was recognized in earnings. This plan change reduced the service and interest cost of the plans in 2017.
Another effect of the pension freeze was a reduction of the projected benefit obligation (“PBO”) to the amount of the plans’ accumulated benefit obligation. Therefore, the accumulated benefit obligation of the defined benefit pension plan and supplemental pension plan were equal to the respective plans’ PBO,projected benefit obligations, as shown in the above table, at December 31, 20172021 and 2016.
On September 15, 2016, the pension plan was amended to offer an immediate pension payout either as a one-time lump sum or annuity payment to certain former employees who had not yet commenced benefits under the plan. Benefits were calculated as of December 1, 2016, with lump sum payments being paid in December 2016 and annuity payments beginning January 1, 2017. As of December 31, 2016, $1.9 million in lump sum payments were paid as a result of this amendment. These lump sum payments were included2020. The decrease in the 2016 “Benefits paid” line itemprojected benefit obligations in 2021 was primarily due to an increase in the above table.discount rates.
Assumptions used in determining net periodic pension costexpense for the years ended December 31, 2017, 20162021 and 20152020 were:
| | | | | | | | | |
| | Defined Benefit Pension Plan |
| Supplemental Pension Plan |
| ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
|
Discount rate for projected benefit obligation |
| 2.47 | % | 3.35 | % | 2.51 | % | 3.38 | % |
Discount rate for determining interest cost |
| 1.91 | % | 2.92 | % | 2.10 | % | 3.07 | % |
Long-term rate of return on plan assets |
| 7.00 | % | 7.00 | % | 0 |
| 0 | |
Defined Benefit Pension Plan | Supplemental Pension Plan | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||
Discount rate for determining projected benefit obligation | 4.33 | % | 4.60 | % | 4.17 | % | 4.41 | % | 4.67 | % | 4.17 | % | ||||||||||||
Discount rate in effect for determining service cost | — | 4.81 | % | 4.17 | % | 4.62 | % | 4.84 | % | 4.17 | % | |||||||||||||
Discount rate in effect for determining interest cost | 3.63 | % | 3.93 | % | 4.17 | % | 3.92 | % | 4.18 | % | 4.17 | % | ||||||||||||
Rate of compensation increase | — | 4.00 | % | 4.00 | % | — | 4.00 | % | 4.00 | % | ||||||||||||||
Long-term rate of return on plan assets | 7.00 | % | 7.50 | % | 7.50 | % | — | — | — |
37
Effective January 1, 2016, the Company adopted the spot-rate approach to determine the interest cost componentTable of pension expense. Under the spot-rate approach, the interest cost is calculated by applying interest to the discounted cash flow expected at each payment date. The interest is determined using the same spot rate along the yield curve that was used to determine the present value of the associated payment. Prior to 2016, the Company used a single weighted-average rate in the determination of pension expense.Contents
The Company considered the adoption of the spot-rate approach a change in accounting estimate and recognized the effects of the change on a prospective basis. The effects of adopting the spot-rate approach reduced net pension expense by approximately $522,000 in 2016, primarily due to a reduction in interest cost.
The components of net periodic pension cost(benefit) expense for the years ended December 31, 2017, 20162021 and 2015,2020, were:
| | | | | | | |
| | 2021 |
| 2020 |
| ||
| | (Dollars in thousands) |
| ||||
Service cost | | $ | 382 | | $ | 383 | |
Interest cost | |
| 1,487 | |
| 2,012 | |
Expected return on plan assets | |
| (2,907) | |
| (2,761) | |
Net amortization and deferral | |
| 1,012 | |
| 763 | |
Pension (benefit) expense | | $ | (26) | | $ | 397 | |
2017 | 2016 | 2015 | ||||||||||
(Dollars in thousands) | ||||||||||||
Service cost | $ | 563 | $ | 1,638 | $ | 1,636 | ||||||
Interest cost | 2,207 | 2,449 | 2,665 | |||||||||
Expected return on plan assets | (2,301 | ) | (2,430 | ) | (2,364 | ) | ||||||
Net amortization and deferral | 526 | 1,527 | 1,762 | |||||||||
Net periodic pension cost(1) | $ | 995 | $ | 3,184 | $ | 3,699 |
The components of net periodic pension cost(benefit) expense other than the service cost component were included in “other expense,income, net” in the Consolidated Statements of Earnings.
The Company expects to recognize expense of $700,000 due to the amortization of unrecognized loss and income of $63,000 due to the amortization of prior service credit as components of net periodic pension cost in 2018 which are included in accumulated other comprehensive loss at December 31, 2017.
It is the Company’s intention to satisfy the minimum funding requirements and maintain at least an 80% funding percentage in its defined benefit retirement plan in future years. At this time, the Company expects that any cash contributions necessary to satisfy these requirements in 2022 would not be material in 2018.material.
Projected benefit payments for the plans as ofat December 31, 2017,2021, were estimated as follows:
| | | | | | |
|
| Defined Benefit |
| Supplemental | ||
| | Pension Plan | | Pension Plan | ||
| | (Dollars in thousands) | ||||
2022 | | $ | 2,843 | | $ | 492 |
2023 | | $ | 2,900 | | $ | 679 |
2024 | | $ | 2,911 | | $ | 757 |
2025 | | $ | 2,905 | | $ | 899 |
2026 | | $ | 2,899 | | $ | 965 |
2027 - 2031 | | $ | 14,369 | | $ | 5,925 |
Defined Benefit Pension Plan | Supplemental Pension Plan | |||||||
(Dollars in thousands) | ||||||||
2018 | $ | 2,512 | $ | 416 | ||||
2019 | $ | 2,651 | $ | 450 | ||||
2020 | $ | 2,678 | $ | 485 | ||||
2021 | $ | 2,695 | $ | 520 | ||||
2022 | $ | 2,686 | $ | 566 | ||||
2023 – 2027 | $ | 13,901 | $ | 4,383 |
The following table summarizes the fair value of the Company’s pension plan assets as ofat December 31, 2017,2021, by asset category within the fair value hierarchy (for further level information, see Note 3)4):
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
| | Quoted Prices | | Significant | | Significant | | | | |||
| | in Active Markets | | Observable Inputs | | Unobservable Inputs | | | | |||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| | (Dollars in thousands) | ||||||||||
Common stocks | | $ | 18,493 | | $ | 1,934 | | $ | 0 | | $ | 20,427 |
Preferred stocks | |
| 247 | |
| 31 | |
| 0 | |
| 278 |
Exchange traded funds | |
| 6,324 | |
| 0 | |
| 0 | |
| 6,324 |
Corporate obligations | |
| 0 | |
| 4,795 | |
| 0 | |
| 4,795 |
State and municipal obligations | |
| 0 | |
| 512 | |
| 0 | |
| 512 |
Pooled fixed income funds | |
| 6,953 | |
| 0 | |
| 0 | |
| 6,953 |
U.S. government securities | |
| 0 | |
| 659 | |
| 0 | |
| 659 |
Cash and cash equivalents | |
| 4,573 | |
| 0 | |
| 0 | |
| 4,573 |
Subtotal | | $ | 36,590 | | $ | 7,931 | | $ | 0 | | $ | 44,521 |
Other assets (1) | | | | |
|
| |
|
| |
| 61 |
Total | | | | |
|
| |
|
| | $ | 44,582 |
(1) This category represents trustreceivables thatarenotleveled.
December 31, 2017 | ||||||||||||||||
Quoted Prices in Active Markets Level 1 | Significant Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | Total | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Common stocks | $ | 13,855 | $ | 1,628 | $ | — | $ | 15,483 | ||||||||
Preferred stocks | 290 | 57 | — | 347 | ||||||||||||
Exchange traded funds | 5,546 | — | — | 5,546 | ||||||||||||
Corporate obligations | — | 5,867 | — | 5,867 | ||||||||||||
State and municipal obligations | — | 1,313 | — | 1,313 | ||||||||||||
Pooled fixed income funds | 6,895 | — | — | 6,895 | ||||||||||||
U.S. government securities | — | 381 | — | 381 | ||||||||||||
Cash and cash equivalents | 2,444 | — | — | 2,444 | ||||||||||||
Subtotal | $ | 29,030 | $ | 9,246 | $ | — | $ | 38,276 | ||||||||
Other assets(1) | 93 | |||||||||||||||
Total | $ | 38,369 |
38
The following table summarizes the fair value of the Company’s pension plan assets as ofat December 31, 2016,2020, by asset category within the fair value hierarchy (for further level information, see Note 3)4):
| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
| | Quoted Prices | | Significant | | Significant | | | | |||
| | in Active Markets | | Observable Inputs | | Unobservable Inputs | | | | |||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| | (Dollars in thousands) | ||||||||||
Common stocks | | $ | 17,194 | | $ | 2,196 | | $ | 0 | | $ | 19,390 |
Preferred stocks | |
| 245 | |
| 27 | |
| 0 | |
| 272 |
Exchange traded funds | |
| 6,033 | |
| 0 | |
| 0 | |
| 6,033 |
Corporate obligations | |
| — | |
| 4,349 | |
| 0 | |
| 4,349 |
State and municipal obligations | |
| 0 | |
| 821 | |
| 0 | |
| 821 |
Pooled fixed income funds | |
| 7,117 | |
| 0 | |
| 0 | |
| 7,117 |
U.S. government securities | |
| 0 | |
| 763 | |
| 0 | |
| 763 |
Marketable CD’s | |
| 0 | |
| 513 | |
| 0 | |
| 513 |
Cash and cash equivalents | |
| 3,817 | |
| 0 | |
| 0 | |
| 3,817 |
Subtotal | | $ | 34,406 | | $ | 8,669 | | $ | 0 | | $ | 43,075 |
Other assets (1) | | | | |
|
| |
|
| |
| 69 |
Total | | | | |
|
| |
|
| | $ | 43,144 |
December 31, 2016 | ||||||||||||||||
Quoted Prices in Active Markets Level 1 | Significant Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | Total | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Common stocks | $ | 12,656 | $ | 970 | $ | — | $ | 13,626 | ||||||||
Preferred stocks | 227 | 17 | — | 244 | ||||||||||||
Exchange traded funds | 3,742 | — | — | 3,742 | ||||||||||||
Corporate obligations | — | 5,113 | — | 5,113 | ||||||||||||
State and municipal obligations | — | 1,538 | — | 1,538 | ||||||||||||
Pooled fixed income funds | 4,345 | — | — | 4,345 | ||||||||||||
U.S. government securities | — | 1,061 | — | 1,061 | ||||||||||||
Cash and cash equivalents | 2,519 | — | — | 2,519 | ||||||||||||
Subtotal | $ | 23,489 | $ | 8,699 | $ | — | $ | 32,188 | ||||||||
Other assets(1) | 90 | |||||||||||||||
Total | $ | 32,278 |
The Company also has a defined contribution plan covering substantially all employees. The Company contributed $786,000 $417,000,$850,000 and $350,000$875,000 to the plan in 2017, 2016,2021 and 2015,2020, respectively. Effective January 1, 2017,
13. Comprehensive Income (Loss)
The components of accumulated other comprehensive loss as recorded on the Company amended its defined contribution plan to increaseaccompanying Consolidated Balance Sheets were as follows:
| | | | | | |
| | 2021 | | 2020 | ||
| | (Dollars in thousands) | ||||
Foreign currency translation adjustments | | $ | (6,783) | | $ | (6,050) |
Pension liability, net of tax | |
| (18,011) | |
| (21,955) |
Total accumulated other comprehensive loss | | $ | (24,794) | | $ | (28,005) |
The following presents a tabular disclosure about changes in accumulated other comprehensive loss (dollars in thousands):
| | | | | | | | | |
|
| Foreign Currency |
| | |
| | | |
| | Translation | | Defined Benefit | | | | ||
| | Adjustments | | Pension Items | | Total | |||
Balance, December 31, 2019 | | $ | (7,033) | | $ | (17,503) | | $ | (24,536) |
Other comprehensive income (loss) before reclassifications | | | 983 | | | (5,017) | | | (4,034) |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | 565 | | | 565 |
Net current period other comprehensive income (loss) | | | 983 | | | (4,452) | | | (3,469) |
Balance, December 31, 2020 | | $ | (6,050) | | $ | (21,955) | | $ | (28,005) |
Other comprehensive (loss) income before reclassifications | |
| (733) | |
| 3,196 | |
| 2,463 |
Amounts reclassified from accumulated other comprehensive loss | |
| — | |
| 748 | |
| 748 |
Net current period other comprehensive (loss) income | |
| (733) | |
| 3,944 | |
| 3,211 |
Balance, December 31, 2021 | | $ | (6,783) | | $ | (18,011) | | $ | (24,794) |
39
The following presents a tabular disclosure about reclassification adjustments out of accumulated other comprehensive loss during the Company match formula for all plan participants.years ended December 31, 2021 and 2020 (dollars in thousands):
| | | | | | | | |
| | Amounts reclassified from | | | ||||
| | accumulated other | | | ||||
| | comprehensive loss for the year | | Affected line item in the | ||||
| | ended December 31, | | statement where net income | ||||
|
| 2021 |
| 2020 |
| is presented | ||
Amortization of defined benefit pension items |
| |
|
| |
|
|
|
Prior service cost | | $ | (62) | (1) | $ | (63) | (1) | Other income, net |
Actuarial losses | |
| 1,074 | (1) |
| 826 | (1) | Other income, net |
Total before tax | |
| 1,012 | |
| 763 |
|
|
Tax benefit | |
| (264) | |
| (198) |
|
|
Net of tax | | $ | 748 | | $ | 565 |
|
|
(1) | These amounts were included in the computation of pension (benefit) expense. See Note 12 for additional details. |
14. INCOME TAXES
The provision for income taxes included the following components for the years ended December 31, 2017, 20162021 and 2015:2020:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Current: |
| |
|
| |
|
Federal | | $ | 3,656 | | $ | (1,954) |
State | |
| 1,235 | |
| (154) |
Foreign | |
| 989 | |
| 784 |
Total | |
| 5,880 | |
| (1,324) |
Deferred | |
| 910 | |
| 2,755 |
Total provision | | $ | 6,790 | | $ | 1,431 |
2017 | 2016 | 2015 | ||||||||||
(Dollars in thousands) | ||||||||||||
Current: | ||||||||||||
Federal | $ | 3,904 | $ | 5,965 | $ | 8,801 | ||||||
State | 499 | 1,027 | 1,314 | |||||||||
Foreign | 633 | 737 | 501 | |||||||||
Total | 5,036 | 7,729 | 10,616 | |||||||||
Deferred | 2,187 | (2,645 | ) | 346 | ||||||||
Total provision | $ | 7,223 | $ | 5,084 | $ | 10,962 |
The differences between the U.S. federal statutory income tax rate and the Company’s effective tax rate were as follows for the years ended December 31, 2017, 20162021 and 2015:2020:
| | | | | |
|
| 2021 |
| 2020 |
|
U.S. federal statutory income tax rate |
| 21.0 | % | 21.0 | % |
State income taxes, net of federal tax benefit |
| 3.3 |
| 1.8 | |
Non-taxable municipal bond interest |
| (0.3) |
| 1.3 | |
Net Operating Loss Carryback Under the CARES Act | | — | | 10.4 | |
Foreign income tax rate differences |
| 1.6 |
| (24.3) | |
Reversal of deferred tax assets on foreign net operating losses | | — | | (28.4) | |
Share-based compensation |
| 0.5 |
| (1.0) | |
Other |
| (1.3) |
| (1.1) | |
Effective tax rate |
| 24.8 | % | (20.3) | % |
2017 | 2016 | 2015 | ||||||||||
U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes, net of federal tax benefit | 2.9 | 3.5 | 3.4 | |||||||||
Non-taxable municipal bond interest | (0.9 | ) | (1.0 | ) | (1.0 | ) | ||||||
Foreign income tax rate differences | 0.1 | (0.6 | ) | 0.4 | ||||||||
Life insurance deferred tax reversal | — | (14.2 | ) | — | ||||||||
Impact of tax rate change on deferred taxes | (5.8 | ) | — | — | ||||||||
Other | (1.1 | ) | 0.3 | (0.1 | ) | |||||||
Effective tax rate | 30.2 | % | 23.0 | % | 37.7 | % |
On December 22, 2017, the TCJA was enacted. The TCJA makes broad and complex changes to the U.S. tax code including, among other things, (1) reducing the U.S. federal corporate tax rate, and (2) requiring a one-time transition tax on certain unremitted earnings of foreign subsidiaries. The TCJA reduces the U.S. federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018.
In the fourth quarter of 2017, the Company recognized $1.5 million of non-cash tax benefit due to the revaluation of deferred tax assets and liabilities from the change in the U.S. federal corporate tax rate. This tax benefit reduced the Company’s provision for income taxes and effective tax rate for 2017. The Company also analyzed, in reasonable detail, based on a current earnings and profit studies of the Company’s foreign subsidiaries, the impact of the one-time transition tax. Based on this analysis, management determined that the impact of the one-time transition tax would not be material to the Company’s consolidated financial position, results of operations or cash flows.
Tax benefits recognized in connection with the enactment of the TCJA may change due to, among other things, additional guidance that may be issued by the U.S. Department of the Treasury with respect to the TCJA and revisions to the Company’s assumptions as further information and interpretations become available.
In the fourth quarter of 2016, the Company’s provision for income taxes and effective tax rate were reduced due to a one-time adjustment related to corporate-owned life insurance policies. At that time, the Company reviewed its liquidity needs and sources of capital, including evaluating whether it would need the cash available under corporate-owned life insurance policies on two former executives. It was determined that the chances were remote that the Company would need to surrender the policies to satisfy liquidity needs, and, as a result, the Company reversed the $3.1 million deferred tax liability related to the policies.
The foreign component of pretax net earnings was $1.9 million, $2.7earnings of $3.5 million and $1.3losses of $5.5 million for 2017, 2016,2021 and 2015,2020, respectively.
In general, it is the Company’s practice and intention to permanently reinvest unremitted earnings ofThe Company's foreign subsidiaries, Florsheim Australia and this position hasFlorsheim Europe, had net operating losses in 2020, and the Company determined it was more likely than not changed following the enactment of the TCJA. As of December 31, 2017, unremitted foreign earnings of foreign subsidiaries totaled $7.1 million. A deferred tax liability has not been recorded on these unremitted foreign earnings. Future dividends, if any, would be paid only out ofthat current year earnings. Notwithstanding the above, if the unremitted foreign earnings at December 31, 2017 were to be repatriated in the future, the related deferred tax liabilitybenefits would not be materialrealized, and recorded 0 current year tax provision for these entities, causing the majority of 2020’s negative foreign income tax rate differences noted above.
The Company also determined it was more likely than not that $2.0 million of deferred tax assets related to Company’s financial statements.foreign tax carryforwards will not be realized, and reversed them in 2020.
40
The components of deferred taxes as ofat December 31, 2017,2021, and 20162020 were as follows:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Deferred income tax assets: |
| |
|
| |
|
Accounts receivable reserves | | $ | 269 | | $ | 269 |
Pension liability | |
| 7,350 | |
| 8,842 |
Accrued liabilities | |
| 1,578 | |
| 1,720 |
Operating lease liabilities | | | 2,848 | | | 2,716 |
Foreign currency losses on intercompany loans | |
| 57 | |
| 58 |
| |
| 12,102 | |
| 13,605 |
Deferred income tax liabilities: | |
| | |
| |
Inventory and related reserves | |
| (3,011) | |
| (3,149) |
Cash value of life insurance | |
| (545) | |
| (485) |
Property, plant and equipment | |
| (1,199) | |
| (1,285) |
Intangible assets | |
| (8,539) | |
| (7,913) |
Operating lease right-of-use assets | | | (356) | | | (2,087) |
Prepaid expenses and other assets | |
| (2,415) | |
| (365) |
| |
| (16,065) | |
| (15,284) |
Net deferred income tax liabilities | | $ | (3,963) | | $ | (1,679) |
2017 | 2016 | |||||||
(Dollars in thousands) | ||||||||
Deferred income tax assets: | ||||||||
Accounts receivable reserves | $ | 199 | $ | 341 | ||||
Pension liability | 7,307 | 11,002 | ||||||
Accrued liabilities | 1,975 | 2,648 | ||||||
Carryfoward losses | 250 | 129 | ||||||
Foreign currency losses on intercompany loans | (46 | ) | 53 | |||||
9,685 | 14,173 | |||||||
Deferred income tax liabilities: | ||||||||
Inventory and related reserves | (2,989 | ) | (3,744 | ) | ||||
Cash value of life insurance | (337 | ) | (441 | ) | ||||
Property, plant and equipment | (1,373 | ) | (1,483 | ) | ||||
Intangible assets | (6,125 | ) | (8,284 | ) | ||||
Prepaid expenses and other assets | (180 | ) | (264 | ) | ||||
(11,004 | ) | (14,216 | ) | |||||
Net deferred income tax liabilities | $ | (1,319 | ) | $ | (43 | ) |
The net deferred tax liabilities are classified in the Consolidated Balance Sheets as follows:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Non-current deferred income tax benefits | | $ | 1,063 | | $ | 1,235 |
Non-current deferred income tax liabilities | |
| (5,026) | |
| (2,914) |
Net deferred income tax liabilities | | $ | (3,963) | | $ | (1,679) |
2017 | 2016 | |||||||
(Dollars in thousands) | ||||||||
Non-current deferred income tax benefits | $ | 750 | $ | 660 | ||||
Non-current deferred income tax liabilities | (2,069 | ) | (703 | ) | ||||
Net deferred income tax liabilities | $ | (1,319 | ) | $ | (43 | ) |
The Company accounts for its uncertain tax positions in accordance with ASC 740,Income Taxes(“ASC 740”).ASC 740 provides that the tax effects from an uncertain tax position can be recognized in the Company’s consolidated financial statements only if the position is more likely than not of being sustained on audit, based on the technical merits of the position.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Unrecognized tax benefits balance at January 1, | | $ | 833 | | $ | 636 |
Increases related to current year tax positions | |
| 8 | |
| 257 |
Decreases due to settlements of tax positions | |
| (250) | |
| 0 |
Decreases due to lapsing of statute of limitations | |
| (436) | |
| (60) |
Unrecognized tax benefits balance at December 31, | | $ | 155 | | $ | 833 |
2017 | 2016 | 2015 | ||||||||||
(Dollars in thousands) | ||||||||||||
Unrecognized tax benefits balance at January 1, | $ | 275 | $ | 284 | $ | — | ||||||
Increases related to current year tax positions | 144 | 239 | 284 | |||||||||
Decreases due to settlements of tax positions | (7 | ) | (248 | ) | — | |||||||
Unrecognized tax benefits balance at December 31, | $ | 412 | $ | 275 | $ | 284 |
The unrecognized tax benefits at December 31, 20172021 and 2016,2020, include $72,000$26,000 and $70,000,$155,000, respectively, of interest related to such positions. The unrecognized tax benefits, if ultimately recognized, would reduce the Company’s annual effective tax rate. The liabilities for potential interest are included in the Consolidated Balance Sheets at December 31, 20172021 and 2016.2020.
The Company files a U.S. federal income tax return, various U.S. state income tax returns and several foreign returns. In general, the 20142018 through 20172020 tax years remain subject to examination by those taxing authorities.
15. COMMITMENTS
The Company operates retail shoe stores under both short-term and long-term leases. Leases provide for a minimum rental plus percentage rentals based upon sales in excess of a specified amount. The Company also leases office space in the U.S. and its distribution facilities in Canada and overseas. Total minimum rents were $10.1 million in 2017, $9.8 million in 2016 and $9.1 million in 2015. Percentage rentals were $254,000 in 2017, $441,000 in 2016, and $461,000 in 2015.
Future fixed and minimum rental commitments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2017, are shown below. Renewal options exist for many long-term leases.
(Dollars in thousands) | Operating Leases | |||
2018 | $ | 9,390 | ||
2019 | 8,442 | |||
2020 | 6,935 | |||
2021 | 5,074 | |||
2022 | 2,869 | |||
Thereafter | 3,885 | |||
Total | $ | 36,595 |
At December 31, 2017,2021, the Company also had purchase commitments of approximately $57.0$171.5 million to purchase inventory, all of which were due in less than one year.
41
In 1998, the Company’s stockshare repurchase program was established. On several occasions since the program’s inception, the Board of Directors has extended the number of shares authorized for repurchase under the program. In total, 7.5 million shares have been authorized for repurchase. This includes the additional 1.0 million shares that the Company’s Board of Directors authorized for repurchase on October 31, 2017.
In 2017,2021, the Company purchased 548,539125,204 shares at a total cost of $15.2$2.5 million through its stockshare repurchase program. In 2016,2020, the Company purchased 410,983106,490 shares at a total cost of $11.0$2.1 million through its stock repurchase program. In 2015, the Company purchased 354,741 shares at a total cost of $9.9 million through its stockshare repurchase program. As of December 31,2017,31, 2021, there were 1,016,636210,576 authorized shares remaining under the program.
17. EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted earnings per share for the years ended December 31, 2017, 20162021 and 2015:2020:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (In thousands, except per share amounts) | ||||
Numerator: |
| |
|
| |
|
Net earnings (loss) | | $ | 20,555 | | $ | (8,485) |
| | | | | | |
Denominator: | |
|
| |
|
|
Basic weighted average shares outstanding | |
| 9,662 | |
| 9,757 |
Effect of dilutive securities: | |
|
| |
|
|
Employee share-based awards | |
| 31 | |
| — |
Diluted weighted average shares outstanding | |
| 9,693 | |
| 9,757 |
| | | | | | |
Basic earnings (loss) per share | | $ | 2.13 | | $ | (0.87) |
| | | | | | |
Diluted earnings (loss) per share | | $ | 2.12 | | $ | (0.87) |
2017 | 2016 | 2015 | ||||||||||
(In thousands, except per share amounts) | ||||||||||||
Numerator: | ||||||||||||
Net earnings attributable to Weyco Group, Inc. | $ | 16,491 | $ | 16,472 | $ | 18,212 | ||||||
Denominator: | ||||||||||||
Basic weighted average shares outstanding | 10,253 | 10,519 | 10,773 | |||||||||
Effect of dilutive securities: | ||||||||||||
Employee stock-based awards | 61 | 53 | 86 | |||||||||
Diluted weighted average shares outstanding | 10,314 | 10,572 | 10,859 | |||||||||
Basic earnings per share | $ | 1.61 | $ | 1.57 | $ | 1.69 | ||||||
Diluted earnings per share | $ | 1.60 | $ | 1.56 | $ | 1.68 |
Diluted weighted average shares outstanding for 20172021 exclude antidilutive stock optionsanti-dilutive share-based awards totaling 759,9161,109,000 shares at a weighted average price of $27.27.$26.49.
The year ended December 31,2020, resulted in a net loss, therefore there was no difference in the weighted average number of common shares for basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive. Diluted weighted average shares outstanding for 20162020 exclude antidilutive stock optionsanti-dilutive share-based awards totaling 873,2761,232,000 shares at a weighted average price of $26.86. Diluted weighted average shares outstanding for 2015 exclude antidilutive stock options totaling 720,757 shares at a weighted average price of $27.59.$25.35.
Unvested restricted stock awards provide holders with dividend rights prior to vesting, however, such rights are forfeitable if the awards do not vest. As a result, unvested restricted stock awards are not participating securities and are excluded from the computation of earnings per share.
18. SEGMENT INFORMATION
The Company has two2 reportable segments: North American wholesale operations (“wholesale”Wholesale”) and North American retail operations (“retail”Retail”). The chief operating decision maker, the Company’s Chief Executive Officer, evaluates the performance of the Company’s segments based on earnings (loss) from operations. Therefore, interest income or expense, other income or expense, and income taxes are not allocated to the segments. The “other” category in the table below includes the Company’s wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe, which do not meet the criteria for separate reportable segment classification.
In the wholesale segment, shoes are marketed through more than 10,000 footwear, department and specialty stores, primarily in the United States and Canada. Licensing revenues are also included in the Company’s wholesale segment. The Company has licensing agreements with third
parties who sell its branded apparel, accessories and specialty footwear in the United States, as well as its footwear in Mexico and certain markets overseas. In 2017, 20162021 and 2015,2020, there was no single customer with sales aboveof 10% or more of the Company’s total sales.
42
In the retail segment, the Company operated 10e-commerce businesses and four brick and mortar retail stores and internet businesses in the United States as ofat December 31, 2017. Sales in retail outlets2021. Retail sales are made directly to consumers on the consumerCompany's websites, or by Company employees. In addition to the sale ofRetail stores sell the Company’s brands of footwear in these retail outlets, other branded footwear, primarily Florsheim, and accessories are also sold.accessories.
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies. Summarized segment data for the years ended December 31, 2017, 20162021 and 20152020 was as follows:
| | | | | | | | | | | | |
|
| Wholesale |
| Retail |
| Other |
| Total | ||||
| | (Dollars in thousands) | ||||||||||
2021 |
| |
|
| |
|
| |
|
| |
|
Product sales | | $ | 203,649 | | $ | 31,595 | | $ | 30,660 | | $ | 265,904 |
Licensing revenues | |
| 1,737 | |
| — | |
| — | |
| 1,737 |
Net sales | |
| 205,386 | |
| 31,595 | |
| 30,660 | |
| 267,641 |
Depreciation | |
| 1,995 | |
| 4 | |
| 491 | |
| 2,490 |
Earnings (loss) from operations | |
| 19,455 | |
| 6,651 | |
| (404) | |
| 25,702 |
Total assets | |
| 246,983 | |
| 6,263 | |
| 24,421 | |
| 277,667 |
Capital expenditures | |
| 453 | |
| 17 | |
| 537 | |
| 1,007 |
| | | | | | | | | | | | |
2020 | |
|
| |
|
| |
|
| |
|
|
Product sales | | $ | 151,012 | | $ | 21,499 | | $ | 21,690 | | $ | 194,201 |
Licensing revenues | |
| 1,174 | |
| — | |
| — | |
| 1,174 |
Net sales | |
| 152,186 | |
| 21,499 | |
| 21,690 | |
| 195,375 |
Depreciation | |
| 1,973 | |
| 211 | |
| 717 | |
| 2,901 |
Earnings (loss) from operations | |
| 975 | |
| (1,073) | |
| (7,500) | |
| (7,598) |
Total assets | |
| 222,255 | |
| 7,374 | |
| 27,090 | |
| 256,719 |
Capital expenditures | |
| 3,095 | |
| 30 | |
| 243 | |
| 3,368 |
Wholesale | Retail | Other | Total | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
2017 | ||||||||||||||||
Product sales | $ | 214,733 | $ | 20,860 | $ | 45,613 | $ | 281,206 | ||||||||
Licensing revenues | 2,543 | — | — | 2,543 | ||||||||||||
Net sales | 217,276 | 20,860 | 45,613 | 283,749 | ||||||||||||
Depreciation | 2,606 | 412 | 938 | 3,956 | ||||||||||||
Earnings from operations | 20,224 | 1,374 | 1,814 | 23,412 | ||||||||||||
Total assets | 228,738 | 4,548 | 29,546 | 262,832 | ||||||||||||
Capital expenditures | 735 | 338 | 505 | 1,578 | ||||||||||||
2016 | ||||||||||||||||
Product sales | $ | 224,752 | $ | 21,883 | $ | 47,513 | $ | 294,148 | ||||||||
Licensing revenues | 2,785 | — | — | 2,785 | ||||||||||||
Net sales | 227,537 | 21,883 | 47,513 | 296,933 | ||||||||||||
Depreciation | 2,361 | 461 | 848 | 3,670 | ||||||||||||
Earnings from operations | 17,944 | 2,109 | 2,729 | 22,782 | ||||||||||||
Total assets | 234,005 | 5,341 | 28,894 | 268,240 | ||||||||||||
Capital expenditures | 3,650 | 1,188 | 1,154 | 5,992 | ||||||||||||
2015 | ||||||||||||||||
Product sales | $ | 247,738 | $ | 22,121 | $ | 47,126 | $ | 316,985 | ||||||||
Licensing revenues | 3,632 | — | — | 3,632 | ||||||||||||
Net sales | 251,370 | 22,121 | 47,126 | 320,617 | ||||||||||||
Depreciation | 2,210 | 535 | 867 | 3,612 | ||||||||||||
Earnings from operations | 26,335 | 2,519 | 2,994 | 31,848 | ||||||||||||
Total assets | 267,265 | 4,372 | 27,360 | 298,997 | ||||||||||||
Capital expenditures | 1,329 | 399 | 753 | 2,481 |
All North American corporate office assets are included in the wholesale segment. Transactions between segments primarily consist of sales between the wholesale and retail segments. Intersegment sales are valued at the cost of inventory plus an estimated cost to ship the products. Intersegment sales have been eliminated and are excluded from net sales in the above table.
Financial information relating to the Company’s business by geographic area was as follows for the years ended December 31, 2017, 20162021 and 2015:2020:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Net Sales |
| |
|
| |
|
United States | | $ | 215,754 | | $ | 155,955 |
Canada | |
| 21,227 | |
| 17,730 |
Europe | |
| 2,309 | |
| 2,600 |
Australia | |
| 21,218 | |
| 15,252 |
Asia | |
| 3,198 | |
| 1,969 |
South Africa | |
| 3,935 | |
| 1,869 |
Total | | $ | 267,641 | | $ | 195,375 |
| | | | | | |
Long-Lived Assets | |
|
| |
|
|
United States | | $ | 79,486 | | $ | 77,975 |
Other | |
| 9,434 | |
| 9,756 |
| | $ | 88,920 | | $ | 87,731 |
2017 | 2016 | 2015 | ||||||||||
(Dollars in thousands) | ||||||||||||
Net Sales: | ||||||||||||
United States | $ | 219,685 | $ | 231,462 | $ | 252,459 | ||||||
Canada | 18,451 | 17,958 | 21,031 | |||||||||
Europe | 7,433 | 8,014 | 7,291 | |||||||||
Australia | 28,082 | 28,390 | 27,224 | |||||||||
Asia | 6,812 | 7,702 | 9,050 | |||||||||
South Africa | 3,286 | 3,407 | 3,562 | |||||||||
Total | $ | 283,749 | $ | 296,933 | $ | 320,617 | ||||||
Long-Lived Assets: | ||||||||||||
United States | $ | 72,328 | $ | 74,548 | $ | 74,658 | ||||||
Other | 7,708 | 7,695 | 7,699 | |||||||||
$ | 80,036 | $ | 82,243 | $ | 82,357 |
Net sales attributed to geographic locations are based on the location of the assets producing the sales. Long-lived assets by geographic location consist of property, plant and equipment (net), operating lease ROU assets, goodwill, trademarks, investment in real estate and amortizable intangible assets.
43
19. SHARE-BASED COMPENSATION PLANS
At December 31, 2017,2021, the Company had three stock-basedtwo share-based compensation plans: the 2011 Incentive Plan, the 2014 Incentive Plan and the 2017 Incentive Plan (collectively, “the Plans”). UnderAwards are no longer granted under the Plans, options2014 Incentive Plan; however, awards previously granted under such plan continue in accordance with their terms. Options to purchase common stock were granted to officers and key employees at exercise prices not less than the fair market value of the Company’s common stock on the date of the grant.grant, and the Company also grants restricted stock awards. The Company issues new common stock to satisfy stock option exercises andas well as the issuance of restricted stock awards. The 2017 Incentive Plan was approved by the Company’s shareholders on May 9, 2017. Awards are no longer granted under the 2011 and 2014 plans.
Stock options and restricted stock awards were granted on August 25thin each of the years 2017, 2016both 2021 and 2015. Under the Plans, stock2020. Stock options and restricted stock awards are valued at fair market value based on the Company’s closing stock price on the date of grant. Stock options granted in 20172021 and 2020 vest ratably over five years and expire ten years from the grant date. Stock options granted in 2016 and 2015 vest ratably over four years and expire six10 years from the grant date. Restricted stock granted in 2017, 2016,2021 and 20152020 vests ratably over four years. As of December 31, 2017,2021, there were approximately 1.3 million440,000 shares remaining available for stock-basedshare-based awards under the 2017 Incentive Plan.
Stock option exercises can be net share settled such that the Company withholds shares with value equivalent to the exercise price of the stock option awards plus the employees’ minimum statutory obligation for the applicable income and other employment taxes. The net share settlement has the effect of share repurchases by the Company as they reduce the number of shares that would have otherwise been issued. In 2021, approximately 1,000 shares were withheld , and were based on the value of the stock on the exercise dates. Total payments made by the Company for the employees’ tax obligations to the taxing authorities were insignificant in 2021 and NaN in 2020; such payments are generally reflected as a financing activity within the consolidated statements of cash flows.
In accordance with ASC 718, stock-basedshare-based compensation expense of approximately $1.6 million and $1.4 million was recognized in the 2017, 20162021 and 2015 consolidated financial statements2020, respectively, for stock options and restricted stock awards granted since 2011.2015. An estimate of forfeitures, based on historical data, was included in the calculation of stock-basedshare-based compensation.
During 2021, the Company's Board of Directors approved extending the expiration date of stock options granted in years 2015 and 2016. The effect of applying the expense recognition provisions of ASC 718 decreased Earnings before Provision for Income Taxes by $1,622,000 in 2017 and $1,559,000 in eachoriginal expiration date of the stock options granted in 2015 was August 25, 2021, and was extended by two years to August 25, 2023. The original expiration date of the stock options granted in 2016 was August 25, 2022, and 2015.was extended by one year to August 25, 2023. The Company recorded an additional $232,000 of compensation expense in 2021 due to the extension of the exercise periods.
As ofAt December 31, 2017,2021, there was $1.8 million of total unrecognized compensation cost related to non-vested stock options granted in the years 20142017 through 2017 which is expected to be
recognized over the weighted-average remaining vesting period of 2.7 years. As of December 31, 2017, there was $1.6 million of total unrecognized compensation cost related to non-vested restricted stock awards granted in the years 2014 through 20172021 which is expected to be recognized over the weighted-average remaining vesting period of 2.93.5 years. At December 31, 2020, there was $1.5 million of total unrecognized compensation cost related to non-vested stock options granted in the years 2017 through 2020 which is expected to be recognized over the weighted-average remaining vesting period of 3.2 years.
The following weighted-average assumptions were used to determine compensation expense related to stock options in 2017, 20162021 and 2015:2020:
2017 | 2016 | 2015 | |||||||||||||||
| | | | | | ||||||||||||
|
| 2021 |
| 2020 |
| ||||||||||||
Risk-free interest rate | 2.04 | % | 1.09 | % | 1.36 | % |
| 1.13 | % | 0.54 | % | ||||||
Expected dividend yield | 3.15 | % | 3.29 | % | 3.12 | % |
| 4.00 | % | 5.33 | % | ||||||
Expected term | 8.0 | 4.3 years | 4.3 years |
| 8.0 |
| 8.0 | | |||||||||
Expected volatility | 19.7 | % | 21.3 | % | 21.6 | % |
| 28.5 | % | 26.4 | % |
The risk-free interest rate is based on U.S. Treasury bonds with a remaining term equal to the expected term of the award. The expected dividend yield is based on the Company’s expected annual dividend as a percentage of the market value of the Company’s common stock in the year of grant. The expected term of the stock options is determined using historical experience. The expected volatility is based upon historical stock prices over the most recent period equal to the expected term of the award.
44
The following tables summarize stock option activity under the Company’s plans:
Stock Options
Years ended December 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||||||
| | Years ended December 31, | ||||||||||||||||||||||||||||||||||
| | 2021 | | 2020 | ||||||||||||||||||||||||||||||||
| | | | | Weighted Average | | | | | Weighted Average | ||||||||||||||||||||||||||
Stock Options | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price |
| Shares |
| Exercise Price |
| Shares |
| Exercise Price | ||||||||||||||||||||||
Outstanding at beginning of year | 1,486,257 | $ | 26.13 | 1,351,826 | $ | 26.09 | 1,355,416 | $ | 25.36 | | | 1,125,383 | | $ | 25.62 | | | 1,176,770 | | $ | 27.14 | |||||||||||||||
Granted | 211,200 | 27.94 | 277,800 | 25.51 | 299,700 | 25.64 |
| | 186,900 |
| | 24.00 |
| | 188,600 |
| | 18.00 | ||||||||||||||||||
Exercised | (174,989 | ) | 24.48 | (123,294 | ) | 24.28 | (279,090 | ) | 22.02 |
| | (1,300) |
| | 18.00 |
| | — |
| | — | |||||||||||||||
Forfeited or expired | (19,975 | ) | 26.53 | (20,075 | ) | 26.52 | (24,200 | ) | 26.58 |
| | (31,150) |
| | 24.06 |
| | (239,987) |
| | 27.09 | |||||||||||||||
Outstanding at end of year | 1,502,493 | $ | 26.57 | 1,486,257 | $ | 26.13 | 1,351,826 | $ | 26.09 |
| | 1,279,833 | | $ | 25.44 |
| | 1,125,383 | | $ | 25.62 | |||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||||||
Exercisable at end of year | 877,131 | $ | 26.59 | 762,132 | $ | 26.07 | 594,906 | $ | 25.55 |
| | 768,522 | | $ | 26.58 |
| | 640,012 | | $ | 26.77 | |||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||||||
Weighted average fair market value of options granted | $ | 4.05 | $ | 3.05 | $ | 3.30 | | $ | 4.16 | | | |
| $ | 2.01 | |
|
|
Weighted Average Remaining Contractual Life (in Years) | Aggregate Intrinsic Value | |||||||
Outstanding – December 31, 2017 | 3.8 | $ | 4,733,000 | |||||
Exercisable – December 31, 2017 | 2.4 | $ | 2,746,000 |
| | | | | |
|
| Weighted Average Remaining |
| | |
| | Contractual Life (in Years) | | Aggregate Intrinsic Value | |
Outstanding - December 31, 2021 |
| 5.6 | | $ | 1,147,000 |
Exercisable - December 31, 2021 |
| 3.8 | | $ | 257,000 |
The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value of the Company’s stock on December 29, 201731, 2021 of $29.72$23.94 and the exercise price multiplied by the number of in-the-money outstanding and exercisable stock options.
Non-vested Stock Options | Number of Options | Weighted Average Exercise Price | Weighted Average Fair Value | |||||||||||||||||
Non-vested – December 31, 2014 | 751,582 | $ | 26.74 | $ | 3.12 | |||||||||||||||
| | | | | | | | | ||||||||||||
|
| |
| Weighted Average |
| Weighted Average | ||||||||||||||
| | Number of Options | | Exercise Price | | Fair Value | ||||||||||||||
Non-vested - December 31, 2019 |
| 473,740 | | $ | 27.77 | | $ | 4.26 | ||||||||||||
Granted | 299,700 | 25.64 | 3.30 |
| 188,600 | |
| 18.00 | |
| 2.01 | |||||||||
Vested | (275,187 | ) | 26.14 | 3.36 |
| (165,824) | |
| 27.48 | |
| 3.99 | ||||||||
Forfeited | (19,175 | ) | 26.59 | 3.14 |
| (11,145) | |
| 27.54 | |
| 4.27 | ||||||||
Non-vested – December 31, 2015 | 756,920 | $ | 26.53 | $ | 3.10 | |||||||||||||||
Non-vested - December 31, 2020 |
| 485,371 | | $ | 24.08 | | $ | 3.48 | ||||||||||||
Granted | 277,800 | 25.51 | 3.05 |
| 186,900 | |
| 24.00 | |
| 4.16 | |||||||||
Vested | (293,720 | ) | 26.39 | 3.13 |
| (137,180) | |
| 25.65 | |
| 3.83 | ||||||||
Forfeited | (16,875 | ) | 26.37 | 3.10 |
| (23,780) | |
| 23.97 | |
| 3.48 | ||||||||
Non-vested – December 31, 2016 | 724,125 | $ | 26.20 | $ | 3.07 | |||||||||||||||
Granted | 211,200 | 27.94 | 4.05 | |||||||||||||||||
Vested | (296,638 | ) | 26.71 | 3.01 | ||||||||||||||||
Forfeited | (13,325 | ) | 26.16 | 3.12 | ||||||||||||||||
Non-vested – December 31, 2017 | 625,362 | $ | 26.55 | $ | 3.43 | |||||||||||||||
Non-vested - December 31, 2021 |
| 511,311 | | $ | 23.63 | | $ | 3.64 |
The following table summarizes information about outstanding and exercisable stock options at December 31, 2017:2021:
| | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable | ||||||||
| | | | Weighted | | | | | | | | |
| | | | Average | | | | | | | ||
| | Number of | | Remaining | | Weighted | | Number of | | Weighted | ||
| | Options | | Contractual Life | | Average | | Options | | Average | ||
Range of Exercise Prices |
| Outstanding |
| (in Years) |
| Exercise Price |
| Exercisable |
| Exercise Price | ||
$18.00 | | 176,800 | | 8.7 | | $ | 18.00 | | 36,480 | | $ | 18.00 |
$23.38 to $25.86 |
| 796,500 |
| 4.8 | | $ | 24.73 |
| 509,844 | | $ | 25.27 |
$27.94 to $37.22 |
| 306,533 |
| 6.0 | | $ | 31.56 |
| 222,198 | | $ | 30.99 |
|
| 1,279,833 |
| 5.6 | | $ | 25.44 |
| 768,522 | | $ | 26.58 |
45
Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of Exercise Prices | Number of Options Outstanding | Weighted Average Remaining Contractual Life (in Years) | Weighted Average Exercise Price | Number of Options Exercisable | Weighted Average Exercise Price | |||||||||||||||
$23.53 to $25.86 | 689,993 | 3.4 | $ | 25.11 | 350,843 | $ | 24.67 | |||||||||||||
$27.04 to $28.50 | 812,500 | 4.2 | $ | 27.81 | 526,288 | $ | 27.87 | |||||||||||||
1,502,493 | 3.8 | $ | 26.57 | 877,131 | $ | 26.59 |
The following table summarizes stock option activity for the years ended December 31:
| | | | | | |
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Total intrinsic value of stock options exercised | | $ | 8 | | $ | — |
Net proceeds from stock option exercises | | $ | 2 | | $ | 0 |
Income tax benefit from the exercise of stock options | | $ | 2 | | $ | — |
Total fair value of stock options vested | | $ | 525 | | $ | 661 |
2017 | 2016 | 2015 | ||||||||||
(Dollars in thousands) | ||||||||||||
Total intrinsic value of stock options exercised | $ | 618 | $ | 455 | $ | 1,705 | ||||||
Cash received from stock option exercises | $ | 4,284 | $ | 2,994 | $ | 6,144 | ||||||
Income tax benefit from the exercise of stock options | $ | 188 | $ | 178 | $ | 665 | ||||||
Total fair value of stock options vested | $ | 892 | $ | 919 | $ | 925 |
The following table summarizes restricted stock award activity during the years ended December 31, 2015, 20162020 and 2017:2021:
| | | | | |
|
| Shares of Restricted |
| Weighted Average | |
| | Stock | | Grant Date Fair Value | |
Non-vested - December 31, 2019 |
| 68,735 | | $ | 28.04 |
Issued |
| 30,800 | | | 18.00 |
Vested |
| (27,045) | |
| 28.04 |
Forfeited | | — | |
| — |
Non-vested - December 31, 2020 |
| 72,490 | | $ | 23.77 |
Issued |
| 36,325 | |
| 24.00 |
Vested |
| (30,345) | |
| 25.75 |
Forfeited |
| — | |
| — |
Non-vested - December 31, 2021 | | 78,470 | | $ | 23.11 |
Non-vested Restricted Stock | Shares of Restricted Stock | Weighted Average Grant Date Fair Value | ||||||
Non-vested – December 31, 2014 | 54,050 | $ | 26.58 | |||||
Issued | 21,900 | 25.64 | ||||||
Vested | (20,700 | ) | 25.94 | |||||
Non-vested – December 31, 2015 | 55,250 | 26.45 | ||||||
Issued | 26,900 | 25.51 | ||||||
Vested | (22,025 | ) | 26.26 | |||||
Forfeited | (1,625 | ) | 26.30 | |||||
Non-vested – December 31, 2016 | 58,500 | $ | 26.09 | |||||
Issued | 30,800 | 27.94 | ||||||
Vested | (23,250 | ) | 26.54 | |||||
Non-vested – December 31, 2017 | 66,050 | $ | 26.79 |
At December 31, 2017,2021, the Company expected 66,05078,470 shares of restricted stock to vest over a weighted-average remaining contractual term of 2.8 years. These shares had an aggregate intrinsic value of $2.0$1.0 million at December 31, 2017.2021. The aggregate intrinsic value was calculated using the market value of the Company’s stock on December 29, 201731, 2021 of $29.72$23.94 multiplied by the number of non-vested restricted shares outstanding. The income tax benefit from the vesting of restricted stock for the years ended December 31 was $167,000$184,000 in 2017, $230,0002021 and $127,000 in 2016, and $221,000 in 2015.
(In thousands, except per share amounts)2020.
2017 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year | |||||||||||||||
Net sales | $ | 69,120 | $ | 57,453 | $ | 76,906 | $ | 80,270 | $ | 283,749 | ||||||||||
Gross earnings | $ | 25,228 | $ | 22,090 | $ | 29,468 | $ | 33,907 | $ | 110,693 | ||||||||||
Net earnings attributable to Weyco Group, Inc. | $ | 2,217 | $ | 1,257 | $ | 4,934 | $ | 8,083 | $ | 16,491 | ||||||||||
Net earnings per share: | ||||||||||||||||||||
Basic | $ | 0.21 | $ | 0.12 | $ | 0.49 | $ | 0.79 | $ | 1.61 | ||||||||||
Diluted | $ | 0.21 | $ | 0.12 | $ | 0.48 | $ | 0.79 | $ | 1.60 |
2016 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year | |||||||||||||||
Net sales | $ | 78,900 | $ | 56,867 | $ | 79,069 | $ | 82,097 | $ | 296,933 | ||||||||||
Gross earnings | $ | 27,127 | $ | 22,291 | $ | 29,322 | $ | 33,303 | $ | 112,043 | ||||||||||
Net earnings attributable to Weyco Group, Inc. | $ | 2,687 | $ | 1,000 | $ | 4,600 | $ | 8,185 | $ | 16,472 | ||||||||||
Net earnings per share: | ||||||||||||||||||||
Basic | $ | 0.25 | $ | 0.09 | $ | 0.44 | $ | 0.79 | $ | 1.57 | ||||||||||
Diluted | $ | 0.25 | $ | 0.09 | $ | 0.44 | $ | 0.78 | $ | 1.56 |
Deducted from Assets | ||||||||||||
Doubtful Accounts | Returns and Allowances | Total | ||||||||||
(Dollars in thousands) | ||||||||||||
BALANCE, DECEMBER 31, 2014 | $ | 1,227 | $ | 1,157 | $ | 2,384 | ||||||
Add – Additions charged to earnings | 235 | 3,200 | 3,435 | |||||||||
Deduct – Charges for purposes for which reserves were established | (286 | ) | (3,276 | ) | (3,562 | ) | ||||||
BALANCE, DECEMBER 31, 2015 | $ | 1,176 | $ | 1,081 | $ | 2,257 | ||||||
Add – Additions charged to earnings | 76 | 3,290 | 3,366 | |||||||||
Deduct – Charges for purposes for which reserves were established | (90 | ) | (2,829 | ) | (2,919 | ) | ||||||
Deduct – Adjustment to reserve | (188 | ) | — | (188 | ) | |||||||
BALANCE, DECEMBER 31, 2016 | $ | 974 | $ | 1,542 | $ | 2,516 | ||||||
Add – Additions charged to earnings | 621 | 3,865 | 4,486 | |||||||||
Deduct – Charges for purposes for which reserves were established | (624 | ) | (4,072 | ) | (4,696 | ) | ||||||
Deduct – Adjustment to reserve | (100 | ) | — | (100 | ) | |||||||
BALANCE, DECEMBER 31, 2017 | $ | 871 | $ | 1,335 | $ | 2,206 |
| | | | | | | | | |
| | Deducted from Assets | |||||||
| | Doubtful | | Returns and | | | | ||
|
| Accounts |
| Allowances |
| Total | |||
| | (Dollars in thousands) | |||||||
BALANCE, DECEMBER 31, 2019 | | $ | 986 | | $ | 1,423 | | $ | 2,409 |
Add - Additions charged to earnings | |
| 5,289 | |
| 3,380 | |
| 8,669 |
Deduct - Charges for purposes for which reserves were established | |
| (4,850) | |
| (3,562) | |
| (8,412) |
BALANCE, DECEMBER 31, 2020 | | $ | 1,425 | | $ | 1,241 | | $ | 2,666 |
Add - Additions charged to earnings | |
| 198 | |
| 2,997 | |
| 3,195 |
Deduct - Charges for purposes for which reserves were established | |
| (316) | |
| (3,478) | |
| (3,794) |
BALANCE, DECEMBER 31, 2021 | | $ | 1,307 | | $ | 760 | | $ | 2,067 |
The Company has evaluated subsequent events through March 13, 2018, the date these financial statements were issued. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.
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ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9ACONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures. Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in bringing to their attention, on a timely basis, information relating to the Company required to be included in the Company’s periodic filings under the Exchange Act.
Management’s Report on Internal Control over Financial Reporting
The report of management required under this Item 9A is contained in Item 8 of Part II of this Annual Report on Form 10-K under the heading “Management’s Report on Internal Control over Financial Reporting.”
Reports of Independent Registered Public Accounting Firm
The attestation report from the Company’s independent registered public accounting firm required under this Item 9A is contained in Item 8 of Part II of this Annual Report on Form 10-K under the heading “Report of Independent Registered Public Accounting Firm.”
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarter or year ended December 31, 20172021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9BOTHER INFORMATION
None
ITEM 9CDISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item is set forth within Part I, “Executive Officers of“Information About the Registrant”Company’s Executive Officers” of this Annual Report on Form 10-K and within the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 8, 20183, 2022 (the “2018“2022 Proxy Statement”) in sections entitled “Proposal One: Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,Delinquencies,” “Audit Committee,” and “Code of Business Ethics,” and is incorporated herein by reference.
48
ITEM 11EXECUTIVE COMPENSATION
Information required by this Item is set forth in the Company’s 20182022 Proxy Statement in sections entitled “Compensation Discussion“Summary Compensation Table,” “Outstanding Equity Awards at December 31, 2021,” “Pension Benefits,” “Employment Contracts and AnalysisPotential Payments Upon Termination or Change of Control” and Executive Compensation,” “Director Compensation,” and “Corporate Governance and Compensation Committee Interlocks and Insider Participation,” and is incorporated herein by reference.
ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information required by this Item is set forth in the Company’s 20182022 Proxy Statement in the section entitled “Security Ownership of Management and Others,” and is incorporated herein by reference.
The following table provides information about the Company’s equity compensation plans as of December 31, 2017:2021:
| | | | | | | | ||||||||||||
|
| (a) |
| (b) |
| (c) | |||||||||||||
| | Number of | | Weighted-Average | | Number of Securities Remaining | |||||||||||||
| | Securities to be Issued Upon | | Exercise Price of | | Available for Future Issuance Under | |||||||||||||
| | Exercise of Outstanding | | Outstanding Options, | | Equity Compensation Plans (Excluding | |||||||||||||
Plan Category | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | (b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | | Options, Warrants and Rights | | Warrants and Rights | | Securities Reflected in Column (a)) | ||||||||||
Equity compensation plans approved by shareholders | 1,502,493 | $ | 26.57 | 1,258,000 | | 1,279,833 | | $ | 25.44 | | 439,645 | ||||||||
Equity compensation plans not approved by shareholders | — | — | — |
| — |
| | — |
| — | |||||||||
Total | 1,502,493 | $ | 26.57 | 1,258,000 |
| 1,279,833 | | $ | 25.44 |
| 439,645 |
ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is set forth in the Company’s 20182022 Proxy Statement in sections entitled “Transactions with Related Persons” and “Director Independence,” and is incorporated herein by reference.
ITEM 14PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this Item is set forth in the Company’s 20182022 Proxy Statement in the section entitled “Audit and Non-Audit Fees,” and is incorporated herein by reference.
PART IV
ITEM 15EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) | Documents filed as part of this Annual Report on Form 10-K: |
(1) | Financial Statements |
(2) | Financial Statement Schedules |
(b) | List of Exhibits. |
49
50
Exhibit | Description | Incorporation Herein By Reference To | Filed Herewith | |||
Form of incentive stock option agreement for the Weyco Group, Inc. 2017 Incentive Plan | Exhibit 10.21a to Form 10-Q for Quarter Ended September 30, 2017 | |||||
Form of non-qualified stock option agreement for the Weyco Group, Inc. 2017 Incentive Plan | Exhibit 10.21b to Form 10-Q for Quarter Ended September 30, 2017 | |||||
Form of restricted stock agreement for the Weyco Group, Inc. 2017 Incentive Plan | Exhibit 10.21c to Form 10-Q for Quarter Ended September 30, 2017 | |||||
| | | ||||
| | | | | | |
Section 906 Certification of Chief Executive Officer and Chief Financial Officer | ||||||
101 | The following financial information from Weyco Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021 formatted in iXBRL ( Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2021 and 2020; (ii) Consolidated Statements of Earnings for the years ended December 31, 2021 and 2020; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020; (iv) Consolidated Statements of Equity for the years ended December 31, 2021 and 2020; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020; (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. | X | ||||
104 | | The cover page from the Company's Annual Report on Form 10-K for the year-ended December 31, 2021, formatted in iXBRL (included in Exhibit 101). | | | | X |
* Management contract or compensatory plan or arrangement
ITEM 16FORM 10-K SUMMARY
None
51
TABLE OF CONTENTSSIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WEYCO GROUP, INC.
By | /s/John F. Wittkowske | |||
March 11, 2022 | ||||
| ||||
Secretary |
| | |
| Power of Attorney | |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas W. Florsheim, Jr., John W. Florsheim, and John F. Wittkowske, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below, as of March 13, 2018,12, 2021, by the following persons on behalf of the registrant and in the capacities indicated.
/s/ Thomas W. Florsheim | ||
Thomas W. Florsheim, Chairman Emeritus | ||
/s/ Thomas W. Florsheim, Jr. | ||
Thomas W. Florsheim, Jr., Chairman of the Board | ||
and Chief Executive Officer (Principal Executive Officer) | ||
/s/ John W. Florsheim | ||
John W. Florsheim, President, Chief Operating Officer, | ||
Assistant Secretary and Director | ||
/s/ John F. Wittkowske | ||
John F. Wittkowske, Senior Vice President, | ||
Financial Officer and Secretary (Principal Financial Officer) | ||
/s/ Judy Anderson | ||
Judy Anderson, Vice President, Finance and | ||
Treasurer (Principal Accounting Officer) | ||
/s/ Tina Chang | ||
Tina Chang, Director | ||
/s/ Robert Feitler | ||
Robert Feitler, Director | ||
/s/ Cory L. Nettles | ||
Cory L. Nettles, Director | ||
/s/ Frederick P. Stratton, Jr. | ||
Frederick P. Stratton, Jr., Director |
66