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, 2017,2023, 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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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, 2017,2023, was $169,906,000.$156,202,000. This was based on the closing price of $27.88$26.69 per share as reported by Nasdaq on June 30, 2017,2023, the last business day of the registrant’s most recently completed second fiscal quarter.
As of March 1, 2018,2024, there were 10,243,8699,507,365 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, 2018,7, 2024, are incorporated by reference in Part III of this report.
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | | 43 | |||
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ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | | 45 | |||
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | | 45 | |||
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CAUTIONARY STATEMENTS FORREGARDING FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements with respect to Weyco Group, Inc.’s (the “Company”) outlook forwithin the future.meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements represent the Company’s reasonableour good 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,“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.The Company 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(collectively, "we," "our," "us," and the “Company”) engage in one line of business: the designdesigns, markets, and distribution ofdistributes 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 Companywe maintain on itsour brands are important to theour business. The Company’sOur products consist primarily of mid-priced leather dress shoes, and casual footwear composed of man-made materials or leather. In addition, the Company addedand leather, and outdoor boots, shoes, and sandals in 2011 with the acquisition of the BOGS and Rafters brands. The Company’ssandals. Our footwear is available in a broad range of sizes and widths, primarily purchaseddesigned to meet the needs and desires of the general American population.
The Company purchasesWe purchase finished shoes from outside suppliers, primarily located in China and India.India, and we have recently begun contracting with suppliers located in Cambodia, Vietnam, and the Dominican Republic. Almost all of these foreign-sourced purchases are denominated in U.S. dollars. The Company continues to experienceWhile we source from more than 80 suppliers, our two largest suppliers each accounted for more than 10% of our total inventory purchases in 2023. Costs from our 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, materials and material costs, as well as due to tariffs and other trade protection measures. Since the pandemic in 2020, there have been worldwide supply chain challenges that first caused inbound freight costs.costs to increase, and more recently returned to just above pre-pandemic levels.
The Company’sOur business is separated into two reportable segments —– the North American wholesale segment (“wholesale”Wholesale”) and the North American retail segment (“retail”Retail”). The CompanyWe also hashave other wholesale and retail businesses overseas which include its businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). However, we ceased operations in the Asia Pacific region in 2023, and its wholesale and retail businessesare in Europe (“Florsheim Europe”).the final stages of winding down this business.
Sales of the Company’s wholesalein our Wholesale segment, which include both wholesale sales and worldwide licensing revenues, constituted 77%79% and 81% of total net sales in each of the years 20172023 and 2016, and 78% of total net sales in 2015.2022, respectively. At wholesale,Wholesale, our shoes are marketed by retailers throughout the United States and Canada in more than 10,000 shoe, clothing and department stores. In 2017, 2016,2023 and 20152022, no individual customer represented 10% or more than 10% of the Company’sour total net sales. The Company employsWe employ traveling salespeople and independent sales representatives who sell the Company’sour products to retail outlets. Shoes are shipped to these retailers primarily from the Company’sour 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 sellsits strong presence in the winter and outdoor boots, there is seasonalityboot category results in its business due to the nature of the product;some seasonality; the majority of BOGS sales occur in the third and fourth quarters. Consistent with industry practices, the Company carrieswe carry significant amounts of inventory to meet customer delivery requirements and periodically providesprovide extended payment terms to customers. The CompanyWe also hashave licensing agreements with third parties who sell itsour branded shoes outside ofapparel, accessories, and specialty footwear in the United States, as well as licensing agreements with specialty shoe, apparelour footwear in Mexico and accessory manufacturers in the United States.certain markets overseas.
Sales of the Company’s retailin our Retail segment constituted 7%12% and 10% of total net sales in each2023 and 2022, respectively. The Retail segment consists of the years 2017, 2016,e-commerce businesses and 2015. As of December 31, 2017, the retail segment consisted of 10four brick and mortar stores and internet businesses in the United States. Sales in retail storesRetail sales are made directly to consumers on our websites, or by our employees in our stores. We believe that the consumerresults of our Retail segment will continue to be driven by Company employees.our e-commerce businesses, as we have a limited number of brick-and-mortar stores. We intend to continue to focus on investing in and growing our e-commerce businesses.
Sales of the Company’sour other businesses represented 16%constituted 9% of total net sales in each of the years 2017both 2023 and 2016, and 15% of total sales in 2015.2022, respectively. These sales relate to the Company’scame from our wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe.
TABLE OF CONTENTSat Florsheim Australia.
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, the Company2023, we employed 626608 persons worldwide, of whom 26397 were members of collective bargaining units. Future wagefull-time employees.
Brand recognition, price, quality, 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.
Price, quality, service, and brand recognition are all important competitive factors in the shoe industry. The Company hasWe have a design department that continually reviews and updates product designs. Compliance with environmental and other government regulations historically has not had, and is not expected to have, a material adverse effectimpact on the Company’sour results of operations, financial position or cash flows, although there can be no assurances.assurances as to the future.
The Company makesWe make available, free of charge, copies of itsour 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’sour website,www.weycogroup.com,, as soon as reasonably practical after the Company fileswe file or furnishesfurnish those reports to
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the Securities and Exchange Commission (“SEC”). The contents of the Company’sour website are not incorporated by reference and are not a part of this filing. Also available on the Company’sour website are various documents relating to theour corporate governance, of the Company, including itsour Code of Business Ethics.
ITEM 1ARISK FACTORS
There are various factors that affect the Company’sor might affect our business, results of operations and financial condition, many of which are beyond the Company’sour control. The following is a description of some of the significantmaterial factors that mightcould materially and adversely affect the Company’sour reputation, business, results of operations and financial condition.
Risk factors related to our operations
We rely on independent foreign sources of production and the availability of leather, rubber and other raw materials; a deterioration in our relationships, or other issues affecting such manufacturers and/or issues with the availability of raw materials could have unfavorable effects on our business.
We purchase all our products from independent foreign manufacturers, primarily in China and India. Although we believe that we have good working relationships with our manufacturers, we do not have long-term contracts with them. Thus, we 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 our business, results of operations and financial condition. We can move production to different suppliers; however, the transition may not occur smoothly or quickly, or at the same cost, which could result in us missing customer delivery date requirements and, consequently, we could lose future orders and our reputation may be harmed.
Our use of foreign sources of production results in relatively long production and delivery lead times. Therefore, we typically forecast demand at least five months in advance. If our forecasts are wrong or there are significant changes in demand, it would result in a loss of sales if we do not have enough product on hand or in reduced margins if we have excess inventory that needs to be sold at discounted prices.
Our 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 us to locate alternate ports or warehousing providers to avoid disruption to our 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 our overall profitability.
Our 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 would have an adverse effect on our business and results of operations, unless we were able to pass such costs along to our customers.
Additional risks associated with foreign sourcing that could negatively impact our 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. It is difficult to predict the effects of current or future tariffs and other trade barriers and disputes, and our efforts to reduce the effects of tariffs through pricing and other measures may not be effective.
A disruption in our supply chain could adversely affect our profitability.
Most of our products for North American distribution are shipped to us via ocean freight carriers to ports primarily on the west coast of North America. Our reliance on ocean freight transportation for the delivery of our inventory exposes us to various inherent risks, including port congestion, severe weather conditions, labor issues, natural disasters, and terrorism, any of which could result in delivery delays and inefficiencies, increased costs and disruption of business. In 2021 and in the first half of 2022, our supply chain was disrupted by congestion throughout the supply chain, domestic port and warehousing delays, and container shortages, resulting in us incurring premium freight charges on a portion of our imports. In addition to these factors, global inflation has contributed to already higher incremental freight costs. Severe disruptions of the supply chain may force us to use more expensive methods to ship our products, and we may not be able to meet our customers’ delivery requirements, which may result in the loss of sales.
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Any severe and prolonged disruption to ocean freight transportation could force us to rely on alternate and more expensive transportation systems. Efficient and timely inventory deliveries and proper inventory management are important factors in our operations. Extended delays and disruptions in shipments could result in changes in the availability of inventory, increased shipping costs, or missed sales that may materially adversely impact our business and results of operations.
Loss of the services of our top executives and an inability to effectively manage leadership transitions, could adversely affect the business.
Thomas W. Florsheim, Jr., our Chairman and Chief Executive Officer, and John W. Florsheim, our President, Chief Operating Officer and Assistant Secretary, each have a strong heritage within our Company and the footwear industry. They possess knowledge, relationships and reputations based on their lifetime exposure to and experience at our Company and the industry. The unexpected loss of either one or both of our top executives could have an adverse impact on our performance. A loss of the skills, industry knowledge, contacts, and expertise of any of our senior executives could cause a setback to our operating plan and strategy. In addition, transitions of important responsibilities to new individuals include the possibility of disruptions, which could negatively impact our business and results of operations.
If we fail to maintain effective internal control procedures over our financial reporting and disclosures, investor confidence may be adversely affected thereby affecting the value of our stock price.
We are required to maintain proper internal control over our financial reporting and adequate controls related to our disclosures. As defined in Rule 13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed by, or under the supervision of the Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. If we fail to maintain adequate controls resulting in a material weakness in our internal control over financial reporting, and/or if we are unable to remediate a material weakness on a timely basis, our business, results of operations, financial condition and/or the value of our stock may be adversely impacted.
In 2023, we identified a material weakness in our internal control over financial reporting. Please see Item 9A of this Form 10-K for a full discussion of this item.
We may not be able to successfully integrate new brands and businesses.
We continue 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, we cannot guarantee that we will be able to successfully integrate the brand into our current operations, or that any acquired brand would achieve results in line with our historical performance or our 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 theour Company.
Spending patterns in the footwear market, particularly those in the moderate-priced market in which a majority of the Company’sour products compete, have historically been correlated with consumers’ disposable income. As a result, the success of theour Company is affected by changes in general economic conditions, especially in the United States. Factors affecting discretionary income for the moderate consumerour consumers include, among others, general business conditions, gas and energy costs, inflation rates, employment consumer confidence,rates, interest rates and taxation. Additionally, changes in the economy and consumer behavior cangenerally impact the financial strength and buying patterns of retailers, which can also affect the Company’saffects our results. Volatile, unstable, or weak economic conditions, or a worsening of conditions, could adversely affect the Company’sour 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 isWe are 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 Companyus losing sales volume or increasing itsour concentration of business with a few large accounts, resulting in reduced bargaining power, which could increase pricing pressures and lower our margins.
We regularly assess our retail locations in the Company’s margins.U.S. and overseas and have closed unprofitable retail locations and incurred costs related to such closures. Future closures could have a material adverse effect on our results.
As the popularity of online shopping for consumer goods increases,continues to increase, our retail partners in the Company’s retail partnersU.S. and abroad may experience decreased foot traffic, which could negatively impact their businesses. ThisIn addition, the COVID-19 pandemic caused a temporary 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’sour sales to those customers, and adversely affect the Company’sour results of operations.
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We operate in a highly competitive environment, which may result in lower prices and reduced profits.
The footwear market is extremely competitive. We compete 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 we do. We compete with these companies primarily on the basis of brand recognition, price, quality, and service, all of which are important competitive factors in the shoe industry. Our ability to compete effectively depends upon these factors, as well as our 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 we do not remain competitive, future prospects, results of operations and financial condition would decline.
Changes in fashion trends and consumer preferences could negatively impact the Company.
The Company’sOur success is dependent upon itsour 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 through early 2022 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’sour sales volume and overall performance.
The Company purchases all of its products from independent foreign manufacturers, primarily in China and India. Although the Company 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.
The Company’s use of foreign sources of production results in 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, it could result in the 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, suchperformance, as labor disputes and work stoppages, political unrest, severe weather, 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 couldwell as have a material adversenegative impact on the Company’s overall profitability.our reputation.
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 could have a material adverse effect on the Company’s business and results of operations.
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.
A portion of the Company’sour revenues and expenses are denominated in currencies other than the U.S. dollar, with our primary exposures being to the Australian dollar and the Canadian dollar. The Company isWe are therefore subject 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’sour financial results.
The Company isWe are 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, severe weather events, natural disasters, and exposure to liabilities under anti-corruption laws (such as the U.S. Foreign Corrupt Practices Act). The Company isWe are also exposed to risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. LegislationAdditional legislation or other changes in the U.S. tax laws or interpretations could increase the Company’sour U.S. income tax liability and adversely affect the Company’sour 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’sour business and results of operations.
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 changesIn response to the ongoing military conflict between Russia and Ukraine, the U.S. federal income tax laws.and certain other countries imposed significant sanctions and export controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations. The Company has performed a preliminary assessment ofsituation remains uncertain and it is difficult to predict 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, that couldconflict and actions taken in response to it will have an adverse effect on our business. Our business resultsmay be impacted as a result of operations, financial conditionvarious factors, including inflation and cash flow.
The footwear market is extremely competitive. The Company competes with 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 Company competes with these companies primarily on the basis of price, quality, service and brand recognition, all of which are important competitiveRisk factors in the shoe industry. The Company’s abilityrelated 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 results of operations and financial condition could decline.cybersecurity
We are dependent on information and communication systems to support itsour business and internete-commerce sales. Significant interruptions could disrupt its business.The Company acceptsour business and fillsdamage our reputation.
We accept and fill the majority of itsour larger customers’ orders through the use of Electronic Data Interchange (EDI). It relies, and we rely on itsour warehouse management system to efficiently process orders. TheOur corporate office relies on computer systems to efficiently process and record transactions. Significant interruptions in the Company’sEDI, information and communication systems from power loss, telecommunications failure, malicious attacks, or computer system failure could significantly disrupt the Company’sour business and operations.operations, as well as damage our reputation. In addition, the Company sellswe sell footwear on itsour websites, and failures of the Company’sour or other retailers’ websites could adversely affect the Company’sour sales, results, and results.reputation.
We are subject to the risk of data loss and security breaches.breaches, particularly in our retail segment and our e-commerce businesses.
The Company sellsWe sell footwear in itsour retail stores and on itsour websites, and therefore the Companywe and/or its third partyour third-party credit card processors must process, store, and transmit large amounts of data, including personal information of itsour customers. Failure to prevent or mitigate data loss or other security breaches, including breaches of Companyour technology and systems, could expose the Companyus or itsour customers to a risk of loss or misuse of such information, which could adversely affect the Company’sour operating results, result in litigation or potential liability, for the Company, andand/or otherwise harm the Company’sour business and/or reputation. InOur technology and systems, as well as those of our partners have, and in the future may, become the target of cyberattacks. To our knowledge, we have not experienced a material breach; however, in order to address these risks, the Company haswe have secured cyber insurance and it usesuse third party technology and systems for a variety of reasons,to aid in safeguarding our 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 haswe have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, 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.
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Risk factors related to environmental, social, and corporate governance (“ESG”)
We may be unable to complete ESG initiatives, in whole or in part, which could lead to less opportunity for us to have ESG investors and partners and could negatively impact ESG-focused investors when evaluating the Company.
There has been increased focus on ESG matters by consumers, investors, employees, and other stakeholders, as well as by governmental and non-governmental organizations. We have undertaken, and plan to continue undertaking, ESG initiatives. Any failure by us to meet our commitments, or loss of confidence on the part of customers, investors, employees, brand partners and other stakeholders as it relates to our ESG initiatives, could negatively impact our brands, business, financial condition, and our operating results. These impacts could be difficult and costly to overcome, even if such concerns were based on inaccurate or misleading information.
In addition, achieving our ESG initiatives may result in increased costs in our supply chain, fulfillment, or corporate business operations, and could deviate from our initial estimates and have a material adverse effect on our business and financial condition. In addition, standards and research regarding ESG initiatives could change and become more onerous both for the Company and our third-party suppliers and vendors to meet successfully. Evolving data and research could undermine or refute the Company’s current claims and beliefs that it has made in reliance on current research, which could also result in costs, a decrease in revenue, changes to projections or plans, and negative market perception that could have a material adverse effect on our business and financial condition.
A variety of organizations measure the performance of companies on such ESG topics, and the results of these assessments may be widely publicized. In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions. Topics considered in such assessments include, among others, the company’s efforts and impacts on climate change and human rights, ethics and compliance with laws, and the role of the company’s board of directors in supervising various sustainability issues. In light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet investors’ or society’s ESG expectations, which could have a material adverse effect on our business, financial condition and operating results.
Finally, while we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or may not be ablerepresentative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to successfully integrate new brandserror or subject to misinterpretation given the long timelines involved in measuring and businesses.reporting on many ESG matters.
The Company has completedRisk factors related to COVID-19 and other infectious diseases
Future public health emergencies, including a number of acquisitionsresurgence in the pastCOVID-19 pandemic, could have a long duration 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
guaranteesignificant impacts 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., the Company’s Chairmanour operations, supply chain, distribution, and Chief Executive Officer, and John W. Florsheim, the Company’s President, Chief Operating Officer and Assistant Secretary,demand for our products, which could, in turn, have a strong heritage withinmaterial adverse effect on our business and results.
The COVID-19 pandemic had widespread, rapidly-evolving, and unpredicted impacts on global financial markets and business practices. As conditions fluctuated, governments responded by adjusting their restrictions and guidelines accordingly. The scope, nature, and duration of any future public health emergencies, including a resurgence in the CompanyCOVID-19 pandemic, is uncertain. While the COVID-19 pandemic has subsided with the normalization of living with COVID-19 following the increase in accessibility to COVID-19 vaccines and antiviral treatments, the full impact of a future public health emergency or a resurgence of the COVID-19 pandemic on our business, financial condition, and results of operations is uncertain and will continue to depend on future developments, such as the ultimate duration and scope of the health emergency, its impact on our employees, customers and suppliers, the effectiveness and adoption of vaccines and therapeutics and the footwear industry. They possess knowledge, relationships and reputations basedbroader implications on their lifetime exposurethe macro-economic environment. Such emergencies may cause or require us to and experiencetake actions that alter our business operations as may be required by federal, state, or local authorities, or which we determine to be in the Companybest interests of our employees, customers, suppliers, and shareholders.
Public health emergency-related factors that have impacted us, or may negatively impact, sales, gross margin and other results of operations in the industry. future include, but are not limited to: limitations on the ability of our suppliers to obtain necessary raw materials and parts to manufacture, or procure from manufacturers, the products we sell; transportation delays and other logistical challenges resulting in longer lead times; limitations on the ability of our employees to perform their work due to illness or other disruptions caused by the pandemic, including local, state, or federal orders requiring employees to remain at home; labor shortages or an increase in the cost of labor; limitations on the ability of carriers to deliver our products to customers; limitations on the ability of our customers to purchase our products; and limitations on the ability of our customers to pay us on a timely basis.
The losspotential negative financial of either onea future public health emergency or botha resurgence of the Company’s top executivesCOVID-19 pandemic on our business and results of operations cannot be reasonably estimated but could be material and last for an extended period of time.
6
Risks related to financing, investment, and pension matters
Volatility and uncertainty in the U.S. and global credit markets could adversely affect our business.
U.S. and global financial markets have an adverseat times been unstable and unpredictable, which has generally resulted in tightened credit markets with heightened lending standards and terms. The ultimate impact on the Company’s performance.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 us, including, among others, a negative impact on retailer and consumer confidence, limits to our customers’ access to credit markets and interference with the normal commercial relationships between us and our customers. Increased credit risks associated with the financial condition of some customers in the retail industry affects their level of purchases from us and the collectability of amounts owed to us, and in some cases, causes us to reduce or cease shipments to certain customers who no longer meet our credit requirements.
In addition, weak economic conditions and unstable and volatile financial markets could lead to certain of our customers experiencing cash flow problems, which may force them into higher default rates or to file for bankruptcy protection which may increase our bad debt expense or further negatively impact our business.
Interest rate volatility may increase the cost of financing. Our U.S. dollar variable rate debt currently uses the secured overnight financing rate (“SOFR”) as a benchmark for determining interest rates. In connection with our line of credit amendment in September 2022, SOFR became the new benchmark interest rate and all London Interbank Offered Rate (“LIBOR”) provisions were replaced with SOFR provisions.
Deterioration of the municipal bond market in general or of specific municipal bonds held by the Company or our pension plan may result in a material adverse effect on our financial condition, results of operations, and liquidity.
We maintain an investment portfolio consisting primarily of investment-grade municipal bond investments. Our investment policy only permits the purchase of investment-grade securities. Our investment portfolio totaled $6.6 million as of December 31, 2023, or approximately 2% of total assets. If the value of municipal bonds in general or any of our municipal bond holdings deteriorate, the performance of our investment portfolio, financial condition, results of operations, and liquidity may be materially and adversely affected.
Risk factors related to our capital structure
The limited public float and trading volume for theour 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%and company insiders own more than 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 haswe have 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’sour 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 1CCYBERSECURITY
Risk Management and Strategy
We face various cybersecurity risks and threats that could have a material adverse effect on our business, operations, financial performance, liquidity, and reputation. We have implemented processes and systems to identify, assess, and manage these risks and threats, as well as to prevent, detect, and respond to any cybersecurity incidents that may occur, which is integrated into our overall risk management process. We also have a comprehensive cybersecurity strategy, policy, and program that aligns with our business objectives and risk appetite. We regularly review and update our cybersecurity strategy, policy, and program to address the evolving nature and scope of cybersecurity risks and threats. In addition, we consider the cybersecurity practices of our third-party service providers, through a general security assessment and contractual requirements, as appropriate, before engaging them in order to help identify and mitigate cybersecurity risks associated with those providers.
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We comply with various laws, regulations, standards, and guidance related to cybersecurity, such as the Sarbanes-Oxley Act of 2002, the Payment Card Industry Data Security Standard, the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework and the SEC's guidance on cybersecurity disclosures.
During the fiscal year ended December 31, 2023, we did not experience any cybersecurity incidents that materially impacted, or are reasonably likely to materially impact, our business strategy, results of operations or financial condition. Please refer to the risk factors described in this report under Item 1A, “Risk Factors,” for a discussion of the potential impacts of future cybersecurity events.
Our Information Technology (“IT”) security department, led by our Vice President of Information Systems (“IS”) and Distribution and overseen by our Director of IS, holds primary responsibility for assessing and managing cybersecurity threats. Our Vice President of IS and Distribution has more than 34 years of experience in IT and holds a bachelor’s degree in Management of IS; his in-depth knowledge and experience are instrumental in developing and executing our cybersecurity strategies. Our Director of IS has more than 20 years of experience in various IT and IS roles, and holds a bachelor’s degree in Accounting and Finance.
A team of IT Specialists (including a Cybersecurity Analyst) at our Company is tasked with monitoring cybersecurity and operational risks associated with information security and system disruption. This team employs measures aimed at protecting against, detecting, and responding to cybersecurity threats, and has implemented processes and procedures in line with our information security management system to bolster and advance resilient programs. This encompasses:
● | Continuously developing and evaluating our program in accordance with the NIST Cybersecurity Framework. This Framework serves as a reference to aid in the identification, assessment, and mitigation of cybersecurity risks pertinent to our business operations. |
● | Engaging third-party IT security vendors to conduct ongoing assessments and monitoring of our networks and devices. Additionally, we routinely collaborate with assessors, consultants, and other third-party entities to review our cybersecurity program. These efforts aim to identify areas requiring sustained attention, enhancement, and alignment with regulatory requirements. Certifications held by our cybersecurity consultants include but are not limited to: CISSP, CISM, CCNP, and CMMC-RP. |
● | Conducting regular cybersecurity awareness training, which is available for all employees during which we provide seminars, presentations, and employee engagement activities designed to reinforce our employee information security training and enhance the culture and knowledge of cybersecurity risks among our employees. |
Cybersecurity Governance
Our Audit Committee is provided with regular updates from management concerning cybersecurity developments, significant cybersecurity threats, risks and processes implemented to address these risks. Our Audit Committee receives presentations on cybersecurity topics from management as part of the Committee’s continuing education on topics that impact the Company. Furthermore, management informs the Audit Committee as deemed necessary, about any notable cybersecurity incidents.
ITEM 2PROPERTIES
The following facilities were operated by the Company or its subsidiaries as of December 31, 2017:2023:
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 | % |
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| Owned/ |
| Square |
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Location | | Character | | Leased | | Footage | | % Utilized |
|
Glendale, Wisconsin (1) | | Two story office and distribution center | | Owned | | 1,100,000 | | 90 | % |
Montreal, Canada (1) |
| Multistory office and distribution center |
| Owned (3) |
| 92,800 |
| 90 | % |
Surrey Hills, Victoria, Australia (2) |
| Multistory office |
| Leased |
| 9,800 |
| 100 | % |
Tottenham Victoria, Australia (2) |
| Single story distribution center |
| Leased |
| 47,500 |
| 100 | % |
(1) |
These properties are used principally by |
(2) | These properties are used principally by |
(3) |
In addition to the above-described offices and distribution facilities, the Companywe also operatesoperate offices, distribution facilities, and retail shoe stores under various rental agreements. All of these facilities are suitable and adequate for the Company’sour current operations. See Note 137 of the Notes to Consolidated Financial Statements and Item 1, “Business”, above.
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INFORMATION ABOUT EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals were executive officers of Company as of December 31, 2017:2023:
Name | Position | Age | ||
Thomas W. Florsheim, Jr.(1) | Chairman and Chief Executive Officer | 65 | ||
John W. Florsheim(1) | President, Chief Operating Officer, and Assistant Secretary | 60 | ||
Judy Anderson | Vice President, Chief Financial Officer and Secretary | 56 | ||
Kate Destinon | ||||
Vice President, and President of Nunn Bush Brand | 48 | |||
Jeff Douglass | Vice President, Marketing | 42 | ||
Dustin Combs | Vice President, and President of BOGS and Rafters Brands | 41 | ||
Brian Flannery | Vice President, and President of Stacy Adams Brand | 62 | ||
Kevin Schiff | Vice President, and President of Florsheim Brand | 55 | ||
George Sotiros | | Vice President, Information Technology and Distribution | | 57 |
Damian Walton | | Vice President, President of Florsheim Australia | | 50 |
Joshua Wisenthal | Vice President, and President of Weyco Canada | 41 | ||
Allison Woss | Vice President, Supply Chain | 51 |
(1) | Thomas W. Florsheim, Jr. and John W. Florsheim are brothers, and Chairman Emeritus Thomas W. Florsheim is their father. |
Thomas W. Florsheim, Jr. has served as Chairman and Chief Executive Officer for more than 5 years.
since 2002.
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.since 2002.
Judy Anderson has served as Vice President, Chief Financial Officer, and Secretary since May 6, 2022. Prior to this role, Ms. Anderson served as Vice President of Finance and Treasurer for more than 5 years.since 2004.
Mike BernsteenKate Destinon has served as a Vice President of the Company and President of the Nunn Bush Brand for more than 5 years.since January 1, 2021. Prior to this role, Ms. Destinon served as Vice President of Nunn Bush from 2019 to 2020.
Jeff Douglass has served as Vice President of Marketing since 2015.
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.
Brian Flannery has served as a Vice President of the Company and President of the Stacy Adams Brand for more than 5 years.since 2007.
Kevin Schiff has served as a Vice President of the Company and President of the Florsheim Brand for more than 5 years.since 2010.
George Sotiros has served as Vice President of Information TechnologySystems and Distribution since June 2017.
Damian Walton has served as a Vice President of the Company and President of Florsheim Australia since January 7, 2019. Prior to this role, Mr. SotirosWalton served as Executive General Manager of Merchandise Planning at Myer, a national department store chain in Australia, for 3 years.
Joshua Wisenthal has served as a Vice President of Information Technology for more than 5 years.the Company and President of Weyco Canada since January 1, 2022. Prior to this role, Mr. Wisenthal served as a Vice President of the Company and a manager of our legacy brands in Canada since 2014.
Allison Wosshas served as Vice President of Supply Chain since August 2016. Prior to this role, Ms. Woss served as Vice President
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ITEM 5MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The sharesShares of theour 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 13091 holders of record of the Company’sCompany'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 CONTENTS2024.
In 1998, the Company’sour stock repurchase program was established.established and approved by the Board of Directors. On several occasions since the program’s inception, theour Board of Directors has extendedincreased the number of shares authorized for repurchase under the program. In total, 7.58.5 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 repurchaserepurchases of the Company’sour common stock by the Company in the three-month period ended December 31, 2017.2023.
| | | | | | | | | |
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| |
|
| |
|
|
| 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 | |
10/01/2023 - 10/31/2023 |
| 13,723 | | $ | 25.88 |
| 13,723 |
| 889,943 |
11/01/2023 - 11/30/2023 |
| 21,186 | | $ | 25.68 |
| 21,186 |
| 868,757 |
12/01/2023 - 12/31/2023 |
| — | | $ | — |
| — |
| 868,757 |
Total |
| 34,909 | | $ | 25.76 |
| 34,909 |
| |
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 |
ITEM 6 SELECTED FINANCIAL DATA
The following selected financial data reflects the results of operations, balance sheet data and common share information as of and for the years ended December 31, 2013 through December 31, 2017.RESERVED
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 designsWe design, market, and marketsdistribute 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 majorityAlmost all of these foreign-sourced purchases are denominated in U.S. dollars. The Company hasWe have two reportable segments, North American wholesale operations (“wholesale”Wholesale”) and North American retail operations (“retail”Retail”). In the wholesaleWholesale segment, the Company’sour products are sold to leading footwear, department, and specialty stores, as well as e-commerce retailers, primarily in the United States and Canada. The CompanyWe also hashave licensing agreements with third parties who sell itsour branded apparel, accessories, and specialty footwear in the United States, as well as itsour footwear in Mexico and certain markets overseas. Licensing revenues are included in the Company’s wholesaleour Wholesale segment. The Company’sOur Retail segment consists of e-commerce businesses and four brick-and-mortar retail segment consisted of 10 brick and mortar retail stores and internet businesses in the United States as of December 31, 2017. Sales in retail outletsStates. Retail sales are made directly to consumers on our websites, or by Company employees. The Company’sour employees in our stores. Our “other” operations include the Company’sour wholesale and retail businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). However, we ceased operations in the Asia Pacific region in 2023, and Europe (“Florsheim Europe”).are in the final stages of winding down this business. The majority of the Company’sour operations are in the United States, and itsour 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 Companyour company for the three-yeartwo-year period ended December 31, 2017.2023. This discussion should be read in conjunction with Item 8, “Financial Statements and Supplementary Data” below.
There were four non-recurring adjustments that impacted the comparison of earnings results in 2017, 2016 and 2015. The first adjustment, which was recorded in the fourth quarter of 2017, reduced the Company’s income tax provision by $1.5 million due to the changeKNOWN TRENDS IMPACTING OUR BUSINESS
Macroeconomic pressures in the U.S. federal corporate tax rate and its impactthe global economy have created a tepid retail environment. Following a period of unprecedented supply chain disruptions, retailers are being cautious with their inventory levels, which reduces wholesale customer orders. Additionally, consumers are currently spending more of their discretionary income on experiences and services and less on footwear and apparel. Looking ahead, we expect to face continued headwinds as a result of the challenging retail environment in the first half of 2024, but we continue to focus on building our backlogs and are optimistic that demand will improve in the back half of the year.
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Post-pandemic disruptions in the supply chain in 2021 and the first half of 2022 affected the flow of our inventory into the U.S. over the past few years. In 2022, we brought in much of our inventory for the Spring 2023 selling season early based on the Company’s deferred tax balances, which resulted fromexpectation that extended inventory transit times would last throughout much of 2022. As a result, our inventory was at peak levels at December 31, 2022. By the enactmentend of 2022, inventory transit times had improved and supply chain issues had subsided. In 2023, we managed our inventory down to more normalized levels.
EXECUTIVE OVERVIEW
We experienced a slowdown in sales in 2023, mainly as a result of lower wholesale shipments compared to record sales in 2022. Though sales were down, we achieved record operating and net earnings in 2023 by maintaining our pricing integrity while taking a disciplined approach to our expenses.
In our Wholesale segment, net sales of our BOGS brand were down 31% in 2023, compared to the prior year. Mild weather throughout the Fall and early Winter, in combination with an inventory glut in the outdoor market, led to the sales decline. We believe the outdoor boot market will remain challenging throughout 2024 as retailers continue to right size their inventories. With BOGS, we are focused on moving the business forward through product innovation with an emphasis on our BOGS seamless rubber boot construction. BOGS seamless construction is 30% lighter than comparable vulcanized rubber boots and over twice as durable as measured by the number of flexes our seamless boots can withstand without any sign of cracking. This year, we are expanding the number of seamless boots in our line across numerous price points. In addition to the expansion of our seamless collection, we are also introducing new non-insulated and lightly insulated footwear so the BOGS brand is less dependent on inclement weather.
Net sales of our legacy businesses (comprised of the TCJA on December 22, 2017. The second adjustment, which was recorded 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) related to the Umi trademark. The third adjustment, which was also recorded in the fourth quarter of 2016, was a $3.1 million adjustment 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.
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. million in 2017, a decrease of 4% compared to $296.9 million in 2016. Net sales in the Company’s wholesale segment decreased $10.3 million, or 5% for the year, primarily due to lower sales of theFlorsheim, Nunn Bush and BOGS brands, partially offset by higher sales of the Florsheim brand. Net sales in the Company’s retail segmentStacy Adams brands) 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, werecollectively down 5% for the year. Wholesale earnings from operationsAt the brand level, Florsheim, Nunn Bush and Stacy Adams were up 13%down 4%, 2%, and 10%, respectively, 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 operationsyear. The decline in sales of all three brands reflects a general slowdown in the Company’smarket for dress and dress casual footwear. In addition, many of our retail partners have shifted to more of a “chase” strategy in order to maintain greater inventory flexibility. We see the decrease in our legacy shipments as part of a return to a normal business cycle after a period of heightened demand and supply chain delays. We anticipate this trend will continue through the first half of 2024. Our sell-throughs at retail remain solid, and we continue to diversify our product mix across all three brands to expand our casual and hybrid offerings.
In our 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 downyear, driven by growth 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.
On 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 Company to reclassify the non-service cost components of pension expense from selling and administrative expenses to other expense in the Consolidated Statements 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.
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, cash and marketable securities totaled $47.1 million and there was no debt outstanding. During 2017, the Company generated $33.5 million of cash from operations, and collected $4.3 million in proceeds from stock option exercises. The Company used funds to pay off $4.3 million on its revolving line of credit, repurchase $15.2 million of its common stock, pay $9.1 million of dividends, and purchase a net of $2.0 million in marketable securities. In addition, the Company spent $1.6 million on capital expenditures.
Net sales and earnings from operationsour e-commerce businesses. Overall, we believe we had strong direct consumer performance for the Company’s segments,year, with a solid sales increase in 2023 as well as its “other” operations, in the years ended December 31, 2017 and 2016, 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 | % |
Net sales in the Company’s North American wholesale segment for the years ended December 31, 2017 and 2016, 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 | % |
Stacy Adams net sales were down 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 net sales were up mainly with national shoe chains and department stores.
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.
Gross earningsrecord retail operating earnings. We view our direct-to-consumer business as a percent of net sales were 33.6%growth opportunity and continue to invest 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.our online platform.
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
Florsheim Australia’s net sales in both 2017 and 2016. Excluding last year’s non-recurring adjustment related to the Umi trademark, wholesale selling and administrative expenseslocal currency 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 updown 3% for the year, due to higher gross margins and lower selling and administrative expenses.
Net salesyear. The loss of a significant wholesale account as well as soft consumer demand presented challenges in the Company’s North American retail segmentAustralian market. We anticipate headwinds through the first half of 2024 and are focused on reducing expenses while we assess opportunities to rekindle our growth. As previously disclosed, we closed our Asia Pacific operations in 2023. Going forward, certain significant wholesale accounts that were $20.9previously served by our Asia Pacific team will be picked up by Australian wholesale division.
Sales and Earnings Highlights
Consolidated net sales for 2023 were $318.0 million, down 10% compared to $351.7 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 brick 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.
Retail2022. Consolidated gross earnings as a percent of net sales were 64.0%44.9% and 41.1% in 20172023 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 expenses2022, respectively. Operating earnings were $12.0a record $41.0 million, up 2% over our previous record of $40.4 million, despite lower sales. Net earnings were a record $30.2 million, or 57% of net sales$3.17 per diluted share, in 2017 as2023, up 2% compared to $12.1$29.5 million, or 55%$3.07 per diluted share, in 2022.
Financial Position Highlights
At December 31, 2023, our cash and marketable securities totaled $75.9 million and we had no debt outstanding on our $40.0 million revolving line of net sales, in 2016. Earningscredit. During 2023, we generated $98.6 million of cash from operations, due mainly to net earnings and reductions in the North American retail segment were $1.4inventory levels. We used funds to pay $9.3 million in 2017, down 35% compareddividends and to $2.1repurchase $4.3 million in 2016. The decrease in retail earnings from operations was primarily due to lower sales on the Company’s websites.of our stock during 2023. We also had $3.3 million of capital expenditures.
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The Company reviews its long-lived assets for impairment annually in accordance with Accounting Standards Codification (“ASC”) 360,Property Plant and Equipment(“ASC 360”). 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, net sales of the Company’s other businesses were $45.6 million, down 4% from $47.5 million in 2016. This decrease was primarily due to lower net 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 wholesale 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’sour segments, as well as itsour “other” operations, in the years ended December 31, 20162023 and 2015,2022, 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 | % |
| | | | | | | | | |
| | Years ended December 31, | | | | ||||
|
| 2023 |
| 2022 |
| % Change |
| ||
| | (Dollars in thousands) | | |
| ||||
Net Sales | |
| | |
| | |
|
|
North American Wholesale | | $ | 250,400 | | $ | 283,235 |
| (12) | % |
North American Retail | |
| 38,012 | |
| 36,694 |
| 4 | % |
Other | |
| 29,636 | |
| 31,808 |
| (7) | % |
Total | | $ | 318,048 | | $ | 351,737 |
| (10) | % |
| | | | | | | | | |
Earnings from Operations | |
| | |
| |
|
| |
North American Wholesale | | $ | 33,288 | | $ | 32,641 |
| 2 | % |
North American Retail | |
| 6,752 | |
| 6,058 |
| 11 | % |
Other | |
| 984 | |
| 1,666 |
| (41) | % |
Total | | $ | 41,024 | | $ | 40,365 |
| 2 | % |
North American Wholesale Segment
Wholesale Net Sales
Net sales in the Company’s North American wholesaleour Wholesale segment for the years ended December 31, 20162023 and 2015,2022, 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 | % |
| | | | | | | | | |
| | Years ended December 31, | | |
| ||||
|
| 2023 |
| 2022 |
| % Change |
| ||
| | (Dollars in thousands) | | |
| ||||
North American Wholesale Net Sales | |
| | |
| | |
|
|
Stacy Adams | | $ | 56,027 | | $ | 62,284 |
| (10) | % |
Nunn Bush | |
| 53,851 | |
| 54,882 |
| (2) | % |
Florsheim | |
| 87,731 | |
| 91,682 |
| (4) | % |
BOGS/Rafters | |
| 48,969 | |
| 70,572 |
| (31) | % |
Forsake | |
| 1,318 | |
| 1,718 |
| (23) | % |
Total North American Wholesale | | $ | 247,896 | | $ | 281,138 |
| (12) | % |
Licensing | |
| 2,504 | |
| 2,097 |
| 19 | % |
Total North American Wholesale Segment | | $ | 250,400 | | $ | 283,235 |
| (12) | % |
The Company’s wholesale business facedWholesale net sales were collectively down in 2023 due to lower demand following record growth in 2022. Sales across all our brands in 2022 were positively impacted by a challenging retail environment in 2016. Foot traffic at the Company’s customers’ brickcombination of post-pandemic retailer pipeline fill 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. Sales of thestrong consumer demand. Our BOGS brand also declined, mainlyexperienced the largest decrease for the year, compared to record sales for the brand in 2022, as orders were down amid the current saturation of product in the outdoor market, and due to the continued impactmild weather in the final months of the mild 2015/2016 winter season, as retailers carried over BOGS inventory into the 2016/2017 winter season.
2023. 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 occurred2023, compared to 2022, 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%39.7% in 20162023 versus 32.5%35.6% in 2015. Earnings from operations in the North American wholesale segment were $17.9 million in 2016, down 32% compared to $26.3 million in 2015. Wholesale operating earnings in 2016 included an impairment charge2022. Gross margins improved as a result 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.
The Company’s cost of sales does not include distributionincreased selling prices and lower inventory costs, (e.g., receiving, inspection or warehousing costs) or shipping and handling expenses. The Company’s wholesale distribution costs were $11.2 million and $10.4 million in the years ended December 31, 2016 and 2015, respectively. The Company’s wholesale shipping and handling expenses were $1.6 million and $1.9 million in the years ended December 31, 2016 and 2015, 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.
North American wholesale segment sellingprimarily inbound freight. Selling and administrative expenses include, and arefor the wholesale segment consist primarily related to,of distribution costs, salaries and commissions, advertising costs, employee benefit costs, and depreciation. Wholesale selling and administrative expenses decreased $627,000were $66.0 million and $68.2 million in 2016, compared to the prior year. Excluding the non-recurring adjustments related to the Umi trademark2023 and the BOGS/Rafters earnout payment, wholesale selling and administrative expenses were down $2.3 million between years,2022, respectively. The decrease in 2023 was primarily due to lower employee benefit costs, and advertising costs.mainly commission-based compensation. As a percent of net sales, wholesale selling and administrative expenses were 25%26% in 2023 and 23%24% in 20162022. Wholesale operating earnings reached a record $33.3 million in 2023, up 2% over our previous record of $32.6 million in 2022, due to higher gross margins and 2015, respectively. Excluding the non-recurring adjustments described above, wholesalelower selling and administrative expensesexpenses.
Our cost of sales does not include distribution costs (e.g., receiving, inspection, warehousing, shipping, and handling costs) which are included in selling and administrative expenses. Wholesale distribution costs were $15.5 million and $16.0 million for the years ended
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December 31, 2023 and 2022, respectively. Our gross earnings may not be comparable to other companies, as a percentsome companies may include distribution costs in cost of sales.
North American Retail Segment
Retail Net Sales
Retail net sales were 23% and 22% in 2016 and 2015, respectively.
Net sales in the Company’s North American retail segment were $21.9a record $38.0 million in 2016, down 1% compared to $22.12023, up 4% over our previous record of $36.7 million in 2015. Same store2022. The increase was primarily due to higher sales which include U.S. interneton our legacy brands’ websites, partially offset by lower sales on the BOGS’ website. Sales at our four domestic brick and mortar stores were up 1%down 4% for the year. There were three fewer domestic retail stores operating in 2016 than there were in 2015, as four stores closed and one store opened. Stores are included in same store sales beginning in the store’s 13th month of operations after its grand opening. The increase in same store sales was due to an increase in the Company’s U.S. internet business.
Retail Earnings 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%65.9% in 20162023 and 65.7% in 2015.2022. Selling and administrative expenses for the retail segment include, and are
consist primarily related to,of freight, advertising expense, employee costs, rent and occupancy costs, employee costs, advertising expense and freight. Sellingcosts. Retail selling and administrative expenses as a percenttotaled $18.3 million in 2023, or 48% of net sales, were 55% in 2016for the year compared to 54% in 2015. The decrease in retail earnings from operations was primarily due to lower$18.1 million, or 49% of net sales, atin 2022. The Retail segment achieved record operating earnings of $6.8 million in 2023, up 11% over $6.1 million in 2022, due mainly to the Company’s brickincrease in web sales.
Other
Our other operations consist of our retail and mortar locations.
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.
The Company’s otherwholesale businesses include its wholesale and retail operations in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). However, we ceased operations in the Asia Pacific region in 2023, and Europe. In 2016,are in the final stages of winding down this business. The winddown of our Asia-Pacific operations did not have a material impact on our full year 2023 consolidated results.
Other net sales of the Company’s other businesses were $47.5 million, up 1% compared with $47.1totaled $29.6 million in 2015. This increase was primarily2023 down 7% from $31.8 million in 2022. In local currency, Florsheim Australia’s net sales were down 3% for the year, due mainly to the mid-year loss of a sizeable wholesale customer in Australia, partially offset by higher sales across Florsheim Australia’s retail businesses. Other gross earnings were 62.5% of net sales in Florsheim Europe’s wholesale business. Earnings from operations at Florsheim Australia and Florsheim Europe were $2.72023 versus 61.1% of net sales in 2022. Other operating earnings totaled $1.0 million in 2016, down 9% compared to $3.02023 and $1.7 million in 2015. This decrease was primarily due to2022, down mainly as a result of lower operating earnings at the Company’s retail storesales in Macau, resulting from lower sales.Australia this year.
OTHER INCOME AND EXPENSE AND TAXES
The majorityMost of the Company’sour interest and dividend income comes fromis generated by investments in marketable securities.securities and money market mutual funds. Interest and dividend income was $773,000, $763,000totaled $1.1 million and $936,000$361,000 in 2017, 20162023 and 2015,2022, respectively. The decrease from 2015 to 2016increase in 2023 was primarily due to lower average investmentmore earnings on the higher cash balances between years.
this year. Interest expense was $15,000, $436,000,$529,000 in 2023 and $181,000$710,000 in 2017, 2016, and 2015, respectively. In 2017, the Company2022. The decrease in 2023 was due to less interest incurred as we paid off its revolving line of credit which resultedour debt during the year. Other expense, net, totaled $738,000 in lower interest expense this year. In 2016, interest2023 and $277,000 in 2022. Other expense was up mainlyin 2023 due largely 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 2017-07an increase 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-serviceprimarily interest cost, components of pension expense. Pension expense decreased in 2017 as a result of freezing benefits under the pension plan, effective December 31, 2016.
The decrease inhigher interest rates this year. Last year’s other expense included a $894,000 pension settlement charge recorded in connection with a lump-sum benefit payment to a former executive of the Company.
Our effective tax rate was 26.1% in 2023 versus 25.7% in 2022. The current tax rate differs from 2015 to 2016 wasthe U.S. federal statutory rate of 21% 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 from unrealized gains on foreign exchange contracts entered into by Florsheim Australia. In 2015, the Company recognized $961,000 in foreign currency transaction losses, which resulted mainly from unrealized losses on foreign exchange contracts entered into by Florsheim Australia, as well as losses from the revaluationimpact 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, mainly due to the adoption of the spot-rate approach on January 1, 2016. See further details regarding this approach in
TABLE OF CONTENTSstate income taxes.
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 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 from the change in the U.S. federal corporate 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.
The Company’sOur primary sources of liquidity are its cash, short-term investments, and short-term marketable securities, which aggregated $29.4$69.5 million and $18.4 million at December 31, 2017,2023 and $18.3 million at December 31, 2016,2022, respectively, and itsour revolving line of credit. In 2017, the CompanyWe generated $33.5 million of cash from operations, compared with generating $46.9$98.6 million of cash from operations in 2016,2023, and using $5.4used $29.9 million of cash in operations in 2015.2022. Fluctuations in net cash from (used for) operating activities over the three-year period have mainly resulted from changes in net earnings and operating assets and liabilities, and most significantly, the year-endour inventory. Our inventory balances. In 2016, operating cash flows were up due largelybalance was $74.9 million at December 31, 2023, down from $128.0 million at December 31, 2022. We brought our inventories down in 2023 to a reduction inlevel that balances availability for in-season orders with better inventory levels that year; inventory levels were reduced in accordance with customer orders, and also to reflect a more conservative position based on the overall retail environment.turn.
The Company’s
Our capital expenditures were $1.6 million, $6.0$3.3 million and $2.5$2.3 million in 2017, 20162023 and 2015,2022, respectively. The Company expectsThis year’s capital expenditures included costs related to equipment installed in our Glendale warehouse that automates the packing and labeling process of single pair orders. With the growth of our e-commerce and drop-ship businesses, gaining efficiency in this area allows us to give faster service with significant labor savings. Looking ahead, we expect capital expenditures will be between $2.0 million and $3.0$4.0 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 two2024.
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We paid aggregate cash dividends of $9.1 million, $8.9$9.3 million and $8.5$7.0 million in 2017, 20162023 and 2015,2022, respectively. The increase in 2023 was due to a timing difference in our quarterly dividend payment schedule; 2023 included four quarterly dividend payments, as our fourth quarter 2022 dividend was paid in early January 2023. 2022 included only three quarterly dividend payments, as our fourth quarter 2021 dividend was paid in late December 2021.
The Company continuesIn December 2022, in accordance with the terms of our supplemental pension plan, we made a lump-sum benefit payment of $4.3 million to a former executive of the Company.
We repurchase itsour common stock under itsour share repurchase program when the Company believeswe believe market conditions are favorable. In 2017, the Company repurchased 548,5392023, we purchased 170,422 shares forat a total cost of $15.2 million.$4.3 million through our share repurchase program. In 2016, the Company repurchased 410,9832022, we purchased 171,397 shares forat a total cost of $11.0$4.2 million through our share repurchase program. As of December 31, 2023, there were 868,757 authorized shares remaining under the program.
On September 28, 2023, we amended our line of credit agreement. The amendment (“Amended Credit Agreement”) extended the maturity of our credit facility to September 28, 2024 and has a maximum available borrowing limit of $40.0 million. In 2015,Under the Company repurchased 354,741 sharesterms of the Amended Credit Agreement, amounts outstanding bear interest at the one-month term secured overnight financing rate (“SOFR”) plus 125 basis points. The Amended Credit Agreement is secured by a security interest in our general business assets, and contains customary representations, warranties, and covenants (including a minimum tangible net worth financial covenant) for a total costfacility of $9.9 million.this type. At December 31, 2017, the remaining total shares available to purchase under the program was approximately 1.0 million shares.
At December 31, 2017, the Company had a $60 million unsecured revolving line of credit with a bank expiring November 4, 2018. The line of credit bears interest at the daily London Interbank Offered Rate (“LIBOR”) plus 0.75%. At December 31, 2017,2023, there were no outstanding borrowings on the line of credit. The highest balancecredit, and we were in compliance with all financial covenants. At December 31, 2022, outstanding borrowings on the line of credit during 2017 was $4.8 million. At December 31, 2016, outstanding borrowings were approximately $4.3$31.1 million at an interest rate of 1.52%5.77%. The highest balance on the line of credit during 2016 was $28.4 million.
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, $2.92023, approximately $5.9 million of cash and cash equivalents was held by the Company’sour 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 willWe continue to evaluate the best uses for itsour available liquidity, including, among other uses, capital expenditures, continued stock repurchases and additional acquisitions.
The Company believes We believe that available cash, and 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.
Off-Balance Sheet Arrangements
The Company doesWe do 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’sOur 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’sour consolidated financial statements and the uncertainties that could impact the Company’sour results of operations, financial position and cash flows.
Sales Returns, Sales Allowances and Doubtful Accounts
The Company recordsWe record reserves and allowances (“reserves”) for sales returns, sales allowances and discounts, cooperative advertising, and accounts receivable balances that it believeswe believe 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 evaluatesWe evaluate the reserves and the estimation process and makes adjustmentsadjust when appropriate. Historically, actualApart from unprecedented write-offs that occurred during the COVID-19 pandemic, our historical write-offs against the reserves have been within the Company’sour expectations. ChangesFuture changes in these reserves may be required if actual returns, discounts and bad debt activity varies from the original estimates. These changes could impact the Company’sour results of operations, financial position, and cash flows.
Pension Plan Accounting
The Company’s net periodicOur pension costexpense and corresponding obligation are determined on an actuarial basis and require certain actuarial assumptions. Management believesWe believe the two most critical of these assumptions are the discount rate and the expected rate of return on plan assets. The Company evaluates itsWe evaluate actuarial assumptions annually on the measurement date (December 31) and makesmake 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.
14
Discount Rate — Net periodic pension cost– Pension expense and projected benefit obligationobligations 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 costexpense for the years ended December 31, 2017, 20162023 and 20152022, and the funded status of the plans at December 31, 20172023 and 2016. Effective January 1, 2016, the Company adopted2022. We use 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.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 costexpense, 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$2.7 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 considerswe consider the historical returns on plan assets and future expectations of asset returns. The CompanyWe utilized an expected rate of return on plan assets of 7.00% in 2017, as compared to 7.50% in6.75% for both 20162023 and 2015.2022, respectively. This rate was based on theour 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.$182,000.
The Company’sOur unfunded benefit obligation was $28.2$14.0 million at both December 31, 2017 and $16.1 million at December 31, 2016.
Goodwill and trademarks are tested 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 an 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.2022, respectively.
The Company’s $11.1 million of goodwill resulted from the 2011 acquisition of The Combs Company (“Bogs”). This goodwill is tested for impairment annually by comparing the applicable reporting unit’s fair value to its carrying value. If the carrying value of the reporting unit exceeds its fair value, a goodwill impairment charge would be recorded for the difference (up to the carrying value of the goodwill).
The Company conducted its annual impairment test of goodwill as of December 31, 2017. For goodwill impairment testing, the Company determined the applicable reporting unit is its wholesale segment. Fair value of the wholesale segment was estimated based on a discounted cash flow methodology. The rate used in determining discounted cash flows was a rate corresponding to the Company’s weighted average cost 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, the impairment test determined 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 exceeded their fair values. There were no impairment charges recorded on the 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.
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.
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.
15
ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
16
|
| | | | | | |
| | | | | | |
|
| 2023 |
| 2022 | ||
| | (In thousands, except per share amounts) | ||||
| | | | | | |
Net sales | | $ | 318,048 | | $ | 351,737 |
Cost of sales | |
| 175,165 | |
| 207,344 |
Gross earnings | |
| 142,883 | |
| 144,393 |
| | | | | | |
Selling and administrative expenses | |
| 101,859 | |
| 104,028 |
Earnings from operations | |
| 41,024 | |
| 40,365 |
| | | | | | |
Interest and dividend income | |
| 1,107 | |
| 361 |
Interest expense | |
| (529) | |
| (710) |
Other expense, net | |
| (738) | |
| (277) |
| | | | | | |
Earnings before provision for income taxes | |
| 40,864 | |
| 39,739 |
| | | | | | |
Provision for income taxes | |
| 10,676 | |
| 10,199 |
| | | | | | |
Net earnings | | $ | 30,188 | | $ | 29,540 |
| | | | | | |
| | | | | | |
Basic earnings per share | | $ | 3.19 | | $ | 3.09 |
Diluted earnings per share | | $ | 3.17 | | $ | 3.07 |
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||||||||||
Net sales | $ | 283,749 | $ | 296,933 | $ | 320,617 | ||||||||||||||||||||||||||
Cost of sales | 173,056 | 184,890 | 199,008 | |||||||||||||||||||||||||||||
Gross earnings | 110,693 | 112,043 | 121,609 | |||||||||||||||||||||||||||||
Selling and administrative expenses | 87,281 | 89,261 | 89,761 | |||||||||||||||||||||||||||||
Earnings from operations | 23,412 | 22,782 | 31,848 | |||||||||||||||||||||||||||||
Interest income | 773 | 763 | 936 | |||||||||||||||||||||||||||||
Interest expense | (15 | ) | (436 | ) | (181 | ) | ||||||||||||||||||||||||||
Other expense, net | (248 | ) | (1,032 | ) | (3,488 | ) | ||||||||||||||||||||||||||
Earnings before provision for income taxes | 23,922 | 22,077 | 29,115 | |||||||||||||||||||||||||||||
Provision for income taxes | 7,223 | 5,084 | 10,962 | |||||||||||||||||||||||||||||
Net earnings | 16,699 | 16,993 | 18,153 | |||||||||||||||||||||||||||||
Net earnings (loss) attributable to noncontrolling interest | 208 | 521 | (59 | ) | ||||||||||||||||||||||||||||
Net earnings attributable to Weyco Group, Inc. | $ | 16,491 | $ | 16,472 | $ | 18,212 | ||||||||||||||||||||||||||
Basic earnings per share | $ | 1.61 | $ | 1.57 | $ | 1.69 | ||||||||||||||||||||||||||
Diluted earnings per share | $ | 1.60 | $ | 1.56 | $ | 1.68 | ||||||||||||||||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
19
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2017, 20162023 and 20152022
| | | | | | |
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
| | | | | | |
Net earnings | | $ | 30,188 | | $ | 29,540 |
| | | | | | |
Other comprehensive income, net of tax: | |
|
| |
|
|
Foreign currency translation adjustments | |
| 642 | |
| (1,813) |
Pension liability adjustments | |
| 2,240 | |
| 6,414 |
Other comprehensive income | |
| 2,882 | |
| 4,601 |
| | | | | | |
Comprehensive income | | $ | 33,070 | | $ | 34,141 |
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Net earnings | $ | 16,699 | $ | 16,993 | $ | 18,153 | ||||||||||||||||||||||||||
Other comprehensive (loss) income, net of tax: | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | 1,729 | 198 | (3,411 | ) | ||||||||||||||||||||||||||||
Pension liability adjustments | (2,593 | ) | 1,696 | 2,360 | ||||||||||||||||||||||||||||
Other comprehensive (loss) income | (864 | ) | 1,894 | (1,051 | ) | |||||||||||||||||||||||||||
Comprehensive income | 15,835 | 18,887 | 17,102 | |||||||||||||||||||||||||||||
Comprehensive income (loss) attributable to noncontrolling interest | 634 | 517 | (673 | ) | ||||||||||||||||||||||||||||
Comprehensive income attributable to Weyco Group, Inc. | $ | 15,201 | $ | 18,370 | $ | 17,775 | ||||||||||||||||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
20
CONSOLIDATED BALANCE SHEETS
As ofAt December 31, 20172023 and 20162022
| | | | | | |
| | 2023 | | 2022 | ||
| | (In thousands, except par value and share data) | ||||
ASSETS: |
| |
|
| |
|
Cash and cash equivalents | | $ | 69,312 | | $ | 16,876 |
Investments, at fair value | | | — | | | 107 |
Marketable securities, at amortized cost | |
| 215 | |
| 1,385 |
Accounts receivable, less allowances of $2,510 and $2,110, respectively | | | 39,275 | | | 53,298 |
Income tax receivable | | | 245 | | | 945 |
Inventories | |
| 74,890 | |
| 127,976 |
Prepaid expenses and other current assets | |
| 6,172 | |
| 5,870 |
Total current assets | |
| 190,109 | |
| 206,457 |
| | | | | | |
Marketable securities, at amortized cost | |
| 6,354 | |
| 7,123 |
Deferred income tax benefits | |
| 1,096 | |
| 1,038 |
Property, plant and equipment, net | |
| 29,504 | |
| 28,812 |
Operating lease right-of-use assets | | | 12,520 | | | 13,428 |
Goodwill | |
| 12,317 | |
| 12,317 |
Trademarks | |
| 33,168 | |
| 33,618 |
Other assets | |
| 24,274 | |
| 23,827 |
Total assets | | $ | 309,342 | | $ | 326,620 |
| | | | | | |
LIABILITIES AND EQUITY: | | | | |
| |
Short-term borrowings | | $ | — | | $ | 31,136 |
Accounts payable | | | 8,845 | | | 14,946 |
Dividend payable | | | 2,352 | | | 2,290 |
Operating lease liabilities | | | 3,979 | | | 4,026 |
Accrued liabilities: | |
| | |
| |
Accrued compensation and employee benefits | | | 7,071 | | | 6,680 |
Sales and advertising allowances | | | 2,533 | | | 2,254 |
Taxes other than income taxes | | | 1,012 | | | 1,025 |
Other | | | 3,830 | | | 5,178 |
Total current liabilities | |
| 29,622 | |
| 67,535 |
| | | | | | |
Deferred income tax liabilities | |
| 11,819 | |
| 8,530 |
Long-term pension liability | |
| 13,412 | |
| 15,523 |
Operating lease liabilities | | | 9,531 | | | 10,661 |
Other long-term liabilities | |
| 465 | |
| 466 |
Total liabilities | |
| 64,849 | |
| 102,715 |
| | | | | | |
Commitments and contingencies (Note 15) | |
|
| |
|
|
| | | | | | |
Common stock, $1.00 par value, authorized 24,000,000 shares in 2023 and 2022, issued and outstanding 9,496,729 shares in 2023 and 9,584,316 shares in 2022 | | | 9,497 | | | 9,584 |
Capital in excess of par value | | | 71,661 | | | 70,475 |
Reinvested earnings | |
| 180,646 | |
| 164,039 |
Accumulated other comprehensive loss | |
| (17,311) | |
| (20,193) |
Total equity | |
| 244,493 | |
| 223,905 |
Total liabilities and equity | | $ | 309,342 | | $ | 326,620 |
2017 | 2016 | |||||||||||||||||||||||
(In thousands, except par value and share data) | ||||||||||||||||||||||||
ASSETS: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 23,453 | $ | 13,710 | ||||||||||||||||||||
Marketable securities, at amortized cost | 5,970 | 4,601 | ||||||||||||||||||||||
Accounts receivable, less allowances of $2,206 and $2,516, respectively | 49,451 | 50,726 | ||||||||||||||||||||||
Income tax receivable | 669 | 789 | ||||||||||||||||||||||
Inventories | 60,270 | 69,898 | ||||||||||||||||||||||
Prepaid expenses and other current assets | 5,770 | 6,203 | ||||||||||||||||||||||
Total current assets | 145,583 | 145,927 | ||||||||||||||||||||||
Marketable securities, at amortized cost | 17,669 | 21,061 | ||||||||||||||||||||||
Deferred income tax benefits | 750 | 660 | ||||||||||||||||||||||
Property, plant and equipment, net | 31,643 | 33,717 | ||||||||||||||||||||||
Goodwill | 11,112 | 11,112 | ||||||||||||||||||||||
Trademarks | 32,978 | 32,978 | ||||||||||||||||||||||
Other assets | 23,097 | 22,785 | ||||||||||||||||||||||
Total assets | $ | 262,832 | $ | 268,240 | ||||||||||||||||||||
LIABILITIES AND EQUITY: | ||||||||||||||||||||||||
Short-term borrowings | $ | — | $ | 4,268 | ||||||||||||||||||||
Accounts payable | 8,905 | 11,942 | ||||||||||||||||||||||
Dividend payable | 2,228 | 2,192 | ||||||||||||||||||||||
Accrued liabilities: | ||||||||||||||||||||||||
Accrued compensation and employee benefits | 6,184 | 3,444 | ||||||||||||||||||||||
Sales and advertising allowances | 3,538 | 3,050 | ||||||||||||||||||||||
Taxes other than income taxes | 1,182 | 1,193 | ||||||||||||||||||||||
Other | 3,127 | 2,885 | ||||||||||||||||||||||
Total current liabilities | 25,164 | 28,974 | ||||||||||||||||||||||
Deferred income tax liabilities | 2,069 | 703 | ||||||||||||||||||||||
Long-term pension liability | 27,766 | 27,801 | ||||||||||||||||||||||
Other long-term liabilities | 2,174 | 2,482 | ||||||||||||||||||||||
Total liabilities | 57,173 | 59,960 | ||||||||||||||||||||||
Commitments and contingencies (Note 13) | ||||||||||||||||||||||||
Common stock, $1.00 par value, authorized 24,000,000 shares in 2017 and 2016, issued and outstanding 10,162,225 shares in 2017 and 10,504,975 shares in 2016 | 10,162 | 10,505 | ||||||||||||||||||||||
Capital in excess of par value | 55,884 | 50,184 | ||||||||||||||||||||||
Reinvested earnings | 150,350 | 157,468 | ||||||||||||||||||||||
Accumulated other comprehensive loss | (17,859 | ) | (16,569 | ) | ||||||||||||||||||||
Total Weyco Group, Inc. equity | 198,537 | 201,588 | ||||||||||||||||||||||
Noncontrolling interest | 7,122 | 6,692 | ||||||||||||||||||||||
Total equity | 205,659 | 208,280 | ||||||||||||||||||||||
Total liabilities and equity | $ | 262,832 | $ | 268,240 | ||||||||||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
21
CONSOLIDATED STATEMENTS OF EQUITY
For the years ended December 31, 2017, 20162023 and 2015
2022
(In thousands, except per share amounts)
| | | | | | | | | | | | |
|
| Common |
| Capital in Excess |
| Reinvested |
| Accumulated Other | ||||
| | Stock | | of Par Value | | Earnings | | Comprehensive Loss | ||||
Balance, December 31, 2021 | | $ | 9,709 | | $ | 68,718 | | $ | 147,762 | | $ | (24,794) |
Net earnings | |
| — | |
| — | |
| 29,540 | |
| — |
Foreign currency translation adjustments | |
| — | |
| — | |
| — | |
| (1,813) |
Pension liability adjustment (net of tax of $2,254) | |
| — | |
| — | |
| — | |
| 6,414 |
Cash dividends declared ($0.96 per share) | |
| — | |
| — | |
| (9,240) | |
| — |
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price | |
| 19 | | | 262 | | | — | |
| — |
Issuance of restricted stock | |
| 28 | |
| (28) | |
| — | |
| — |
Share-based compensation expense | |
| — | |
| 1,523 | |
| — | |
| — |
Shares purchased and retired | | | (172) | | | — | | | (4,023) | | | — |
Balance, December 31, 2022 | | $ | 9,584 | | $ | 70,475 | | $ | 164,039 | | $ | (20,193) |
Net earnings | |
| — | |
| — | |
| 30,188 | |
| — |
Foreign currency translation adjustments | |
| — | |
| — | |
| — | |
| 642 |
Pension liability adjustment (net of tax of $787) | |
| — | |
| — | |
| — | |
| 2,240 |
Cash dividends declared ($0.99 per share) | |
| — | |
| — | |
| (9,413) | |
| — |
Common stock issued under equity incentive plans, net of shares withheld for employee taxes and strike price | | | 57 | | | (140) | | | — | | | — |
Issuance of restricted stock | |
| 28 | |
| (28) | |
| — | |
| — |
Restricted stock forfeited | | | (2) | | | 2 | | | — | | | — |
Share-based compensation expense | |
| — | |
| 1,352 | |
| — | |
| — |
Shares purchased and retired | |
| (170) | |
| — | |
| (4,168) | |
| — |
Balance, December 31, 2023 | | $ | 9,497 | | $ | 71,661 | | $ | 180,646 | | $ | (17,311) |
Common Stock | Capital in Excess of Par Value | Reinvested Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interest | ||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2014 | $ | 10,821 | $ | 37,966 | $ | 160,179 | $ | (18,030 | ) | $ | 7,018 | |||||||||||||||||||||||||||||||||||||
Net earnings | — | — | 18,212 | — | (59 | ) | ||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | (2,797 | ) | (614 | ) | |||||||||||||||||||||||||||||||||||||||||
Pension liability adjustment (net of tax of $1,509) | — | — | — | 2,360 | — | |||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.79 per share) | — | — | (8,563 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
Stock options exercised | 279 | 5,865 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | 22 | (22 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | 1,559 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Excess tax benefits from stock options exercised and vesting of restricted stock | — | 391 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Shares purchased and retired | (355 | ) | — | (9,503 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2015 | $ | 10,767 | $ | 45,759 | $ | 160,325 | $ | (18,467 | ) | $ | 6,345 | |||||||||||||||||||||||||||||||||||||
Net earnings | — | — | 16,472 | — | 521 | |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | 202 | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||
Pension liability adjustment (net of tax of $1,085) | — | — | — | 1,696 | — | |||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.83 per share) | — | — | (8,772 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends paid to noncontrolling interest of subsidiary | — | — | — | — | (170 | ) | ||||||||||||||||||||||||||||||||||||||||||
Stock options exercised | 123 | 2,871 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | 27 | (27 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Restricted stock forfeited | (2 | ) | 2 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | 1,559 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Excess tax benefits from stock options exercised and vesting of restricted stock | — | 20 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Shares purchased and retired | (410 | ) | — | (10,557 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2016 | $ | 10,505 | $ | 50,184 | $ | 157,468 | $ | (16,569 | ) | $ | 6,692 | |||||||||||||||||||||||||||||||||||||
Net earnings | — | — | 16,491 | — | 208 | |||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | 1,303 | 426 | |||||||||||||||||||||||||||||||||||||||||||
Pension liability adjustment (net of tax of $911) | — | — | — | (2,593 | ) | — | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.87 per share) | — | — | (8,968 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends paid to noncontrolling interest of subsidiary | — | — | — | — | (204 | ) | ||||||||||||||||||||||||||||||||||||||||||
Stock options exercised | 175 | 4,109 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | 31 | (31 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | 1,622 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Shares purchased and retired | (549 | ) | — | (14,641 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2017 | $ | 10,162 | $ | 55,884 | $ | 150,350 | $ | (17,859 | ) | $ | 7,122 | |||||||||||||||||||||||||||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
22
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017, 20162023 and 20152022
| | | | | | |
| | 2023 | | 2022 | ||
| | (Dollars in thousands) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| | | | | |
Net earnings | | $ | 30,188 | | $ | 29,540 |
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities - | |
| | |
| |
Depreciation | |
| 2,579 | |
| 2,485 |
Amortization | |
| 271 | |
| 282 |
Bad debt expense | |
| 519 | |
| 151 |
Deferred income taxes | |
| 2,462 | |
| 1,297 |
Net foreign currency transaction losses | |
| 99 | |
| 43 |
Share-based compensation expense | |
| 1,352 | |
| 1,523 |
Pension settlement charge | | | — | | | 894 |
Pension expense | |
| 1,293 | |
| 178 |
Impairment of trademark | | | 450 | | | 1,150 |
Loss on disposal of fixed assets | | | 59 | | | 117 |
Gain from fair value remeasurement of contingent consideration | | | — | | | (857) |
Increase in cash surrender value of life insurance | |
| (684) | |
| (690) |
Changes in operating assets and liabilities - | |
| | |
| |
Accounts receivable | |
| 13,531 | |
| (282) |
Inventories | |
| 53,047 | |
| (56,963) |
Prepaid expenses and other assets | |
| (358) | |
| (1,429) |
Accounts payable | |
| (6,074) | |
| (4,293) |
Accrued liabilities and other | |
| (982) | |
| (2,553) |
Accrued income taxes | |
| 879 | |
| (497) |
Net cash provided by (used for) operating activities | |
| 98,631 | |
| (29,904) |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
|
Proceeds from maturities of marketable securities | |
| 1,960 | |
| 1,719 |
Proceeds from sale of investment securities | | | 107 | | | 8,049 |
Purchases of property, plant and equipment | |
| (3,309) | |
| (2,342) |
Net cash (used for) provided by investing activities | |
| (1,242) | |
| 7,426 |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| |
Cash dividends paid | |
| (9,286) | |
| (6,951) |
Shares purchased and retired | |
| (4,338) | |
| (4,195) |
Net proceeds from stock options exercised | |
| 103 | | | 293 |
Payment of contingent consideration | |
| (500) | |
| — |
Taxes paid related to the net share settlement of equity awards | |
| (186) | | | (12) |
Proceeds from bank borrowings | |
| 70,060 | |
| 120,608 |
Repayments of bank borrowings | | | (101,196) | | | (89,472) |
Net cash (used for) provided by financing activities | |
| (45,343) | |
| 20,271 |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| 390 | |
| (628) |
| | | | | | |
Net increase (decrease) in cash and cash equivalents | | $ | 52,436 | | $ | (2,835) |
| | | | | | |
CASH AND CASH EQUIVALENTS at beginning of year | |
| 16,876 | | | 19,711 |
| | | | | | |
CASH AND CASH EQUIVALENTS at end of year | | $ | 69,312 | | $ | 16,876 |
| | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | |
| |
Income taxes paid, net of refunds | | $ | 7,115 | | $ | 9,441 |
Interest paid | | $ | 977 | | $ | 710 |
2017 | 2016 | 2015 | ||||||||||
(Dollars in thousands) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net earnings | $ | 16,699 | $ | 16,993 | $ | 18,153 | ||||||
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities – | ||||||||||||
Depreciation | 3,956 | 3,670 | 3,612 | |||||||||
Amortization | 349 | 387 | 426 | |||||||||
Bad debt expense | 621 | 76 | 235 | |||||||||
Deferred income taxes | 2,187 | (2,645 | ) | 346 | ||||||||
Net gain on remeasurement of contingent consideration | — | — | (458 | ) | ||||||||
Net foreign currency transaction (gains) losses | (146 | ) | (513 | ) | 961 | |||||||
Stock-based compensation | 1,622 | 1,559 | 1,559 | |||||||||
Pension contributions | (4,000 | ) | (2,400 | ) | (2,633 | ) | ||||||
Pension expense | 995 | 3,184 | 3,699 | |||||||||
Impairment of property, plant and equipment | — | 113 | — | |||||||||
Impairment of trademark | — | 1,770 | — | |||||||||
Increase in cash surrender value of life insurance | (517 | ) | (573 | ) | (573 | ) | ||||||
Changes in operating assets and liabilities – | ||||||||||||
Accounts receivable | 637 | 3,179 | 1,009 | |||||||||
Inventories | 9,634 | 27,313 | (28,282 | ) | ||||||||
Prepaid expenses and other assets | 486 | (1,595 | ) | 2,237 | ||||||||
Accounts payable | (2,813 | ) | (1,378 | ) | (1,995 | ) | ||||||
Accrued liabilities and other | 3,720 | (1,447 | ) | (3,587 | ) | |||||||
Accrued income taxes | 124 | (811 | ) | (105 | ) | |||||||
Excess tax benefits from stock-based compensation | (37 | ) | — | — | ||||||||
Net cash provided by (used for) operating activities | 33,517 | 46,882 | (5,396 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchases of marketable securities | (15,597 | ) | (6,287 | ) | (3,033 | ) | ||||||
Proceeds from maturities of marketable securities | 17,565 | 5,745 | 8,191 | |||||||||
Life insurance premiums paid | (155 | ) | (155 | ) | (155 | ) | ||||||
Purchases of property, plant and equipment | (1,578 | ) | (5,992 | ) | (2,481 | ) | ||||||
Net cash provided by (used for) investing activities | 235 | (6,689 | ) | 2,522 | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Cash dividends paid | (8,877 | ) | (8,720 | ) | (8,452 | ) | ||||||
Cash dividends paid to noncontrolling interest of subsidiary | (204 | ) | (170 | ) | — | |||||||
Shares purchased and retired | (15,190 | ) | (10,967 | ) | (9,858 | ) | ||||||
Proceeds from stock options exercised | 4,284 | 2,994 | 6,144 | |||||||||
Taxes paid related to the net share settlement of equity awards | (154 | ) | (11 | ) | (331 | ) | ||||||
Payment of contingent consideration | — | (5,217 | ) | — | ||||||||
Proceeds from bank borrowings | 31,570 | 121,959 | 160,534 | |||||||||
Repayments of bank borrowings | (35,838 | ) | (144,340 | ) | (139,290 | ) | ||||||
Excess tax benefits from stock-based compensation | — | 20 | 391 | |||||||||
Net cash (used for) provided by financing activities | (24,409 | ) | (44,452 | ) | 9,138 | |||||||
Effect of exchange rate changes on cash and cash equivalents | 400 | 43 | (837 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | $ | 9,743 | $ | (4,216 | ) | $ | 5,427 | |||||
CASH AND CASH EQUIVALENTS at beginning of year | 13,710 | 17,926 | 12,499 | |||||||||
CASH AND CASH EQUIVALENTS at end of year | $ | 23,453 | $ | 13,710 | $ | 17,926 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
Income taxes paid, net of refunds | $ | 4,901 | $ | 8,505 | $ | 10,341 | ||||||
Interest paid | $ | 15 | $ | 436 | $ | 181 |
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2017, 20162023 and 2015
1. NATURE OF OPERATIONS
Weyco Group, Inc. (the(“we,” “our,” “us” and the “Company”) designs, markets, and marketsdistributes 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 hasWe have two reportable segments, North American wholesale operations (“wholesale”Wholesale”) and North American retail operations (“retail”Retail”). In the wholesale segment, the Company’sour products are sold to leading footwear, department, and specialty stores, as well as e-commerce retailers, primarily in the United States and Canada. The CompanyWe also hashave licensing agreements with third parties who sell itsour branded apparel, accessories and specialty footwear in the United States, as well as itsour footwear in Mexico and certain markets overseas. Licensing revenues are included in the Company’sour wholesale segment. The Company’sOur retail segment consistedconsists 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 outletsStates. Retail sales are made directly to consumers on our websites, or by Companyour employees. The Company’sOur “other” operations include the Company’sour wholesale and retail businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). As previously disclosed, we ceased operations in the Asia Pacific region in 2023, and Europe (“Florsheim Europe”).are in the final stages of winding down this business. The majority of the Company’sour operations are in the United States and itsour results are primarily affected by the economic conditions and retail environment in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation —- The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and include all of the Company’sour majority-owned subsidiaries after elimination of intercompany accounts and transactions.
Use of Estimates —- 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 that affect the reported amounts of assets, liabilities, revenues and liabilitiesexpenses and disclosure of contingent assets and liabilities at the date of the financial statements and during the reporting period. Actual results specifically related to inventory reserves, realizability of deferred tax assets, goodwill and trademarks could materially differ from those estimates, which would impact the reported amounts of revenues and expenses duringdisclosures in the reported periods. Actual results could differ materially from those estimates.consolidated financial statements and accompanying notes.
Cash and Cash Equivalents — The Company considers- We consider all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. At December 31, 20172023 and 2016, the Company’s2022, our cash and cash equivalents included investments in U.S. treasury bills, money market accounts, andfunds, and/or cash deposits at various banks. The CompanyWhile we periodically hashave cash balances in excess of insured amounts. The Company hasamounts, we have not experienced any losses on deposits in excess of insured amounts.
Investments — - At December 31, 2023, we held investments in marketable securities (mainly tax-exempt municipal bonds). All of the Company’s municipal bond investmentsour marketable securities are classified as held-to-maturity securities and reported at amortized cost pursuant to Accounting Standards Codification (“ASC”) 320,Investments —– Debt and Equity Securities,(“ASC 320”) as the Company haswe have the intent and ability to hold all investments to maturity. See Note 4.
Accounts Receivable —– Trade accounts receivable arise from the sale of products on unsecured trade credit terms. On a quarterly basis, the Company reviewswe review all significant accounts with past due balances, as well as the collectability of other outstanding trade accounts receivable for possible write-off. It is the Company’sour policy to write-off accounts receivable against the allowance account when receivables are deemed to be uncollectible. The allowance for doubtful accounts reflects the Company’sour best estimate of probable losses in the accounts receivable balances. The Company determinesWe determine the allowance based on known troubled accounts, historical experience and other evidence currently available.
Inventories — Inventories are valued at cost, which is not in excess of net realizable value.- The majority of inventories are determined on a last-in, first-out (“LIFO”) basis. LIFO inventory is valued at the lower of cost or market. All other inventories are determined on a first-in, first-out basis (“FIFO”) basis, and are valued at the lower of cost or net realizable value. Inventory costs include the cost of shoes purchased from third-party manufacturers, as well as related freight and duty costs. The CompanyWe generally takestake title toof product at the time of shipping. See Note 5.
Property, Plant and Equipment and Depreciation —- Property, plant and equipment are stated at cost. Plant and equipment are depreciated using primarily the straight-line method over their estimated useful lives as follows: buildings and improvements, 10 to 39 years; machinery and equipment, 3 to 515 years; furniture and fixtures, 5 to 715 years. For income tax reporting purposes, depreciation is calculated using applicable methods.
24
Impairment of Long-Lived Assets —- Property, plant, equipment and equipmentoperating lease right-of-use assets, along with other long-lived assets, are reviewedevaluated for impairment in accordance with ASC 360,Property, Plant and Equipment ifperiodically whenever triggering events or changes in circumstances indicateindicators exist that the carrying amountsvalues may not be fully recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to its related estimated undiscounted future cash flows. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset, or group of assets, a loss is recognized for the difference between the fair value and carrying value of the assetasset. There were no impairment losses recorded on our long-lived assets in 2023 or group2022.
Leases- We lease retail shoe stores, as well as several office and distribution facilities worldwide. We determine whether an arrangement is or contains a lease at contract inception. All of assets. To derive the fair value, the Company utilizes the income approachour leases are classified as operating leases, which are included in operating lease right-of-use (“ROU”) assets and the fair value determined is categorized as Level 3operating lease liabilities in the fair value hierarchy. The fairconsolidated balance sheets. We have no finance leases.
ROU assets and lease liabilities are recognized based on the present value of each asset group is determinedfuture minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement, as well as any variable rate payments that depend on an index, initially measured using the estimated future cash flows discountedindex at the lease commencement date. Lease terms may include options to renew when it is reasonably certain that we will exercise that option.
As our leases generally do not provide an estimated weighted-average costimplicit rate, our incremental borrowing rate is used to determine the present value of capital. For purposeslease payments. The incremental borrowing rate was a hypothetical rate based on an understanding of what we could borrow from a third-party lender, on a collateralized basis, over a similar term, and in an amount that approximates the value of the impairment review, the Company groups assetsfuture lease payments at the lowest level for which identifiable cash flowslease commitment date.
Operating lease costs are largely independent ofrecognized on a straight-line basis over the cash flows of other assetslease term and liabilities. In the case of its retail stores, the Company groups assets at the individual store level. The Company performed the required impairment tests and found no impairment following the 2017 and 2015 impairment tests. In 2016, the testing resultedare included in an impairment charge of $113,000 which was recorded within selling and administrative expenses in the Consolidated Statements of Earnings. This impairment charge was recorded within the Company’s retail segment.expenses. Variable lease payments that do not depend on a rate or index, payments associated with non-lease components, and short-term rentals (leases with terms less than 12 months) are expensed as incurred. See Note 7.
Goodwill and Intangible Assets — -Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable net assets acquired infrom a business combination. Other intangible assets consist of trademarks and customer relationships.acquisition. Goodwill and trademarks areis not amortized, but areis reviewed for impairment on an annual basis and between annual tests if indicators of impairment are present. Conditions that would trigger an impairment assessment include, but are not limitedOur goodwill resulted primarily from the 2011 acquisition of the BOGS and Rafters brands, and, to a significant adverse change in legal factors or business climate that could affectlesser extent, the value2021 acquisition of the asset.Forsake brand. See Note 8.
Intangible Assets (excluding Goodwill) - Other intangible assets consist of customer relationships and trademarks. Customer relationships are amortized over their estimated useful lives. Trademarks are not amortized, but are reviewed for impairment on an annual basis and between annual tests when an event occurs or circumstances change that indicates the carrying value may not be recoverable. During 2023 and 2022, we recorded impairment charges of $0.5 million and $1.2 million, respectively to write-down the carrying value of the Forsake trademark. These charges were recorded within selling and administrative expenses in the Consolidated Statements of Earnings. See Note 7.8.
Life Insurance —– Life insurance policies are recorded at the amount that could be realized under the insurance contracts as of the balance sheet date. These assets are included within other assets in the Consolidated Balance Sheets. See Note 8.9.
Contingent Consideration — 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 company revalued the contingent consideration liability on a quarterly basis and recorded increases or decreases in its fair value as an adjustment to operating earnings. Changes to the liability resulted from accretion of the discount due to the passage of time as well as changes in the actual or projected performance of Bogs. The assumptions used to determine the fair value of the contingent consideration liability included a significant amount of judgment. See Note 10.
Income Taxes — -Deferred income taxes are provided on temporary differences arising from differences in the basisbases of assets and liabilities for income tax and financial reporting purposes. Deferred tax assets and liabilities are measured using enacted income tax rates in effect. Tax rate changes affecting deferred tax assets and liabilities are recognized in income at the enactment date. The Company’s policy related toWe record interest and penalties associated with unrecognized tax benefits are recorded within interest expense and provision for income tax expense,taxes, respectively. See Note 12.
Noncontrolling Interest — The Company’s noncontrolling interest is accounted for under ASC 810,Consolidation(“ASC 810”) and represents the minority shareholder’s ownership interest related to the Company’s wholesale and retail businesses in Australia, South Africa and Asia Pacific. In accordance with ASC 810, the Company reports its noncontrolling interest in subsidiaries as a separate component of equity in the Consolidated Balance Sheets and reports both net (loss) earnings attributable to the noncontrolling interest and net earnings attributable to the Company’s common shareholders on the face of the Consolidated Statements of Earnings.
In accordance with the subscription agreement entered into in connection with the acquisition of Florsheim Australia in January 2009, the Company’s equity interest in Florsheim Australia decreases from 60% to 51% of equity issued under the subscription agreement as intercompany loans are paid in accordance with their terms. To date, the Company’s equity interest in Florsheim Australia has decreased from 60% to 55% and the noncontrolling shareholder’s interest has increased from 40% to 45%. This change is reflected in the Consolidated Statements of Equity.14.
Revenue Recognition — Revenue from the sale of product is recognized when title and risk of loss transfers– Our revenue contracts represent a single performance obligation to the customer and the customer is obligatedsell our products to pay the Company.our customers. Sales to independent dealers are recorded at the time control of the product is transferred to customers in an amount that reflects the consideration we expect to receive in exchange for our products. Wholesale revenue is generally recognized upon shipment of the product, as that is when the customer obtains control of the promised goods. Shipping and handling activities that occur after control of the product transfers to the customer are treated as fulfillment activities, not as a separate performance obligation. Retail revenue is generated primarily from the sale of footwear to customers through our websites and at retail locations. For sales made through our websites, revenue is recognized upon shipment to those dealers. Sales through Company-owned retail outlets are recordedthe customer. For in-store sales, we recognize revenue at the timepoint of delivery tosale. Sales taxes collected from website or retail customers. All product sales are excluded from our reported net sales. Revenue from third-party licensing agreements is recognized in the period earned. Licensing revenues were $2.5 million in 2023 and $2.1 million in 2022.
All revenue is recorded net of estimated allowances for returns and discounts. The Company’sdiscounts; these revenue offsets are accrued for at the time of sale. Our estimates of allowances for returns and discounts are based on such factors as specific customer situations, historical experience, and current and expected economic conditions. The Company evaluatesWe evaluate the reserves and the estimation process and makes adjustmentsadjust when appropriate. Revenue
25
Generally, payments from third-party licensing agreementscustomers are received within 90 days following the sale. Our contracts with customers do not have significant financing components or significant prepayment terms, and there is recognized in the period earned. Licensing revenues were $2.5 million for 2017, $2.8 million for 2016no non-cash consideration. We do not have unbilled revenue, and $3.6 million for 2015.there are no contract assets and liabilities.
Shipping and Handling Fees — The Company classifies- We classify shipping and handling fees billed to customers as revenues.sales. Shipping and handling expenses incurred by the Company are included in selling and administrative expenses in the Consolidated Statements of Earnings. Wholesale segment shippingSee “Selling and handling expenses totaled $1.4 million in 2017, $1.6 million in 2016, and $1.9 million in 2015. Retail segment shipping and handling expenses, which resulted primarily from shipments to the Company’s U.S. internet consumers, totaled $1.6 million in 2017, $1.5 million in 2016, and $1.3 million in 2015.Administrative Expenses” below.
Cost of Sales — The Company’s- Our cost of sales includes the cost of products and inbound freight and duty costs.
Selling and Administrative Expenses — - Selling and administrative expenses primarily include salaries and commissions, advertising costs, employee benefit costs, distribution costs (e.g., receiving, inspection, warehousing, shipping, and warehousinghandling costs), rent and depreciation. DistributionConsolidated distribution costs included in selling and administrative expenses were $11.5$21.9 million in 2017, $11.72023 and $22.8 million in 2016, and $11.3 million in 2015.2022.
Advertising Costs — -Advertising costs are expensed as incurred. Total advertising costs were $10.4 million, $11.8$12.8 million and $12.8$13.4 million in 2017, 20162023 and 2015,2022, respectively. All advertisingAdvertising expenses are included in selling and administrative expenses with the exception of co-op advertising
expenses which are recorded as a reduction of net sales. Co-op advertising expenses, which are included in the above totals, reduced net sales by $3.4 million, $4.0 million, and $4.2 million in 2017, 2016 and 2015, respectively.expenses.
Foreign Currency Translations — The Company accounts- We account for currency translations in accordance with ASC 830,Foreign Currency Matters. The Company’sOur non-U.S. subsidiaries’ local currencies are the functional currencies under which the balance sheet accounts are translated into U.S. dollars at the rates of exchange in effect at fiscal year-end and income and expense accounts are translated at the weighted average rates of exchange in effect during the year. Translation adjustments resulting from this process are recognized as a separate component of accumulated other comprehensive loss, which is a component of equity.
Foreign Currency Transactions —- Gains and losses from foreign currency transactions are included in other expense, net, in the Consolidated Statements of Earnings. Net foreign currency transaction gains (losses) totaled $146,000 of gains in 2017, $513,000 of gains in 2016, and losses of ($961,000)were not material to our financial statements in 2015.
The foreign currency transaction gains recognized in 2017 resulted mainly from the revaluation of intercompany loans between the Company’s wholesale segment2023 and Florsheim Australia. The foreign currency transaction gains recognized in 2016 resulted mainly from unrealized gains on foreign exchange contracts entered into by Florsheim Australia. The foreign currency transaction losses recognized in 2015 resulted mainly from unrealized losses on foreign exchange contracts entered into by Florsheim Australia, as well as losses from the revaluation of intercompany loans between the Company’s wholesale segment and Florsheim Australia.2022.
Financial Instruments — –At December 31, 2017, the Company’s majority-owned Our wholly-owned subsidiary, Florsheim Australia, had foreign exchange contracts outstanding to buy $1.0$0.6 million U.S. dollars at a price of approximately $1.3$0.9 million Australian dollars. These contracts all expire in 2018.2024.
Realized gains and losses on foreign exchange contracts are related to the purchase and sale of inventory and therefore are included in the Company’sour net sales or cost of sales. In 20172023 and 2016,2022, realized gains and losses on foreign exchange contracts were not material to the Company’sour financial statements. In 2015, the Company recorded realized gains of $1.4 million on foreign exchange contracts.
Earnings Per Share —- Basic earnings per share excludes any dilutive effects of restricted stock and options to purchase common stock. Diluted earnings per share includes any dilutive effects of restricted stock and options to purchase common stock. See Note 15.17.
Comprehensive Income —– Comprehensive income includes net earnings and changes in accumulated other comprehensive loss. Comprehensive income is reported in the Consolidated Statements of Comprehensive Income.
The components of accumulated other comprehensive loss as recorded on the accompanying Consolidated Balance Sheets were as follows:
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.
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, the Company2023, we had three stock-basedone share-based employee compensation plans,plan, which areis described more fully in Note 17. The Company accounts19. We account for these plansthis plan under the recognition and measurement principles of ASC 718,Compensation —– Stock Compensation, (“ASC 718”). The Company’sOur 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 estimatesWe estimate the fair value of each restricted stock award based on the fair market value of theour 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%approximately 18% of the Company’sour gross accounts receivable balance at December 31, 2016. Additionally, there2023. There was one individual customer accounts receivable balance outstand that represented approximately 13% of our gross accounts receivable balance at December 31, 2022. There were no individual customers with sales above 10% of the Company’sour total sales in 2017, 20162023 and 2015.2022.
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RecentNew Accounting Pronouncements —
Recently Adopted
In February 2018,June 2016, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”("ASU") 2018-02, “2016-13, ReclassificationFinancial Instruments – Credit Losses: Measurements of Certain Tax Effects from Accumulated Other Comprehensive IncomeCredit Losses on Financial Instruments.” This new standard allows entitiesASU modifies the measurement of expected credit losses of certain financial instruments, based on historical experience, current conditions, and reasonable forecasts, and applies to reclassifyfinancial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain tax effects relatedoff-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 the enactment of the Tax Cuts and Jobs Act (“TCJA”) from accumulated other comprehensive loss (“AOCL”) to retained earnings. Prior to the issuance of the new guidance, a portion of the previously recognized deferred tax effects recorded in AOCL was “left stranded” in AOCL, as the effect of remeasuring the deferred taxes using the reduced U.S. federal corporate income tax rate was required to be recorded through income. The new guidance allows these stranded tax effects to be reclassified from AOCL to retained earnings. The new guidance will be effective on January 1, 2019, with early adoption permitted and is to be applied eitherreinvested earnings in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The Company is still assessing which adoption method it 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, the FASB issued ASU 2017-07,“Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost”. This new standard requires that employers disaggregate the service cost component from the other components of net periodic pension cost in the income statement. The service cost component should be included in the same line item as other compensation costs rendered by employees, while the other cost components should be presented outside of earnings from operations. The Companyadoption. We 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 adoption of this standard had no impact on the Company’s resultsin first quarter of operations or cash flows.
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, 2017.2023. 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’sour consolidated financial positionstatements 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.related disclosures.
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.
Not Yet Adopted
In February 2016,November 2023, the FASB issued ASU No. 2016-02 “2023-07, Leases.” This new standard requires lesseesSegment Reporting (Topic 280): Improvements to recognize the rights and obligations created by finance and operating leases with terms exceeding 12 months as assets and liabilitiesReportable Segment Disclosures. The objective of ASU 2023-07 is to require entities to provide enhanced disclosures on their balance sheets. The amendments in this update aresignificant segment expenses. ASU 2023-07 is effective for fiscal yearspublic companies in annual periods beginning after December 15, 20182023, and interim periods therein. The Company isbeginning after December 15, 2024. We are currently assessingevaluating the impact of the adoption of this standardthat ASU 2023-07 will have on itsour consolidated financial statements.
Reclassifications — Certain prior year amounts in
In December 2023, the Consolidated Statements of Earnings were reclassifiedFASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements 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 adoptionIncome Tax Disclosures. The objective of ASU 2017-07. Additionally, certain prior year amounts in the Consolidated Statements of Cash Flows were reclassified2023-09 is to conform to current year presentation. These amounts represent the taxes paidenhance disclosures related to income taxes, including specific thresholds for inclusion within the net share settlementtabular disclosure of equity awards,income tax rate reconciliation and were reclassifiedspecified information about income taxes paid. ASU 2023-09 is effective for public companies starting in connection withannual periods beginning after December 15, 2024. We are currently evaluating the adoption ofimpact that ASU 2016-09. Finally, certain prior year amounts within Accrued Liabilities in the Consolidated Balance Sheets were reclassified to conform to current year presentation.2023-09 will have on our consolidated financial statements.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
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 our 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. 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. The Company’s contingent consideration was measured at fair value. See Note 10.
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4. INVESTMENTS
Below is a summary of the amortized cost and estimated market values of the Company’sour marketable securities as of December 31, 2017,2023 and 2016.2022. The estimated market values provided are Level 2 valuations as defined by ASC 820.
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| | 2023 | | 2022 | ||||||||||||||||||||||||
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| Market |
| Amortized |
| Market | ||||||||||||||||||||
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| Cost |
| Value |
| Cost |
| Value | ||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Amortized Cost | Market Value | Amortized Cost | Market Value | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Municipal bonds: | ||||||||||||||||||||||||||||
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Marketable securities: |
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Current | $ | 5,970 | $ | 5,977 | $ | 4,601 | $ | 4,610 | | $ | 215 | | $ | 215 | | $ | 1,385 | | $ | 1,381 | ||||||||
Due from one through five years | 10,260 | 10,536 | 12,133 | 12,486 | |
| 3,518 | |
| 3,592 | |
| 3,977 | |
| 3,950 | ||||||||||||
Due from six through ten years | 5,005 | 5,197 | 7,705 | 7,804 | |
| 2,836 | |
| 2,830 | |
| 2,347 | |
| 2,455 | ||||||||||||
Due from eleven through twenty years | 2,404 | 2,539 | 1,223 | 1,222 | |
| — | |
| — | |
| 799 | |
| 773 | ||||||||||||
Total | $ | 23,639 | $ | 24,249 | $ | 25,662 | $ | 26,122 | | $ | 6,569 | | $ | 6,637 | | $ | 8,508 | | $ | 8,559 |
The unrealized gains and losses on marketable securities at December 31, 20172023 and 20162022 were as follows:
2017 | 2016 | |||||||||||||||
Unrealized Gains | Unrealized Losses | Unrealized Gains | Unrealized Losses | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Municipal bonds | $ | 634 | $ | (24 | ) | $ | 546 | $ | (86 | ) |
| | | | | | | | | | | | |
| | 2023 | | 2022 | ||||||||
|
| Unrealized |
| Unrealized |
| Unrealized |
| Unrealized | ||||
|
| Gains |
| Losses |
| Gains |
| Losses | ||||
| | (Dollars in thousands) | ||||||||||
Marketable securities | | $ | 118 | | $ | (50) | | $ | 145 | | $ | (94) |
At each reporting date, the Company reviews itswe review our 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 considerswe consider all available evidence, including the issuer’sour overall financial condition, the severity and duration of the decline in fair value, and the Company’sour 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 recordswe record a reduction in the carrying value to the estimated fair value. The CompanyWe reviewed our portfolio of investments as of December 31, 2023 and 2022 and determined that no other-than-temporary market value impairment exists for the years ended December 31, 2017, 2016, and 2015.exists.
At December 31, 20172022, we also had $0.1 million of cash invested in highly liquid taxable bond funds. These investments, which were classified as trading securities and 2016,reported at fair value, were liquidated in 2023. There were no significant gains or losses on these investments in 2023 or 2022.
5. INVENTORIES
At December 31, 2023 and 2022, inventories consisted of:
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| 2023 |
| 2022 | ||||||||||
2017 | 2016 | |||||||||||||
(Dollars in thousands) | ||||||||||||||
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Finished shoes | $ | 78,772 | $ | 88,277 | | $ | 94,663 | | $ | 151,370 | ||||
LIFO reserve | (18,502 | ) | (18,379 | ) | |
| (19,773) | |
| (23,394) | ||||
Total inventories | $ | 60,270 | $ | 69,898 | | $ | 74,890 | | $ | 127,976 |
Finished shoes included inventory in-transit of $17.3$16.7 million and $16.4$33.2 million at December 31, 20172023 and 2016,2022, respectively. At December 31, 2017,2023, approximately 86%91% of the Company’sour inventories were valued by the LIFO method of accounting while approximately 14%9% were valued by the first-in, first-out (“FIFO”)FIFO method of accounting. At December 31, 2016,2022, approximately 89%94% of the Company’sour inventories were valued by the LIFO method of accounting while approximately 11%6% were valued by the first-in, first-out (“FIFO”)FIFO method of accounting.
During 2017,2023, there were liquidations of LIFO inventory quantities carried at lowerhigher costs prevailing in prior years compared to the cost of fiscal 20142023 purchases. The effect of the liquidation decreasedthese liquidations increased cost of sales by $301,000 in 2017.$2.1 million. During 2016, there were liquidations of LIFO inventory quantities which resulted in immaterial decreases in cost of sales. During 2015,2022, there were no liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years compared to the cost of fiscal 20152022 purchases.
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6. PROPERTY, PLANT AND EQUIPMENT, NET
At December 31, 20172023 and 2016,2022, property, plant and equipment consisted of:
| | | | | | |
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
Land and land improvements | | $ | 3,843 | | $ | 3,843 |
Buildings and improvements | |
| 32,204 | |
| 32,204 |
Machinery and equipment | |
| 37,296 | |
| 36,820 |
Retail fixtures and leasehold improvements | |
| 4,674 | |
| 4,623 |
Construction in progress | |
| 1,972 | |
| 322 |
Property, plant and equipment | |
| 79,989 | |
| 77,812 |
Less: Accumulated depreciation | |
| (50,485) | |
| (49,000) |
Property, plant and equipment, net | | $ | 29,504 | | $ | 28,812 |
7. LEASES
We lease retail shoe stores, as well as several office and distribution facilities worldwide. The leases have original lease periods expiring between 2024 and 2029. Many leases include one or more options to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of our operating lease costs were as follows:
| | | | | | |
|
| Twelve Months Ended December 31, | ||||
|
| 2023 | | 2022 | ||
| | (Dollars in thousands) | ||||
Operating lease costs |
| $ | 4,912 | | $ | 5,233 |
Variable lease costs (1) | | | 201 | | | 1 |
Total lease costs |
| $ | 5,113 | | $ | 5,234 |
(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 our 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) | |
2024 |
| $ | 4,342 |
2025 |
|
| 3,505 |
2026 |
|
| 3,090 |
2027 |
|
| 1,976 |
2028 | | | 946 |
Thereafter |
|
| 377 |
Total lease payments |
|
| 14,236 |
Less: imputed interest |
|
| (726) |
Present value of lease liabilities |
| $ | 13,510 |
The operating lease liabilities were classified in the Consolidated Balance Sheets as follows:
| | | | | | |
|
| December 31, | | December 31, | ||
| | | 2023 |
| | 2022 |
| | (Dollars in thousands) | ||||
Operating lease liabilities - current | | $ | 3,979 | | $ | 4,026 |
Operating lease liabilities - non-current | | | 9,531 | | | 10,661 |
Total |
| $ | 13,510 | | $ | 14,687 |
29
We determined the present value of our lease liabilities using a weighted-average discount rate of 4.33%. As of December 31, 2023, our leases had a weighted-average remaining lease term of 3.7 years.
Supplemental cash flow information related to our operating leases is as follows:
| | | | | | |
|
| Twelve Months Ended December 31, | ||||
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 4,878 | | $ | 4,732 |
Right-of-use assets obtained in exchange for new lease liabilities (noncash) | | $ | 3,180 | | $ | 7,941 |
8. INTANGIBLE ASSETS
The Company’sOur indefinite-lived intangible assets as recorded in the Consolidated Balance Sheets consisted of the following:were as follows:
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| December 31, |
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Gross Carrying Amount | Accumulated Impairment | Net | Gross Carrying Amount | Accumulated Impairment | Net | |||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||
Indefinite-lived intangible assets | ||||||||||||||||||||||||||||||
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Indefinite-lived intangibles: | | | | | | | ||||||||||||||||||||||||
Goodwill | $ | 11,112 | $ | — | $ | 11,112 | $ | 11,112 | $ | — | $ | 11,112 | | $ | 12,317 | | $ | 12,317 | ||||||||||||
Trademarks | 34,748 | (1,770 | ) | 32,978 | 34,748 | (1,770 | ) | 32,978 | |
| 33,168 | |
| 33,618 | ||||||||||||||||
Total indefinite-lived intangible assets | $ | 45,860 | $ | (1,770 | ) | $ | 44,090 | $ | 45,860 | $ | (1,770 | ) | $ | 44,090 | ||||||||||||||||
Total | | $ | 45,485 | | $ | 45,935 |
The Company’s
We evaluate goodwill resulted from the 2011 acquisition of the BOGS/Rafters brands. This goodwill is tested for impairment annually by comparingas of December 31 or more frequently when an event occurs or circumstances change that indicates the applicablecarrying value may not be recoverable. In 2023 and 2022, we completed qualitative assessments noting no indicators of impairment. Accordingly, we did not record goodwill impairment charges for any of our reporting unit’s fairunits in 2023 or 2022.
We completed qualitative impairment assessments for all our trademarks, except the Forsake trademark, in 2023 and 2022, noting no indicators of impairment. For the Forsake trademark, we performed quantitative impairment tests in both 2023 and 2022, as we determined, in both years, that indicators were present that the trademark’s carrying value to its carrying value. Fair value of the applicable reporting unit was estimated using a discounted cash flow methodology. Ifmay not be recoverable. The impairment tests indicated that the carrying value of the reporting unit exceedsForsake trademark exceeded its fair value, a goodwill impairment charge would be recorded for the difference (upprimarily due to decreases in Forsake's sales projections in both years. Accordingly, we wrote down the carrying value of the goodwill).Forsake trademark by $0.5 million in 2023 and by $1.2 million in 2022. The Company determined that the applicable reporting unit was its wholesale segment. In 2017, the impairment test determined 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’s trademarks are tested for impairment annually by comparing the fair value of each trademark to its related carrying value. Fair value was estimated using a discounted cash flow methodology. In 2017, the impairment tests determined that the fair value of the trademarks exceeded their related carrying values. There were no impairment charges recorded on the trademarks following the 2017 and 2015 impairment tests. In the 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 in 2016. This impairment charge waswere recorded within selling and administrative expenses in the Consolidated Statements of Earnings.
The Company’s
Our amortizable intangible assets, as recordedwhich were included within other assets in the Consolidated Balance Sheets, consisted of the following:
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Customer relationships | 15 | 3,500 | (1,594 | ) | 1,906 | 3,500 | (1,361 | ) | 2,139 |
| | 15 | | $ | 3,500 | | $ | (2,994) | | $ | 506 | | $ | 3,500 | | $ | (2,761) | | $ | 739 | |||||||||||||||||||
Total amortizable intangible assets | $ | 3,500 | $ | (1,594 | ) | $ | 1,906 | $ | 3,500 | $ | (1,361 | ) | $ | 2,139 | | | | | $ | 3,500 | | $ | (2,994) | | $ | 506 | | $ | 3,500 | | $ | (2,761) | | $ | 739 |
The amortizable
Amortization expense related to the intangible assets are included within other assetswas $0.2 million in the Consolidated Balance Sheets. See Note 8.
The Company recorded amortization expense for intangible assets of $233,000 in 2017, $240,000 in 2016, and $273,000 in 2015.2022. Excluding the impact of any future acquisitions, the Company anticipateswe anticipate future amortization expense towill be as follows:$0.2 million in both 2024 and 2025, and $0.1 million in 2026.
(Dollars in thousands) | Intangible Assets | |||
2018 | $ | 233 | ||
2019 | 233 | |||
2020 | 233 | |||
2021 | 233 | |||
2022 | 233 | |||
Thereafter | 741 | |||
Total | $ | 1,906 |
30
9. OTHER ASSETS
Other assets included the following amounts at December 31, 20172023 and 2016:2022:
| | | | | | |
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| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
Cash surrender value of life insurance | | $ | 20,568 | | $ | 19,884 |
Amortizable intangible assets, net (See Note 8) | |
| 506 | |
| 739 |
Investment in real estate | |
| 1,909 | |
| 1,926 |
Other | |
| 1,291 | |
| 1,278 |
Total other assets | | $ | 24,274 | | $ | 23,827 |
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 fiveWe have life insurance policies on five current and former executives. Upon death of the insured executives, the approximate death benefit the Companywe would receive is $17.0$21.9 million in aggregate as of December 31, 2017.2023.
On May 1, 2013, the Companywe 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’sour 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.
10. SHORT-TERM BORROWINGS
On September 28, 2023, we amended our line of credit agreement. The amendment (“Amended Credit Agreement”) extended the maturity of our credit facility to September 28, 2024 and has a maximum available borrowing limit of $40.0 million. Under the terms of the Amended Credit Agreement, amounts outstanding bear interest at the one-month term secured overnight financing rate (“SOFR”) plus 125 basis points. The Amended Credit Agreement is secured by a security interest in our general business assets, and contains customary representations, warranties, and covenants (including a minimum tangible net worth financial covenant) for a facility of this type. At December 31, 2017, the Company had a $60 million unsecured revolving line of credit with a bank expiring November 4, 2018. The line of credit bears interest at the daily London Interbank Offered Rate (“LIBOR”) plus 0.75%. At December 31, 2017,2023, there were no amounts outstanding on the line of credit. The highest balanceborrowings on the line of credit, during 2017 was $4.8 million.and we were in compliance with all financial covenants. At December 31, 2016,2022, outstanding borrowings totaledon the line of credit were approximately $4.3$31.1 million at an interest rate of 1.52%5.77%.
11. CONTINGENT CONSIDERATION
Contingent consideration was comprised
The purchase price 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’sour 2021 acquisition of Bogs in 2011. The estimateForsake included potential payments of future consideration that were contingent upon the achievement of certain milestones. As part of purchase accounting, a liability of $1.3 million was recorded for the estimated fair value of the 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 ofacquisition date. Thereafter, the fair value of the liabilitycontingent consideration was remeasured at each reporting date. The change inperiod. In 2022, we recorded gains of approximately $0.9 million to write-down the fair value wasof the contingent consideration from $1.3 million to $0.5 million. These gains were recognized within selling and administrative expenses in the consolidated statementsConsolidated Statements of earnings forEarnings. In early 2023, we reached an agreement with the year ended December 31, 2015.
The total contingent consideration was reflected in the Company’s wholesale segment. The fair value measurementformer owners of Forsake to settle the contingent consideration liability for $0.5 million, which was based on significant inputs not observedpaid out in the market and thus represented a level 3 valuation as defined by ASC 820.first quarter of 2023.
12. EMPLOYEE RETIREMENT PLANS
The Company hasWe have 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. We also have 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 of August 1, 2011 and benefit accruals under the plan were frozen effective December 31, 2016.
The Company’sOur 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 followsWe follow 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. 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’s31
Our pension plan’s weighted average asset allocation at December 31, 20172023 and 2016,2022, by asset category, was as follows:
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| | Plan Assets at December 31, |
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| 2023 |
| 2022 |
|
Asset Category: |
|
|
|
| |
Equity Securities |
| 58 | % | 57 | % |
Fixed Income Securities |
| 28 | % | 31 | % |
Other |
| 14 | % | 12 | % |
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 hasWe have a Retirement Plan Committee, consisting of theour 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 Companywe 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 6.75% as the 7.00% long-term rate of return on assets assumptionassumptions for 2017.
AssumptionsThe following discount rates were used in determiningto determine the funded status atof the pension plans as of December 31, 20172023 and 2016 were:2022:
| | | | | | | | | |
| | Defined Benefit Pension Plan | | Supplemental Pension Plan |
| ||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | |
Discount rate for determining funded status |
| 5.15 | % | 5.41 | % | 5.16 | % | 5.44 | % |
32
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, 20172023 and 2016:2022:
| | | | | | | | | | | | |
| | Defined Benefit Pension Plan | | Supplemental Pension Plan | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
| | (Dollars in thousands) | ||||||||||
Change in projected benefit obligation |
| |
|
| |
|
| |
|
| |
|
Projected benefit obligation, beginning of year | | $ | 39,609 | | $ | 52,507 | | $ | 12,372 | | $ | 20,343 |
Service cost | |
| 467 | |
| 445 | |
| — | |
| — |
Interest cost | |
| 2,052 | |
| 1,243 | |
| 580 | |
| 511 |
Plan settlement | | | — | | | — | | | — | | | (4,276) |
Actuarial loss (gain) | |
| 916 | |
| (12,028) | |
| (1,001) | |
| (3,864) |
Benefits paid | |
| (2,633) | |
| (2,558) | |
| (342) | |
| (342) |
Projected benefit obligation, end of year | | $ | 40,411 | | $ | 39,609 | | $ | 11,609 | | $ | 12,372 |
| | | | | | | | | | | | |
Change in plan assets | |
| | |
| | |
|
| |
|
|
Fair value of plan assets, beginning of year | | $ | 35,927 | | $ | 44,582 | | $ | — | | $ | — |
Actual return on plan assets | |
| 5,214 | |
| (5,652) | |
| — | |
| — |
Administrative expenses | |
| (467) | |
| (445) | |
| — | |
| — |
Contributions | |
| — | |
| — | |
| — | |
| 4,618 |
Plan settlement | | | — | | | — | | | — | | | (4,276) |
Benefits paid | |
| (2,633) | |
| (2,558) | |
| — | |
| (342) |
Fair value of plan assets, end of year | | $ | 38,041 | | $ | 35,927 | | $ | — | | $ | — |
Funded status of plan | | $ | (2,370) | | $ | (3,682) | | $ | (11,609) | | $ | (12,372) |
| | | | | | | | | | | | |
Amounts recognized in the consolidated balance sheets consist of: | |
|
| |
|
| |
|
| |
|
|
Accrued liabilities - other | | $ | — | | $ | — | | $ | (567) | | $ | (531) |
Long-term pension liability | |
| (2,370) | |
| (3,682) | |
| (11,042) | |
| (11,841) |
Net amount recognized | | $ | (2,370) | | $ | (3,682) | | $ | (11,609) | | $ | (12,372) |
| | | | | | | | | | | | |
Amounts recognized in accumulated other comprehensive loss consist of: | |
|
| |
|
| |
|
| |
|
|
Accumulated loss, net of income tax benefit of $2,863, $3,382, $410, and $672, respectively | | $ | 8,150 | | $ | 9,629 | | $ | 1,168 | | $ | 1,914 |
Prior service cost, net of income tax benefit of $0, $0, $13 and $19, respectively | |
| — | |
| — | |
| 39 | |
| 54 |
Net amount recognized | | $ | 8,150 | | $ | 9,629 | | $ | 1,207 | | $ | 1,968 |
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, 20172023 and 2016.2022.
On September 15, 2016,In December 2022, in accordance with the terms of the supplemental pension plan, we made a lump-sum benefit payment of $4.3 million to a former executive of the Company using cash on hand. A pension settlement charge of $0.9 million 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 paidrecorded in December 2016 and annuity payments beginning January 1, 2017. As of December 31, 2016, $1.9 million in lump sum payments were paid2022 as a result of this amendment. These lump sum payments were includedpayment. This charge was recorded within “other expense, net” in the 2016 “Benefits paid” line item in the above table.Consolidated Statements of Earnings.
Assumptions used in determining net periodic pension costexpense for the years ended December 31, 2017, 20162023 and 20152022 were:
| | | | | | | | | |
| | Defined Benefit Pension Plan |
| Supplemental Pension Plan |
| ||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
|
Discount rate for projected benefit obligation |
| 5.41 | % | 2.83 | % | 5.44 | % | 2.86 | % |
Discount rate for determining interest cost |
| 5.35 | % | 2.39 | % | 5.37 | % | 2.54 | % |
Long-term rate of return on plan assets |
| 6.75 | % | 6.75 | % | — |
| — | |
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 | % | — | — | — |
33
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 costexpense for the years ended December 31, 2017, 20162023 and 2015,2022, were:
| | | | | | |
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
Service cost | | $ | 467 | | $ | 445 |
Interest cost | |
| 2,632 | |
| 1,754 |
Expected return on plan assets | |
| (2,301) | |
| (2,896) |
Pension settlement charge | | | — | | | 894 |
Net amortization and deferral | |
| 495 | |
| 875 |
Pension expense | | $ | 1,293 | | $ | 1,072 |
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 costexpense other than the service cost component were included in “other expense, 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’sour intention to satisfy the minimum funding requirements and maintain at least an 80% funding percentage in itsour defined benefit retirement plan in future years. At this time, the Company expectswe expect that any cash contributions necessary to satisfy these requirements in 2024 would not be material in 2018.material.
Projected benefit payments for the plans as ofat December 31, 2017,2023, were estimated as follows:
| | | | | | |
|
| Defined Benefit |
| Supplemental | ||
| | Pension Plan | | Pension Plan | ||
| | (Dollars in thousands) | ||||
2024 | | $ | 3,205 | | $ | 568 |
2025 | | $ | 3,120 | | $ | 628 |
2026 | | $ | 3,069 | | $ | 677 |
2027 | | $ | 3,075 | | $ | 730 |
2028 | | $ | 3,042 | | $ | 882 |
2029 - 2033 | | $ | 14,161 | | $ | 4,653 |
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, 2017,2023, by asset category within the fair value hierarchy (for further level information, see Note 3):
| | | | | | | | | | | | |
| | December 31, 2023 | ||||||||||
| | Quoted Prices | | Significant | | Significant | | | | |||
| | in Active Markets | | Observable Inputs | | Unobservable Inputs | | | | |||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| | (Dollars in thousands) | ||||||||||
Common stocks | | $ | 16,693 | | $ | - | | $ | - | | $ | 16,693 |
Preferred stocks | |
| 202 | |
| - | |
| - | |
| 202 |
Exchange traded funds | |
| 5,129 | |
| - | |
| - | |
| 5,129 |
Corporate obligations | |
| - | |
| 4,160 | |
| - | |
| 4,160 |
Pooled fixed income funds | |
| 5,793 | |
| - | |
| - | |
| 5,793 |
U.S. government securities | |
| - | |
| 772 | |
| - | |
| 772 |
Cash and cash equivalents | |
| 5,292 | |
| - | |
| - | |
| 5,292 |
Total | | $ | 33,109 | | $ | 4,932 | | $ | - | | $ | 38,041 |
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 |
34
The following table summarizes the fair value of the Company’s pension plan assets as ofat December 31, 2016,2022, by asset category within the fair value hierarchy (for further level information, see Note 3):
| | | | | | | | | | | | |
| | December 31, 2022 | ||||||||||
| | Quoted Prices | | Significant | | Significant | | | | |||
| | in Active Markets | | Observable Inputs | | Unobservable Inputs | | | | |||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| | (Dollars in thousands) | ||||||||||
Common stocks | | $ | 14,170 | | $ | 1,567 | | $ | — | | $ | 15,737 |
Preferred stocks | |
| 235 | |
| 3 | |
| — | |
| 238 |
Exchange traded funds | |
| 4,656 | |
| — | |
| — | |
| 4,656 |
Corporate obligations | |
| — | |
| 4,778 | |
| — | |
| 4,778 |
State and municipal obligations | |
| — | |
| 250 | |
| — | |
| 250 |
Pooled fixed income funds | |
| 5,541 | |
| — | |
| — | |
| 5,541 |
U.S. government securities | |
| — | |
| 158 | |
| — | |
| 158 |
Cash and cash equivalents | |
| 4,488 | |
| — | |
| — | |
| 4,488 |
Subtotal | | $ | 29,090 | | $ | 6,756 | | $ | — | | $ | 35,846 |
Other assets (1) | | | | |
|
| |
|
| |
| 81 |
Total | | | | |
|
| |
|
| | $ | 35,927 |
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 |
(1) This category represents trust receivables that are not leveled.
The CompanyWe also hashave a defined contribution plan covering substantially all employees. The CompanyWe contributed $786,000 $417,000, and $350,000$1.0 million to thethis plan in 2017, 2016,both 2023 and 2015,2022, respectively. Effective January 1, 2017,
13. COMPREHENSIVE INCOME
The components of accumulated other comprehensive loss as recorded in the Company amended its defined contribution plan to increaseConsolidated Balance Sheets were as follows:
| | | | | | |
|
| December 31, |
| December 31, | ||
| | 2023 | | 2022 | ||
| | (Dollars in thousands) | ||||
Foreign currency translation adjustments | | $ | (7,954) | | $ | (8,596) |
Pension liability, net of tax | |
| (9,357) | |
| (11,597) |
Total accumulated other comprehensive loss | | $ | (17,311) | | $ | (20,193) |
The following table shows changes in accumulated other comprehensive loss during the Company match formula for all plan participants.years ended December 31, 2023 and 2022 (dollars in thousands):
| | | | | | | | | |
|
| Foreign Currency |
| | |
| | | |
| | Translation | | Defined Benefit | | | | ||
|
| Adjustments |
| Pension Items |
| Total | |||
Balance, December 31, 2021 | | $ | (6,783) | | $ | (18,011) | | $ | (24,794) |
Other comprehensive (loss) income before reclassifications | | | (1,813) | | | 5,767 | | | 3,954 |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | 647 | | | 647 |
Net current period other comprehensive (loss) income | | | (1,813) | | | 6,414 | | | 4,601 |
Balance, December 31, 2022 | | $ | (8,596) | | $ | (11,597) | | $ | (20,193) |
Other comprehensive income before reclassifications | | | 642 | | | 1,874 | | | 2,516 |
Amounts reclassified from accumulated other comprehensive loss | | | — | | | 366 | | | 366 |
Net current period other comprehensive income | | | 642 | | | 2,240 | | | 2,882 |
Balance, December 31, 2023 | | $ | (7,954) | | $ | (9,357) | | $ | (17,311) |
35
The following table shows reclassification adjustments out of accumulated other comprehensive loss during the years ended December 31, 2023 and 2022 (dollars in thousands):
| | | | | | | | |
| | Amounts reclassified from accumulated | | | ||||
| | other comprehensive loss for the year | | Affected line item in the | ||||
| | ended December 31, | | statement where net earnings | ||||
| | 2023 | | 2022 |
| is presented | ||
Amortization of defined benefit pension items | | | | | |
|
| |
Prior service cost | | $ | 20 | (1) | $ | 6 | (1) | Other expense, net |
Actuarial losses | | | 475 | (1) |
| 869 | (1) | Other expense, net |
Total before tax | | | 495 | |
| 875 |
| |
Tax benefit | | | (129) | |
| (228) |
| |
Net of tax | | $ | 366 | | $ | 647 |
| |
(1) | These amounts were included in the computation of pension 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, 20162023 and 2015:2022:
| | | | | | | ||||||||||||
|
| 2023 |
| 2022 | ||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| | (Dollars in thousands) | ||||||||||||||||
Current: |
| |
|
| |
| ||||||||||||
Federal | $ | 3,904 | $ | 5,965 | $ | 8,801 | | $ | 5,859 | | $ | 6,263 | ||||||
State | 499 | 1,027 | 1,314 | |
| 1,839 | |
| 1,934 | |||||||||
Foreign | 633 | 737 | 501 | |
| 516 | |
| 705 | |||||||||
Total | 5,036 | 7,729 | 10,616 | |
| 8,214 | |
| 8,902 | |||||||||
Deferred | 2,187 | (2,645 | ) | 346 | |
| 2,462 | |
| 1,297 | ||||||||
Total provision | $ | 7,223 | $ | 5,084 | $ | 10,962 | | $ | 10,676 | | $ | 10,199 |
The differences between the U.S. federal statutory income tax rate and the Company’sour effective tax rate were as follows for the years ended December 31, 2017, 20162023 and 2015:2022:
2017 | 2016 | 2015 | |||||||||||||||
| | | | | | ||||||||||||
|
| 2023 |
| 2022 |
| ||||||||||||
U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % |
| 21.0 | % | 21.0 | % | ||||||
State income taxes, net of federal tax benefit | 2.9 | 3.5 | 3.4 |
| 4.1 |
| 2.9 | | |||||||||
Non-taxable municipal bond interest | (0.9 | ) | (1.0 | ) | (1.0 | ) | |||||||||||
Foreign income tax rate differences | 0.1 | (0.6 | ) | 0.4 |
| 0.3 |
| 0.7 | | ||||||||
Life insurance deferred tax reversal | — | (14.2 | ) | — | |||||||||||||
Impact of tax rate change on deferred taxes | (5.8 | ) | — | — | |||||||||||||
Other | (1.1 | ) | 0.3 | (0.1 | ) |
| 0.7 |
| 1.1 | | |||||||
Effective tax rate | 30.2 | % | 23.0 | % | 37.7 | % |
| 26.1 | % | 25.7 | % |
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, $2.7$2.8 million and $1.3$4.6 million for 2017, 2016,in 2023 and 2015,2022, respectively.
In general, it is the Company’s practice and intention to permanently reinvest unremitted earnings36
The components of deferred taxes as ofat December 31, 2017,2023 and 20162022 were as follows:
| | | | | | | ||||||||
|
| 2023 |
| 2022 | ||||||||||
2017 | 2016 | |||||||||||||
(Dollars in thousands) | ||||||||||||||
| ||||||||||||||
| ||||||||||||||
| ||||||||||||||
| ||||||||||||||
| ||||||||||||||
| ||||||||||||||
| | (Dollars in thousands) | ||||||||||||
Deferred income tax assets: |
| |
|
| |
| ||||||||
Accounts receivable reserves | $ | 199 | $ | 341 | | $ | 385 | | $ | 284 | ||||
Pension liability | 7,307 | 11,002 | |
| 3,635 | |
| 4,174 | ||||||
Accrued liabilities | 1,975 | 2,648 | |
| 1,724 | |
| 1,874 | ||||||
Carryfoward losses | 250 | 129 | ||||||||||||
Operating lease liabilities | | | 4,024 | | | 3,871 | ||||||||
Foreign currency losses on intercompany loans | (46 | ) | 53 | |
| 58 | |
| 54 | |||||
9,685 | 14,173 | |||||||||||||
| |
| 9,826 | |
| 10,257 | ||||||||
Deferred income tax liabilities: | |
| | |
| | ||||||||
Inventory and related reserves | (2,989 | ) | (3,744 | ) | |
| (5,024) | |
| (2,998) | ||||
Cash value of life insurance | (337 | ) | (441 | ) | |
| (682) | |
| (615) | ||||
Property, plant and equipment | (1,373 | ) | (1,483 | ) | |
| (1,297) | |
| (1,162) | ||||
Intangible assets | (6,125 | ) | (8,284 | ) | |
| (9,639) | |
| (9,112) | ||||
Prepaid expenses and other assets | (180 | ) | (264 | ) | |
| (352) | |
| (367) | ||||
(11,004 | ) | (14,216 | ) | |||||||||||
Operating lease right-of-use assets | | | (3,555) | | | (3,495) | ||||||||
| |
| (20,549) | |
| (17,749) | ||||||||
Net deferred income tax liabilities | $ | (1,319 | ) | $ | (43 | ) | | $ | (10,723) | | $ | (7,492) |
The net deferred income tax liabilities are classified in the Consolidated Balance Sheets as follows:
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 | ) |
| | | | | | |
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
Non-current deferred income tax benefits | | $ | 1,096 | | $ | 1,038 |
Non-current deferred income tax liabilities | |
| (11,819) | |
| (8,530) |
Net deferred income tax liabilities | | $ | (10,723) | | $ | (7,492) |
Uncertain Tax Positions
The Company accountsWe account for itsour 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’sour 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’sour unrecognized tax benefits:
| | | | | | | ||||||||||||
|
| 2023 |
| 2022 | ||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| ||||||||||||||||||
| | (Dollars in thousands) | ||||||||||||||||
Unrecognized tax benefits balance at January 1, | $ | 275 | $ | 284 | $ | — | | $ | 305 | | $ | 155 | ||||||
Increases related to current year tax positions | 144 | 239 | 284 | |
| 366 | |
| 228 | |||||||||
Decreases due to settlements of tax positions | (7 | ) | (248 | ) | — | |||||||||||||
Decreases due to lapsing of statute of limitations | |
| (63) | |
| (78) | ||||||||||||
Unrecognized tax benefits balance at December 31, | $ | 412 | $ | 275 | $ | 284 | | $ | 608 | | $ | 305 |
The unrecognized tax benefits at December 31, 20172023 and 2016,2022, each include $72,000 and $70,000, respectively,$30,000 of interest related to such positions. The unrecognized tax benefits, if ultimately recognized, would reduce the Company’sour annual effective tax rate. The liabilities for potential interest are included in the Consolidated Balance Sheets at December 31, 20172023 and 2016.2022.
The Company filesWe file a U.S. federal income tax return, various U.S. state income tax returns and several foreign returns. In general, the 20142019 through 20172022 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, the Company also2023, we had purchase commitments of approximately $57.0 million to purchase $41.2 million of inventory, all of which were due in less than one year.
37
In 1998, the Company’s stockour share repurchase program was established. On several occasions since the program’s inception, theour Board of Directors has extendedincreased the number of shares authorized for repurchase under the program. In total, 7.58.5 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, the Company2023, we purchased 548,539170,422 shares at a total cost of $15.2$4.3 million through its stockour share repurchase program. In 2016, the Company2022, we purchased 410,983171,397 shares at a total cost of $11.0$4.2 million through its stock repurchase program. In 2015, the Company purchased 354,741 shares at a total cost of $9.9 million through its stockour share repurchase program. As of December 31,2017,31, 2023, there were 1,016,636868,757 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, 20162023 and 2015:2022:
| | | | | | |
| | 2023 | | 2022 | ||
| | (In thousands, except per share amounts) | ||||
Numerator: |
| |
|
| |
|
Net earnings | | $ | 30,188 | | $ | 29,540 |
| | | | | | |
Denominator: | |
|
| |
|
|
Basic weighted average shares outstanding | |
| 9,449 | |
| 9,555 |
Effect of dilutive securities: | |
|
| |
|
|
Employee share-based awards | |
| 86 | |
| 69 |
Diluted weighted average shares outstanding | |
| 9,535 | |
| 9,624 |
| | | | | | |
Basic earnings per share | | $ | 3.19 | | $ | 3.09 |
| | | | | | |
Diluted earnings per share | | $ | 3.17 | | $ | 3.07 |
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 20172023 exclude antidilutive stock optionsanti-dilutive share-based awards totaling 759,916618,000 shares at a weighted average price of $27.27.$28.95. Diluted weighted average shares outstanding for 20162022 exclude antidilutive stock optionsanti-dilutive share-based awards totaling 873,276916,000 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.$27.27.
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 hasWe have two reportable segments: North American wholesale operations (“wholesale”Wholesale”) and North American retail operations (“retail”Retail”). The chief operating decision maker, the Company’sOur Chief Executive Officer evaluates the performance of the Company’sour segments based on earnings from operations. Therefore, interest income or expense, other income or expense, and income taxes are not allocated to the segments. TheAs of December 31, 2023, the “other” category in the table below includes the Company’sincluded our wholesale and retail operations in Australia, South Africa, and Asia Pacific, and Europe, which do not meet the criteria for separate reportable segment classification. We ceased operations in the Asia Pacific region in 2023, and are in the final stages of winding down this business.
In the wholesaleWholesale 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’sour wholesale segment. The Company hasWe have licensing agreements with third
parties who sell itsour branded apparel, accessories, and specialty footwear in the United States, as well as itsour footwear in Mexico and certain markets overseas. In 2017, 20162023 and 2015,2022, there was no single customer with sales aboveof 10% or more of the Company’sour total sales.
In the retailRetail segment, the Company operated 10we operate e-commerce businesses and four brick and mortar retail stores and internet businesses in the United States as of December 31, 2017. Sales in retail outletsStates. Retail sales are made directly to the consumerconsumers on our websites, or by Companyour employees. In addition to the sale of the Company’s brands of footwear in these retail outlets, otherRetail stores sell our branded footwear, primarily Florsheim, and accessories are also sold.accessories.
38
The accounting policies of the segments are the same as those described in theNote 2, Summary of Significant Accounting Policies. Summarized segment data for the years ended December 31, 2017, 20162023 and 20152022 was as follows:
| | | | | | | | | | | | |
|
| Wholesale |
| Retail |
| Other |
| Total | ||||
| | (Dollars in thousands) | ||||||||||
2023 |
| |
|
| |
|
| |
|
| |
|
Product sales | | $ | 247,896 | | $ | 38,012 | | $ | 29,636 | | $ | 315,544 |
Licensing revenues | |
| 2,504 | |
| — | |
| — | |
| 2,504 |
Net sales | |
| 250,400 | |
| 38,012 | |
| 29,636 | |
| 318,048 |
Depreciation | |
| 1,942 | |
| 7 | |
| 630 | |
| 2,579 |
Earnings from operations | |
| 33,288 | |
| 6,752 | |
| 984 | |
| 41,024 |
Total assets | |
| 276,626 | |
| 4,594 | |
| 28,122 | |
| 309,342 |
Capital expenditures | |
| 2,544 | |
| — | |
| 765 | |
| 3,309 |
| | | | | | | | | | | | |
2022 | |
|
| |
|
| |
|
| |
| |
Product sales | | $ | 281,138 | | $ | 36,694 | | $ | 31,808 | | $ | 349,640 |
Licensing revenues | |
| 2,097 | |
| — | |
| — | |
| 2,097 |
Net sales | |
| 283,235 | |
| 36,694 | |
| 31,808 | |
| 351,737 |
Depreciation | |
| 1,969 | |
| 4 | |
| 512 | |
| 2,485 |
Earnings from operations | |
| 32,641 | |
| 6,058 | |
| 1,666 | |
| 40,365 |
Total assets | |
| 292,262 | |
| 5,460 | |
| 28,898 | |
| 326,620 |
Capital expenditures | |
| 882 | |
| 12 | |
| 1,448 | |
| 2,342 |
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 wholesaleWholesale segment. Transactions between segments primarily consist of sales between the wholesaleWholesale and retailRetail 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’sour business by geographic area was as follows for the years ended December 31, 2017, 20162023 and 2015:2022:
| | | | | | |
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
Net Sales |
| |
|
| |
|
United States | | $ | 266,515 | | $ | 292,441 |
Canada | |
| 21,897 | |
| 27,488 |
Australia | |
| 23,012 | |
| 25,196 |
Asia | |
| 4,143 | |
| 3,472 |
South Africa | |
| 2,481 | |
| 3,140 |
Total | | $ | 318,048 | | $ | 351,737 |
| | | | | | |
Long-Lived Assets | |
|
| |
|
|
United States | | $ | 75,274 | | $ | 76,530 |
Other | |
| 14,650 | |
| 14,310 |
| | $ | 89,924 | | $ | 90,840 |
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.
19. SHARE-BASED COMPENSATION PLANSPLAN
At December 31, 2017, the Company2023 we had three stock-basedone share-based compensation plans: the 2011 Incentive Plan, the 2014 Incentive Plan, andplan, entitled the 2017 Incentive Plan (collectively,(hereinafter, “the Plans”Plan”). Under the Plans,Plan, options to purchase common stock wereare granted to officers and key employees at exercise prices not less than the fair market value of theour Company’s common stock on the date of the grant. The Company issuesWe also grant restricted stock awards under the Plan. We issue 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 2023 and 2015. Under the Plans, stock2022. 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 20172023 and 2022 vest ratably
39
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, 2016,2023 and 20152022 vests ratably over four years. As of December 31, 2017,2023, there were approximately 1.3 million92,000 shares remaining available for stock-basedshare-based awards under the 2017 Incentive Plan.
Stock option exercises can be net share settled such that we withhold 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 2023, approximately 430,000 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 $186,000 in 2023 and $12,000 in 2022; 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 $1.4 million and $1.5 million was recognized in the 2017, 20162023 and 2015 consolidated financial statements2022, respectively, for stock options and restricted stock awards granted since 2011.2017. An estimate of forfeitures, based on historical data, was included in the calculation of stock-basedshare-based compensation. The effect
At December 31, 2023, there was $2.1 million of applying the expense recognition provisions of ASC 718 decreased Earnings before Provision for Income Taxes by $1,622,000total unrecognized compensation cost related to non-vested stock options granted in 2017 and $1,559,000 in each of the years 2016 and 2015.
As2019 through 2023 which is expected to be recognized over the weighted-average remaining vesting period of 3.7 years. At December 31, 2017,2022, there was $1.8 million of total unrecognized compensation cost related to non-vested stock options granted in the years 20142018 through 20172022 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 2017 which is expected to be recognized over the weighted-average remaining vesting period of 2.93.7 years.
The following weighted-average assumptions were used to determine compensation expense related to stock options in 2017, 20162023 and 2015:2022:
2017 | 2016 | 2015 | |||||||||||||||
| | | | | | ||||||||||||
|
| 2023 |
| 2022 |
| ||||||||||||
Risk-free interest rate | 2.04 | % | 1.09 | % | 1.36 | % |
| 4.31 | % | 3.08 | % | ||||||
Expected dividend yield | 3.15 | % | 3.29 | % | 3.12 | % |
| 3.88 | % | 3.33 | % | ||||||
Expected term | 8.0 | 4.3 years | 4.3 years |
| 8.0 |
| 8.0 | | |||||||||
Expected volatility | 19.7 | % | 21.3 | % | 21.6 | % |
| 31.0 | % | 28.5 | % |
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’sour expected annual dividend as a percentage of the market value of theour 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.
The following tables summarize our stock option activity underduring the Company’s plans:years ended December 31, 2023 and 2022:
Stock Options
Years ended December 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||||||
| | Years ended December 31, | ||||||||||||||||||||||||||||||||||
| | 2023 | | 2022 | ||||||||||||||||||||||||||||||||
| | | | | 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 | | | 1,345,369 | | $ | 25.83 | | | 1,279,833 | | $ | 25.44 | |||||||||||||||
Granted | 211,200 | 27.94 | 277,800 | 25.51 | 299,700 | 25.64 |
| | 149,200 |
| | 25.79 |
| | 143,500 |
| | 28.83 | ||||||||||||||||||
Exercised | (174,989 | ) | 24.48 | (123,294 | ) | 24.28 | (279,090 | ) | 22.02 |
| | (487,331) |
| | 25.02 |
| | (60,914) |
| | 24.96 | |||||||||||||||
Forfeited or expired | (19,975 | ) | 26.53 | (20,075 | ) | 26.52 | (24,200 | ) | 26.58 |
| | (40,021) |
| | 26.31 |
| | (17,050) |
| | 24.79 | |||||||||||||||
Outstanding at end of year | 1,502,493 | $ | 26.57 | 1,486,257 | $ | 26.13 | 1,351,826 | $ | 26.09 |
| | 967,217 | | $ | 26.22 |
| | 1,345,369 | | $ | 25.83 | |||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||||||
Exercisable at end of year | 877,131 | $ | 26.59 | 762,132 | $ | 26.07 | 594,906 | $ | 25.55 |
| | 524,829 | | $ | 27.30 |
| | 891,733 | | $ | 26.36 | |||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||||||
Weighted average fair market value of options granted | $ | 4.05 | $ | 3.05 | $ | 3.30 | | $ | 6.63 | | | |
| $ | 6.78 | | | |
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, 2023 |
| 6.7 | | $ | 5,649,000 |
Exercisable - December 31, 2023 |
| 5.4 | | $ | 2,804,000 |
The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value of theour Company’s common stock on December 29, 20172023 of $29.72$31.36 and the exercise price multiplied by the number of in-the-money outstanding and exercisable stock options.
40
TABLE OF CONTENTSTable of Contents
Non-vested 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, 2021 | | 511,311 | | $ | 23.63 | | $ | 3.64 | ||||||||||||
Granted | 299,700 | 25.64 | 3.30 | | 143,500 | |
| 28.83 | |
| 6.78 | |||||||||
Vested | (275,187 | ) | 26.14 | 3.36 | | (189,375) | |
| 25.08 | |
| 3.87 | ||||||||
Forfeited | (19,175 | ) | 26.59 | 3.14 | | (11,800) | |
| 23.20 | |
| 3.65 | ||||||||
Non-vested – December 31, 2015 | 756,920 | $ | 26.53 | $ | 3.10 | |||||||||||||||
Non-vested - December 31, 2022 | | 453,636 | | $ | 24.76 | | $ | 4.55 | ||||||||||||
Granted | 277,800 | 25.51 | 3.05 | | 149,200 | |
| 25.79 | |
| 6.63 | |||||||||
Vested | (293,720 | ) | 26.39 | 3.13 | | (147,128) | |
| 25.26 | |
| 4.44 | ||||||||
Forfeited | (16,875 | ) | 26.37 | 3.10 | | (13,320) | |
| 25.24 | |
| 4.91 | ||||||||
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, 2023 | | 442,388 | | $ | 24.93 | | $ | 5.28 |
The following table summarizes information about outstanding and exercisable stock options at December 31, 2017:2023:
| | | | | | | | | | | | |
| | 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 | | 134,760 | | 6.7 | | $ | 18.00 | | 74,260 | | $ | 18.00 |
$23.38 to $25.79 |
| 432,695 |
| 7.8 | | $ | 24.43 |
| 160,415 | | $ | 23.65 |
$27.94 to $37.22 |
| 399,762 |
| 5.7 | | $ | 30.92 |
| 290,154 | | $ | 31.70 |
|
| 967,217 |
| 6.7 | | $ | 26.22 |
| 524,829 | | $ | 27.30 |
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 our stock option activity for the years ended December 31:
| | | | | | |
|
| 2023 |
| 2022 | ||
| | (Dollars in thousands) | ||||
Total intrinsic value of stock options exercised | | $ | 1,537 | | $ | 251 |
Net proceeds from stock option exercises | | $ | 103 | | $ | 293 |
Income tax benefit from the exercise of stock options | | $ | 400 | | $ | 65 |
Total fair value of stock options vested | | $ | 653 | | $ | 734 |
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 our restricted stock award activity during the years ended December 31, 2015, 20162022 and 2017:2023:
| | | | | |
|
| Shares of Restricted |
| Weighted Average | |
| | Stock | | Grant Date Fair Value | |
Non-vested - December 31, 2021 |
| 78,470 | | $ | 23.11 |
Issued |
| 27,620 | |
| 28.83 |
Vested |
| (34,282) | |
| 24.46 |
Forfeited | | — | |
| — |
Non-vested - December 31, 2022 |
| 71,808 | | $ | 24.67 |
Issued |
| 27,700 | |
| 25.79 |
Vested |
| (28,243) | |
| 23.60 |
Forfeited |
| (2,175) | |
| 25.13 |
Non-vested - December 31, 2023 | | 69,090 | | $ | 25.54 |
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, the Company2023, we expected 66,05069,090 shares of restricted stock to vest over a weighted-average remaining contractual term of 2.82.7 years. These shares had an aggregate intrinsic value of $2.0$2.2 million at December 31, 2017.2023. The aggregate intrinsic value was calculated using the market value of theour Company’s common stock on December 29, 20172023 of $29.72$31.36 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$188,000 in 2017, $230,0002023 and $247,000 in 2016, and $221,000 in 2015.
(In thousands, except per share amounts)2022.
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 |
41
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 |
TABLE OF CONTENTSTable of Contents
20. VALUATION AND QUALIFYING ACCOUNTS
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, 2021 | | $ | 1,307 | | $ | 760 | | $ | 2,067 |
Add - Additions charged to earnings | |
| 151 | |
| 5,584 | |
| 5,735 |
Deduct - Charges for purposes for which reserves were established | |
| (348) | |
| (5,344) | |
| (5,692) |
BALANCE, DECEMBER 31, 2022 | | $ | 1,110 | | $ | 1,000 | | $ | 2,110 |
Add - Additions charged to earnings | |
| 519 | |
| 5,115 | |
| 5,634 |
Deduct - Charges for purposes for which reserves were established | |
| (136) | |
| (5,098) | |
| (5,234) |
BALANCE, DECEMBER 31, 2023 | | $ | 1,493 | | $ | 1,017 | | $ | 2,510 |
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.
42
ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9ACONTROLS AND PROCEDURESEvaluation
Attached as exhibits to this Annual Report are certifications of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Exchange Act. This "Controls and Procedures" section includes information concerning the controls and procedures evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented in the section “Evaluation of Disclosure Controls and ProceduresProcedures” below.
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.
Theattestation report of management required under this Item 9ABaker Tilly US, LLP, our independent registered public accounting firm, regarding its audit of Weyco Group, Inc.’s internal control over financial reporting is contained in Item 8 of Part II of this Annual Report on Form 10-K under the heading “Management’s“Report of Independent Registered Public Accounting Firm (PCAOB ID 23).” This section should be read in conjunction with the certifications of our CEO and CFO and the Baker Tilly US, LLP attestation report for a more complete understanding of the topics presented.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the CEO and CFO, conducted an evaluation of the effectiveness of the design and operation of the Company’s "disclosure controls and procedures" (as such term is defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) (“Disclosure Controls”) as of the end of the period covered by this Annual Report. Our Disclosure Controls are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Annual Report, is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Our Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based upon the controls evaluation, our CEO and CFO have concluded that as of the end of the period covered by this Annual Report, our Disclosure Controls were not effective due to a material weakness in internal control over financial reporting, described below.
Inherent Limitations on Effectiveness of Controls
The Company's management, including the CEO and CFO, does not expect that our Disclosure Controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of our controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control over Financial Reporting
Other than the material weakness described below, there have not been any changes in the Company’s internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during fiscal 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting.”Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide
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reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Management assessed our internal control over financial reporting as of December 31, 2023, the end of our fiscal year. Management based our assessment on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed by our Finance function.
Based on our assessment, management concluded that our internal control over financial reporting was not effective as of the end of the fiscal year 2023. We reviewed the results of management's assessment with the Audit Committee of our Board.
We determined a material weakness existed relating to the design, implementation, and monitoring of general information technology controls in the areas of program change management, user access, and segregation of duties for systems supporting certain internal control processes. Related controls are dependent upon the information derived from the information systems and therefore could have been adversely impacted.
With respect to the material weakness, our management, under the oversight of our Audit Committee, has begun evaluating and implementing measures designed to remediate the material weakness. These remediation measures have or will include implementing controls, procedures, and software relating to program change management, user access and segregation of duties for systems supporting the related internal control processes and developing monitoring controls and protocols that will allow us to timely assess the design and operating effectiveness of the new and redesigned controls. The Company plans to engage a third-party service provider to assist with the remediation of the material weakness and the implementation of the required controls.
We believe the above actions will be effective in remediating the material weakness described above and we will continue to devote time and attention to these remedial efforts. However, as we continue to evaluate and take actions to improve our internal control over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described above. Our remediation efforts will not be considered complete until the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively.
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.Firm (PCAOB ID 23).”
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, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9BOTHER INFORMATION
(a) | None |
(b) | During the three months ended December 31, 2023, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. |
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 the Registrant”“Information About 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, 20187, 2024 (the “2018“2024 Proxy Statement”) in sections entitled “Proposal One: Election of Directors,” “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,Reports,” “Audit Committee,” and “Code of Business Ethics,” and is incorporated herein by reference.
ITEM 11EXECUTIVE COMPENSATION
Information required by this Item is set forth in the Company’s 20182024 Proxy Statement in sections entitled “Compensation Discussion“Summary Compensation Table,” “Outstanding Equity Awards at December 31, 2023,” “Pension Benefits,” “Employment Contracts and Analysis and Executive Compensation,Potential Payments Upon Termination or Change of Control,” “Director Compensation,” and “Corporate Governance and Compensation Committee Interlocks and Insider Participation,“Pay Versus Performance,” and is incorporated herein by reference.
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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 20182024 Proxy Statement in the sectionsections entitled “Security Ownership of Management and Others,Others” and “Equity Compensation Plan Information,” and is incorporated herein by reference.
The following table provides information about the Company’s equity compensation plans as of December 31, 2017:
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)) | |||||||||
Equity compensation plans approved by shareholders | 1,502,493 | $ | 26.57 | 1,258,000 | ||||||||
Equity compensation plans not approved by shareholders | — | — | — | |||||||||
Total | 1,502,493 | $ | 26.57 | 1,258,000 |
ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is set forth in the Company’s 20182024 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 20182024 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. |
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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 | |||||
X | ||||||
X | ||||||
| | | ||||
| | | | | | |
X | ||||||
X | ||||||
Section 906 Certification of Chief Executive Officer and Chief Financial Officer | X | |||||
| | | | | | |
| Weyco Group, Inc. Executive Officer Compensation Recovery Policy | | | | X | |
| | | | | | |
101 | The following financial information from Weyco Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2023 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets as of December 31, 2023 and 2022; (ii) Consolidated Statements of Earnings for the years ended December 31, 2023 and 2022; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2023 and 2022; (iv) Consolidated Statements of Equity for the years ended December 31, 2023 and 2022; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022; (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, 2023, formatted in iXBRL (included in Exhibit 101). | | | | X |
* Management contract or compensatory plan or arrangement
ITEM 16FORM 10-K SUMMARY
None
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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/ Judy Anderson | |||
March 14, 2024 | ||||
|
| | |
| 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,Judy Anderson, 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, 2018,14, 2024, by the following persons on behalf of the registrant and in the capacities indicated.
/s/ Thomas W. Florsheim | ||
Thomas W. Florsheim, Director and 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/ | ||
Judy Anderson, Vice President, | ||
Financial Officer and Secretary (Principal Financial Officer) | ||
/s/ Robert D. Hanley | ||
Robert D. Hanley, Director of Finance | ||
(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 |
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