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Item 9A. Controls and Procedures

2024-03-22 compared with 2023-03-17 · 42 added, 58 removed, 114 unchanged (47% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Section 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires management of an issuer subject to the Exchange Act to evaluate, with the participation of the issuer’s principal executive and principal financial officers, or persons performing similar functions, the effectiveness of the issuer’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of each fiscal quarter.

The Company carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures at the reasonable assurance level pursuant to Rule 13a-15 of the Exchange Act.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosure.

The Company carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of January 28, 2024.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective as of January 28, 2024 due to the material weakness in our internal control over financial reporting, as described below.

In light of the material weakness described below, management performed additional analysis and other procedures to ensure that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

Accordingly, management believes that the Company’s consolidated financial statements in this Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows as of and for the periods presented, in conformity with U.S.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act).

Management assessed the effectiveness of its internal control over financial reporting as of January 29, 2023.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the Internal Control-Integrated Framework (2013), or the COSO Report.

Based on this assessment, management concluded that our internal control over financial reporting is effective as of January 29, 2023.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report, included herein, on the effectiveness of our internal control over financial reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, under the oversight of our Audit Committee of the Board of Directors, assessed the effectiveness of our internal control over financial reporting as of January 28, 2024.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013).

Based on this assessment, management concluded that the Company’s internal control over financial reporting was not effective as of January 28, 2024, due to the material weakness described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis.

The Company did not perform effective risk assessment related to the mapping of general ledger accounts to the consolidated financial statements resulting in manual controls in the financial reporting process that were not designed to sufficiently mitigate the risk of incorrect presentation of certain general ledger accounts in the consolidated financial statements.

The material weakness resulted in immaterial misstatements related to the presentation of prepaid expenses, property and equipment, and finance lease right-of-use assets, net, on our Consolidated Balance Sheets, Consolidated Statements of Cash Flows and related notes as of and for each of years ended January 28, 2024 and January 29, 2023, some of which have been corrected prior to issuance of the consolidated financial statements included in this Form 10-K.

Furthermore, the control deficiency described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis.

Therefore, we concluded that the deficiency represents a material weakness in our internal control over financial reporting and, as a result, our internal control over financial reporting was not effective as of January 28, 2024.

Our independent registered public accounting firm, KPMG LLP, who audited the consolidated financial statements as of and for the year ended January 28, 2024 included in this Annual Report on Form 10-K, issued an adverse opinion on the

effectiveness of our internal control over financial reporting.

KPMG LLP’s report is included in Item 8 of Part II of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during our fiscal fourth quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15( f ) and 15d-15( f ) under the Exchange Act ), that occurred during the fiscal quarter ended January 28, 2024, that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.

Remediation Plan

To address the material weakness, management has initiated a project to simplify the process related to the mapping of general ledger accounts to the consolidated financial statements.

Management will perform a thorough risk assessment of the updated process to identify all risk points and design and implement new process-level controls to mitigate the risk of incorrect presentation of general ledger accounts in the consolidated financial statements.

OTHER INFORMATION

(b) During the three months ended January 28, 2024, 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.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this Item concerning our directors, audit committee, and audit committee financial experts and compliance with Section 16(a) of the Exchange Act is incorporated by reference to information under the captions “Proposal

Election of Directors” and “Delinquent Section 16(a) Reports” in our definitive proxy statement for our 2024 annual meeting of shareholders to be held on May 23, 2024 (the “Proxy Statement”).

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners.”

Equity Compensation Plan Information

Number of securities

remaining available for

Number of securities to

Weighted-average

future issuance under

be issued upon exercise

exercise price of

equity compensation plans

of outstanding options,

outstanding options,

(excluding securities

Plan category

warrants and rights

reflected in first column) (1)

Equity compensation plans approved

‎ by security holders

Equity compensation plans not approved

‎ by security holders (2)

_____________________________

(1) 2,083,756 shares are available under the Company’s 2015 Equity Incentive Plan and 1,227,392 shares are available under the Company’s Employee Stock Purchase Plan.

(2) All of our existing equity compensation plans have been approved by shareholders.

Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners.” Further, information required by this Item concerning our Equity Compensation Plan Information is incorporated by reference to the section of the Proxy Statement entitled “Proposal Four:

Approval of the 2024 Equity Incentive Plan of Duluth Holdings, Inc.”.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

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EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE

Financial Statements and Financial Statement Schedule

(a)(2) Financial Statements and Financial Statement Schedule

See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on Form 10-K.

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All other financial statement schedules have been omitted because they are not required or are not applicable or because the information required in those schedules either is not material or is included in the consolidated financial statements or the accompanying notes.

The exhibits listed in the accompanying index to exhibits are filed or incorporated as part of this Annual Report on Form 10-K.

E XHIBIT INDEX

(a)(3) Exhibits

Amended and Restated Articles of Incorporation of Duluth Holdings Inc., incorporated by reference to Exhibit 3.1 of Pre-Effective Amendment No.

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Schlecht, as trustee, and Duluth Holdings Inc., incorporated by reference to Exhibit 9.1 of the Company’s Annual Report on Form 10-K filed March 25, 2022.

Summary of Outside Director Compensation Program incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed June 3, 2022.

Summary of Outside Director Compensation Program.

2015 Equity Incentive Plan of Duluth Holdings Inc., incorporated by reference to Exhibit 10.7 of the Company’s Quarterly Report on Form 10-Q, filed December 18, 2015.

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333-207300), filed October 6, 2015.

Retail Space Lease between LDC-728 Milwaukee, LLC and Duluth Holdings Inc., dated January 23, 2012 (108 North Franklin Street, Port Washington, Wisconsin), incorporated by reference to Exhibit 10.20 of the Company’s Registration Statement on Form S-1 (File No.

333-207300), filed October 6, 2015.

First Amendment to Retail Lease between LDC-728 Milwaukee, LLC and Duluth Holdings Inc., dated January 23, 2012 (108 North Franklin Street, Port Washington, Wisconsin), incorporated by reference to Exhibit 10.21 of the Company’s Registration Statement on Form S-1 (File No.

333-207300), filed October 6, 2015.

Second Amendment to Retail Lease between Schlecht Port Washington LLC and Duluth Holdings Inc., dated January 23, 2012 (108 North Franklin Street, Port Washington, Wisconsin), incorporated by reference to Exhibit 10.22 of the Company’s Registration Statement on Form S-1 (File No.

333-207300), filed October 6, 2015.

Form of S Corporation Termination, Tax Allocation and Indemnification Agreement among Duluth Holdings Inc.

4 unchanged sentences

Form of Restricted Stock Agreement for executives under the 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q dated May 1, 2016.

Offer Letter Dated July 14, 2017 by and between Dave Loretta and Duluth Holdings Inc., incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated July 24, 2017.

Form of Restrictive Covenant Agreement, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated July 24, 2017.

First Amended and Restate Employment Agreement, dated as of May 27, 2021, between Stephen L.

First Amended and Restated Employment Agreement, dated as of May 27, 2021, between Stephen L.

Schlecht and the Company, incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q dated September 3, 2021.

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Sato dated May 3, 2021, incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on 10-Q dated June 4, 2021.

Offer Letter Dated July 14, 2017 by and between Dave Loretta and Duluth Holdings Inc., incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated July 24, 2017.

Offer Letter dated January 24, 2020 by and between David S.

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First Amendment, dated as of July 8, 2022, among Duluth Holdings Inc., the Lenders party thereto, Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, BofA Securities, Inc., as a Joint Lead Arranger and Sole Bookrunner, and Keybanc Capital Markets Inc., as a Joint Lead Arranger, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated July 8, 2022.

Offer Letter dated March 14, 2022 by and between Neala Shepherd and Duluth Holdings Inc.*+

Offer Letter dated March 14, 2022 by and between Neala Shepherd and Duluth Holdings Inc., incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated July 8, 2022.

Offer Letter dated July 27, 2022 by and between Albert J.

Sutera and Duluth Holdings Inc., incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q dated September 2, 2022.

Offer Letter dated January 17, 2024 by and between Heena Agrawal and Duluth Holdings Inc., incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated January 18, 2024.

Inducement Restricted Stock Award Agreement, dated February 12, 2024, by and between Heena Agrawal and Duluth Holdings Inc., incorporated by reference to the Company’s Current Report on Form 8-K dated February 12, 2024.

Consent of KPMG LLP.*

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

Executive Officer Compensation Recovery Policy.

XBRL Instance Document**

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** In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed to be “furnished” and not “filed.”

F ORM 10-K SUMMARY

FO RM 10-K SUMMARY

Not applicable.

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March 22, 2024

/s/ David Loretta

David Loretta

Senior Vice President and

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Michael Murphy

Vice President and

Vice President and Treasury

Chief Accounting Officer

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Paschke, Francesca M.

Edwardson, Thomas G.

Folliard, David C.

Edwardson, Janet H.

Kennedy, David C.

Finch, Susan J.

Riley, Stephen L.

Schlecht and Scott K.

/s/ David Loretta

Schlecht, Scott K.

Williams and Ronald Robinson.

/s/ Samuel M.

March 22, 2024

David Loretta

Attorney-In-Fact*

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures