What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 105 added, 71 removed, 406 unchanged (30% of the section changed)

4 unchanged sentences

(In thousands, except share amounts)

September 30,

CURRENT ASSETS:

18 unchanged sentences

Accrued freight

Income tax payable

Total current liabilities

7 unchanged sentences

25,000,000 shares authorized;

issued and outstanding June 30, 2020 - 7,312,217 ;

December 31, 2019 - 7,354,970 and June 30, 2019 - 7,393,851

issued and outstanding September 30, 2020 - 7,276,379 ;

December 31, 2019 - 7,354,970 and September 30, 2019 - 7,403,219

Retained earnings

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

COST OF GOODS SOLD

17 unchanged sentences

BALANCE - December 31, 2018

SIX MONTHS ENDED JUNE 30, 2019

NINE MONTHS ENDED SEPTEMBER 30, 2019

Dividends paid on common stock ($ 0.12 per share)

8 unchanged sentences

BALANCE - June 30, 2019

Dividends paid on common stock ($ 0.14 per share)

Repurchase of common stock

Stock issued for options exercised, including tax benefits

Stock compensation expense

BALANCE - September 30, 2019

BALANCE - December 31, 2019

SIX MONTHS ENDED JUNE 30, 2020

NINE MONTHS ENDED SEPT 30, 2020

Dividends paid on common stock ($ 0.14 per share)

8 unchanged sentences

BALANCE - June 30, 2020

Dividends paid on common stock ($ 0.14 per share)

Repurchase of common stock

Stock issued for options exercised, including tax benefits

Stock compensation expense

BALANCE - September 30, 2020

See Notes to Unaudited Condensed Consolidated Financial Statements

3 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

12 unchanged sentences

Purchase of fixed assets

Proceeds from sales of fixed assets

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from revolving credit facility

Repayments on revolving credit facility

Proceeds from stock options

2 unchanged sentences

Net cash (used in) financing activities

INCREASE IN CASH AND CASH EQUIVALENTS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS:

12 unchanged sentences

All such adjustments reflected in the unaudited condensed consolidated financial statements are considered to be of a normal and recurring nature.

The results of operations for the three and six months ended June 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the whole year.

The results of operations for the three and nine months ended September 30, 2020 and 2019 are not necessarily indicative of the results to be expected for the whole year.

The December 31, 2019 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP").

65 unchanged sentences

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.

Our analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of June 30, 2020.

Actual amounts of consideration ultimately received may differ from our estimates.

22 unchanged sentences

The following table provides information about contract liabilities from contracts with our customers.

September 30,

($ in thousands)

6 unchanged sentences

Revenue recognized related to non-cancelable contracts with customers during the period

Balance, June 30, 2020

Balance, September 30, 2020

Disaggregation of Revenue

3 unchanged sentences

TRADE RECEIVABLES

Trade receivables are presented net of the related allowance for uncollectible accounts of approximately $ 278,000 , $ 952,000 and $ 1,266,000 for the periods ending June 30, 2020, December 31, 2019 and June 30, 2019, respectively.

Trade receivables are presented net of the related allowance for uncollectible accounts of approximately $ 192,000 , $ 952,000 and $ 1,251,000 for the periods ending September 30, 2020, December 31, 2019 and September 30, 2019, respectively.

We record the allowance based on historical experience, the age of the receivables, and identification of customer accounts that are likely to prove difficult to collect due to various criteria including pending bankruptcy.

2 unchanged sentences

Our credit policy generally provides that trade receivables will be deemed uncollectible and written-off once we have pursued all reasonable efforts to collect on the account.

In accordance with ASC 606, the return reserve liability netted against trade receivables was approximately $ 805,000 , $ 1,050,000 and $ 842,000 for the periods ending June 30, 2020, December 31, 2019 and June 30, 2019, respectively .

In accordance with ASC 606, the return reserve liability netted against trade receivables was approximately $ 1,198,000 , $ 1,050,000 and $ 1,073,000 for the periods ending September 30, 2020, December 31, 2019 and September 30, 2019, respectively .

Inventories are comprised of the following:

September 30,

($ in thousands)

2 unchanged sentences

Finished goods

In accordance with ASC 606, the return reserve asset included within inventories was approximately $ 473,000 , $ 613,000 and $ 508,000 for the periods ending June 30, 2020, December 31, 2019 and June 30, 2019, respectively.

In accordance with ASC 606, the return reserve asset included within inventories was approximately $ 654,000 , $ 613,000 and $ 649,000 for the periods ending September 30, 2020, December 31, 2019 and September 30, 2019, respectively.

IDENTIFIED INTANGIBLE ASSETS

1 unchanged sentence

($ in thousands)

June 30, 2020

September 30, 2020

Total Intangibles

1 unchanged sentence

Total Intangibles

June 30, 2019

September 30, 2019

Total Intangibles

The weighted average life for our patents is 3.4 years.

A schedule of approximate amortization expense related to finite-lived intangible assets for the three and six months ended June 30, 2020 and 2019 is as follows:

A schedule of approximate amortization expense related to finite-lived intangible assets for the three and nine months ended September 30, 2020 and 2019 is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

14 unchanged sentences

The total amount available under our Credit Facility is subject to a borrowing base calculation based on various percentages of accounts receivable and inventory.

As of June 30, 2020, we had total capacity of $ 60.0 million.

We had no outstanding borrowings against the Credit Facility for the periods ending June 30, 2020, December 31, 2019 and June 30, 2019, respectively.

As of September 30, 2020, we had total capacity of $ 71.0 million.

We had no outstanding borrowings against the Credit Facility for the periods ending September 30, 2020, December 31, 2019 and September 30, 2019.

Credit Facility Covenants

2 unchanged sentences

Our Credit Facility contains restrictions on the amount of dividends that may be paid.

During the six months ended June 30, 2020 and 2019, there were no triggering events and the covenant was not in effect.

During the nine months ended September 30, 2020 and 2019, there were no triggering events and the covenant was not in effect.

We are subject to tax examinations in various taxing jurisdictions.

4 unchanged sentences

Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense.

No such expenses were recognized during the three and six months ended June 30, 2020 and 2019.

No such expenses were recognized during the three and nine months ended September 30, 2020 and 2019.

We do not believe there will be any material changes in our uncertain tax positions over the next 12 months.

2 unchanged sentences

We did not have any unrecognized tax benefits and there was no effect on our financial condition or results of operations.

Our estimated effective tax rates for the three and six months ended June 30, 2020 and 2019 are as follows

Our estimated effective tax rates for the three and nine months ended September 30, 2020 and 2019 are as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

3 unchanged sentences

The diluted earnings per share computation includes common share equivalents, when dilutive.

A reconciliation of the shares used in the basic and diluted income per common share computation for the three and six months ended June 30, 2020 and 2019 is as follows:

A reconciliation of the shares used in the basic and diluted income per common share computation for the three and nine months ended September 30, 2020 and 2019 is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(shares in thousands)

5 unchanged sentences

SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information for the six months ended June 30, 2020 and 2019 was as follows:

Six Months Ended

Supplemental cash flow information for the nine months ended September 30, 2020 and 2019 was as follows:

Nine Months Ended

September 30,

($ in thousands)

10 unchanged sentences

Military includes sales to the U.S.

The following is a summary of segment results for the Wholesale, Retail, and Military segments for the three and six months ended June 30, 2020 and 2019:

The following is a summary of segment results for the Wholesale, Retail, and Military segments for three and nine months ended September 30, 2020 and 2019 :

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

3 unchanged sentences

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

COVID-19- We are monitoring and responding to the evolving nature of the global novel coronavirus pandemic (“COVID-19” or “pandemic”) and its impact to our global business.

We are monitoring and responding to the evolving nature of the global novel coronavirus pandemic (“COVID-19” or “pandemic”) and its impact to our global business.

We are experiencing multiple challenges related to the pandemic and these challenges are anticipated to have an effect on our overall business for the remainder of fiscal 2020.

Our most significant impacts from COVID-19 relate to channel shifts and a decrease in production.

We saw sales shift from our wholesale channel to our retail channel as more consumers began using our online platforms while some stores were closed and several states were on mandatory stay at home orders.

Our manufacturing facilities are experiencing varying levels of production impacts, including reduced volumes due to a decrease in demand, planned implementation of additional worker health precautions, worker absenteeism and government mandated temporary COVID-19 closures.

The health and safety of our team members is our top priority and to protect our employees, we are implementing all measures recommended by the Centers for Disease Control and Prevention (“CDC”).

During the first half of 2020, we saw sales shift from our wholesale channel to our retail channel as more consumers began using our online platforms while some stores were closed and several states were on mandatory stay at home orders.

We continued to see some of that sales shift in the third quarter, but we also saw an increase in wholesale sales due to some pent-up demand as wholesale doors continued to open and many started resuming normalized hours of operation.

Our manufacturing facilities are experiencing varying levels of production impacts, including increased volumes due to an increase in demand in the third quarter of 2020 and carrying over to the fourth quarter.

As we continue to adjust to the changing landscape, we ensure that the health and safety of our team members is our top priority and to protect our employees, we are implementing all measures recommended by the Centers for Disease Control and Prevention (“CDC”).

We will continue to proactively manage the Company and its operations through the pandemic;

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of goods sold

1 unchanged sentence

Income from operations

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Three Months Ended

September 30,

($ in thousands)

Total Net Sales

Wholesale sales decreased primarily due to the COVID-19 pandemic, as several states announced closures of all non-essential businesses and implemented stay-at-home directives, which cut back planned deliveries and replenishment orders.

Wholesale sales increased primarily due to a strong demand for our products as stores continued to re-open and consumers started to return to shopping in stores following the initial shutdowns related to the COVID-19 pandemic.

Retail sales increased primarily due to our direct to consumer e-commerce business which we believe is attributable to both recent investments aimed at increasing traffic and conversion rates, as well as an increase in online shopping due to the COVID-19 pandemic.

Military sales decreased in part due to less scheduled orders in the second quarter of 2020, as well as due to a temporary closure of our manufacturing facility in Puerto Rico because of the COVID-19 pandemic.

Military sales decreased slightly due to less scheduled orders as we have had some contracts end within the last year.

Three Months Ended

September 30,

($ in thousands)

4 unchanged sentences

Total Margin $'s

Wholesale gross margin decreased year over year due to adjustments related to the temporary closure of our manufacturing facilities as a result of the COVID-19 pandemic.

These adjustments were related to overhead, payroll expenses and supplies which were incurred during the period.

The effect of these expenses was approximately $656,000.

Adjusting for the previously mentioned incurred expenses, our 2020 second quarter wholesale margins were 33.3%.

Wholesale gross margin increased year over year due to stronger initial margins on some newer products, less discounting, selling fewer discontinued products and some increased efficiencies from our manufacturing facilities.

Retail gross margin increased as a higher percentage of our total retail sales were tied to our direct to consumer business which carries higher margins than our Lehigh business.

Military gross margin decreased year over year due to adjustments related to the temporary closure of our manufacturing facilities as a result of the COVID-19 pandemic.

These adjustments were related to overhead, payroll expenses and supplies which were incurred during the period.

The effect of these expenses was approximately $330,000.

Adjusting for the previously mentioned incurred expenses, our 2020 second quarter military margins were 20.9%.

Military gross margin decreased year over year as 2019 margins included a $581,000 one-time expense reimbursement to our Puerto Rico facility associated with the temporary closure as a result of Hurricane Maria in 2017.

Excluding the one-time reimbursement, gross margins would have been 26.8%.

Three Months Ended

September 30,

($ in thousands)

2 unchanged sentences

% of Net Sales

The increase in operating expenses as a percentage of sales was due to revenue shortfalls in our wholesale channel and increased revenue in our retail channel which carry higher variable costs.

The wholesale revenue shortfalls are tied to the impact of the COVID-19 pandemic.

The increase in operating expenses was primarily related to an increase in variable expenses tied to the sales increases in our wholesale and retail channels, as well as increased investments in our core brands to help initiate growth and expand within our respective markets.

Operating expenses decreased as a % of sales as we were able to leverage our expenses because of the increase in sales.

Three Months Ended

September 30,

($ in thousands)

2 unchanged sentences

Effective Tax Rate

The effective tax rate decreased slightly in the second quarter of 2020 as our current estimates expect our yearly effective tax rate to be 20.3%.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Six Months Ended

The effective tax rate increased slightly in the third quarter of 2020 as our current estimates expect our yearly effective tax rate to be 20.6%.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Nine Months Ended

September 30,

($ in thousands)

1 unchanged sentence

Wholesale sales decreased due to some early softness from the pull forward from our retail partners on certain deliveries ahead of price increases that went into effect on January 1, 2020.

We also experienced a decrease due to COVID-19, as several states announced closures of all non-essential businesses and implemented stay-at-home directives, which cut back planned deliveries and replenishment orders.

We also experienced a decrease in wholesale sales due to COVID-19, as several states announced closures of all non-essential businesses and implemented stay-at-home directives in the first and second quarter of 2020, which cut back planned deliveries and replenishment orders.

Military sales decreased in part due to less scheduled orders in the first half of 2020, as well as due to a temporary closure of our manufacturing facility in Puerto Rico because of the COVID-19 pandemic.

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

4 unchanged sentences

Total Margin $'s

Wholesale gross margin decreased year over year due to adjustments related to the overhead, payroll expenses and supplies incurred during the temporary closure of our manufacturing facilities due to the COVID-19 pandemic.

These expenses were partially offset by the employee retention credit tied to the CARES Act of 2020.

The net effect of these closure related expenses and employee retention credits was approximately $1,320,000.

Adjusting for the previously mentioned expenses and credits, our 2020 first half wholesale margins were 33.7%.

Wholesale gross margin increased year over year due to stronger initial margins on some newer products, less discounting, selling less discontinued products and some increased efficiencies from our manufacturing facilities.

Retail gross margin increased as a higher percentage of our total retail sales were tied to our direct to consumer business which carries higher margins than our Lehigh business.

2 unchanged sentences

The net effect of these closure related expenses and employee retention credits was approximately $654,000.

Adjusting for the previously mentioned expenses and credits, our 2020 first half military margins were 22.4%.

Six Months Ended

Adjusting for the previously mentioned expenses and credits, our 2020 military margins were 23.9%.

In 2019, margins included a $581,000 one-time expense reimbursement to our Puerto Rico facility associated with the temporary closure as a result of Hurricane Maria in 2017.

Excluding the one-time reimbursement, gross margins would have been 25.6%.

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

% of Net Sales

The increase in operating expenses as a percentage of was due to revenue shortfalls tied to the impact of the COVID-19 pandemic.

Six Months Ended

The increase in operating expenses as a percentage of sales was due to the increase in retail sales which carry higher variable expense costs and the decrease in military sales which do not carry the variable expenses that our wholesale and retail business do.

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

Effective Tax Rate

The effective tax rate decreased slightly in the first half of 2020 as our current estimates expect our yearly effective tax rate to be 20.3%.

The effective tax rate remained flat year over year.

LIQUIDITY AND CAPITAL RESOURCES

6 unchanged sentences

Our capital expenditures relate primarily to projects relating to our corporate offices, property, merchandising fixtures, molds and equipment associated with our manufacturing and distribution operations and for information technology.

Capital expenditures were $3.5 million for the six months ended June 30, 2020 and 2019.

Capital expenditures were $7.7 million and $5.8 million for the nine months ended September 30, 2020 and 2019, respectively.

We lease certain machinery, a shoe center, and manufacturing facilities under operating leases that generally provide for renewal options.

2 unchanged sentences

For more information regarding our credit facility please see Note 8.

Six Months Ended

Nine Months Ended

September 30,

($ in millions)

4 unchanged sentences

Operating Activities.

Cash provided by operating activities was primarily impacted by an increase in accounts payable and decreases in accounts receivable and inventory for the six months ended June 30, 2020.

Cash provided by operating activities was primarily impacted by an increase in inventory and accounts payable, partially offset by a decrease in accounts receivable for the six months ended June 30, 2019.

Cash provided by operating activities was primarily impacted by an increase in accounts payable and decreases in accounts receivable, partially offset by an increase in inventory for the nine months ended September 30, 2020.

Cash provided by operating activities was primarily impacted by an increase in inventory and accounts receivable, partially offset by an increase in accounts payable and accrued liabilities for the nine months ended September 30, 2019.

Investing Activities.

Cash used in investing activities primarily related to investments in molds and equipment associated with our manufacturing operations, for information technology and for improvements to our distribution facility for the six months ended June 30, 2020 and 2019, respectively.

Cash used in investing activities was primarily related to investments in molds and equipment associated with our manufacturing operations, for information technology and for improvements to our distribution facility for the nine months ended September 30, 2020 and 2019.

Financing Activities.

Cash used in financing activities was primarily related to the payments of dividends on our common stock and repurchases of common stock for the six months ended June 30, 2020.

Cash used in financing activities primarily related to payments of dividends on our common stock for the six months ended June 30, 2019.

Cash used in financing activities was primarily related to the payments of dividends on our common stock and repurchases of common stock for the nine months ended September 30, 2020.

Cash used in financing activities was primarily related to payments of dividends on our common stock for the nine months ended September 30, 2019.

Our financial performance is influenced by factors such as higher raw material costs as well as higher salaries and employee benefits.

14 unchanged sentences

Words such as “believe,” “anticipate,” “expect,” “will,” “may,” “should,” “intend,” “plan,” “estimate,” “predict,” “potential,” “continue,” “strategy,” “future,” “likely,” “would,” “could” and similar expressions are intended to identify forward-looking statements.

Investors are cautioned that forward-looking statements contained in this Quarterly Report on Form 10-Q and in other statements we make involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer demand and expectations, seasonality, impact of weather, competition, reliance on suppliers, risks inherent to international trade, changing retail trends, the loss or disruption of our manufacturing and distribution operations, cybersecurity breaches or disruption of our digital systems, fluctuations in foreign currency exchange rates, economic changes, as well as other factors set forth under the caption “Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 (filed March 6, 2020) and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (filed May 7, 2020), and other factors detailed from time to time in our filings with the Securities and Exchange Commission.

Investors are cautioned that forward-looking statements contained in this Quarterly Report on Form 10-Q and in other statements we make involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer demand and expectations, seasonality, impact of weather, competition, reliance on suppliers, risks inherent to international trade, changing retail trends, the loss or disruption of our manufacturing and distribution operations, cybersecurity breaches or disruption of our digital systems, fluctuations in foreign currency exchange rates, economic changes, as well as other factors set forth under the caption “Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 (filed March 6, 2020) and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 (filed May 7, 2020) and June 30, 2020 (filed August 6, 2020), and other factors detailed from time to time in our filings with the Securities and Exchange Commission.

Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate.

5 unchanged sentences

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-Q

Item 1. Financial Statements