What changed in this filing

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Item 1A. Risk Factors

2021-03-16 compared with 2020-03-06 · 98 added, 70 removed, 136 unchanged (55% of the section changed)

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If we are unable to anticipate, identify or react appropriately to changes in consumer preferences, we may not grow as fast as we plan to grow or our sales may decline, and our brand image and operating performance may suffer.

Furthermore, achieving market acceptance for new products will likely require us to exert substantial product development and marketing efforts, which could result in a material increase in our selling, general and administrative, or SG&A expenses, and there can be no assurance that we will have the resources necessary to undertake such efforts.

Material increases in our SG&A expenses could adversely impact our results of operations and cash flows.

Furthermore, achieving market acceptance for new products will likely require us to exert substantial product development and marketing efforts, which could result in a material increase in our operating expenses, and there can be no assurance that we will have the resources necessary to undertake such efforts.

Material increases in our operating expenses could adversely impact our results of operations and cash flows.

We may also encounter difficulties in producing new products that we did not anticipate during the development stage.

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Failure to gain market acceptance for new products that we introduce could impede our growth, reduce our profits, adversely affect the image of our brands, erode our competitive position and result in long term harm to our business.

Our acquisition of the performance and lifestyle footwear business of Honeywell International, Inc.

involves inherent risks such as:

difficulties in integrating the acquired business, including the potential loss of key personnel from the acquired business, our potential inability to achieve identified financial, operating and other synergies anticipated to result from the acquisition, and integration issues associated with internal controls, among other things, for the acquired business;

the diversion of management’s time from our existing business;

changes in economic conditions;

potential unknown liabilities associated with the acquired business.

While we conducted financial and other due diligence in connection with our acquisition and have representations and warranties insurance coverage, the acquired business may have weaknesses or liabilities that were not accurately assessed or realized at the time of the acquisition and insurance coverage may not cover (or fully cover) such matters. 

If we are not able to successfully navigate such risks with respect to the acquired business, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A majority of our products are produced outside the U.S.

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The occurrence of any of these developments could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Changes to United States tax, tariff and import/export regulations may have a negative effect on global economic conditions, financial markets and our business.

The current political climate has introduced greater uncertainty with respect to trade policies, tariffs and government regulations affecting trade between the U.S.

and other countries.

We source products from manufacturers located outside of the U.S., primarily in China.

Major developments in tax policy or trade relations, such as the disallowance of tax deductions for imported products or the imposition of unilateral tariffs on imported products, could have a material adverse effect on our business, results of operations and liquidity.

The COVID-19 outbreak has had, and may continue to have, an adverse impact on our business, financial condition and results of operations.

The World Health Organization declared the novel coronavirus (COVID-19), a pandemic in March 2020. 

Our business, financial condition and results of operations have been and may continue to be adversely affected by the COVID-19 outbreak. 

The COVID-19 outbreak has affected nearly all regions of the world, and preventative measures taken to contain or mitigate the outbreak have caused, and are continuing to cause, business slowdown or shutdown in affected areas. 

This has and could continue to negatively affect the global economy, including reduced consumer spending and disruption of manufacturing and global supply chains. 

We cannot predict the degree to which our business, financial condition and results of operations will be affected by the COVID-19 pandemic, and the effects could be material. 

Potential impacts to our business, financial condition and results of operations include:

Disruption to our supplier and third party manufacturing partners and vendors and logistics providers, including through the effects of facility closures, reductions in operating hours, labor shortages, and changes in operating procedures;

Closure or reduced operations of brick and mortar retail stores and reductions in customer traffic, which adversely affects our wholesale channel;

Lower performance of customers in our wholesale channel, which may result in reduction or cancellation of future orders;

Closure or reduced operations of manufacturing and other facilities and businesses served by our Lehigh Custom Fit business, resulting in reductions in future orders, which adversely affects our retail channel;

Reductions in consumer spending due to macroeconomic conditions caused by the COVID-19 pandemic, including decreased disposable income and increased unemployment, which may result in decreased sales.

The further spread of COVID-19, and the requirements to take action to help limit the spread of the illness, may impact our ability to carry out our business as usual and may materially adversely impact global economic conditions, our business, results of operations and financial condition.

We conduct a portion of our business pursuant to U.S.

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military contracts which are subject to unique risks.

In 2019 , 9.6% of our revenues were earned pursuant to U.S.

In 2020, 6.8% of our revenues were earned pursuant to U.S.

military contracts.

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The failure to adequately anticipate or respond to these changes could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Loss of services of our key personnel could adversely affect our business.

The development of our business has been, and will continue to be , dependent on execution at all levels of our organization which requires an experienced and talented executive team.

The loss of service of any of the executive officers or key employees could have an adverse effect on our business and financial condition.

We have entered into employment agreements with several executive officers and key employees, and also offer compensation packages designed to attract and retain talent.

We depend on a limited number of suppliers for key production materials, and any disruption in the supply of such materials could interrupt product manufacturing and increase product costs.

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Many of our outdoor products are used by consumers in cold or wet weather.

As a result, a majority of orders for these products are placed by our retailers in January through April for delivery in July through October.

As a result, a majority of orders for these products are placed by our retailers in January through April for delivery in July through October.

In order to meet demand, we must manufacture and source outdoor footwear year-round to be in a position to ship advance orders for these products during the last two quarters of each year.

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In addition, such a manufacturer’s actions could result in negative publicity and may damage our reputation and the value of our brand and discourage retail customers and consumers from buying our products.

Public health crises could harm our business

Public health crises, such as the recent outbreak of the coronavirus (COVID-19) first identified in Wuhan, China, could cause disruption to the Company’s manufacturers and suppliers located in China and elsewhere.

If our manufacturers and suppliers are so affected, our supply chain could be disrupted causing our product shipments to be delayed.

In addition, a public health crises could negatively impact our consumer spending in impacted regions or globally, which could materially adversely affect our business, financial condition, and results of operation.

The growth of our business will be dependent upon the availability of adequate capital.

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As a result, we may not be able to finance our current expansion plans.

We must comply with the restrictive covenants contained in our revolving credit facility.

Our credit facility requires us to comply with certain financial restrictive covenants that impose restrictions on our operations, including our ability to incur additional indebtedness, make investments of other restricted payments, sell or otherwise dispose of assets and engage in other activities.

We must comply with the restrictive covenants contained in our credit facilities.

Our senior secured asset based credit facility and our term loan facility require us to comply with certain financial restrictive covenants that impose restrictions on our operations, including our ability to incur additional indebtedness, make investments of other restricted payments, sell or otherwise dispose of assets and engage in other activities.

Any failure by us to comply with the restrictive covenants could result in an event of default under those borrowing arrangements, in which case the lenders could elect to declare all amounts outstanding thereunder to be due and payable, which could have a material adverse effect on our financial condition.

Our credit facility contains a restrictive covenant which requires us to maintain a fixed charge coverage ratio.

This restrictive covenant is only in effect upon a triggering event taking place (as defined in the credit facility agreement).

At December 31, 2019 , there was no triggering event and the covenant was not in effect.

Our credit facilities contain restrictive covenants which requires us to maintain a maximum total average ratio and a minimum fixed charge coverage ratio.

We face intense competition, including competition from companies with significantly greater resources than ours, and if we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.

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Any loss of one of these key customers, the financial collapse or bankruptcy of one of these customers, or a significant reduction in purchases from one of these customers could result in a significant decline in sales, write-downs of excess inventory, or increased discounts to our customers, any of which could have a material adverse effect on our financial condition or results of operations.

We are subject to periodic litigation and other regulatory proceedings, which could result in the unexpected expenditure of time and resources.

We are a defendant from time to time in lawsuits and regulatory actions relating to our business and to our past operations.

Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings.

An unfavorable outcome could have a material adverse impact on our business, financial condition and results of operations.

In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and will require that we devote substantial resources and executive time to defend, thereby diverting management’s attention and resources that are needed to successfully run our business.

We currently manufacture a portion of our products and we may not be able to do so in the future at costs that are competitive with those of competitors who source their goods.

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There can be no assurance that the costs of products that continue to be manufactured by us can remain competitive with products sourced from third parties.

We rely on our distribution center in Logan, Ohio and manufacturing facilities in the Dominican Republic and Puerto Rico and if there is a natural disaster or other serious disruption at any of these facilit ies , we may be unable to deliver merchandise effectively to our retailers and consumers.

We rely on our distribution center located in Logan, Ohio and our manufacturing facilities in the Dominican Republic and Puerto Rico .

Any natural disaster or other serious disruption at any of th ese facilit ies due to fire, tornado, flood, terrorist attack or any other cause could damage our ability to manufacture our products, a portion of our inventory , or impair our ability to use our distribution center as a docking location for merchandise.

We rely on our distribution center in Logan, Ohio and manufacturing facilities in the Dominican Republic.

Puerto Rico, China and Rock Island, Illinois, and if there is a natural disaster or other serious disruption at any of these facilit ies , we may be unable to deliver merchandise effectively to our retailers and consumers.

We rely on our distribution center located in Logan, Ohio and our manufacturing facilities in the Dominican Republic, Puerto Rico, China and Rock Island, Illinois.

Any natural disaster or other serious disruption at any of these facilities due to fire, tornado, flood, terrorist attack or any other cause could damage our ability to manufacture our products, a portion of our inventory, or impair our ability to use our distribution center as a docking location for merchandise.

Any of these occurrences could impair our ability to adequately supply our retailers and consumers and harm our operating results.

We are subject to certain environmental and other regulations.

Some of our operations use substances regulated under various federal, state, local and international environmental and pollution laws, including those relating to the storage, use, discharge, disposal and labeling of, and human exposure to, hazardous and toxic materials.

Compliance with current or future environmental laws and regulations could restrict our ability to expand our facilities or require us to acquire additional expensive equipment, modify our manufacturing processes or incur other significant expenses.

In addition, we could incur costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims or could be required to incur substantial investigation or remediation costs, if we were to violate or become liable under any environmental laws.

Liability under environmental laws can be joint and several and without regard to comparative fault.

There can be no assurance that violations of environmental laws or regulations have not occurred in the past and will not occur in the future as a result of our inability to obtain permits, human error, equipment failure or other causes, and any such violations could harm our business, financial condition, results of operations and cash flows.

If our efforts to establish and protect our trademarks, patents and other intellectual property are unsuccessful, the value of our brands could suffer.

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If our patents are found to be invalid, however, to the extent they have served, or would in the future serve, as a barrier to entry to our competitors, such invalidity could have a material adverse effect on our business, financial condition, results of operations and cash flows.

registrations for many our trademarks, trade names and designs, including such marks as Rocky, Georgia Boot, Durango, and Lehigh.

registrations for many our trademarks, trade names and designs, including such marks as Rocky, Georgia Boot, Durango, Lehigh, The Original Muck Boot Company, XTRATUF, Servus, NEOS and Ranger.

Additional trademarks, trade names and designs are the subject of pending federal applications for registration.

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The carrying value of intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date.

A cquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized but must be evaluated by the Company at least annually for impairment.

Acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized but must be evaluated by the Company at least annually for impairment.

If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value.

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To the extent sales forecasts are not achieved, costs associated with the infrastructure and carrying costs of product inventory would represent a higher percentage of revenue, which would adversely affect our business, financial condition, results of operations and cash flows.

A cyber-security breach could have a material adverse effect on our business and reputation .

We rely heavily on digital technologies for the successful operation of our business, including electronic messaging, digital marketing efforts and the collection and retention of customer data and employee information.

We also rely on third parties to process credit card transactions, perform online e-commerce and social media activities and retain data relating to our financial position and results of operations, strategic initiatives and other important information.

Despite the security measures we have in place, our facilities and systems and those of our third-party service providers, may be vulnerable to cyber-security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events.

Any misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information, whether by us or by our third-party service providers, could damage our reputation and our customers’

willingness to purchase our products, which may adversely affect our business.

In addition, we could incur liabilities and remediation costs, including regulatory fines, reimbursement or other compensatory costs, additional compliance costs, and costs for providing credit monitoring or other benefits to customers or employees affected.

We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems.

In addition, as data privacy and marketing laws change, we may incur additional costs to ensure we remain in compliance.

If applicable data privacy and marketing laws become more restrictive at the federal or state level, our compliance costs may increase, our ability to effectively engage customers via personalized marketing may decrease, its opportunities for growth may be curtailed by our compliance capabilities or reputational harm and the potential liability for security breaches may increase.

We are also subject to U.S.

and international data privacy and cybersecurity laws and regulations, which may impose fines and penalties for noncompliance and may have an adverse effect on our operations.

For example, the European Union’s General Data Protection Regulation (the “GDPR”), which bec ame effective in May 2018, extends the scope of the E uropean U nion’s data protection law s to all companies processing data of E uropean U nion residents, regardless of our location, and imposes significant new requirements on how we collect, processes and transfer personal data.

In addition, California recently adopted to California Consumer Privacy Act (the “C C PA”), which became effective January 1, 2020 and limits how we may collect and use personal dat a .

As a result, GDPR and CCPA compliance increase d our responsibility and potential liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the new data protection rules.

Any failure to comply with these rules and related national laws of European Union member states, could lead to government enforcement actions and significant penalties and fines against us, and could adversely affect our business, financial condition, cash flows and results of operations.

Compliance with any of the foregoing laws and regulations can be costly.

Disruption of our information technology systems could adversely affect our business

Our information technology systems are critical to our business operations.

Any interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact our business, including delays in product fulfillment and reduced efficiency in operations.

In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of our operations.

Disruption to our information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions.

System redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all eventualities.

Such failures or disruptions could prevent access to our online services and preclude retail transactions.

System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting.

Additionally, we may be adversely affected if we are unable to improve, upgrade, maintain, and expand our technology systems.

Our dividend policy may change.

Although we have paid dividends to our shareholders, we have no obligation to continue doing so and may change our dividend policy at any time without notice to our shareholders.

Holders of our common stock are only entitled to receive such cash dividends as our B oard of D irectors may declare out of funds legally available for such payments.

There are risks, including stock market volatility, inherent in owning our common stock.

The market price and volume of our common stock have been, and may continue to be, subject to significant fluctuations.

These fluctuations may arise from general stock market conditions, the impact of risk factors described in this Item 1A on our results of operations and financial position, or a change in opinion in the market regarding our business prospects or other factors, many of which may be outside our immediate control.

Changes in the amounts and frequency of share repurchases or dividends also could adversely affect the value of our common stock.

Holders of our common stock are only entitled to receive such cash dividends as our Board of Directors may declare out of funds legally available for such payments.

Risks Related to Our Industry

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The retail industry is rapidly changing, and we must ensure we are evolving both our own online e-commerce websites and third party marketplaces.

We must also provid e digital assistance to our wholesale customers to support their e-commerce websites.

We must also provide digital assistance to our wholesale customers to support their e-commerce websites.

Failure to timely identify and effectively respond to the online trends of the retail industry could negatively impact our product reach and market share.

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If we are unable to improve or develop relevant technology in a timely manner, our ability to compete and our results of operations could be adversely affected.

General Risk Factors