What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-15 compared with 2021-03-16 · 428 added, 319 removed, 660 unchanged (53% of the section changed)

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Index to consolidated financial statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm  (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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ACCOUNTING STANDARDS UPDATES

BUSINESS ACQUISITION

PROPERTY, PLANT, AND EQUIPMENT

IDENTIFIED INTANGIBLE ASSETS

IDENTIFIED INTANGIBLE ASSET

LONG-TERM DEBT

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SEGMENT INFORMATION

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

COMMITMENTS AND CONTINGENCIES

SUBSEQUENT EVENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

To the Board of Directors and Shareholders of

Rocky Brands, Inc.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involve our especially challenging, subjective, or complex judgment.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Indefinite-Lived Identified Intangibles

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgment.

The communication of the critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Indefinite-Lived Identified Intangibles in Conjunction with Annual Impairment Testing

Description of the Matter

At December 31, 2020, the Company’s indefinite-lived intangible assets were approximately $30.2 million.

At December 31, 2021, the Company’s indefinite-lived intangible assets were approximately $132.4 million, which included $30.1 million of existing trade names and trademarks and $51.7 million of trademarks and $50.6 million of goodwill that were acquired through the acquisition of the performance and lifestyle footwear brands of Honeywell International Inc.

(Boston Group) on March 15, 2021.

As discussed in Note 1 to the financial statements, indefinite-lived intangible assets are tested for potential impairment annually or when conditions indicate impairment may have occurred.

This test was performed in the fourth quarter of 2021.

Auditing management’s indefinite-lived intangible assets was challenging because there is significant judgment required in determining the methodologies and assumptions used to estimate the fair values of the Company’s trade names and trademarks.

In particular, the fair value estimates were sensitive to significant judgment assumptions including future cash flows, long-term growth rates of the business, operating margins, weighted average cost of capital and other factors such as;

Auditing management’s indefinite-lived intangible assets, including goodwill, was challenging because there is significant judgment required in determining the methodologies and assumptions used to estimate the fair values of the Company’s goodwill by reporting unit, and trade names and trademarks by brand.

In particular, the fair value estimates were sensitive to significant judgment assumptions including future cash flows, long-term growth rates of the business, financial projections, operating margins, weighted average cost of capital and other factors such as:

discount rates, royalty rates, cost of capital, and market multiples.

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We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s intangible asset impairment review process.

To test the estimated fair value of the Indefinite-Lived Intangible Assets, we performed audit procedures that included, among others, involving our valuation specialists in evaluating the methodologies used and significant assumptions described above, and testing the underlying data used by the Company in its analysis for completeness and accuracy.

We compared the significant assumptions used by management to current industry and economic trends, recent historical performance, changes to the reporting unit’s business model and other relevant factors.

We performed a sensitivity analysis over the Company’s financial projections used in the analysis.  We assessed the historical accuracy of management’s estimates and significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions.

We evaluated the reasonableness of the Company’s financial projections used in the analysis. 

We assessed the historical accuracy of management’s estimates and significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions.

We evaluated the incorporation of the applicable assumptions into the model and tested the model’s computational accuracy and performed a sensitivity analysis on certain key assumptions.

Valuation of Customer Relationships, Trade Names and Goodwill Acquired through the Boston Group Acquisition

Description of the Matter

On March 15, 2021, the Company completed the acquisition of the Boston Group for an aggregate purchase price of approximately $212 million, net of cash acquired, based on working capital and other adjustments.

The acquisition was accounted for under the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of approximately $149.2 million, which consisted of customer relationships, trade names and goodwill of approximately $46.9 million, $51.7 million and $50.6 million, respectively.

The Company, with the assistance of an independent valuation specialist, estimated the fair values of the customer relationships and trade names using the multi-period excess earnings method and the relief from royalty method, respectively.

The multi-period excess earnings method determines the fair value as the estimation of revenues and cash flows derived from the intangible assets reduced by portions of the cash flow attributed to supporting assets.

The determination of fair value of the customer relationships involves significant estimates and assumptions related to annual attrition and the selected discount rate.

The relief from royalty method determines the fair value based on the measurement of license payments that has been saved as a consequence of having the ownership of the asset.

The determination of fair value of the trade names involves significant estimates and assumptions related to the selection of the royalty and discount rates.

The Company, with the assistance of an independent valuation specialist, estimated the allocation of goodwill to reporting units using the discounted cash flow method, which determines fair value based on significant estimates and assumptions of future cash flows.

Auditing the valuation of the acquired intangible assets was challenging because there is significant judgment required in determining the methodologies and assumptions used to estimate the fair values of the Company’s acquired customer relationships, trademarks and goodwill.

In particular, the fair value estimates were sensitive to significant judgment assumptions including annual attrition, financial projections, and royalty and discount rates.

These estimates and assumptions require management’s judgment, and changes to these estimates and assumptions could materially affect the determination of fair value and/or impairment for each of the Company’s acquired indefinite-lived intangible assets.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the valuation methodology.

To test the estimated fair value of the acquired intangible assets, we performed audit procedures that included, among others, involving our valuation specialists in evaluating the methodologies used and significant assumptions described above, and testing the underlying data used by the Company in its analysis for completeness and accuracy.

We evaluated the reasonableness of the Company’s financial projections used in the analysis. 

We evaluated the incorporation of the applicable assumptions into the model and tested the model’s computational accuracy.

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77,576  

Income tax receivable  

Prepaid expenses

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LEASED ASSETS

11,428  

PROPERTY, PLANT & EQUIPMENT –

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33,750  

50,641  

IDENTIFIED INTANGIBLES –

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Contract liabilities

Current Portion of Long-Term Debt

Accrued expenses:

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Accrued freight

Accrued interest

Income tax payable

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39,983  

LONG-TERM DEBT

266,794  

LONG-TERM TAXES PAYABLE

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DEFERRED INCOME TAXES

10,293  

DEFERRED LIABILITIES

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(In thousands, except per share amounts)

Twelve Months Ended 

$ 514,227  

$ 277,309  

COST OF GOODS SOLD

319,691  

172,574  

194,536  

104,735  

OPERATING EXPENSES

158,564  

77,565  

INCOME FROM OPERATIONS

OTHER (EXPENSES) INCOME

INCOME BEFORE INCOME TAXES

35,972  

27,170  

OTHER EXPENSES

( 10,603 )  

INCOME BEFORE INCOME TAX EXPENSE

25,369  

26,965  

INCOME TAX EXPENSE

$ 20,559  

$ 20,964  

INCOME PER SHARE

$ 2.82  

$ 2.87  

$ 2.77  

$ 2.86  

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

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$ 164,656  

TWELVE MONTHS ENDED DECEMBER 31, 2019

$ 20,964  

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$ 179,505  

TWELVE MONTHS ENDED DECEMBER 31, 2020

$ 20,559  

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Repurchase of common stock

( 129 )  

$ ( 2,938 )  

Stock issued for options exercised, including tax benefits

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$ 197,855  

Dividend was increased from $0.12 per share to $0.14 per share in the second quarter of 2019

Quarterly dividend was increased from $0.14 per share to $0.155 per share in the third quarter of 2021.

See notes to consolidated financial statements

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(In thousands)

Twelve Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by operating activities:

$ 20,559  

$ 20,964  

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization

11,342  

Amortization of debt issuance costs

Deferred income taxes

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Change in assets and liabilities:

( 41,943 )  

Contract receivables

( 114,226 )  

Other current assets

( 9,791 )  

( 152 )  

Accounts payable

78,626  

Accrued and other liabilities

Income taxes payable

Net cash provided by operating activities

( 5,313 )  

Contract liabilities

( 4,520 )  

Net cash (used in) provided by operating activities

( 54,875 )  

31,441  

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of fixed assets

( 21,055 )  

Acquisition of business, net of cash acquired

( 212,408 )  

Proceeds from sales of fixed assets

Net cash used in investing activities

( 233,463 )  

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from revolving credit facility

180,072  

20,000  

Repayments on revolving credit facility

( 34,000 )  

Proceeds from term loan

130,000  

Repayments on term loan

( 2,438 )  

Debt issuance costs

( 4,266 )  

Proceeds from stock options

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Dividends paid on common stock

Net cash used in financing activities

INCREASE IN CASH AND CASH EQUIVALENTS

( 4,299 )  

Net cash provided by (used in) financing activities

265,894  

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

( 22,444 )  

12,835  

CASH AND CASH EQUIVALENTS:

BEGINNING OF PERIOD

28,353  

15,518  

END OF PERIOD

$ 5,909  

$ 28,353  

See notes to consolidated financial statements

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Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Rocky Brands, Inc.

(“Rocky”) and its wholly-owned subsidiaries, Lifestyle Footwear, Inc.

(“Lifestyle”), Five Star Enterprises Ltd.

(“Five Star”), Rocky Brands Canada, Inc.

(“Rocky Canada”), Rocky Brands US, LLC, Rocky Brands International, LLC, Lehigh Outfitters, LLC, and Rocky Outdoor Gear Store, LLC (collectively referred to as the “Company”).

("Rocky") and its wholly-owned subsidiaries, Lifestyle Footwear, Inc.

("Lifestyle"), Five Star Enterprises Ltd.

("Five Star"), Rocky Brands Canada, Inc.

("Rocky Canada"), Rocky Brands US, LLC, Rocky Brands International, LLC, Lehigh Outfitters, LLC, US Footwear Holdings, LLC, Rocky Brands (Australia) Pty Ltd., Mexico FW Holdings, S.

de C.V., Rocky Footwear (Chuzhou) Co.

Ltd., UK Footwear Holdings Limited and Rocky Outdoor Gear Store, LLC (collectively referred to as the "Company").

All inter-company transactions have been eliminated.

Business Activity - We are a leading designer, manufacturer and marketer of premium quality footwear marketed under a portfolio of well recognized brand names including Rocky, Georgia Boot, Durango, Lehigh and the licensed brand Michelin.

Our brands have a long history of representing high quality, comfortable, functional and durable footwear and our products are organized around six target markets:

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In addition, as part of our strategy of outfitting consumers from head-to-toe, we market complementary branded apparel and accessories that we believe leverage the strength and positioning of each of our brands.

Our products are distributed through three distinct business segments:

Wholesale, Retail and Military.

In our Wholesale business, we distribute our products through a wide range of distribution channels representing over 

10,000 retail store locations in the U.S.

Our Wholesale channels vary by product line and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers.

Our Retail business includes direct sales of our products to consumers through our business to business web-platform, e-commerce websites, third -party marketplaces, and our Rocky outlet store.

We also sell footwear under the Rocky label to the U.S.

We report our segment information in accordance with prov isions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 280,  

Segment Reporting .

We evaluate business performance based upon several metrics, using segment profit as the primary financial measure. During the three months ended June 30, 2021, we changed our reporting segments when compared to our Annual Report on Form 10 -K for the fiscal year ended December 31, 2020, to change our Military reporting segment to "Contract Manufacturing" and to change the composition thereof to continue to include sales to the U.S.

Military ("Military Contracts") and to include sales under manufacturing contracts for private label or other specific footwear products sold through our Wholesale and Retail channels ("Private Contracts").

Previously, only Military Contracts were included in this segment.

The Private Contract sales have characteristics more like Military Contracts, with similar sales, delivery processes and gross margins.

This segment reporting change reflects a corresponding change in how our Chief Executive Officer and our Chief Financial Officer, our chief operating decision makers ("CODMs"), review financial information in order to allocate resources and assess performance.

Previously, Private Contracts were included in the Wholesale segment, but with the Acquisition, our Wholesale segment has substantially increased in size and our CODMs determined that the change in segment reporting was appropriate at that time to mirror how they evaluate and manage our business.

There has been no change in our total consolidated financial condition, results of operations, or segment information previously reported, as the result of the change in our reportable segments, as we had no Private Contract sales during the quarterly period ended March 31, 2021 or the fiscal year ended December 31, 2020. 

Each of our reporting segments continue to employ consistent accounting policies.

As a result of this assessment, we now report our activities in the following three reporting segments:

Wholesale, Retail and Contract Manufacturing.

Wholesale includes sales of footwear and accessories to several classifications of retailers, including sporting goods stores, outdoor specialty stores, online retailers, marine stores, independent retailers, mass merchants, retail uniform stores, and specialty safety shoe stores.

Our Retail business includes direct sales of our products to consumers through our e-commerce websites, marketplaces, our Rocky outlet store, and Lehigh businesses.

Contract Manufacturing includes sales to the U.S.

Military, private label sales and any sales to customers in which we are contracted to manufacture or source a specific footwear product for a customer.

Note 17  –

Segment Information for further information.

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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

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Balances may exceed federally insured limits.

We also hold cash outside of the U.S.

that is not federally insured. 

Trade Receivables - Trade receivables are presented net of the related allowance for uncollectible accounts of approximately $ 613,000 and $ 242,000 at December 31, 2021 and 2020 , respectively.

The Company records 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.

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.

However, estimates of the allowance in any future period are inherently uncertain and actual allowances may differ from these estimates.

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Supplier and Labor Concentrations - We purchase raw materials from a number of domestic and foreign sources.

We produce a portion of our shoes and boots in our Dominican Republic operation and in our Puerto Rico operation.

We produce a portion of our shoes and boots in our Dominican Republic, Puerto Rico, Illinois and China operations.

We are not aware of any governmental or economic restrictions that would alter these current operations.

We source a significant portion of our footwear, apparel and gloves from manufacturers in Asia, primarily China.

We source a significant portion of our footwear, apparel and gloves from manufacturers in Asia, and primarily in China, Vietnam and Indonesia.

We are not aware of any governmental or economic restrictions that would alter our current sourcing operations.

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Reserves are established for inventories when the net realizable value (NRV) is deemed to be less than its cost based on our periodic estimates of NRV.

Property, Plant and Equipment - The Company records fixed assets at historical cost and generally utilizes the straight-line method of computing depreciation for financial reporting purposes over the estimated useful lives of the assets as follows:

Property, Plant and Equipment - We record fixed assets at historical cost and generally utilizes the straight-line method of computing depreciation for financial reporting purposes over the estimated useful lives of the assets as follows:

Buildings and improvements

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Lasts, dies, and patterns

For income tax purposes, the Company generally computes depreciation utilizing accelerated methods.

Identified intangible assets - Identified intangible assets consist of indefinite lived trademarks and definite lived trademarks, and patents.

For income tax purposes, we generally compute depreciation utilizing accelerated methods.

Goodwill - 

Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Goodwill arose from the Acquisition and largely consists of the workforce acquired, expected cost synergies and economies of scale resulting from the business combination.

The amount of our Goodwill that is deductible for tax purposes is $ 49.4 million.

GAAP has established guidance for reporting information about a company's operating segments, including disclosures related to a company's products and services, geographic areas and major customers.

We monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments, as well as our reporting units.

As previously stated, our operations represent three reporting segments, Wholesale, Retail and Contract Manufacturing.

Goodwill impairment analysis will be performed for our Wholesale and Retail reporting segments.

There is no goodwill allocated to our Contract Manufacturing segment.

As of December 31, 2021, Goodwill allocated to our Wholesale and Retail reporting segments was $ 25.8  million and $ 24.8  million, respectively.

Goodwill is subject to impairment tests at least annually.

We review the carrying amounts of goodwill by reporting unit at least annually, or when indicators of impairment are present, to determine if goodwill may be impaired.

We include assumptions about the expected future operating performance as part of a discounted cash flow analysis to estimate fair value.

If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management compares the fair value of the assets to the carrying value.

Goodwill is considered impaired if the recorded value exceeds the fair value.

We may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value.

We would not be required to quantitatively determine the fair value of goodwill unless we determine, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value.

Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projection and operating plans.

We perform our annual testing for goodwill at the beginning of the fourth quarter of each fiscal year, starting with our fiscal year ended December 31, 2021.

Identified intangible assets - Identified intangible assets consist of indefinite lived trademarks and definite lived trademarks, patents and customer relationships.

Indefinite lived intangible assets are not amortized.

If events or circumstances change, a determination is made by management, in accordance with the accounting standard for “Property, Plant and Equipment”

to ascertain whether property, equipment and certain finite-lived intangibles have been impaired based on the sum of expected future undiscounted cash flows from operating activities.

If events or circumstances change, a determination is made by management, in accordance with the accounting standard for "Property, Plant and Equipment" to ascertain whether property, equipment and certain finite-lived intangibles have been impaired based on the sum of expected future undiscounted cash flows from operating activities.

If the estimated net cash flows are less than the carrying amount of such assets, we will recognize an impairment loss in an amount necessary to write down the assets to fair value as determined from expected future discounted cash flows.

In accordance with the accounting standard for “Intangibles –

Goodwill and Other”, we test intangible assets with indefinite lives for impairment annually or when conditions indicate impairment may have occurred.

In accordance with the accounting standard for "Intangibles –

Goodwill and Other", we test intangible assets with indefinite lives for impairment annually or when conditions indicate impairment may have occurred.

We perform such testing of our indefinite-lived intangible assets in the fourth quarter of each year or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

See Note 5 for more information.

See Note 6  for more information.

Comprehensive Income - Comprehensive income includes changes in equity that result from transactions and economic events from non-core operations.

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Advertising - We expense advertising costs as incurred.

Advertising expense was approximately $ 8,406,000 and $ 8,106,000 for 2020 and 2019 , respectively.

Advertising expense was approximately $ 17,911,000 and 

$ 8,406,000 for 2021 and 2020 , respectively.

The increase in advertising expense was attributed to the Acquisition.

Shipping Costs - All shipping costs billed to customers have been included in net sales.

All outbound shipping costs to customers have been included in operating expenses and totaled approximately $ 10,523,000 and $ 10,641,000 in 2020 and 2019 , respectively.

All outbound shipping costs to customers have been included in operating expenses and totaled approximately 

$ 25,139,000 and 

$ 10,523,000 in 2021 and 2020 , respectively.

The increase in shipping costs was due to the Acquisition.

Fair Value Measurements –

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Level 2 –

Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets;

quoted prices for identical or similar assets and liabilities in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data.

Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 –

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The fair values of cash and cash equivalents, receivables, and payables approximated their carrying values because of the short-term nature of these instruments.

Receivables consist primarily of amounts due from our customers, net of allowances, amounts due from employees (sales persons’

Receivables consist primarily of amounts due from our customers, net of allowances, amounts due from employees (salespersons’

advances in excess of commissions earned and employee travel advances);

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and expected insurance recoveries.

The carrying amounts of our long-term credit facility and other short-term financing obligations also approximate fair value, as they are comparable to the available financing in the marketplace during the year.

The carrying amounts of our long-term credit facilities and other short-term financing obligations also approximate fair value, as they are comparable to the available financing in the marketplace during the year.

The fair value of our revolving line of credit is categorized as Level 2.

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On December 14, 2018, our Board of Directors adopted the Rocky Brands, Inc.

Executive Deferred Compensation Plan (the “

Executive Deferred Compensation Plan”), which became effective January 1, 2019.

Executive Deferred Compensation Plan (the " Executive Deferred Compensation Plan"), which became effective January 1, 2019.

The Executive Deferred Compensation Plan is an unfunded nonqualified deferred compensation plan in which certain executives are eligible to participate.

The deferrals are held in a separate trust, which has been established for the administration of the Executive Deferred Compensation Plan.

The trust assets are classified as trading securities within prepaid expenses and other current assets in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to operating expenses in the accompanying consolidated statements of operations.

The trust assets and liabilities are classified as trading securities within prepaid expenses and other current assets and deferred liabilities, respectively in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to operating expenses in the accompanying consolidated statements of operations.

The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1 ).

Effective August 18, 2020, we entered into a second deferred compensation plan (the "Dominican Plan").

The Dominican Plan is an unfunded nonqualified deferred compensation plan for key employees at our Dominican Republic manufacturing facility.

The funds are held in a separate trust, which has been established for the administration of the Dominican Plan.

The trust liabilities are classified as trading securities within deferred liabilities in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to operating expenses in the accompanying consolidated statements of operations.

The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1 ).

ACCOUNTING STANDARDS UPDATES

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GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

Q1 2023 as long as we continue to qualify as a smaller reporting company

We are evaluating the impacts of the new standard on our existing financial instruments, including trade receivables.

ASU 2019 - 12, Income Taxes (Topic 740 ):

Simplifying the Accounting for Income Taxes

This pronouncement is intended to simplify various aspects related to accounting for income taxes.

ASU 2019 - 12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

We are evaluating the impacts of the new standard on our Consolidated Financial Statements but do not anticipate it will have a material impact.

Accounting Standards Adopted in the Current Year

Standard 

Effect on the financial statements

or other significant matters

Effect on the financial statements or other significant matters

ASU 2018 - 13 Fair Value Measurement (Topic 820 ):

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This pronouncement changes the fair value measurement disclosure requirements of ASC 820.

The amendments in this ASU are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting — Chapter 8:

The amendments in this ASU are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting —

Notes to Financial Statements.

We adopted the new standard in Q1 2020 and the standard did not have a significant impact on our Consolidated Financial Statements.

ASU 2019 - 12, Income Taxes (Topic 740 ):

Simplifying the Accounting for Income Taxes  

This pronouncement is intended to simplify various aspects related to accounting for income taxes.

ASU 2019 - 12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

We adopted the new standard in Q1 2021 and the standard did not have a significant impact on our Consolidated Financial Statements.

BUSINESS ACQUISITION

The Performance and Lifestyle Footwear Business of Honeywell International Inc.

On January 24, 2021, we entered into a Purchase Agreement (the "Purchase Agreement") with certain subsidiaries of Honeywell International Inc.

(collectively, "Honeywell"), to purchase Honeywell's performance and lifestyle footwear business, including brand names, trademarks, assets and liabilities associated with Honeywell's performance and lifestyle footwear business (the "Acquisition") for an aggregate purchase price of $ 212  million.

On March 15, 2021 ( the "Acquisition Date"), pursuant to the terms and conditions set forth in the Purchase Agreement, we completed the Acquisition for an aggregate preliminary closing price of approximately $ 207 million, net of cash acquired, based on preliminary working capital and other adjustments. Upon a final agreement of net working capital as of the Acquisition Date, we owed Honeywell an additional $ 5.4 million.

The Acquisition was funded through cash on hand and borrowings under two new credit facilities.

Note 8  for information regarding the two credit facilities.

The Acquisition expanded our brand portfolio to include Muck, XTRATUF, Servus, NEOS and Ranger brands (the "Acquired Brands").

We acquired 100 % of the voting interests of certain subsidiaries and additional assets comprising the performance and lifestyle footwear business of Honeywell with the Acquisition.

Through the Acquisition, we have greatly enhanced our powerful portfolio of footwear brands and significantly increased our sales and profitability.

We acquired a well-run business with a corporate culture and a customer base similar to ours, which provides meaningful growth opportunities within our existing product categories as well as an entry into new market segments.

Its innovative and authentic product collections complement our existing offering with minimal overlap, which we believe will allow us to strengthen our wholesale relationships and serve a wider consumer audience.

At the same time, we plan to leverage our existing advanced fulfillment capabilities to improve distribution of the Acquired Brands to wholesale customers and accelerate direct-to-consumer penetration.

In connection with the Acquisition, we also entered into employment agreements with seven key employees from the performance and lifestyle footwear business of Honeywell, pursuant to which, among other things, we agreed to grant 25,000 non-qualified stock options in the aggregate to the seven employees as an inducement for continuing their employment with us.

We acquired multiple leases through the Acquisition including the lease of our Rock Island and China manufacturing facilities and an office building lease in Westwood, Massachusetts.

The Acquisition contributed net sales of $ 179.0  million to our consolidated operating results for the year ended December 31, 2021.

The Acquisition contributed net income of $ 16.5  million to our consolidated operating results for the year ended December 31, 2021.

Acquisition-related costs

Costs incurred to complete and integrate the Acquisition are expensed as incurred and included in "operating expenses" in the accompanying consolidated statements of operations.

During the year ended December 31, 2021 and 2020, there were approximately $ 11.9  million and $ 0.7  million, respectively, of acquisition-related costs recognized.

These costs represent investment banking fees, legal and professional fees, transaction fees, integration costs, amortization and consulting fees associated with the Acquisition.

Preliminary Purchase Price Allocation

The Acquisition has been accounted for under the business combinations accounting guidance.

As a result, we have applied acquisition accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the Acquisition Date.

The aggregate closing price noted above was allocated to the major categories of assets acquired and liabilities assumed based on their fair values at the Acquisition Date using primarily Level 2 and Level 3 inputs.

These Level 2 and Level 3 valuation inputs include an estimate of future cash flows and discount rates.

Additionally, estimated fair values are based, in part, upon outside valuation for certain assets, including specifically identified intangible assets.

The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill is not finalized and is subject to adjustment until the final valuation related to assets acquired and liabilities assumed is obtained (up to one year from the Acquisition Date).

The following table summarizes the consideration paid and estimated fair value of the assets acquired and liabilities assumed as of the Acquisition Date.

($ in thousands)

$ 2,655  

Accounts receivable (1)

36,734  

Inventories (2)

40,662  

Property, plant and equipment

16,243  

50,641  

Intangible assets

98,620  

Accounts payable

Accrued expenses

Total identifiable net assets

215,063  

Cash acquired

Total cash paid, net of cash acquired

$ 212,408  

( 1 )  The recorded amount for accounts receivable considers expected uncollectible amounts of approximately $ 0.6  million in its determination of fair value.

( 2 )  Fair value of finished goods inventories included step up value of approximately $ 3.5 million, all of which was expensed during the 

twelve months ended December 31, 2021, and is included in "Cost of Goods Sold" in the accompanying consolidated statement of operations.

( 3 )  Goodwill largely consists of the acquired workforce, expected costs synergies and economies of scale resulting from the Acquisition.

Unaudited Pro Forma Financial Information

The following unaudited pro forma results of operations assume that the Acquisition occurred at the beginning of the periods presented.

These unaudited pro forma results are presented for information purposes only and are not necessarily indicative of what the results of operations would have been if the Acquisition had occurred at the beginning of the periods presented, nor are they indicative of the future results of operations.

The pro forma results presented below are adjusted for the removal the step of value of finished goods inventory associated with the Acquisition of approximately $ 3.5 million. The pro forma results presented below are also adjusted for the removal of acquisition-related costs of approximately $ 11.9  million and $ 0.7 million for the 

twelve months ended December 31, 2021 and 2020, respectively. 

Twelve Months Ended December 31,

($ in thousands, except per share amount)

$ 552,905  

$ 482,562  

$ 40,248  

$ 41,726  

Diluted earnings per share

$ 5.43  

$ 5.69  

Inventories are comprised of the following:

1 unchanged sentence

Raw materials

$ 20,933  

$ 12,875  

Work-in-process

Finished goods

In accordance with ASC 606, the returns reserve asset included within inventories was approximately $ 744,000 at December 31, 2020 .

The returns reserve was $ 613,000 as of December 31, 2019 .

210,215  

63,573  

$ 232,464  

$ 77,576  

In accordance with ASC 606, the returns reserve asset included within inventories was approximately $ 0.9  million and $ 0.7  million at December 31, 2021  and 

December 31, 2020 , respectively.

PROPERTY, PLANT, AND EQUIPMENT

13 unchanged sentences

124,092  

91,815  

Less - accumulated depreciation

8 unchanged sentences

December 31, 2021

Wholesale (1)

$ 72,579  

Customer relationships (3)

46,900  

44,425  

Total Intangibles

1 unchanged sentence

$ 3,279  

$ 126,315  

($ in thousands)

Amount  

Amortization  

Amount  

December 31, 2020

4 unchanged sentences

$ 30,209  

( 1 )  $ 45.4 million of the total resulted from our Acquisition that occurred on March 15, 2021.

( 2 )  $ 6.3 million of the total resulted from our Acquisition that occurred on March 15, 2021.

( 3 )  Resulted from our Acquisition that occurred on March 15, 2021.

The weighted average remaining life for our patents is 

1 unchanged sentence

($ in thousands)

Intangible assets, including trademarks and patents are reviewed for impairment annually, and more frequently, if necessary.

28,802  

Indefinite lived intangible assets, such as trademarks are reviewed for impairment testing annually, more frequently if necessary.

We perform such testing of indefinite-lived intangible assets in the fourth quarter of each year or as events occur or circumstances change that would more likely than not reduce the fair value of the asset below its carrying amount.

Fair value of other indefinite-lived intangible assets is determined using the relief from royalty method.

In assessing whether indefinite-lived intangible assets are impaired, we must make certain estimates and assumptions regarding future cash flows, long-term growth rates of our business, operating margins, weighted average cost of capital and other factors such as;

discount rates, royalty rates, cost of capital, and market multiples to determine the fair value of our assets.

Definite lived intangible assets, such as patents and customer relationships are only reviewed for impairment if a triggering event has occurred to indicate that its fair value of the asset is below its carrying value.

3 unchanged sentences

2021 and 2020 Impairment Testing

We evaluate our finite and indefinite lived trademarks under the terms and provisions of the accounting standards for “Intangibles - Goodwill and Other”;

and “Property, Plant and Equipment.”

These pronouncements require that we compare the fair value of an intangible asset with its carrying amount.

The results of our 2020 and 2019 indefinite-lived intangible impairment testing indicated that all reporting unit intangible asset fair values exceed their respective carrying values.

We evaluate our finite and indefinite lived intangible assets under the terms and provisions of the accounting standards for "Intangibles - Goodwill and Other" and "Property, Plant and Equipment." These pronouncements require that we compare the fair value of an intangible asset with its carrying amount.

The results of our 2021 and 2020  finite and indefinite-lived intangible impairment testing indicated that all reporting unit intangible asset fair values exceed their respective carrying values.

Other assets consist of the following:

($ in thousands)

Deferred financing costs, net

In February 2019, we deferred financing costs of approximately $ 174,000 related to the new credit agreement with Huntington National Bank that will be amortized over the life of the loan.

Long-term deposits

NQDC plan assets

LONG-TERM DEBT

On February 13, 2019 we entered into a Revolving Credit, Guaranty, and Security Agreement (“Credit Agreement”) with the Huntington National Bank (“Huntington”) as administrative agent.

The Credit Agreement provides for a new senior secured asset-based revolving credit facility up to a principal amount of $ 75 million, which includes a sublimit for the issuance of letters of credit up to $ 7.5 million (the “Credit Facility”).

The Credit Facility may be increased up to an additional $ 25 million at the Borrowers’

On March 15, 2021, we entered into a senior secured term loan facility ("Term Facility") with TCW Asset Management Company, LLC, as agent, for the lenders party thereto in the amount of $ 130 million.

The Term Facility provided for quarterly payments of principal and bears interest of LIBOR plus 7.00 % through June 30, 2021.

After this date, interest was assessed quarterly based on our total leverage ratio.

The total leverage ratio is calculated as (a) Total Debt to (b) EBITDA.

If our total leverage ratio is greater than or equal to 3.25, the effective interest rate will be LIBOR plus 7.00 % (or at our option, Prime Rate plus 6.00 %).

If our total leverage ratio is less than 3.25, the effective interest rate will be LIBOR plus 6.50 % (or at our option, Prime Rate plus 5.50 %).

The Term Facility also has a LIBOR floor rate of 1.00 %.

In December 2021, the Term Facility was amended to increase the effective interest rate to LIBOR plus 7.00 % until June 2022.

Our Term Facility is collateralized by a second -lien on accounts receivable, inventory, cash and related assets and a first -lien on substantially all other assets.

The Term Facility matures on March 15, 2026.

On March 15, 2021, we also entered into a senior secured asset-based credit facility ("ABL Facility") with Bank of America, N.A.

("Bank of America") as agent, for the lenders party thereto.

The ABL Facility provides a new senior secured asset-based revolving credit facility up to a principal amount of $ 150 million, which includes a sub-limit for the issuance of letters of credit up to $ 5 million.

The ABL Facility may be increased up to an additional $ 50 million at the Borrowers’

request and the Lenders’

option, subject to customary conditions.

The Credit Agreement matures on February 13, 2024.

This Credit Agreement replaced our previous financing agreement with PNC Bank (“PNC”).

Spread Rates for

Applicable Spread Rates

Domestic Rate

Average Excess Revolver Availability

for Eurodollar Rate

option, subject to customary conditions. In December of 

2021, we amended our ABL Facility to temporarily increase our borrowing capacity from $ 150 million to $ 175 million until June 2022, at which time our borrowing capacity will go down to $ 165 million. The ABL Facility includes a separate first in, last out (FILO) tranche, which allows the Company to borrow at higher advance rates on eligible accounts receivables and inventory balances.

As of December 31, 2021, we had borrowing capacity of $ 28.9  million.

The ABL Facility is collateralized by first -lien on accounts receivable, inventory, cash and related assets and a second -lien on substantially all other assets.

The ABL Facility matures on March 15, 2026.

Interest on the ABL Facility is based on the amount available to be borrowed as set forth on the following chart:

Average Availability as a

Revolver Pricing Level (1)

for Previous Quarter

Revolving Advances

Percentage of Commitments

Base Rate for FILO

LIBOR Rate for FILO

0.00 %  

$17,500,000 to < 25,000,000

1.25 %  

$10,000,000 to < 17,500,000

0.50 %  

$< 10,000,000

>33.3% and < or equal to 66.7%

0.00 %  

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

As of December 31, 2020 , we had total capacity of $ 70.8 million.

We had no outstanding borrowings against the Credit Facility for fiscal years ending December 31, 2020 or December 31, 2019 .

1.50 %  

0.50 %  

< or equal to 33.3%

0.25 %  

1.75 %  

0.75 %  

( 1 )  Tier II applied until June 30, 2021.

In connection with the Term Facility and ABL Facility, we had to pay certain fees that were capitalized and will be amortized over the life of each respective loan.

In addition, the ABL Facility requires us to pay an annual collateral management fee in the amount of $ 75,000 due on each anniversary of the ABL Facility issuance date, until it matures.

Current and long-term debt consisted of the following:

($ in thousands)

Term Facility that matures in 2026 with an effective interest rate of 8.00%

$ 127,563  

ABL Facility that matures in 2026:

LIBOR borrowings with an effective interest rate of 1.88%

140,000  

Prime borrowings with an effective interest rate of 3.50%

273,635  

Unamortized debt issuance costs

Total debt, net of debt issuance costs

270,044  

Debt maturing within one year

Long-term debt

$ 266,794  

Credit Facility Covenants

Our Credit Facility contains restrictive covenants which require us to maintain a fixed charge coverage ratio.

The Term Facility contains restrictive covenants which require us to maintain a maximum total leverage ratio and a minimum fixed charge coverage ratio, as defined in the agreement. We believe we are in compliance with all Term Facility covenants as of 

December 31, 2021 .

Our ABL Facility contains a restrictive covenant which requires us to maintain a fixed charge coverage ratio upon a triggering event taking place (as defined in the ABL Facility agreement).

During the 

twelve months ended 

December 31, 2021 , there were no triggering events and the covenant was not in effect.

Huntington Credit Facility

On February 13, 2019, we entered into a Revolving Credit, Guaranty, and Security Agreement ("Credit Agreement") with the Huntington National Bank ("Huntington") as administrative agent.

The Credit Agreement provided for a new senior secured asset-based revolving credit facility up to a principal amount of $ 75 million, which included a sublimit for the issuance of letters of credit up to $ 7.5 million (the "Huntington Credit Facility").

The Huntington Credit Facility permitted increases up to an additional $ 25 million at our request and the lenders’

option, subject to customary conditions.

The Huntington credit facility was terminated in March 2021 and was replaced by the ABL Facility.

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

As of December 31, 2020, we had total capacity of $ 70.8 million.

We had no outstanding borrowings against Huntington Credit Facility for fiscal year ending 

December 31, 2020 .

Huntington Credit Facility Covenants

Our Huntington Credit Facility contained restrictive covenants which required us to maintain a fixed charge coverage ratio.

These restrictive covenants are only in effect upon a triggering event taking place (as defined in the agreement).

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

During the twelve months ended December 31, 2020 , there were no triggering events and the covenant was not in effect for our Credit Facility.

On March 15, 2021, we entered into a senior secured asset-based credit facility with Bank of America, N.A.

("Bank of America"), as agent, for the lenders party thereto and a senior secured term loan facility with TCW Asset Management Company LLC ("TCW"), as agent, for the lenders party thereto, which collectively replaced our existing Credit Agreement with Huntington.

Refer to Note 19  for additional information regarding these new credit agreements with Bank of America and TCW.

In February 2016, the FASB issued ASU No.

2016 - 02, Leases (“ASU 2016 - 02”

), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements.

ASU 2016 - 02 was subsequently amended by ASU No.

2018 - 01, Land Easement Practical Expedient for Transition to Topic 842;

2018 - 10, Codification Improvements to Topic 842, Leases;

2018 - 11, Targeted Improvements.

For additional detail regarding these updates to Topic 842, please see below.

The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the Audited Consolidated Statements of Operations.

The new standard was effective for us on January 1, 2019, with early adoption permitted.

We adopted the new standard on its effective date.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.

An entity may choose to use either ( 1 ) its effective date or ( 2 ) the beginning of the earliest comparative period presented in the financial statements as its date of initial application.

We used the effective date as our date of initial application.

Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides several optional practical expedients in transition.

We elected the ‘package of practical expedients’, which permits us not to reassess, under the new standard, our prior conclusions about lease identification, lease classification and initial direct costs.

We did not elect the use-of-hindsight with respect to determining the lease term (i.e., considering the actual outcome and updated expectations of lease renewals, termination option and purchase options).

We also did not elect the use of the practical expedient pertaining to land easements because we do not have any such easements.

The new standard also provides practical expedients for an entity’s ongoing accounting.

We elected the short-term lease recognition exemption for all leases that qualify.

This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.

We also elected the practical expedient to not separate lease and non-lease components for our leases.

This standard had a material effect on our Audited Consolidated Balance Sheets.

Specifically, the most significant effects relate to ( 1 ) the recognition of new ROU assets and lease liabilities on our balance sheet for our factories in the Dominican Republic and Puerto Rico and various equipment leases, all currently accounted for as operating leases;

and ( 2 ) providing significant new disclosures about our leasing activities.

Adoption of the standard did not have a material impact on our Audited Consolidated Statements of Cash Flows.

We do not expect a significant change in our leasing activities as a result of this standard.

Many of our leases contain renewal options, most of which are not included in the measurement of the right-of-use asset as they are not considered reasonably certain of exercise (i.e.

we do not currently have a significant economic incentive to exercise these options).

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

During the twelve months ended December 31, 2020, there were no triggering events and the covenant was not in effect for our Huntington Credit Facility.

On March 15, 2021, the Term Facility and ABL Facility collectively replaced our Huntington Credit Agreement.

The operating ROU asset and operating lease liabilities as of December 31, 2021 and December 31, 2020 are as follows:

5 unchanged sentences

Leased assets

$ 2,985  

Other accrued expenses

5 unchanged sentences

($ in thousands)

$ 3,162  

Total lease payments

12,242  

Present value of lease liabilities

9 unchanged sentences

Operating cash flows from operating leases

$ 1,230  

Right-of-use assets obtained in exchange for lease obligations

22 unchanged sentences

401k plan sponsor contributions

$ 1,311  

Deferred Compensation Plans

8 unchanged sentences

The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent.

Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”).

The assets held by the trust were approximately $ 150,000 and $ 40,000 as of 

December 31, 2020 and December 31, 2019 , respectively, and are classified as trading securities within prepaid expenses and other current assets in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to operating expenses in the accompanying consolidated statements of operations.

During 2020, we entered into a second deferred compensation plan ("the Dominican Plan"), which became effective August 18, 2020 and is a non-qualified deferred compensation plan for certain key employees at our Dominican Republic manufacturing facility.

Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a "Rabbi Trust").

The assets held by the trust were approximately $ 311,000  and $ 150,000 as of 

December 31, 2021 and December 31, 2020 , respectively, and are classified as trading securities within other assets in the accompanying consolidated balance sheets.

The liabilities by the trust were approximately $ 119,000 and $ 20,000 , as of 

December 31, 2021 and December 31, 2020 , respectively, and are classified within deferred liabilities in the accompanying consolidated balance sheets. Changes in the deferred compensation assets and liabilities are charged to operating expenses in the accompanying consolidated statements of operations.

In 2020, we entered into a second deferred compensation plan (the "Dominican Plan"), which became effective August 18, 2020 and is a non-qualified deferred compensation plan for certain key employees at our Dominican Republic manufacturing facility.

Under the Dominican Plan, key employees will receive a set dollar amount, as defined in the agreement, at the later of five years following the effective date of the agreement or upon the employee attaining the age of 65.

2 unchanged sentences

The funds are accrued based on service and are not held in an investment or trust account.

The total assets held under the Dominican Plan were approximately $ 150,000 as of 

December 31, 2020 .

The Company accounts for income taxes in accordance with the accounting standard for “Income Taxes,”

which requires an asset and liability approach to financial accounting and reporting for income taxes.

The total liabilities held under the Dominican Plan were approximately $ 107,000  and $ 44,000 as of 

December 31, 2021  and 

December 31, 2020 , respectively, and are classified within deferred liabilities in the accompanying consolidated balance sheets.

We account for income taxes in accordance with the accounting standard for "Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes.

Accordingly, deferred income taxes have been provided for the temporary differences between the financial reporting and the income tax basis of the Company’s assets and liabilities by applying enacted statutory tax rates applicable to future years to the basis differences.

6 unchanged sentences

State & local:

( 176 )  

Total State & local

( 37 )  

Total Foreign

2 unchanged sentences

A reconciliation of recorded Federal income tax expense to the expected expense computed by applying the applicable Federal statutory rate for all periods to income before income taxes follows:

Years Ended December 31,

Year Ended December 31,

($ in thousands)

Expected expense at statutory rate (21% in 2020 and 2019)

Expected expense at statutory rate

$ 5,327  

3 unchanged sentences

( 1,238 )  

Tax Rate Differential effect of Foreign Operations

Tax on repatriated earnings from Dominican Republic operations

State and local income taxes

Foreign Tax Credit/Expense

Foreign Tax Credit

( 547 )  

7 unchanged sentences

Deferred tax assets:

Asset reserves and accrued expenses

Asset valuation allowances and accrued expenses

State and local income taxes

1 unchanged sentence

Net operating losses

Lease asset  

Total deferred tax assets

Valuation allowances

( 298 )  

Total deferred tax assets

3 unchanged sentences

State and local income taxes

Lease Liability  

Total deferred tax liabilities

15,478  

Net deferred tax liability

1 unchanged sentence

$ 8,271  

The valuation allowance is related to certain state and local income tax net operating loss carry forwards.

The valuation allowance as of December 31, 2020 

is related to certain state and local income tax net operating loss carry forwards.

We have provided Puerto Rico tollgate taxes on approximately $ 3,684,000 of accumulated undistributed earnings of Lifestyle prior to the fiscal year ended June 

2 unchanged sentences

30, 1994, thus no other provision for tollgate tax has been made on earnings after that date.

If we repatriate the earnings from Lifestyle, $ 227,563 of tollgate tax would be due.

If we repatriate the earnings from Lifestyle, $ 227,563 of tollgate tax would be due as of December 31, 2021.

We are subject to tax examinations in various taxing jurisdictions.

3 unchanged sentences

Puerto Rico (U.S.

United Kingdom

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

13 unchanged sentences

February 2020

February 2019

Funding source

3 unchanged sentences

129,095  

54,249  

Amount paid for shares repurchased

$ 2,938  

$ 1,500  

Weighted average price paid per share

$ 22.76  

$ 27.65  

Remaining amount of shares authorized to be purchased under the plan (in dollars)

2 unchanged sentences

Common shares can be purchased in the open market or privately negotiated transactions over the next twelve months from the date of plan authorization.

On March 8, 2021, we announced a new $ 7,500,000 share repurchase program that will terminate on March 4, 2022 .

This program is replacing the 2020 share repurchase program that expired on February 27, 2021 .

Our shareholder repurchase program terminated on March 4, 2022.

Preferred Shares

7 unchanged sentences

SHARE-BASED COMPENSATION

7, 2014, our shareholders approved the 2014 Omnibus Incentive Plan (the “2014 Plan”).

7, 2014, our shareholders approved the 2014 Omnibus Incentive Plan and in May 2021 this plan was amended as our shareholders authorized an additional 600,000 shares (as amended, the "2014 Plan").

The 2014 Plan includes 1,100,000 of our common shares that may be granted under various types of awards as described in the 2014 Plan.

As of December 31, 2021 , we were authorized to issue 573,250  shares under the 2014 Plan.

Stock options

On January 24, 2021, we adopted the 2021 Inducement Option Plan (the "2021 Plan") pursuant to which 25,000 non-qualified stock options were granted to seven key employees acquired with the Acquisition.

The 2021 Plan did not require shareholder approval under Nasdaq Listing Rule 5635 (c).

As of December 31, 2021 , there were no remaining shares available to grant under the 2021 Plan.

Stock Options 

The following table presents the weighted average assumptions used in the option-pricing model at the grant date for options granted during the years ended December 

12 unchanged sentences

Share-based compensation expense

$ 1,265  

Table of Contents  

The following summarizes stock option activity for the year ended December 31, 2021 :

27 unchanged sentences

45,000 stock options that vest over a year and will expire in 5 years.

Restricted stock units

The following table summarizes the status of the Company’s restricted stock units and activity as of December 31, 2020 :

Restricted Stock Units

Weighted-Average Grant Date

($ amounts are per share)

Fair Value Per Share

Nonvested at January 1, 2020

$ 11.35  

( 2,500 )  

Nonvested at December 31, 2020

As of December 31, 2020 , the total unrecognized compensation cost related to non-vested stock options and restricted stock units was $ 190,939 with a weighted-average expense recognition period of 3.7 years.

As of December 31, 2021 , the total unrecognized compensation cost related to non-vested stock options and restricted stock units was approximately $ 1,303,000 with a weighted-average expense recognition period of 3.8 years.

During the years ended December 31, 2021 and 2020 , we issued 

10,456 and 

7,925 shares of common stock to members of our Board of Directors, respectively.

6,868  and 

10,456  shares of common stock to members of our Board of Directors, respectively.

EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income applicable to common shareholders by the weighted average number of common shares outstanding during each period.

Basic earnings per share ("EPS") is computed by dividing net income applicable to common shareholders by the weighted average number of common shares outstanding during each period.

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

4 unchanged sentences

Basic - weighted average shares outstanding

Dilutive restricted share units

Dilutive stock options

4 unchanged sentences

Our products are distributed through three distinct channels, which represent our business segments:

Wholesale, Retail, and Military.

Wholesale, Retail, and Contract Manufacturing.

In our Wholesale business, we distribute our products through a wide range of distribution channels representing over 

10,000 retail store locations in the U.S., Canada, and internationally.

10,000 retail store locations in the U.S., Canada, and internationally, mainly Europe.

Our Wholesale channels vary by product line and include sporting goods stores, outdoor specialty stores, online retailers, independent retailers, mass merchants, retail uniform stores, and specialty safety shoe stores.

3 unchanged sentences

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied;

this generally occurs upon shipment of our product to our customer, which is when the transfer of control of our products passes to the customer.

this generally occurs upon shipment of our product to our customer, which is when the transfer of control of our product passes to the customer.

The duration of our arrangements with our customers are typically one year or less.

3 unchanged sentences

These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer).

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.

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 as of December 31, 2021 .

22 unchanged sentences

Costs associated with obtaining a contract are expensed as incurred in accordance with the practical expedient in ASC 340 - 40 in instances where the amortization period is one year or less.

We anticipate substantially all of our costs incurred to obtain a contract would be subject to this practical expedient.

Contract Balances

We anticipate substantially all costs incurred to obtain a contract would be subject to this practical expedient.

Contract Liabilities

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

7 unchanged sentences

Balance, December 31, 2020

$ 5,582  

Non-cancelable contracts with customers entered into during the period

1 unchanged sentence

Balance, December 31, 2021

$ 1,062  

Disaggregation of Revenue

1 unchanged sentence

Because all revenues are recognized at a point in time and are disaggregated by channel, our segment disclosures are consistent with ASC 606 disaggregation requirements.

See Note 16 for segment disclosures.

SUPPLEMENTAL CASH FLOW INFORMATION

See Note 17  for segment disclosures.

SUPPLEMENTAL CASH FLOW INFORMATION 

Supplemental cash flow for the years ended December 

2 unchanged sentences

Interest paid

$ 7,930  

Federal, state, and local income taxes paid, net

$ 8,638  

$ 4,669  

Change in contract receivables, net

$ 4,108  

Change in contract liabilities, net

$ ( 4,520 )  

Property, plant, and equipment purchases in accounts payable

$ 2,191  

$ 2,316  

SEGMENT INFORMATION

Reportable Segments - We operate our business through three reportable segments:

Wholesale, Retail and Military.

During the three months ended June 30, 2021, 

we changed our reporting segments to change our Military reporting segment to "Contract Manufacturing" and to change the composition thereof to continue to include Military Contracts and to include sales under manufacturing contracts for private label or other Private Contracts. Previously, only Military Contracts were included in this segment.

The Private Contract sales have characteristics more like Military Contracts, with similar sales, delivery processes and gross margins.

This segment reporting change reflects a corresponding change in how our CODMs review financial information in order to allocate resources and assess performance.

Previously, Private Contracts were included in the Wholesale segment, but with our Acquisition, our Wholesale segment has substantially increased in size and our CODMs determined that the change in segment reporting was appropriate at this time to mirror how they evaluate and manage our business.

Reportable Segments - We have identified three reportable segments:

Wholesale, Retail and Contract Manufacturing.

In our Wholesale segment, our products are offered in over 

10,000 retail locations representing a wide range of distribution channels in the U.S.

10,000 retail locations representing a wide range of distribution channels in the U.S., Canada, U.K.

and other international markets, mainly Europe.

These distribution channels vary by product line and target market and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers.

1 unchanged sentence

Through our outlet store, we generally sell first quality or discontinued products in addition to a limited amount of factory damaged goods, which typically carry lower gross margins.

While we are focused on continuing to build our Wholesale and Retail business, we also actively bid, from time to time, on footwear contracts with the U.S.

Our sales under such contracts are dependent on us winning the bids for these contracts.

We are currently fulfilling several multiyear contracts for the U.S.

The following is a summary of segment results for the Wholesale, Retail, and Military segments for the years ended December 

Contract Manufacturing.

 In our Contract Manufacturing segment, we include sales to the U.S.

Military, private label sales and any sales to customers in which we are contracted to manufacture or source a specific footwear product for a customer

The following is a summary of segment results for the Wholesale, Retail, and Contract Manufacturing segments for the years ended December 

Twelve Months Ended

4 unchanged sentences

72,877  

Contract Manufacturing

28,499  

8 unchanged sentences

34,283  

Contract Manufacturing

Total Gross Margin

11 unchanged sentences

61,127  

Duty and commercial military footwear

Outdoor footwear

76,031  

21,074  

Outdoor footwear

Duty and commercial military footwear

39,715  

9 unchanged sentences

0.8 % of net sales in 2020 .

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2020 and 2019 :

$ 55,720  

$ 56,186  

$ 77,785  

$ 87,618  

$ 277,309  

$ 19,320  

$ 19,462  

$ 29,832  

$ 36,121  

$ 104,735  

$ 1,188  

$ 2,442  

$ 7,613  

$ 9,721  

$ 20,964  

Dividends paid

$ 1,030  

$ 1,023  

$ 1,017  

$ 4,093  

Net income per common share:

$ 0.16  

$ 0.33  

$ 1.04  

$ 1.34  

$ 2.87  

$ 0.16  

$ 0.33  

$ 1.04  

$ 1.33  

$ 2.86  

$ 65,929  

$ 61,959  

$ 67,179  

$ 75,341  

$ 270,408  

$ 22,978  

$ 21,441  

$ 25,014  

$ 28,252  

$ 97,685  

$ 3,605  

$ 3,156  

$ 5,616  

$ 5,085  

$ 17,462  

Dividends paid

$ 1,035  

$ 1,036  

$ 1,029  

$ 3,987  

Net income per common share:

$ 0.49  

$ 0.43  

$ 0.76  

$ 0.68  

$ 2.36  

$ 0.48  

$ 0.42  

$ 0.75  

$ 0.70  

$ 2.35  

The net book value of fixed assets located outside of the U.S.

totaled $ 13.0  million at December 31, 2021, of which approximately $ 4.6  million resides in the Dominican Republic and approximately $ 8.4 million resides in China. The net book value of fixed assets located outside of the U.S.

totaled $ 4.5 million at December 31, 2020, all of which resides in the Dominican Republic.

COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

Although the ultimate resolution of pending proceedings cannot be determined, in the opinion of management, the resolution of such proceedings in the aggregate will not have a material adverse effect on our financial position, results of operations, or liquidity.

SUBSEQUENT EVENTS

Subsequent to year-end, we closed on the acquisition of the performance and lifestyle footwear business of Honeywell International, Inc., which expanded our brand portfolio to include The Original Muck Boot Company, XTRATUF, Servus, NEOS and Ranger Brands.

We acquired 100 % of the voting interests of the performance and lifestyle footwear business of Honeywell International, Inc.

with this acquisition.

The total purchase price for these brands was $ 230 million, funded through cash on hand and two new credit facilities.

With the acquisition of The Original Muck Boot Company along with the XTRATUF, Servus, NEOS and Ranger brands, we will greatly enhance our powerful portfolio of footwear brands and significantly increase our sales and profitability.

We are acquiring a well-run business with a corporate culture and a customer base similar to ours, which provides meaningful growth opportunities within our existing categories as well as an entry into new market segments.

Its innovative and authentic product collections complement our existing offering with minimal overlap, which will allow us to strengthen our wholesale relationships and serve a wider consumer audience.

At the same time, we plan to leverage our existing advanced fulfillment capabilities to improve distribution of the new brands to wholesale customers and accelerate direct-to-consumer penetration.

In connection with this acquisition, we incurred approximately $ 705,000 of transaction related expenses for year ended December 31, 2020, which are included in operating expenses in the consolidated statements of operations.

From the period January 1, 2021 to March 15, 2021, we incurred approximately $4.5 million of transaction related costs.

We also entered into employment agreements with seven key employees from the performance and lifestyle footwear business of Honeywell International, Inc., pursuant to which, among other things, we agreed to grant 25,000 non-qualified stock options in the aggregate to the seven employees as an inducement for continuing their employment with the us.

Certain financial information and related disclosures pertaining to the acquisition completed on March 15, 2021 are not available as of March 16, 2021, the date of issuance of this filing because the closing statements have not yet been completed by the Seller.

On March 15, 2021, we entered into a senior secured term loan facility (“Term Facility”) with TCW, as agent, for the lenders party thereto in the amount of $ 130 million.

The Term Facility provides for quarterly payments of principal and bears interest of LIBOR plus 7.00 % through June 30, 2021.

After this date, interest will be assessed quarterly based on our total leverage ratio.

The total leverage ratio is calculated as (a) Total Debt to (b) EBITDA.

If our total leverage ratio is greater than or equal to 3.25, the effective interest rate will be LIBOR plus 7.00% (or at our option, Prime Rate plus 6.00 %).

If our total leverage ratio is less than 3.25, the effective interest rate will be LIBOR plus 6.50 % (or at our option, Prime Rate plus 5.50 %).

The term facility also has a LIBOR floor rate of 1.00 %.

Our Term Facility is collateralized by a second -lien on accounts receivable, inventory, cash and related assets and a first -lien on substantially all other assets.

The term facility matures on March 15, 2026.

On March 15, 2021, we entered into a senior secured asset-based credit facility (“ABL Facility”) with Bank of America as agent, for the lenders party thereto.

The ABL facility may be increased to an additional $ 50 million at the Borrowers’

request and the Lenders’

option, subject to customary conditions.

As of March 16, 2021, the total amount available on the ABL Facility was $ 150 million, with $ 80 million funded at the close of our recent acquisition.

The ABL Facility includes a separate first in, last out (FILO) tranche, which allows the Company to borrow at higher advance rates on eligible accounts receivables and inventory balances.

The ABL Facility is collateralized by first -lien on accounts receivable, inventory, cash and related assets and a second -lien on substantially all other assets.

The ABL Facility matures on March 15, 2026.

Interest on the ABL Facility is based on the amount available to be borrowed as set forth on the following chart:

Average Availability as a

Revolver Pricing Level (1)

Percentage of Commitments

Base Rate for FILO

LIBOR Rate for FILO

0.00 %  

1.25 %  

0.50 %  

>33.3% and < or equal to 66.7%

0.00 %  

1.50 %  

0.50 %  

< or equal to 33.3%  

0.25 %  

1.75 %  

0.75 %  

( 1 ) Until June 30, 2021, Tier II shall apply

Credit Facility Covenants

The Term Facility contains restrictive covenants which requires us to maintain a maximum total leverage ratio and a minimum fixed charge coverage ratio.

The fixed charge coverage ratio is calculated as (a) EBITDA minus the sum of (i) Capital Expenditures (except those financed with Borrowed Money other than under the Financing Agreements) and (ii) cash income taxes paid, to (b) Fixed Charges, with Fixed Charges being the sum of ( x ) interest expense (other than payment-in-kind), (y) scheduled principal payments made on Borrowed Money, and (c) Distributions paid in cash by the Company.

Our ABL Facility contains a restrictive covenant which requires us to maintain a fixed charge coverage ratio upon a triggering event taking place (as defined in the agreement).

Both the Term Facility and the ABL Facility contain restrictions on the amount of dividends that may be paid.

Deferred Financing Fees

In connection with the Term Facility and ABL Facility, we had to pay certain fees that will be capitalized and amortized over the life of each respective loan.

In addition, the ABL Facility requires us to pay an annual collateral management in the amount of $ 75,000 due on each anniversary of the ABL Facility issuance date, until it matures.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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 8. Financial Statements and Supplementary Data