UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
⌧ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20212022
Or
◻ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________________ to _____________________________
Commission File Number: 000-09068
WEYCO GROUP, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN | 39-0702200 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
333 W. Estabrook Boulevard
P. O. Box 1188
Milwaukee, Wisconsin 53201
(Address of principal executive offices)
(Zip Code)
(414) 908-1600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol | Name of each exchange on which registered | |
Common Stock - $1.00 par value per share | | WEYS | | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ⌧☒ No ◻☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧☒ No ◻☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ | Accelerated Filer ☒ | Non-Accelerated Filer ☐ | Smaller Reporting Company ☒ | Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ◻☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ⌧
As of April 23, 2021,22, 2022, there were 9,735,4679,635,433 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following consolidated condensed balance sheet as of December 31, 2020,2021, which has been derived from audited financial statements, and the unaudited interim consolidated condensed financial statements have been prepared by Weyco Group, Inc. (the(“we,” “our,” “us,” and the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believeswe believe that the disclosures made are adequate to make the information not misleading. It is suggested thatPlease read these consolidated condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’sour latest annual report on Form 10-K.
1
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
ASSETS: |
| |
|
| |
|
Cash and cash equivalents | | $ | 24,860 | | $ | 32,476 |
Investments, at fair value | | | 20,011 | | | 0 |
Marketable securities, at amortized cost | |
| 1,483 | |
| 2,215 |
Accounts receivable, net | | | 32,317 | | | 34,631 |
Income tax receivable | | | 853 | | | 1,374 |
Inventories | |
| 47,340 | |
| 59,025 |
Prepaid expenses and other current assets | |
| 3,951 | |
| 4,610 |
Total current assets | |
| 130,815 | |
| 134,331 |
| | | | | | |
Marketable securities, at amortized cost | |
| 11,804 | |
| 12,800 |
Deferred income tax benefits | |
| 1,218 | |
| 1,235 |
Property, plant and equipment, net | |
| 30,196 | |
| 30,759 |
Operating lease right-of-use assets | | | 10,538 | | | 9,613 |
Goodwill | |
| 11,112 | |
| 11,112 |
Trademarks | |
| 32,868 | |
| 32,868 |
Other assets | |
| 24,164 | |
| 24,001 |
Total assets | | $ | 252,715 | | $ | 256,719 |
| | | | | | |
LIABILITIES AND EQUITY: | |
|
| |
|
|
Accounts payable | | $ | 6,605 | | $ | 8,444 |
Operating lease liabilities | | | 4,048 | | | 4,245 |
Accrued liabilities | |
| 10,640 | |
| 11,656 |
Total current liabilities | |
| 21,293 | |
| 24,345 |
| | | | | | |
Deferred income tax liabilities | |
| 3,001 | |
| 2,914 |
Long-term pension liability | |
| 33,191 | |
| 33,534 |
Operating lease liabilities | | | 8,565 | | | 7,734 |
Other long-term liabilities | |
| 245 | |
| 267 |
Total liabilities | |
| 66,295 | |
| 68,794 |
| | | | | | |
Common stock | | | 9,735 | | | 9,797 |
Capital in excess of par value | |
| 67,723 | |
| 67,178 |
Reinvested earnings | |
| 136,927 | |
| 138,955 |
Accumulated other comprehensive loss | |
| (27,965) | |
| (28,005) |
Total equity | |
| 186,420 | |
| 187,925 |
Total liabilities and equity | | $ | 252,715 | | $ | 256,719 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2022 |
| 2021 | ||
| | (Dollars in thousands) | ||||
ASSETS: |
| |
|
| |
|
Cash and cash equivalents | | $ | 24,150 | | $ | 19,711 |
Investments, at fair value | | | 106 | | | 8,122 |
Marketable securities, at amortized cost | |
| 719 | |
| 219 |
Accounts receivable, net | | | 51,871 | | | 53,287 |
Income tax receivable | | | — | | | 495 |
Inventories | |
| 62,056 | |
| 71,026 |
Prepaid expenses and other current assets | |
| 4,124 | |
| 4,317 |
Total current assets | |
| 143,026 | |
| 157,177 |
| | | | | | |
Marketable securities, at amortized cost | |
| 9,023 | |
| 9,996 |
Deferred income tax benefits | |
| 1,098 | |
| 1,063 |
Property, plant and equipment, net | |
| 28,986 | |
| 29,202 |
Operating lease right-of-use assets | | | 8,790 | | | 9,543 |
Goodwill | |
| 12,317 | |
| 12,317 |
Trademarks | |
| 34,768 | |
| 34,768 |
Other assets | |
| 23,778 | |
| 23,601 |
Total assets | | $ | 261,786 | | $ | 277,667 |
| | | | | | |
LIABILITIES AND EQUITY: | |
|
| |
|
|
Accounts payable | | $ | 6,251 | | $ | 19,234 |
Operating lease liabilities | | | 3,451 | | | 3,593 |
Accrued liabilities | |
| 7,768 | |
| 11,681 |
Accrued income tax payable | |
| 952 | |
| — |
Total current liabilities | |
| 18,422 | |
| 34,508 |
| | | | | | |
Deferred income tax liabilities | |
| 5,003 | |
| 5,026 |
Long-term pension liability | |
| 27,480 | |
| 27,776 |
Operating lease liabilities | | | 6,887 | | | 7,520 |
Other long-term liabilities | |
| 1,626 | |
| 1,442 |
Total liabilities | |
| 59,418 | |
| 76,272 |
| | | | | | |
Common stock | | | 9,634 | | | 9,709 |
Capital in excess of par value | |
| 69,076 | |
| 68,718 |
Reinvested earnings | |
| 147,777 | |
| 147,762 |
Accumulated other comprehensive loss | |
| (24,119) | |
| (24,794) |
Total equity | |
| 202,368 | |
| 201,395 |
Total liabilities and equity | | $ | 261,786 | | $ | 277,667 |
The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.
21
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (UNAUDITED)
| | | | | | | | | | | | |
| | Three Months EndedMarch 31, | | Three Months Ended March 31, | ||||||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
| | (In thousands, except per share amounts) | | (In thousands, except per share amounts) | ||||||||
| | | | | | | | | | | | |
Net sales | | $ | 46,900 | | $ | 63,584 | | $ | 81,360 | | $ | 46,900 |
Cost of sales | | | 27,595 | |
| 40,407 | |
| 52,232 | |
| 27,595 |
Gross earnings | |
| 19,305 | |
| 23,177 | |
| 29,128 | |
| 19,305 |
| |
| | |
| | |
| | |
| |
Selling and administrative expenses | |
| 17,671 | |
| 21,836 | |
| 23,697 | |
| 17,671 |
Earnings from operations | |
| 1,634 | |
| 1,341 | |
| 5,431 | |
| 1,634 |
| |
| | |
| | |
| | |
| |
Interest income | |
| 131 | |
| 149 | |
| 91 | |
| 131 |
Interest expense | |
| (7) | |
| (51) | |
| (1) | |
| (7) |
Other income, net | |
| 138 | |
| 407 | ||||||
Other (expense) income, net | |
| (6) | |
| 138 | ||||||
| |
| | |
| | |
| | |
| |
Earnings before provision for income taxes | |
| 1,896 | |
| 1,846 | |
| 5,515 | |
| 1,896 |
| |
| | |
| | |
| | |
| |
Provision for income taxes | |
| 571 | |
| 684 | |
| 1,462 | |
| 571 |
| |
| | |
| | |
| | |
| |
Net earnings | | | 1,325 | | | 1,162 | | | 4,053 | | | 1,325 |
| |
|
| |
|
| |
|
| |
|
|
Weighted average shares outstanding | |
|
| |
|
| |
|
| |
|
|
Basic | |
| 9,680 | |
| 9,781 | |
| 9,596 | |
| 9,680 |
Diluted | |
| 9,686 | |
| 9,786 | |
| 9,647 | |
| 9,686 |
| |
| | |
| | |
| | |
| |
Earnings per share | |
| | |
| | |
| | |
| |
Basic | | $ | 0.14 | | $ | 0.12 | | $ | 0.42 | | $ | 0.14 |
Diluted | | $ | 0.14 | | $ | 0.12 | | $ | 0.42 | | $ | 0.14 |
| |
| | |
| | |
| | |
| |
Cash dividends declared (per share) | | $ | 0.24 | | $ | 0.24 | | $ | 0.24 | | $ | 0.24 |
| |
| | |
| | |
| | |
| |
Comprehensive income (loss) | | $ | 1,365 | | $ | (1,258) | ||||||
Comprehensive income | | $ | 4,728 | | $ | 1,365 |
The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.
32
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
Net earnings | | $ | 1,325 | | $ | 1,162 |
Adjustments to reconcile net earnings to net cash provided by operating activities - | |
|
| |
|
|
Depreciation | |
| 623 | |
| 733 |
Amortization | |
| 82 | |
| 71 |
Bad debt expense | |
| 17 | |
| 145 |
Deferred income taxes | |
| 39 | |
| 360 |
Net foreign currency transaction gains | |
| (115) | |
| (356) |
Share-based compensation expense | |
| 545 | |
| 351 |
Pension expense | |
| 0 | |
| 111 |
Increase in cash surrender value of life insurance | |
| (150) | |
| (135) |
Changes in operating assets and liabilities - | |
|
| |
|
|
Accounts receivable | |
| 2,273 | |
| 4,878 |
Inventories | |
| 11,700 | |
| 18,704 |
Prepaid expenses and other assets | |
| 572 | |
| 2,176 |
Accounts payable | |
| (1,839) | |
| (8,477) |
Accrued liabilities and other | |
| (1,425) | |
| (5,410) |
Accrued income taxes | |
| 522 | |
| 680 |
Net cash provided by operating activities | |
| 14,169 | |
| 14,993 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
|
Proceeds from maturities of marketable securities | |
| 1,720 | |
| 4,510 |
Purchases of investment securities | |
| (20,011) | |
| 0 |
Purchases of property, plant and equipment | |
| (73) | |
| (1,797) |
Net cash (used for) provided by investing activities | |
| (18,364) | |
| 2,713 |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
|
| |
|
|
Cash dividends paid | |
| (2,319) | |
| (4,694) |
Shares purchased and retired | |
| (1,079) | |
| (1,304) |
Proceeds from bank borrowings | |
| 0 | |
| 11,883 |
Repayments of bank borrowings | |
| 0 | |
| (18,932) |
Net cash used for financing activities | |
| (3,398) | |
| (13,047) |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| (23) | |
| (277) |
| | | | | | |
Net (decrease) increase in cash and cash equivalents | | $ | (7,616) | | $ | 4,382 |
| | | | | | |
CASH AND CASH EQUIVALENTS at beginning of period | |
| 32,476 | | | 9,799 |
| | | | | | |
CASH AND CASH EQUIVALENTS at end of period | | $ | 24,860 | | $ | 14,181 |
| | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
|
| |
|
|
Income taxes paid, net of refunds | | $ | 24 | | $ | 235 |
Interest paid | | $ | 7 | | $ | 51 |
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
| | (Dollars in thousands) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
Net earnings | | $ | 4,053 | | $ | 1,325 |
Adjustments to reconcile net earnings to net cash provided by operating activities - | |
| | |
| |
Depreciation | |
| 604 | |
| 623 |
Amortization | |
| 71 | |
| 82 |
Bad debt expense | |
| 15 | |
| 17 |
Deferred income taxes | |
| (111) | |
| 39 |
Net foreign currency transaction losses (gains) | |
| 32 | |
| (115) |
Share-based compensation expense | |
| 350 | |
| 545 |
Increase in cash surrender value of life insurance | |
| (150) | |
| (150) |
Changes in operating assets and liabilities - | |
| | |
| |
Accounts receivable | |
| 1,395 | |
| 2,273 |
Inventories | |
| 8,980 | |
| 11,700 |
Prepaid expenses and other assets | |
| 89 | |
| 572 |
Accounts payable | |
| (12,966) | |
| (1,839) |
Accrued liabilities and other | |
| (3,578) | |
| (1,425) |
Accrued income taxes | |
| 1,447 | |
| 522 |
Net cash provided by operating activities | |
| 231 | |
| 14,169 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
|
Proceeds from maturities of marketable securities | |
| 475 | |
| 1,720 |
Purchases of investment securities | |
| — | |
| (20,011) |
Proceeds from sale of investment securities | | | 8,050 | | | — |
Purchases of property, plant and equipment | |
| (352) | |
| (73) |
Net cash provided by (used for) investing activities | |
| 8,173 | |
| (18,364) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| |
Cash dividends paid | |
| (2,297) | |
| (2,319) |
Shares purchased and retired | |
| (1,797) | |
| (1,079) |
Proceeds from stock option exercised | |
| 11 | |
| — |
Net cash used for financing activities | |
| (4,083) | |
| (3,398) |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| 118 | |
| (23) |
| | | | | | |
Net increase (decrease) in cash and cash equivalents | | $ | 4,439 | | $ | (7,616) |
| | | | | | |
CASH AND CASH EQUIVALENTS at beginning of period | |
| 19,711 | | | 32,476 |
| | | | | | |
CASH AND CASH EQUIVALENTS at end of period | | $ | 24,150 | | $ | 24,860 |
| | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
| | |
| |
Income taxes paid, net of refunds | | $ | 75 | | $ | 24 |
Interest paid | | $ | 1 | | $ | 7 |
The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.
43
NOTES:
1. Financial Statements
In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three-month period ended March 31, 2021,2022, may not necessarily be indicative of the results for the full year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and during the reporting period. Actual results specifically related to inventory reserves, realizability of deferred tax assets, goodwill and trademarks could materially differ from those estimates, thatwhich would impact the reported amounts and disclosures in the consolidated financial statements and accompanying notes.
2.New Accounting Pronouncements
Recently Adopted
On January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of Accounting Standards Codification (“ASC”) Topic 740, Income Taxes. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provided optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.Pronouncement
Not Yet Adopted
In June 2016, the FASB issued ASUAccounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurements of Credit Losses on Financial Instruments.Instruments. This ASU modifies the measurement of expected credit losses of certain financial instruments, and applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. This ASU will be effective for the Company in the first quarter of 2023. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures.
3. Acquisition
On June 7, 2021, the Company acquired substantially all of the operating assets and certain liabilities of Forsake, Inc. (“Forsake”) a distributor of outdoor footwear, under the brand name “Forsake.” The principal assets acquired were inventory, accounts receivable, and intellectual property, including the Forsake brand name. The aggregate purchase price was approximately $2.6 million, plus contingent payments to be paid annually over a period of five years, depending on Forsake achieving certain performance measures. The Company’s estimate of the discounted fair value of the contingent payments was approximately $1.3 million in total. The $2.6 million purchase price was funded with the Company’s available cash. Transaction costs incurred in connection with the acquisition were not material to the Company’s financial statements.
The fair values assigned to the assets acquired and liabilities assumed were:
| | | |
Accounts receivable, net |
| $ | 143 |
Inventories | |
| 619 |
Prepaid expenses and other current assets | | | 72 |
Property, plant and equipment, net | |
| 17 |
Goodwill | |
| 1,205 |
Trademark | |
| 1,900 |
Accrued liabilities | |
| (48) |
| | $ | 3,908 |
The Company recorded $3.1 million of intangible assets, including $1.2 million of goodwill, which has been allocated to the wholesale and retail segments as of the acquisition date. Goodwill reflects the excess purchase price over the fair value of net assets. All of this goodwill is deductible for tax purposes. The trademark will not be amortized, but instead tested for impairment on an annual basis.
54
The accompanying consolidated condensed financial statements include the results of Forsake from the date of acquisition through March 31, 2022. For the three months ended March 31, 2022, Forsake’s net sales totaled approximately $0.7 million, of which $0.4 million was recognized in the wholesale segment and $0.3 million was recognized in the retail segment. Pro forma financial information is not presented as the effects of this acquisition are not material to the Company’s results of operations or financial position.
3.4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
| | | | | | | | | | | | |
| | Three Months EndedMarch 31, | | Three Months Ended March 31, | ||||||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
| | (In thousands, except per share amounts) | | (In thousands, except per share amounts) | ||||||||
Numerator: |
| |
|
| |
| | |
|
| |
|
Net earnings | | $ | 1,325 | | $ | 1,162 | | $ | 4,053 | | $ | 1,325 |
| |
| | |
| | |
| | |
| |
Denominator: | |
| | |
| | |
| | |
| |
Basic weighted average shares outstanding | |
| 9,680 | |
| 9,781 | |
| 9,596 | |
| 9,680 |
Effect of dilutive securities: | |
| | |
| | |
| | |
| |
Employee share-based awards | |
| 6 | |
| 5 | |
| 51 | |
| 6 |
Diluted weighted average shares outstanding | |
| 9,686 | |
| 9,786 | |
| 9,647 | |
| 9,686 |
| |
| | |
| | |
| | |
| |
Basic earnings per share | | $ | 0.14 | | $ | 0.12 | | $ | 0.42 | | $ | 0.14 |
| |
| | |
| | |
| | |
| |
Diluted earnings per share | | $ | 0.14 | | $ | 0.12 | | $ | 0.42 | | $ | 0.14 |
Diluted weighted average shares outstanding for the three months ended March 31, 2022, excludes anti-dilutive stock options totaling 928,000 shares of common stock at a weighted average price of $27.24. Diluted weighted average shares outstanding for the three months ended March 31, 2021, excludes anti-dilutive stock options totaling 1,160,000 shares of common stock at a weighted average price of $24.86. Diluted weighted average shares outstanding for the three months ended March 31, 2020, excludes anti-dilutive stock options totaling 1,190,000 shares of common stock at a weighted average price of $26.74.
4.5. Investments
Investments, at fair value
During the first quarter ofAt March 31, 2022 and December 31, 2021, the Company invested $20.0had $0.1 million and $8.1 million, respectively, of cash invested in highly liquid taxable bond funds. The Company classifies these investments as trading securities and reports them at fair value. There were 0 significant unrealized gains or losses on these investments in the first quarterquarters of 2022 and 2021. The fair value measurements of these investments are based on quoted market prices in active markets, and thus represent a level 1 valuation as defined by ASC 820.
Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures.
Marketable securities, at amortized cost
The Company also invests in marketable securities. As noted in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,2021, all of the Company’s marketable securities are classified as held-to-maturity securities and reported at amortized cost pursuant to ASC Topic 320, Investments –- Debt and Equity Securities, as the Company has the intent and ability to hold all investments to maturity.
Below is a summary of the amortized cost and estimated market values of the Company’s marketable securities as of March 31, 2021, and December 31, 2020.
| | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | ||||||||
| | Amortized | | Market | | Amortized | | Market | ||||
|
| Cost |
| Value |
| Cost |
| Value | ||||
| | (Dollars in thousands) | ||||||||||
Municipal bonds: |
| |
|
| |
|
| |
|
| |
|
Current | | $ | 1,483 | | $ | 1,504 | | $ | 2,215 | | $ | 2,249 |
Due from one through five years | |
| 7,141 | |
| 7,509 | |
| 7,420 | |
| 7,830 |
Due from six through ten years | |
| 2,349 | |
| 2,777 | |
| 3,057 | |
| 3,608 |
Due from eleven through twenty years | |
| 2,314 | |
| 2,504 | |
| 2,323 | |
| 2,547 |
Total | | $ | 13,287 | | $ | 14,294 | | $ | 15,015 | | $ | 16,234 |
65
The unrealized gains and losses on marketable securities at March 31, 2021, and at December 31, 2020, were as follows:
| | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | ||||||||
|
| Unrealized |
| Unrealized |
| Unrealized |
| Unrealized | ||||
|
| Gains |
| Losses |
| Gains |
| Losses | ||||
| | (Dollars in thousands) | ||||||||||
Municipal bonds | | $ | 1,007 | | $ | 0 | | $ | 1,219 | | $ | 0 |
The estimated market values provided are level 2 valuations as defined by ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). The Company reviewed its portfolio of investments as of March 31, 2021, and determined that no other-than-temporary market value impairment exists.
5.Intangible Assets
DuringBelow is a summary of the three months ended March 31, 2021, there were no changes in the carrying valueamortized cost and estimated market values of the Company’s indefinite-lived intangible assets (goodwillmarketable securities as of March 31, 2022, and trademarks). The Company’s amortizable intangible assets, which were included within other assets in the Consolidated Condensed Balance Sheets (unaudited), consisted of the following:December 31, 2021.
| | | | | | | | | | | | | | | | | | | | ||||||||||||
|
| | |
| March 31, 2021 | | December 31, 2020 | | | | | | | | | | | | | ||||||||||||
| | Weighted | | Gross | | | | | | | Gross | | | | | | | March 31, 2022 | | December 31, 2021 | |||||||||||
| | Average | | Carrying | | Accumulated | | | | | Carrying | | Accumulated | | | |
| Amortized |
| Market |
| Amortized |
| Market | |||||||
|
| Life (Years) |
| Amount |
| Amortization |
| Net |
| Amount |
| Amortization |
| Net |
| Cost |
| Value |
| Cost |
| Value | |||||||||
| | | | | (Dollars in thousands) | | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||||||||||
Amortizable intangible assets | |
| | |
| | | | |
| | |
| | | | |
| | ||||||||||||
Customer relationships |
| | 15 | | $ | 3,500 | | (2,353) | | $ | 1,147 | | $ | 3,500 | | (2,294) | | $ | 1,206 | ||||||||||||
Total amortizable intangible assets | | | | | $ | 3,500 | | (2,353) | | $ | 1,147 | | $ | 3,500 | | (2,294) | | $ | 1,206 | ||||||||||||
Municipal bonds: |
| |
|
| |
|
| |
|
| |
| |||||||||||||||||||
Current | | $ | 719 | | $ | 725 | | $ | 219 | | $ | 223 | |||||||||||||||||||
Due from one through five years | |
| 5,705 | |
| 5,784 | |
| 6,503 | |
| 6,805 | |||||||||||||||||||
Due from six through ten years | |
| 2,305 | |
| 2,473 | |
| 2,479 | |
| 2,790 | |||||||||||||||||||
Due from eleven through twenty years | |
| 1,013 | |
| 1,044 | |
| 1,014 | |
| 1,102 | |||||||||||||||||||
Total | | $ | 9,742 | | $ | 10,026 | | $ | 10,215 | | $ | 10,920 |
Amortization expense related to the intangible assets was approximately $60,000 in both the first quartersThe unrealized gains and losses on marketable securities at March 31, 2022, and at December 31, 2021, were as follows:
| | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 | ||||||||
|
| Unrealized |
| Unrealized |
| Unrealized |
| Unrealized | ||||
|
| Gains |
| Losses |
| Gains |
| Losses | ||||
| | (Dollars in thousands) | ||||||||||
Municipal bonds | | $ | 290 | | $ | (6) | | $ | 705 | | $ | 0 |
The estimated market values provided are level 2 valuations as defined by ASC 820. The Company reviewed its portfolio of 2021investments as of March 31, 2022, and 2020.determined that no other-than-temporary market value impairment exists.
6.Intangible Assets
The Company’s indefinite-lived intangible assets as recorded in the Consolidated Condensed Balance Sheets (Unaudited) were as follows:
| | | | | | |
|
| March 31, 2022 |
| December 31, 2021 | ||
| | (Dollars in thousands) | ||||
Indefinite-lived intangibles: |
| |
|
| |
|
Goodwill | | $ | 12,317 | | $ | 12,317 |
Trademarks | |
| 34,768 | |
| 34,768 |
Total | | $ | 47,085 | | $ | 47,085 |
The Company’s amortizable intangible assets, which were included within other assets in the Consolidated Condensed Balance Sheets (unaudited), consisted of the following:
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| March 31, 2022 | | December 31, 2021 | ||||||||||||||
| | Weighted | | Gross | | | | | | | | Gross | | | | | | | |||
| | Average | | Carrying | | Accumulated | | | | | Carrying | | Accumulated | | | | |||||
|
| Life (Years) |
| Amount |
| Amortization |
| Net |
| Amount |
| Amortization |
| Net | |||||||
| | | | | (Dollars in thousands) | | (Dollars in thousands) | ||||||||||||||
Amortizable intangible assets | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Customer relationships |
| | 15 | | $ | 3,500 | | $ | (2,586) | | $ | 914 | | $ | 3,500 | | $ | (2,528) | | $ | 972 |
Total amortizable intangible assets | | | | | $ | 3,500 | | $ | (2,586) | | $ | 914 | | $ | 3,500 | | $ | (2,528) | | $ | 972 |
Amortization expense related to the intangible assets was approximately $58,000 in both the first quarters of 2022 and 2021.
6
7. Segment Information
The Company has 2 reportable segments: North American wholesale operations (“wholesale”Wholesale”) and North American retail operations (“retail”Retail”). The Company’s Chief Executive Officer evaluates the performance of the Company’s segments based on earnings (loss) from operations. Therefore, interest income or expense, other income or expense, and income taxes are not allocated to the segments. The “other” category in the table below includes the Company’s wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe, which do not meet the criteria for separate reportable segment classification. Summarized segment data for the three months ended March 31, 20212022 and 2020,2021, was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, |
| Wholesale |
| Retail |
| Other |
| Total |
| Wholesale |
| Retail |
| Other |
| Total | ||||||||
| | (Dollars in thousands) | ||||||||||||||||||||||
2022 |
| |
|
| |
|
| |
|
| | | ||||||||||||
Product sales | | $ | 66,668 | | $ | 7,860 | | $ | 6,400 | | $ | 80,928 | ||||||||||||
Licensing revenues | |
| 432 | |
| 0 | |
| 0 | |
| 432 | ||||||||||||
Net sales | | $ | 67,100 | | $ | 7,860 | | $ | 6,400 | | $ | 81,360 | ||||||||||||
Earnings (loss) from operations | | $ | 4,846 | | $ | 828 | | $ | (243) | | $ | 5,431 | ||||||||||||
| | (Dollars in thousands) | |
| | |
| | |
| | |
| | ||||||||||
2021 |
| |
|
| |
|
| |
|
| | | |
| | |
| | |
| | |
| |
Product sales | | $ | 33,036 | | $ | 5,618 | | $ | 7,904 | | $ | 46,558 | | $ | 33,036 | | $ | 5,618 | | $ | 7,904 | | $ | 46,558 |
Licensing revenues | |
| 342 | |
| 0 | |
| 0 | |
| 342 | |
| 342 | |
| 0 | |
| 0 | |
| 342 |
Net sales | | $ | 33,378 | | $ | 5,618 | | $ | 7,904 | | $ | 46,900 | | $ | 33,378 | | $ | 5,618 | | $ | 7,904 | | $ | 46,900 |
Earnings (loss) from operations | | $ | 1,359 | | $ | 756 | | $ | (481) | | $ | 1,634 | | $ | 1,359 | | $ | 756 | | $ | (481) | | $ | 1,634 |
| |
| | |
| | |
| | |
| | ||||||||||||
2020 | |
| | |
| | |
| | |
| | ||||||||||||
Product sales | | $ | 52,228 | | $ | 4,761 | | $ | 6,134 | | $ | 63,123 | ||||||||||||
Licensing revenues | |
| 461 | |
| 0 | |
| 0 | |
| 461 | ||||||||||||
Net sales | | $ | 52,689 | | $ | 4,761 | | $ | 6,134 | | $ | 63,584 | ||||||||||||
Earnings (loss) from operations | | $ | 2,760 | | $ | (89) | | $ | (1,330) | | $ | 1,341 |
7
7.8. Employee Retirement Plans
The components of the Company’s pension expense were as follows:
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Three Months Ended March 31, | ||||||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||
Service cost | | $ | 102 | | $ | 115 | | $ | 112 | | $ | 102 |
Interest cost | |
| 371 | |
| 500 | |
| 432 | |
| 371 |
Expected return on plan assets | |
| (720) | |
| (690) | |
| (752) | |
| (720) |
Net amortization and deferral | |
| 247 | | | 186 | |
| 208 | | | 247 |
Pension expense | | $ | 0 | | $ | 111 | | $ | 0 | | $ | 0 |
The components of pension expense other than the service cost component were included in "other (expense) income, net" in the Consolidated Condensed Statements of Earnings and Comprehensive Income (Unaudited).
8.9. Leases
The Company leases retail shoe stores, as well as several office and distribution facilities worldwide. The leases have original lease periods expiring between 20212022 and 2030.2029. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of the Company’s operating lease costs were as follows:
| | | | | | |
|
| Three Months Ended March 31, | ||||
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Operating lease costs |
| $ | 1,334 | | $ | 1,882 |
Variable lease costs (1) | | | 20 | | | 10 |
Total lease costs |
| $ | 1,354 | | $ | 1,892 |
(1) Variable lease costs primarily include percentage rentals based upon sales in excess of specified amounts.
Short-term lease costs, which were excluded from the above table, are not material to the Company’s financial statements.
The following is a schedule of maturities of operating lease liabilities as of March 31, 2021:
| | | | |
| | | | |
|
| | Operating Leases | |
| | | (Dollars in thousands) | |
2021, excluding the quarter ended March 31, 2021 |
| $ | | 3,310 |
2022 |
|
| | 3,587 |
2023 |
|
| | 2,567 |
2024 |
|
| | 1,784 |
2025 |
|
| | 1,117 |
Thereafter |
|
| | 1,261 |
Total lease payments |
|
| | 13,626 |
Less imputed interest |
|
| | (1,013) |
Present value of lease liabilities |
| $ | | 12,613 |
The operating lease liabilities are classified in the consolidated condensed balance sheets (unaudited) as follows:
| | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | ||
| | (Dollars in thousands) | ||||
Operating lease liabilities - current | | $ | 4,048 | | $ | 4,245 |
Operating lease liabilities - non-current | | | 8,565 | | | 7,734 |
Total | | $ | 12,613 | | $ | 11,979 |
8
The Company determined the present value of its lease liabilities using a weighted-average discount rate of 4.25%. As of March 31, 2021, the Company’s leases have a weighted-average remaining lease term of 3.6 years.
Supplemental cash flow information related to the Company’s operating leases is as follows:
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2021 |
| 2020 | ||
| | (Dollars in thousands) | ||||
Cash paid for amounts included in the measurement of lease liabilities | | $ | 1,387 | | $ | 1,978 |
Right-of-use assets obtained in exchange for new lease liabilities (noncash) | | $ | 2,022 | | $ | 144 |
9. Income Taxes
The Company’s provision for income taxes and effective tax rates for the three months ended March 31, 2021 and 2020 are presented in the following table:
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
| | (Dollars in thousands) | |||||
Earnings before provision for income taxes | | $ | 1,896 | | $ | 1,846 | |
Income tax provision | | $ | 571 | | $ | 684 | |
Effective tax rate | | | 30.1 | % | | 37.1 | % |
The Company’s first quarter 2021 and 2020 effective tax rates were negatively impacted because it did not record income tax benefits on foreign subsidiary losses in both periods.
10.Share-Based Compensation Plans
During the three months ended March 31, 2021, the Company recognized $545,000 of compensation expense associated with stock option and restricted stock awards granted in years 2015 through 2020. During the three months ended March 31, 2020, the Company recognized $351,000 of compensation expense associated with stock option and restricted stock awards granted in years 2016 through 2019.
During the first quarter of 2021, the Company’s Board of Directors approved extending the expiration date of stock options granted in years 2015 and 2016. The original expiration date of the stock options granted in 2015 was August 25, 2021, and was extended by two years to August 25, 2023. The original expiration date of the stock options granted in 2016 was August 25, 2022, and was extended by one year to August 25, 2023. The Company recorded an additional $232,000 of compensation expense during the quarter due to the exercise periods of these options being extended.
The following table summarizes the Company’s stock option activity for the three-month period ended March 31, 2021:
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | Weighted | | Average | | | | |
| | | | Average | | Remaining | | Aggregate | ||
| | | | Exercise | | Contractual | | Intrinsic | ||
|
| Shares |
| Price |
| Term (Years) |
| Value* | ||
Outstanding at December 31, 2020 |
| 1,125,383 | | $ | 25.62 |
|
|
| |
|
Granted |
| — | | | — |
|
|
| |
|
Exercised |
| — | | | — |
|
|
| |
|
Forfeited or expired |
| — | | | — |
|
|
| |
|
Outstanding at March 31, 2021 |
| 1,125,383 | | $ | 25.62 |
| 5.2 | | $ | 685,000 |
Exercisable at March 31, 2021 |
| 640,512 | | $ | 26.77 |
| 2.8 | | $ | 0 |
* The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value of the Company's stock on March 31, 2021 of $21.63 and the exercise price multiplied by the number of in-the-money outstanding and exercisable stock options.
97
The components of the Company’s operating lease costs were as follows:
| | | | | | |
|
| Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
| | (Dollars in thousands) | ||||
| | | | | | |
Operating lease costs |
| $ | 1,264 | | $ | 1,334 |
Variable lease costs (1) | | | — | | | 20 |
Total lease costs |
| $ | 1,264 | | $ | 1,354 |
(1) Variable lease costs primarily include percentage rentals based upon sales in excess of specified amounts.
Short-term lease costs, which were excluded from the above table, are not material to the Company’s financial statements.
The following is a schedule of maturities of operating lease liabilities as of March 31, 2022:
| | | |
|
| Operating Leases | |
| | (Dollars in thousands) | |
2022, excluding the quarter ended March 31, 2022 |
| $ | 2,924 |
2023 |
|
| 3,013 |
2024 |
|
| 2,102 |
2025 |
|
| 1,379 |
2026 |
|
| 1,025 |
Thereafter |
|
| 724 |
Total lease payments |
|
| 11,167 |
Less imputed interest |
|
| (829) |
Present value of lease liabilities |
| $ | 10,338 |
The operating lease liabilities are classified in the consolidated condensed balance sheets (unaudited) as follows:
| | | | | | |
|
| March 31, 2022 |
| December 31, 2021 | ||
| | (Dollars in thousands) | ||||
| | | | | | |
Operating lease liabilities - current | | $ | 3,451 | | $ | 3,593 |
Operating lease liabilities - non-current | | | 6,887 | | | 7,520 |
Total |
| $ | 10,338 | | $ | 11,113 |
The Company determined the present value of its lease liabilities using a weighted-average discount rate of 4.25%. As of March 31, 2022, the Company’s leases have a weighted-average remaining lease term of 3.4 years.
Supplemental cash flow information related to the Company’s operating leases is as follows:
| | | | | | |
|
| Three Months Ended March 31, | ||||
|
| 2022 |
| 2021 | ||
| | (Dollars in thousands) | ||||
| | | | | | |
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 1,128 | | $ | 1,387 |
Right-of-use assets obtained in exchange for new lease liabilities (noncash) | | $ | 0 | | $ | 2,022 |
10. Income Taxes
The effective income tax rates for the three months ended March 31, 2022 and 2021 were 26.5% and 30.1%, respectively. The 2022 and 2021 effective tax rates were negatively impacted because the Company did not record income tax benefits on foreign subsidiary losses in these periods.
8
11.Share-Based Compensation Plans
During the three months ended March 31, 2022, the Company recognized $350,000 of compensation expense associated with stock option and restricted stock awards granted in years 2017 through 2021. During the three months ended March 31, 2021, the Company recognized $545,000 of compensation expense associated with stock option and restricted stock awards granted in years 2015 through 2020.
The following table summarizes the Company’s stock option activity for the three-month period ended March 31, 2022:
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | Weighted | | Average | | | | |
| | | | Average | | Remaining | | Aggregate | ||
| | | | Exercise | | Contractual | | Intrinsic | ||
|
| Shares |
| Price |
| Term (Years) |
| Value* | ||
Outstanding at December 31, 2021 |
| 1,279,833 | | $ | 25.44 |
|
|
| |
|
Granted |
| — | | | — |
|
|
| |
|
Exercised |
| (500) | | | 18.00 |
|
|
| |
|
Forfeited or expired |
| (5,740) | | | 22.82 |
|
|
| |
|
Outstanding at March 31, 2022 |
| 1,273,593 | | $ | 25.46 |
| 5.4 | | $ | 1,530,000 |
Exercisable at March 31, 2022 |
| 767,622 | | $ | 26.59 |
| 3.5 | | $ | 336,000 |
* The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value of the Company’s stock on March 31, 2022 of $24.72 and the exercise price multiplied by the number of in-the-money outstanding and exercisable stock options.
The following table summarizes the Company’s restricted stock award activity for the three-month period ended March 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | Weighted | | | | | | | | | | Weighted | | | |
| | | | Weighted | | Average | | | | | | | Weighted | | Average | | | | ||
| | Shares of | | Average | | Remaining | | Aggregate | | Shares of | | Average | | Remaining | | Aggregate | ||||
| | Restricted | | Grant Date | | Contractual | | Intrinsic | | Restricted | | Grant Date | | Contractual | | Intrinsic | ||||
|
| Stock |
| Fair Value |
| Term (Years) |
| Value* |
| Stock |
| Fair Value |
| Term (Years) |
| Value* | ||||
Non-vested at December 31, 2020 |
| 72,490 | | $ | 23.77 |
|
|
| |
| ||||||||||
Non-vested at December 31, 2021 |
| 78,470 | | $ | 23.11 |
|
|
| |
| ||||||||||
Issued |
| — | | | — |
|
|
| |
|
| — | | | — |
|
|
| |
|
Vested |
| (150) | |
| 28.77 |
|
|
| |
|
| (150) | |
| 28.77 |
|
|
| |
|
Forfeited |
| — | |
| — |
|
|
| |
|
| — | |
| — |
|
|
| |
|
Non-vested at March 31, 2021 |
| 72,340 | | $ | 23.76 |
| 2.5 | | $ | 1,565,000 | ||||||||||
Non-vested at March 31, 2022 |
| 78,320 | | $ | 23.10 |
| 2.5 | | $ | 1,936,000 |
*The aggregate intrinsic value of non-vested restricted stock was calculated using the market value of the Company’s stock on March 31, 20212022 of $21.63$24.72 multiplied by the number of non-vested restricted shares outstanding.
9
11.12. Short-Term Borrowings
At March 31, 2021,2022, the Company had a $30$40 million revolving line of credit with a bank that is secured by a lien against the Company’s general corporate assets. The line of credit bears interest at LIBOR plus 1.35% and expires on November 4, 2021.2022. The related credit agreement contains customary representations, warranties, and covenants (including a minimum tangible net worth financial covenant) for a facility of this type. At March 31, 2021,2022, there were 0 amounts outstanding on the Company’s line of credit. There were also 0 amounts outstanding on the line of credit during the quarter.
12.13. Financial Instruments
At March 31, 2021,2022, the Company had foreign exchange contracts outstanding to sell $5.0 million Canadian dollars at a price of approximately $3.9 million U.S. dollars. The Company’s wholly ownedwholly-owned subsidiary, Florsheim Australia, had foreign exchange contracts outstanding to buy $2.8$3.9 million U.S. dollars at a price of approximately $3.7$5.3 million Australian dollars. These contracts all expire in 2021.2022. Based on quarter-end exchange rates, there were no significant unrealized gains or losses on the outstanding contracts.
The Company determines the fair value of foreign exchange contracts based on the difference between the foreign currency contract rates and the widely available foreign currency rates as of the measurement date. The fair value measurements are based on observable market transactions, and thus represent a level 2 valuation as defined by ASC 820.
13.14. Comprehensive Income (Loss)
Comprehensive income (loss) for the three months ended March 31, 20212022 and 2020,2021, was as follows:
| | | | | | | | | | | | |
| | Three Months EndedMarch 31, | | Three Months Ended March 31, | ||||||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
| | (Dollars in thousands) | | (Dollars in thousands) | ||||||||
Net earnings | | $ | 1,325 | | $ | 1,162 | | $ | 4,053 | | $ | 1,325 |
Foreign currency translation adjustments | |
| (143) | |
| (2,558) | |
| 521 | |
| (143) |
Pension liability, net of tax of $64 and $48, respectively | |
| 183 | |
| 138 | ||||||
Total comprehensive income (loss) | | $ | 1,365 | | $ | (1,258) | ||||||
Pension liability, net of tax of $54 and $64, respectively | |
| 154 | |
| 183 | ||||||
Total comprehensive income | | $ | 4,728 | | $ | 1,365 |
The components of accumulated other comprehensive loss as recorded in the Consolidated Condensed Balance Sheets (Unaudited) were as follows:
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2022 | | 2021 | ||
| | (Dollars in thousands) | ||||
Foreign currency translation adjustments | | $ | (6,262) | | $ | (6,783) |
Pension liability, net of tax | |
| (17,857) | |
| (18,011) |
Total accumulated other comprehensive loss | | $ | (24,119) | | $ | (24,794) |
10
The components of accumulated other comprehensive loss as recorded in the Consolidated Condensed Balance Sheets (Unaudited) were as follows:
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2021 | | 2020 | ||
| | (Dollars in thousands) | ||||
Foreign currency translation adjustments | | $ | (6,193) | | $ | (6,050) |
Pension liability, net of tax | |
| (21,772) | |
| (21,955) |
Total accumulated other comprehensive loss | | $ | (27,965) | | $ | (28,005) |
The following presents a tabular disclosure abouttable shows changes in accumulated other comprehensive loss during the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | |
| | Foreign | | Defined | | | |
| Foreign |
| Defined |
| | | ||||
|
| Currency |
| Benefit |
| | | | Currency | | Benefit | | | | ||||
| | Translation | | Pension | | | | | Translation | | Pension | | | | ||||
| | Adjustments | | Items | | Total | | Adjustments | | Items | | Total | ||||||
Beginning balance, December 31, 2020 | | $ | (6,050) | | $ | (21,955) | | $ | (28,005) | |||||||||
Other comprehensive loss before reclassifications | |
| (143) | |
| 0 | |
| (143) | |||||||||
Beginning balance, December 31, 2021 | | $ | (6,783) | | $ | (18,011) | | $ | (24,794) | |||||||||
Other comprehensive income before reclassifications | | | 521 | | | 0 | | | 521 | |||||||||
Amounts reclassified from accumulated other comprehensive loss | |
| 0 | |
| 183 | |
| 183 | | | 0 | | | 154 | | | 154 |
Net current period other comprehensive (loss) income | |
| (143) | |
| 183 | |
| 40 | |||||||||
Ending balance, March 31, 2021 | | $ | (6,193) | | $ | (21,772) | | $ | (27,965) | |||||||||
Net current period other comprehensive income | | | 521 | | | 154 | | | 675 | |||||||||
Ending balance, March 31, 2022 | | $ | (6,262) | | $ | (17,857) | | $ | (24,119) |
| | | | | | | | | |
|
| Foreign |
| Defined |
| | | ||
| | Currency | | Benefit | | | | ||
| | Translation | | Pension | | | | ||
| | Adjustments | | Items | | Total | |||
Beginning balance, December 31, 2020 | | $ | (6,050) | | $ | (21,955) | | $ | (28,005) |
Other comprehensive loss before reclassifications | | | (143) | | | 0 | | | (143) |
Amounts reclassified from accumulated other comprehensive loss | | | 0 | | | 183 | | | 183 |
Net current period other comprehensive (loss) income |
| | (143) |
| | 183 |
| | 40 |
Ending balance, March 31, 2021 | | $ | (6,193) | | $ | (21,772) | | $ | (27,965) |
The following presents a tabular disclosure abouttable shows reclassification adjustments out of accumulated other comprehensive loss during the three months ended March 31, 2021:2022:
| | | | | | |||||
| | | | | | | | | | |
| | Amounts reclassified from | | | | Amounts reclassified from | | | ||
| | accumulated other | | | | accumulated other | | | ||
| | comprehensive loss for | | Affected line item in the | | comprehensive loss for | | Affected line item in the | ||
| | the three months ended | | statement where net income is | | the three months ended | | statement where net income is | ||
|
| March 31, 2021 |
| presented |
| March 31, 2022 |
| presented | ||
Amortization of defined benefit pension items |
| |
|
|
|
| |
|
|
|
Prior service cost | | $ | (16) | (1) | Other income, net | | $ | 2 | (1) | Other (expense) income, net |
Actuarial losses | |
| 263 | (1) | Other income, net | |
| 206 | (1) | Other (expense) income, net |
Total before tax | |
| 247 | |
| |
| 208 | |
|
Tax benefit | |
| (64) | |
| |
| (54) | |
|
Net of tax | | $ | 183 | |
| | $ | 154 | |
|
(1) | These amounts were included in pension expense. See Note |
11
14.15. Equity
The following table reconciles the Company’s equity for the three months ended March 31, 2022:
| | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | |
| | | | | Capital in | | | | | Other | ||
| | Common | | Excess of | | Reinvested | | Comprehensive | ||||
|
| Stock |
| Par Value |
| Earnings |
| Loss | ||||
| | (Dollars in thousands) | ||||||||||
Balance, December 31, 2021 | | $ | 9,709 | | $ | 68,718 | | $ | 147,762 | | $ | (24,794) |
Net earnings | |
| 0 | |
| 0 | |
| 4,053 | |
| 0 |
Foreign currency translation adjustments | |
| 0 | |
| 0 | |
| 0 | |
| 521 |
Pension liability adjustment, net of tax | |
| 0 | |
| 0 | |
| 0 | |
| 154 |
Cash dividends declared | |
| 0 | |
| 0 | |
| (2,316) | |
| 0 |
Stock option exercised | | | 0 | | | 8 | | | 0 | | | 0 |
Share-based compensation expense | | | 0 | | | 350 | | | 0 | | | 0 |
Shares purchased and retired | | | (75) | | | 0 | | | (1,722) | | | 0 |
Balance, March 31, 2022 | | $ | 9,634 | | $ | 69,076 | | $ | 147,777 | | $ | (24,119) |
The following table reconciles the Company’s equity for the three months ended March 31, 2021:
| | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | |
| | | | | Capital in | | | | | Other | ||
| | Common | | Excess of | | Reinvested | | Comprehensive | ||||
|
| Stock |
| Par Value |
| Earnings |
| Loss | ||||
| | (Dollars in thousands) | ||||||||||
Balance, December 31, 2020 | | $ | 9,797 | | $ | 67,178 | | $ | 138,955 | | $ | (28,005) |
Net earnings | |
| 0 | |
| 0 | |
| 1,325 | |
| 0 |
Foreign currency translation adjustments | |
| 0 | |
| 0 | |
| 0 | |
| (143) |
Pension liability adjustment, net of tax | |
| 0 | |
| 0 | |
| 0 | |
| 183 |
Cash dividends declared | |
| 0 | |
| 0 | |
| (2,336) | |
| 0 |
Share-based compensation expense | | | 0 | | | 545 | | | 0 | | | 0 |
Shares purchased and retired | | | (62) | | | 0 | | | (1,017) | | | 0 |
Balance, March 31, 2021 | | $ | 9,735 | | $ | 67,723 | | $ | 136,927 | | $ | (27,965) |
The following table reconciles the Company’s equity for the three months ended March 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | | | | | | | | Accumulated | ||
| | | | | Capital in | | | | | Other | | | | | Capital in | | | | | Other | ||||
| | Common | | Excess of | | Reinvested | | Comprehensive | | Common | | Excess of | | Reinvested | | Comprehensive | ||||||||
|
| Stock |
| Par Value |
| Earnings |
| Loss |
| Stock |
| Par Value |
| Earnings |
| Loss | ||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||
Balance, December 31, 2019 | | $ | 9,873 | | $ | 65,832 | | $ | 158,825 | | $ | (24,536) | ||||||||||||
Balance, December 31, 2020 | | $ | 9,797 | | $ | 67,178 | | $ | 138,955 | | $ | (28,005) | ||||||||||||
Net earnings | |
| 0 | |
| 0 | |
| 1,162 | |
| 0 | |
| 0 | |
| 0 | |
| 1,325 | |
| 0 |
Foreign currency translation adjustments | |
| 0 | |
| 0 | |
| 0 | |
| (2,558) | |
| 0 | |
| 0 | |
| 0 | |
| (143) |
Pension liability adjustment, net of tax | |
| 0 | |
| 0 | |
| 0 | |
| 138 | |
| 0 | |
| 0 | |
| 0 | |
| 183 |
Cash dividends declared | |
| 0 | |
| 0 | |
| (2,357) | |
| 0 | |
| 0 | |
| 0 | |
| (2,336) | |
| 0 |
Share-based compensation expense | |
| 0 | | | 351 | | | 0 | | | 0 | |
| 0 | | | 545 | | | 0 | | | 0 |
Shares purchased and retired | | | (60) | | | 0 | | | (1,244) | | | 0 | | | (62) | | | 0 | | | (1,017) | | | 0 |
Balance, March 31, 2020 | | $ | 9,813 | | $ | 66,183 | | $ | 156,386 | | $ | (26,956) | ||||||||||||
Balance, March 31, 2021 | | $ | 9,735 | | $ | 67,723 | | $ | 136,927 | | $ | (27,965) |
16. Subsequent Event
On May 3, 2022, the Company's Board of Directors authorized the repurchase of an additional 1.0 million shares of common stock under its repurchase program, bringing the total available for repurchase to approximately 1.1 million shares.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with respect to the Company’s outlook for the future. These statements represent the Company's reasonablegood faith judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially. Such statements can be identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,“likely,” “plans,” “predicts,” “projects,” “should,” “will,” or variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Therefore, the reader is cautioned that these forward-looking statements are subject to a number of risks, uncertainties or other factors that may cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risk factors described under Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
GENERAL
The Company designs and markets quality and innovative footwear principally for men, but also for women and children, under a portfolio of well-recognized brand names, including:including Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters and Rafters.Forsake. Inventory is purchased from third-party overseas manufacturers. The majorityAlmost all of these foreign-sourced purchases are denominated in U.S. dollars.
The Company has two reportable segments, North American wholesale operations (“wholesale”("Wholesale") and North American retail operations (“retail”("Retail"). In the wholesale segment, the Company’sour products are sold to leading footwear, department, and specialty stores, as well as e-commerce retailers, primarily in the United States and Canada. The CompanyWe also hashave licensing agreements with third parties who sell itsour branded apparel, accessories and specialty footwear in the United States, as well as its footwear in Mexico and certain markets overseas. Licensing revenues are included in the Company’sour wholesale segment. The Company’sOur retail segment consistedconsists of e-commerce businesses and four brick and mortar retail stores in the United States as of March 31, 2021.States. Retail sales are made directly to consumers on the Company’sour websites, or by Companyour employees.
The Company’s “other”Company's "other" operations include the Company’sour wholesale and retail businesses in Australia, South Africa, Asia Pacific (collectively, “Florsheim Australia”"Florsheim Australia") and Europe (“("Florsheim Europe”Europe"). In late 2020, the Company decided to closeHowever, as previously disclosed, we have closed Florsheim Europe and management isare in the processfinal stages of winding down this business. As a result, the 2022 operating results of the "other" category reflect only that of Florsheim Australia. The majority of the Company’sour operations are in the United States and itsour results are primarily affected by the economic conditions and retail environment in the United States.
EXECUTIVE OVERVIEW
The ongoing COVID-19 pandemic continued to adversely impact the Company’s resultsWe experienced strong demand in our wholesale segment during the first three monthsquarter of 2021. After2022, posting a tough January13% sales gain over the first quarter of 2019 (pre-COVID). We achieved record first-quarter wholesale sales, as two of our brands, Florsheim and February, business improved in March across all of the Company’s brands, a trend that continued through April. The Company believes there are a number of factors behind the improved trajectory, including stimulus checks, pent-up demand, the gradual reopening of offices, as well as consumers planning for events, such as weddings and graduations. While the market remains hard to predict, the Company is encouraged by the current level of demand at retail for its more traditional dress and dress-casual footwear.
BOGS, registered individual record first-quarter sales.
BOGS sales rose 32%72% for the quarter. Throughout the pandemic, BOGS sales have been strong, reflecting the consumer trend toward more time outdoors. BOGS benefitted from late winter weather in February, as it was onequarter which is on top of a 17% annual increase last year. Part of the few weather boot brands to have adequate levels of inventory. Meanwhile, BOGS enjoyed a solid start to Spring with its lightly-insulated lifestyle and garden-oriented products. Orders for Fall 2021 are up significantlyreason for the strong increase is we were in a much better overall inventory position on classic BOGS brand.
Sinceproduct compared to 2021. We feel good about the beginningmix of classic and lifestyle product in our backlog and look forward to a strong second half of the pandemic, demandyear for the Company’sBOGS.
Regarding our legacy brands (Florsheim, Stacy Adams, and Nunn Bush,Bush), the comparison to 2021 is not relevant since much of the country was still restricted from a social event and work perspective. However, in comparison to 2019, two of our three legacy brands had strong increases including the record for Florsheim with a 17% increase, as well as a 24% increase for Nunn Bush. Stacy Adams) has been limited, as consumers spent discretionary dollars on more relaxedAdams sales reached 80% of 2019 levels. In many instances, we are still filling the pipeline with our major retail partners, and athleticwe anticipate we will be chasing inventory due to supply chain disruptions with certain footwear and apparel. While demand improved slightly in the Fall of 2020, the Company did not anticipate significant interest in its dress or dress-casual styles untilpackages at least into the second half of 2021, when offices were2022. We continue to experience strong sell-throughs and high average unit retail prices even as inventory levels work back towards more fully reopenednormalized levels. The dress and consumers were likely returning torefined casual markets remain particularly robust with record social events that required more formal or fashionable attire. However,on the Company experienced rising demand across all of its legacy brands for dresscalendar and dress-casual footwear in the last month of the quarter, earlier than anticipated. The Company also saw good sell-through performance for this category in the weekly sales data provided by key retailers. While consumer demand is still not at 2019 levels, it is higher than management anticipated. Fortunately, the Company was in a strong inventory position and was ablegradual return to ship a good portion of these orders. Management believes that the Company is one of the few companies to maintain significant inventory levels of more traditional footwear, and is well-positioned to pick up market share as this segment of the footwear business rebounds.an office work environment.
13
The CompanyWhile we are selling a significant amount of dress shoes, we realize that eventually the market will return to a more normalized level as men restock their closets. Our design emphasis during the pandemic has made progressbeen to further develop the casual side of our legacy business within the particular DNA of each brand. We are encouraged by our progress. Today, Nunn Bush very much has a casual profile, and both Stacy Adams and Florsheim are increasing their casual mix. This period of time has allowed us to move down the learning curve and expand our casual range with the expectation that the post pandemic world will embrace a more relaxed lifestyle. We are picking up market share in placing and selling more casual relaxed footwear as partthe tailored side of the merchandise mix for allbusiness and our objective is to also increase our penetration of its legacy brands. Over the past eighteen months, the Company has devoted the majority of its design work toward developing a broad range ofmen's casual footwear in line with the respective brand DNA and aesthetic of Florsheim, Nunn Bush, and Stacy Adams. Even with the resurgence of traditional business footwear, the Company believes the investment in its casual lifestyle category is critical to its future success.over time.
The Company continues to seeWe had strong growth in its e-commerce business. The firstthe retail segment during the quarter, driven by a 38% increase in our e-commerce businesses. While we are up significantly in sales, one caveat is that higher shipping and advertising costs reduced our profitability. We are working to mitigate these cost increases while maintaining a solid growth trajectory, as e-commerce sales was driven by higher sales on the BOGS website. The Company also started to see e-commerce growth for its legacy brands in March, which continued through April. Continued investment in the Company’s e-commerce business is a key partare an important piece of its strategy andour business model movinggoing forward. We are very pleased that our four remaining brick and mortar stores had solid performances with an increase in aggregate sales over 2019.
The overall business atRegarding Florsheim Australia, improved this quarter.which includes New Zealand, the Pacific Rim and South Africa, our sales were down 8%. The related markets have largely opened upOmicron outbreak in Hong Kong and are steadily returning to a pre-pandemic lifestyle. The Company is starting to seethe Pacific Rim significantly reduced both wholesale and retail numberssales in the region compare favorably to 2019 sales levels. At the same time, the Company has exited unprofitable stores and renegotiated leases on more favorable terms, which management believes will create a healthierthat region. However, our business in the Australian market going forward. The Australian wholesaleand New Zealand markets was actually up slightly in local currency even with the increased case count versus nearly a zero-case count for the same period in 2021. We are encouraged that retail traffic increased as the quarter progressed and we believe that our position is strengthening in this market. As noted previously, the pandemic has enabled us to reset our business was also boosted by a significant increase in the BOGS wholesale business, which is off to a strong start in 2021,model on the heelsAustralian continent. A combination of solidmore manageable leases, e-commerce growth, last year.
As disclosed last quarter, the Company decided to wind down its Florsheim wholesale and retail businesses in Europe. The Company’s European business has been unprofitable the last few years and the situation worsened with the onsetcontinued growth of the pandemic. The Company has reachedour BOGS Australian business puts us in a licensing agreement withmuch better position to have a manufacturer and marketer of footwear brands, basedprofitable year in Florence, Italy, which will enable Florsheim men’s and women’s shoes to be sold in Europe and other select markets beginning in November of 2021.that region.
The Company has brought down inventories to align with lower sales of the legacy brands. Ending inventory at March 31, 2021, was $47.3 million compared $59.0 million at the end of 2020. With the increased demand for dress and business-casual shoes, the Company has started the process of rebuilding its inventories. Many of the Company’s large accounts are requesting delivery for “as soon as possible” to replenish their dress shoe inventories in order to meet current higher consumer demand. The Company’s backlog has grown for the third and fourth quarters of 2021, however, forecasting is still challenging as retailers remain somewhat cautious. Given the long lead times out of Asia, the Company is bringing in extra inventory on its core styles, as well as some of the new casual product that has sold well at retail, to position the Company for a stronger second half as the U.S. economy opens up. The increased demand for BOGS is also contributing to the Company’s plan for higher inventories.
The Company is currently experiencing price pressure due to increases in freight costs as well as increases in the cost of materials. The Company is trying to cover as much of its needs as possible for this year at current prices, but is planning to increase selling prices in the second half of the year to maintain its gross margins.
Consolidated Sales and Earnings Highlights
Consolidated net sales forwere a first-quarter record of $81.4 million compared to $46.9 million in the first quarter of 2021 were $46.9 million, down 26%2021. Consolidated gross earnings declined to 35.8% of net sales for the quarter compared to 41.2% of net sales in last year’syear's first quarter, net sales of $63.6 million.primarily due to lower wholesale margins, as discussed below. Consolidated earnings from operations were $1.6totaled $5.4 million for the quarter, an increase of 22% compared to $1.3$1.6 million in the same period of 2020. Consolidated2021. Quarterly net earnings wererose to $4.1 million, or $0.42 per diluted share, up from $1.3 million, or $0.14 per diluted share, in last year's first quarter.
Last year's first quarter results continued to be impacted by the effects of the COVID-19 pandemic. As such, comparisons of first quarter 2022 financial performance to 2021 may have limited utility. Therefore, selected comparisons to 2019 (pre-COVID) are included as appropriate. Net sales for the first quarter of 2021 and $1.2 million in last year’s first quarter. Diluted2022 exceeded 2019 levels by 10%. Our operating earnings per share were $0.14 per share this quarter and $0.12 per share in the first quarter of 2020.also improved, beating 2019 levels by 6%.
Financial Position Highlights
At March 31, 2021,2022, cash, short-term investments, and marketable securities totaled $58.2$34.0 million and there waswere no debtamounts outstanding on the Company’s revolvingour line of credit. During the first three months of 2021, the Company2022, we generated $14.2 million$231,000 of cash from operations. The Company purchased $20.0operations and liquidated $8.1 million of short-term investments,investment securities. We paid dividends of $2.3 million, repurchased $1.1$1.8 million of Companyour common stock, and had $73,000$352,000 of capital expenditures during the quarter.
14
SEGMENT ANALYSIS
Net sales and earnings (loss) from operations for the Company’s segments for the three months ended March 31, 20212022 and 2020,2021, were as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | % | | | Three Months Ended March 31, | | % | | ||||||||
|
| 2021 |
| 2020 |
| Change |
| | 2022 |
| 2021 |
| Change |
| ||||
| | (Dollars in thousands) | | | | | (Dollars in thousands) | |||||||||||
Net Sales |
| |
|
| |
|
|
| |
| |
|
| |
|
|
| |
North American Wholesale |
| $ | 33,378 |
| $ | 52,689 |
| (37) | % |
| $ | 67,100 |
| $ | 33,378 |
| 101 | % |
North American Retail | |
| 5,618 | |
| 4,761 |
| 18 | % | |
| 7,860 | |
| 5,618 |
| 40 | % |
Other | |
| 7,904 | |
| 6,134 |
| 29 | % | |
| 6,400 | |
| 7,904 |
| -19 | % |
Total | | $ | 46,900 | | $ | 63,584 |
| (26) | % | | $ | 81,360 | | $ | 46,900 |
| 73 | % |
| | | | | | | | | | | | | | | | | | |
Earnings (Loss) from Operations | | | | | | | | | | | | | | | | | | |
North American Wholesale | | $ | 1,359 | | $ | 2,760 |
| (51) | % | | $ | 4,846 | | $ | 1,359 |
| 257 | % |
North American Retail | |
| 756 | |
| (89) |
| NM | | |
| 828 | |
| 756 |
| 10 | % |
Other | |
| (481) | |
| (1,330) |
| 64 | % | |
| (243) | |
| (481) |
| 49 | % |
Total | | $ | 1,634 | | $ | 1,341 |
| 22 | % | | $ | 5,431 | | $ | 1,634 |
| 232 | % |
NM – Not meaningful
North American Wholesale Segment
Net Sales
Net sales in the Company’s North American wholesale segment for the three months ended March 31, 20212022 and 2020,2021, were as follows:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | % | | | Three Months Ended March 31, | | % | | ||||||||
|
| 2021 |
| 2020 |
| Change |
|
| 2022 |
| 2021 |
| Change |
| ||||
| | (Dollars in thousands) | | | | | (Dollars in thousands) | |||||||||||
North American Wholesale Segment Net Sales |
| |
|
| |
|
|
| |
| |
|
| |
|
|
| |
Stacy Adams | | $ | 7,900 | | $ | 16,170 |
| (51) | % | | $ | 16,797 | | $ | 7,900 |
| 113 | % |
Nunn Bush | |
| 8,021 | |
| 10,619 |
| (24) | % | |
| 14,374 | |
| 8,021 |
| 79 | % |
Florsheim | |
| 9,479 | |
| 19,642 |
| (52) | % | |
| 22,012 | |
| 9,479 |
| 132 | % |
BOGS/Rafters | |
| 7,636 | |
| 5,797 |
| 32 | % | |
| 13,099 | |
| 7,636 |
| 72 | % |
Forsake | |
| 386 | |
| — |
| 100 | % | |||||||||
Total North American Wholesale | | $ | 33,036 | | $ | 52,228 |
| (37) | % | | $ | 66,668 | | $ | 33,036 |
| 102 | % |
Licensing | |
| 342 | |
| 461 |
| (26) | % | |
| 432 | |
| 342 |
| 26 | % |
Total North American Wholesale Segment | | $ | 33,378 | | $ | 52,689 |
| (37) | % | | $ | 67,100 | | $ | 33,378 |
| 101 | % |
Last year’sFirst quarter 2022 sales were up across all of our brands. As discussed above, last year's first quarter included approximately two-and-a-half months of sales that occurred before the pandemic struck the U.S. In mid-March 2020, much of the country shut down, which resulted in a sharp drop in sales in the last several weeks of the quarter. First quarter 2021 sales of the Stacylegacy brands (Stacy Adams, Nunn Bush, and Florsheim brands continue to beFlorsheim) were lower than normal because the pandemic significantly impacted by the effectssales of the ongoing pandemic, resulting in lower demand for dress and dress-casual footwear. However, salesSales of the BOGS outdoor brand, which have been less affected by the pandemic, rose 32%72% for the quarter, with sales up across all major distribution channels. The wholesale segment experienced significant growth in the first quarter of 2021, as consumers continue to spend more time outdoors during2022, with net sales surpassing 2019 levels by 13%. Florsheim and BOGS achieved record first-quarter sales, and sales of the pandemic.
Nunn Bush brand beat 2019 levels by 24%. Stacy Adams sales reached 80% of 2019 levels.
Licensing revenues consist of royalties earned on sales of branded apparel, accessories and specialty footwear in the United States and on branded footwear in Mexico and certain overseas markets. Licensing revenues were down for the quarter as compared to the first quarter of 2020, in line with reductions in licensees’ sales of branded products as a result of the pandemic.
15
Earnings from Operations
GrossWholesale gross earnings forwere 30.0% of net sales in the North American wholesale segment werefirst quarter of 2022, compared to 34.5% of net sales in the first quarter of 2021, compared to 31.8% of net sales2021. The decrease in the first quarter of 2020. Last year’s gross margins were negatively impacted by a 15% tariff on certain footwear imported from China beginningwas primarily due to higher inbound freight costs, as we continued to pay premium rates during the quarter. Wholesale gross margins are expected to improve in September 2019;mid to late 2022 as the tariff was later reduced to 7.5% in February 2020. Gross margins improved in the first quarter of 2021 because the Company sold through much of the higher-tariffed inventory during 2020.supply chain stabilizes and negotiated price increases with customers go into effect.
15
North American wholesale segment selling and administrative expenses include, and are primarily related to, distribution costs, salaries and commissions, advertising costs, employee benefit costs and depreciation. Wholesale selling and administrative expenses were $15.3 million for the quarter compared to $10.2 million or 31% of netin last year's first quarter. The increase was largely due to higher employee costs as our sales in thevolumes have increased. Additionally, last year's first quarter of 2021, compared to $14.0 million, or 27% of net sales, in the first quarter of 2020. First quarter 2021 expenses were reduced by approximately $1.8 million in government wage subsidies. Additionally, wagesAs a percent of net sales, selling and advertising costsadministrative expenses were 23% in 2022 and 31% in 2021. Expenses were down for the quarter as a resultrelative to sales because many of the Company’s cost-cutting measures.our costs do not vary directly with sales.
Earnings from operations in the North American wholesale segment were $1.4rose to $4.8 million in the first quarter of 2021, down 51% compared to $2.82022, up from $1.4 million in the same period last year. The decrease wasyear, due to lowerhigher sales, partially offset by higherlower gross margins and lowerhigher selling and administrative expenses.
The Company’sCompany's cost of sales does not include distribution costs (e.g., receiving, inspection, warehousing, shipping and handling costs)costs, which are included in selling and administrative expenses). Wholesale distribution costs were $3.6 million in the first quarter of 2022 and $2.3 million in the first quarter of 2021 and $3.3 million in the2021. Last year's first quarter of 2020. First quarter 2021 distribution costs were reduced by approximately $500,000 in government wage subsidies, which partially offset related warehouse labor costs during the quarter. These costs were included in selling and administrative expenses. The Company’ssubsidies. Our gross earnings may not be comparable to other companies, as some companies may include distribution costs in cost of sales.
North American Retail Segment
Net Sales
Net sales in the Company’sour North American retail segment were a first-quarter record of $7.9 million compared to $5.6 million in the first quarter of 2021, up 18% compared to $4.8 million in last year’syear's first quarter. Same store sales were up 32% for the quarterrose 39%, due to a 36%38% increase in e-commerce sales mainly BOGS, offset(with sales up on all brands' websites) and higher brick-and-mortar sales. Last year's brick-and-mortar sales were down significantly as a result of the pandemic. 2022 retail net sales surpassed the 2019 level by a 5% decline41%, due primarily to growth in brick-and-mortar same store sales. There were four fewer brick-and-mortar stores operating at March 31, 2021, as compared to March 31, 2020.
e-commerce.
Earnings from Operations
Retail gross earnings were 65.3%as a percent of net sales were 65.9% and 65.3% in both the first quarters of 2022 and 2021, and 2020.respectively. Selling and administrative expenses for the retail segment include, and areconsist primarily related to,of freight, advertising expense, employee costs, and rent and occupancy costs. Retail selling and administrative expenses were $4.4 million, or 55% of net sales, in the first quarter of 2022 versus $2.9 million, or 52% of net sales, in the first quarter of 2021 versus $3.2 million, or 67% of net sales, in last year’syear's first quarter. The decrease in expenses as a percent of net salesincrease was primarily due to lower operating costs resulting from the closure of brick-and-mortar locations. The retail segment hadhigher e-commerce expenses, primarily freight and advertising. Retail operating earnings of $756,000 thiswere $828,000 for the quarter compared to operating losses of $89,000 in$756,000 last year’s first quarter. The improvementyear. This increase was primarily due to benefitsimproved performance at active brick-and-mortar locations. Earnings from closing unprofitable stores andour e-commerce businesses were down slightly for the quarter, as increased sales were offset by the higher earnings from the Company’s e-commerce businesses.
expenses.
Other
The Company’sOur other businesses include itsour wholesale and retail operations of Florsheim Australia and Florsheim Europe. NetOther net sales for the first quarter of the Company’s other businesses were2022 totaled $6.4 million compared to $7.9 million in the first quarter of 2021, up 29% compared to $6.1 million in last year’s first quarter.2021. The increasedecrease was due to 39%the closing of Florsheim Europe and lower sales growth at Florsheim Australia, as compared toAustralia. Florsheim Australia's net sales fell 8% for the prior year’s first quarter, with sales updown in both its wholesale and retail businesses. The strongerweakening of the Australian dollar relative to the U.S. dollar also contributed to the increase,decrease, as Florsheim Australia’sAustralia's net sales in local currency were up 19%only down 2% for the quarter. Collectively,Retail sales in Australia, which account for a majority of Florsheim Australia andAustralia's sales, were up 7% for the quarter in local currency, but these results were offset by lower sales in Asia due to additional lockdowns imposed in Hong Kong during the quarter. Florsheim Europe had operating losses totaling $481,000 inAustralia's net sales for the first quarter of 2021, compared to2022 reached 89% of 2019 levels.
Other operating losses totaled $243,000 for the quarter versus operating losses of $1.3 million in the first quarter of 2020.$481,000 last year. The reduction in operating lossesimprovement between periods was primarily due to improved performancethe shedding of losses at Florsheim Australia.Europe.
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Other income and expense and taxes
Interest income was $131,000$91,000 and $149,000$131,000 in the first quarters of 20212022 and 2020,2021, respectively. Interest expense was $7,000$1,000 and $51,000$7,000 for the three months ended March 31, 20212022 and 2020,2021, respectively. Other (expense) income, net, totaled $138,000expense of $6,000 for the quarter compared to $407,000income of $138,000 in the first quarter of 2020.2021. The decrease was primarily due to lower unrealized gains on favorable foreign exchange contracts held by Florsheim Australia.
The Company’sOur effective tax rate for the three-months ended March 31, 2021,2022, was 30.1%26.5% compared to 37.0%30.1% for the same period of 2020.2021. The 20212022 and 20202021 effective tax rates were negatively impacted because the Companywe did not record income tax benefits on foreign subsidiary losses in boththese periods.
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LIQUIDITY AND CAPITAL RESOURCES
The Company’sOur primary sources of liquidity are itsour cash, short-term investments, short-term marketable securities, and itsour revolving line of credit. The CompanyWe generated $14.2 million$231,000 of cash from operating activities during the first three months of 2021,2022, compared to $15.0$14.2 million in the same period one year ago. The decrease in 20212022 was primarily due to changes in operating assets and liabilities, principally inventory.inventory and accounts payable. We are continuing to build our inventory levels as required to support the increased demand for our products.
During the first quarter of 2021, the Company invested $20.0 million of cash in highly liquid taxable bond funds.
The CompanyWe paid one quarterly dividenddividends totaling $2.3 million in both the first quarterquarters of 2021,2022 and two quarterly dividends totaling $4.7 million in the first quarter of 2020. The Company accelerated the timing of its January 2021 quarter dividend into 2020, and resumed its regular quarterly dividend payment schedule in March 2021. On May 4, 2021, the Company’s3, 2022, our Board of Directors declared a cash dividend of $0.24 per share to all shareholders of record on May 28, 2021,27, 2022, payable June 30, 2021.2022.
The Company repurchases itsWe repurchase our common stock under itsour share repurchase program when the Company believeswe believe market conditions are favorable. During the first three months of 2021, the Company2022, we repurchased 61,73775,097 shares for a total cost of $1.1$1.8 million. As of March 31, 2021, the Company2022, we had the authority to repurchase approximately 274,000135,000 shares under itsour previously announced stock repurchase program.
On May 3, 2022, the Company's Board of Directors authorized the repurchase of an additional 1.0 million shares, bringing the total available to purchase to approximately 1.1 million shares. See Part II, Item 2, "Unregistered Sales of Equity Securities and Use of Proceeds" below for more information.
Capital expenditures were $73,000$352,000 in the first three months of 2021.2022. Management estimates that annual capital expenditures for 20212022 will be between $1.0$2.0 million and $2.0$3.0 million.
At March 31, 2021, the Company2022, we had a $30$40 million revolving line of credit with a bank that is secured by a lien against the Company’sour general corporate assets. The line of credit bears interest at LIBOR plus 1.35% and expires on November 4, 2021.2022. The related credit agreement contains customary representations, warranties, and covenants (including a minimum tangible net worth financial covenant) for a facility of this type. At March 31, 2021,2022, there were no amounts outstanding on the Company’s line of credit.credit and we were in compliance with all financial covenants. There were also no amounts outstanding on the line of credit during the quarter. The Company expectsWe expect to renew this line of credit later this year, but cannot provide any assurances.
As of March 31, 2021,2022, approximately $3.5$3.4 million of cash and cash equivalents was held by the Company’s foreign subsidiaries.
The CompanyWe will continue to evaluate the best uses for itsour available liquidity, including, among other uses, capital expenditures, continued stock repurchases and acquisitions. The Company believesWe believe that available cash, short-term investments, marketable securities, cash provided by operations, and available borrowing facilities will provide adequate support for the cash needs of the business for at least one year, although there can be no assurances.
COMMITMENTS
Not applicable.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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Item 4. Controls and Procedures.
The Company maintainsWe maintain disclosure controls and procedures designed to ensure that the information the Companywe must disclose in itsour filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. The Company’sOur Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the Company’sour disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"), as of the end of the period covered by this report (the “Evaluation Date”"Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’sour disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company required to be included in the Company’sour periodic filings under the Exchange Act. Such officers have also concluded that, as of the Evaluation Date, the Company’sour disclosure controls and procedures are effective in accumulating and communicating information in a timely manner, allowing timely decisions regarding required disclosures.
There have been no significant changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’sour most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
There have been no material changes to the risk factors affecting the Company from those disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In 1998, the Company’sCompany's stock repurchase program was established. On several occasions since the program’sprogram's inception, theour Board of Directors has increased the number of shares authorized for repurchase under the program. In total, 7.58.5 million shares have been authorized for repurchase. This includes the additional 1.0 million shares that were authorized for repurchase on May 3, 2022. The table below presents information pursuant to Item 703(a) of Regulation S-K regarding theour repurchases of the Company’sour common stock by the Company in the three-month period March 31, 2021.2022.
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| Maximum Number | ||
| | Total | | Average | | Total Number of | | of Shares | | Total | | Average | | Total Number of | | of Shares | ||
| | Number | | Price | | Shares Purchased as | | that May Yet Be | | Number | | Price | | Shares Purchased as | | that May Yet Be | ||
| | of Shares | | Paid | | Part of the Publicly | | Purchased Under | | of Shares | | Paid | | Part of the Publicly | | Purchased Under | ||
Period | | Purchased | | Per Share | | Announced Program | | the Program | | Purchased | | Per Share | | Announced Program | | the Program | ||
01/01/2021 - 01/31/2021 |
| 46,013 | | $ | 17.36 |
| 46,013 |
| 289,767 | |||||||||
02/01/2021 - 02/28/2021 |
| 13,829 | | $ | 17.80 |
| 13,829 |
| 275,938 | |||||||||
03/01/2021 - 03/31/2021 |
| 1,895 | | $ | 17.85 |
| 1,895 |
| 274,043 | |||||||||
01/01/2022 - 01/31/2022 |
| 22,014 | | $ | 23.64 |
| 22,014 |
| 188,562 | |||||||||
02/01/2022 - 02/28/2022 |
| 20,460 | | $ | 24.24 |
| 20,460 |
| 168,102 | |||||||||
03/01/2022 - 03/31/2022 |
| 32,623 | | $ | 23.92 |
| 32,623 |
| 135,479 | |||||||||
Total |
| 61,737 | |
| 17.48 |
| 61,737 |
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| 75,097 | | $ | 23.92 |
| 75,097 |
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Item 6. Exhibits.
Exhibit |
| Description |
| Incorporation Herein By Reference To |
| Filed |
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31.1 | | | | | X | |
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31.2 | | | | | X | |
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32 | | Section 906 Certification of Chief Executive Officer and Chief Financial Officer | | | | X |
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101 | | The following financial information from Weyco Group, Inc. | | | | X |
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104 | | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, | | | | X |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| WEYCO GROUP, INC. | |
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Dated: May | | /s/ Judy Anderson |
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1921