Nature of Business and Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Nature of Business and Significant Accounting Policies [Abstract]

Nature of Business and Significant Accounting Policies

Note 1. Nature of Business and Significant Accounting Policies

Nature of business:

LaCrosse Footwear, Inc. is a leading developer and marketer of branded, premium and innovative footwear for work and outdoor consumers. The Company’s trusted DANNER® and LACROSSE® brands are sold to a network of specialty retailers and distributors in North America, Europe, and Asia.

The Company markets its two brands through four channels of distribution: (1) wholesale, (2) government, (3) direct, and (4) international.

Summary of significant accounting policies:

Principles of consolidation - The consolidated financial statements include the accounts of LaCrosse Footwear, Inc. and its wholly owned subsidiaries, Danner, Inc., LaCrosse International, Inc., and LaCrosse International Holdings, Inc. (collectively the “Company”). All material intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates in the preparation of financial statements - 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 amounts reported in the consolidated financial statements and accompanying footnotes. Significant items subject to estimates and assumptions include valuation allowances for trade accounts receivable, inventories, and deferred tax assets, as well as pension obligations, product warranties, stock-based compensation, and estimated future cash flows used together with the Company’s market capitalization in the annual impairment test of goodwill. Actual results could differ from those estimates.

Revenue recognition - Revenue is recognized when products are shipped, the customer takes title and assumes risk of loss, collection of related receivables is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Factory store revenues are recorded at the time of sale. Allowances for estimated returns and discounts are provided when the related revenue is recorded. Amounts billed for shipping and handling costs are recorded as a component of net sales.

Foreign currency translation and foreign currency transactions - The assets and liabilities of the Company’s foreign subsidiary have been translated into U.S. dollars using the exchange rates in effect at period end, and the net sales and expenses have been translated into U.S. dollars using average exchange rates in effect during the period. The foreign currency translation adjustments are included as a separate component of accumulated other comprehensive loss within shareholders’ equity.

Any gains or losses generated by foreign currency transactions are recorded in non-operating expense in the consolidated statements of income in the period in which they occur.

Cash and cash equivalents - The Company maintains its cash in money market accounts and U.S. Government money market accounts, which may, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts. The carrying amounts of such assets are a reasonable estimate of their fair value due to the short term to maturity and readily available market for the investments.

Fair value of financial instruments - The Company’s financial instruments, including cash and cash equivalents, trade accounts receivable, borrowings on the line of credit, and accounts payable are estimated to approximate their fair value due to their short maturities.

Trade accounts receivable and allowance for doubtful accounts - Trade accounts receivable are carried at the original invoice amount less estimated allowances for doubtful accounts, cash discounts and non-defective returns. The Company maintains an allowance for doubtful accounts for the uncertainty of its customers’ ability to make required payments. In determining the amount of the allowance, the Company considers historical levels of credit losses and makes judgments about the creditworthiness of customers based upon ongoing credit evaluations. The Company also analyzes its cash discount programs and return policies and future rates of non-defective returns to assess the adequacy of allowance levels and adjusts such allowances as necessary.

Inventories - Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Provision for potentially slow-moving or excess inventories is made based on management’s analysis of inventory levels, future sales forecasts, and current estimated market values.

Property and equipment - Property and equipment are carried at cost and are depreciated using the straight-line method over their estimated useful lives or lease term, whichever is shorter. Depreciable lives range from five to fifteen years for leasehold improvements and from two to fifteen years for machinery and equipment.

Goodwill - Goodwill represents the excess of the purchase price over the fair value of the net tangible and identified intangible assets. Goodwill is not amortized, but is subject to annual impairment tests. The Company reviews its goodwill for impairment annually, or more frequently if there is a triggering event. The Company uses a two-step test to assess goodwill for impairment. First, the fair value of the reporting unit is compared to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is required. The second step is performed if the carrying value exceeds the fair value. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference will be recorded. The Company also reviews the carrying amount of goodwill for impairment if an event occurs or circumstances change that would indicate the carrying amount may be impaired. The Company tests for impairment at the end of the second quarter each year. As of June 25, 2011, the Company determined there was no impairment of its recorded goodwill and as of December 31, 2011, there has been no triggering event that would require an updated impairment review.

Recoverability and impairment of intangible assets and other long-lived assets - The Company reviews long-lived assets and certain identifiable intangible assets for impairment whenever events indicate that the carrying value may be impaired. In these cases, the Company estimates the future undiscounted net cash flows to be derived from the assets to determine whether a potential impairment exists. If the carrying value exceeds the estimate of future undiscounted cash flows, the Company then calculates the impairment as the excess of the carrying value of the asset over the estimate of its fair value. The Company has determined that there was no impairment as of December 31, 2011.

Product warranties - The Company provides a limited warranty for the replacement of defective products for a specified time period after sale. The Company estimates the costs that may be incurred under its limited warranty and records a liability in the amount of such anticipated costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include sales experience along with historical and anticipated future rates of warranty claims.

Accruals for product warranties are included in other accruals in the accompanying consolidated balance sheets. Changes in the carrying amount of accrued product warranty cost for the years ended December 31, 2011 and 2010 are summarized as follows (in thousands):

	December 31,
	2011			2010
Accrued product warranties, beginning	$	1,588		$	1,409
Accruals for products sold		2,645			3,181
Warranty claims		(2,970	)		(3,002	)
Accrued product warranties, ending	$	1,263		$	1,588

Stock-based compensation - The Company uses the Black-Scholes model to estimate the fair value of all share-based compensation awards on the date of grant. The Company recognizes compensation expense for options on a straight-line basis over the requisite service period for each separately vesting portion of the award. Stock-based compensation expense recognized was $0.7 million ($0.07 per diluted share) for 2011, $0.6 million ($0.05 per diluted share) for 2010, and $0.6 million ($0.06 per diluted share) for 2009. See Note 7, “Stock Options” for additional information.

Income taxes - The provision for income taxes is based on earnings reported in the consolidated statements of income. Deferred tax assets and liabilities are determined by applying anticipated future tax rates to the cumulative temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. See Note 4, “Income Tax Matters” for additional information.

Research and development costs - Expenditures relating to the development of new products and processes are expensed as incurred. These costs include expenditures for compensation, materials, facilities, and other costs and do not represent a material portion of operating expenses.

Advertising and promotion - The Company advertises and promotes its products through national and regional media, displays, and catalogs and through cooperative advertising programs with wholesalers. Costs for these advertising and promotional programs are charged to expense as incurred. Advertising and promotional expenses included in the consolidated statements of income for the years ended December 31, 2011, 2010, and 2009 were $4.2 million, $3.7 million, and $3.1 million, respectively.

Net income per common share - The Company presents its net income on a per share basis for both basic and diluted common shares. Basic earnings per common share excludes all dilutive stock options and is computed using the weighted average number of common shares outstanding during the period. The diluted earnings per common share calculation assumes that all stock options were exercised and converted into common stock at the beginning of the period, unless their effect would be anti-dilutive.

A reconciliation of the shares used in the basic and diluted earnings per common share is as follows:

	December 31,
	2011		2010		2009
Basic weighted average common shares outstanding		6,498,764		6,428,625		6,303,473
Dilutive stock options		140,435		161,384		71,463
Diluted weighted average common shares outstanding		6,639,199		6,590,009		6,374,936

Segment reporting - The Company is required to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available. The Company has determined that it operates as a single segment. The Company manages its resources and assesses its performance on an enterprise-wide basis.

Reclassifications - Certain disclosure amounts in the prior-period financial statements have been reclassified to conform to the current-period presentation and have no effect on previously reported net income or stockholders’ equity.