UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2002 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: 0-238001
LaCrosse Footwear, Inc.
(Exact name of registrant as specified in its charter)
Wisconsin
(State or other jurisdiction
of incorporation or organization)
39-1446816
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(I.R.S. Employer Identification No.)
18550 N.E. Riverside Parkway
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Portland, Oregon
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(Address of principal executive offices)
97230
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(Zip code)
Registrant's telephone number, including area code: (503) 766-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $.01 par value
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 X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 22b-2 of the Act). Yes __ No X
Aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the registrant at June 28, 2002: $7,041,135.
Number of shares of the registrant's common stock outstanding at February 28,
2003: 5,874,449 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for 2003 Annual Meeting of Shareholders (to be
filed with the Commission under Regulation 14A within 120 days after the end of
the registrant's fiscal year and, upon such filing, to be incorporated by
reference into Part III).
TABLE OF CONTENTS
PART I Page
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ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 10
ITEM 6. SELECTED FINANCIAL DATA 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 23
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 23
ITEM 11. EXECUTIVE COMPENSATION 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 24
ITEM 14. CONTROLS AND PROCEDURES 24
PART IV
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 25
SIGNATURES 26
EXHIBITS FILED AS PART OF FORM 10-K Exhibit Index
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1 to F-22
PART I
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Item 1. Business
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Unless the context requires otherwise, references in this Annual Report to "we,"
"us" or "our" refer collectively to LaCrosse Footwear, Inc. and its
subsidiaries.
General
LaCrosse Footwear, Inc. ("LaCrosse" or the "Company") is a leader in the design,
development, marketing and manufacturing of premium quality protective footwear
and clothing for the sporting and outdoor, farm and agriculture, general utility
and occupational markets. The Company markets its products primarily under the
LACROSSE(R), RAINFAIR(R) and DANNER(R) brands through selected distributors and
independent representatives. LaCrosse's products are characterized by
innovative, functional design; durability; performance features; and quality
materials. Product styling is relatively unaffected by changing fashion trends.
Historically, LaCrosse has produced footwear primarily of rubber or vinyl, some
of which includes leather or fabric uppers. In March 1994, the Company acquired
the business of Danner Shoe Manufacturing Co. ("Danner"), a producer of premium
quality leather footwear for the sporting and occupational markets, which is
sold primarily under the DANNER(R) brand. Danner's legal name was changed to
Danner, Inc. during 2002. To broaden the base of business in the protective
clothing area, in May 1996, a 50%-owned subsidiary of the Company purchased the
assets of Rainfair, Inc. ("Rainfair") of Racine, Wisconsin. Rainfair designs and
markets rainwear, footwear and other protective clothing generally for the
occupational markets, which are sold primarily under the RAINFAIR(R) brand.
Operations of Rainfair have been included in the Company's financial statements
since the date of acquisition. In January 1998, the Company acquired the
remaining 50% of Rainfair that it did not own, thereby making it a wholly owned
subsidiary (and, subsequently, Rainfair was merged into the Company). In October
2002, the Company changed the name of its Rainfair division to LaCrosse Safety &
Industrial. In 1997, the Company acquired the LAKE OF THE WOODS(R) trade name.
LAKE OF THE WOODS(R) was a designer, manufacturer and marketer of branded
leather footwear for both the outdoor and occupational markets. From 1997 to
1999, the Company transitioned the LAKE OF THE WOODS(R) product offerings to the
LACROSSE(R) brand where leather boots have become a significant product offering
for the LACROSSE(R) brand.
The Company was incorporated in Wisconsin in 1983 but traces its history to 1897
when La Crosse Rubber Mills Company was founded. Current management purchased
LaCrosse's predecessor from the heirs of the founding family and other
shareholders in 1982.
Strategy
The Company's business strategy is to continue (i) to build, position and
capitalize on the strength of established brands, (ii) to target its offerings
of footwear, rainwear and other complementary products under the established
brands, (iii) to offer superior customer service and (iv) to expand and enhance
its strong distribution network of sales representatives and retail and
industrial customers.
-1-
Brand Positioning
Within the retail channels of distribution, the Company markets footwear and
rainwear under the well-established DANNER(R) and LACROSSE(R) brands. Each brand
is positioned differently in the marketplace in order to capitalize on
differences in end user expectations for performance, price and end-use. The
DANNER(R) brand represents the highest level of performance, with a select line
of high quality, feature-driven leather footwear products at premium prices. The
LACROSSE(R) brand has a more extensive product line including rubber, vinyl and
leather footwear, distributed to a broad base of independent retailers.
The Company sells products through the safety and industrial distributor channel
principally under the LACROSSE(R) and RAINFAIR(R) brands. The brands are
positioned as complementary, with the LACROSSE(R) brand including a full
performance range of rubber and vinyl footwear, while the RAINFAIR(R) brand
includes an extensive line of rainwear and protective clothing.
Products
The Company's brand product offering includes these major categories:
Rubber/Vinyl Footwear
The Company's rubber/vinyl footwear line is the most extensive of the product
categories with product offerings covering the sporting and outdoor and
occupational markets. The Company markets rubber/vinyl footwear mainly under the
LACROSSE(R) brand. The product line ranges from low cost vinyl-molded products
to high performance, handcrafted rubber products directed to specific
recreational and occupational market niches.
In addition, the Company is a leader in rubber bottom, leather/fabric upper
footwear for extreme cold and other high performance applications. A rubber
bottom boot with a leather or fabric upper combines the waterproofness and
flexibility of rubber footwear with the fit and support of a laced leather boot.
Leather Footwear
The Company markets leather footwear under two brand names, DANNER(R) and
LACROSSE(R). The DANNER(R) products consist of premium quality sporting,
occupational and recreational boots available in numerous styles, many of which
feature the stitch-down manufacturing process which provides outstanding support
and built-in comfort for the owner. Danner was the first footwear manufacturer
to include a waterproof, breathable GORE-TEX(R) liner (seam taped insert) in
leather boots, and it continues to include that liner in over 90% of its
products. The LACROSSE(R) brand markets a line of indoor and outdoor work boots
and hikers appealing to consumers who desire durability and comfort.
Rainwear and Protective Clothing
Rainwear and footwear are complementary products in many occupational and
outdoor environments. LaCrosse Safety & Industrial offers a broad line of
quality rainwear and protective clothing appealing to those workers in utility,
construction, chemical processing, law enforcement and other groups
traditionally purchasing through industrial distributors. While
-2-
most of the garments are developed for general workwear, a number are
constructed for specific applications such as acid environments and flame
environments. Products bearing the RAINFAIR(R) brand are recognized in the
industry for their durability, quality and heritage. In recent years, the brand
name has been extended to include other protective garments such as aprons and
extreme cold weather clothing.
LaCrosse also sells footwear accessories such as liners, wader suspenders and
socks. During 2002, the Company offered approximately 550 styles of footwear and
rainwear.
Product Design and Development
The Company's product design and development ideas originate within the Company
and through communication with its customers and suppliers based upon perceived
customer or consumer needs or new technological developments in footwear,
rainwear and materials. Consumers, sales personnel and suppliers provide
information to the Company's marketing and product development personnel during
the concept, development and testing of new product. New product needs generally
can be related to functional or technical characteristics. The final aesthetics
of the product are determined by marketing and product development personnel, at
times in conjunction with outside design consultants. Once a product design is
approved for production, responsibility shifts to manufacturing or outside
sourcing facilities for pattern development and commercialization.
Customers, Sales and Distribution
The Company markets its brands and associated products through two separate
channels of distribution: retail and industrial.
Within the retail market, the LACROSSE(R) and DANNER(R) brands are marketed
through independent representative groups. For both brands, some of the
independent agents are multi-line representative groups and some are dedicated
to the Company's products. A national account sales team complements the sales
activities for the brands.
The Company's industrial products are distributed through the LaCrosse Safety &
Industrial Division using independent representatives and a national account
team.
The Company's products are sold directly to more than 4,300 accounts, including
sporting goods/outdoor retailers, general merchandise and independent shoe
stores, wholesalers, industrial distributors, catalog operations and the United
States government. The Company's customer base is also diversified as to size
and location of customer and markets served. As a result, the Company is not
dependent upon a few customers, and adverse economic conditions or mild or dry
weather conditions in a specific region are less likely to have as material of
an effect on the Company's results of operations.
The Company currently operates four Internet websites for use by consumers and
customers. The primary purpose of the three consumer-oriented websites at this
time is to provide product and Company information, and in the case of the
DANNER(R) website, to sell product to consumers who choose to purchase direct
from the manufacturer at suggested retail pricing. The Company also operates
business-to-business websites, for the DANNER(R), LaCrosse Safety &
-3-
Industrial and LACROSSE(R) divisions respectively, that provide critical
information to dealers about the status of pending orders, inventory levels,
shipping and other data.
The Company operates two factory outlet stores whose primary purpose is disposal
of slow moving, factory seconds and obsolete merchandise. One of these stores is
located at the manufacturing facility in Portland, Oregon.
The Company also derives royalty income from Danner Japan Ltd., a Japanese joint
venture in which the Company has a 12% ownership interest, on Danner Japan
Ltd.'s distribution of products in Japan under the DANNER(R) brand that are
manufactured by others overseas. In addition, Danner Japan Ltd. sells products
manufactured in the Portland, Oregon factory. These sales amounts are included
in the category of revenue of foreign countries in our annual report.
Advertising and Promotion
Because a majority of the Company's marketing expenditures are for promotional
materials, cooperative advertising and point-of-sale advertising designed to
assist dealers and distributors in the sale of the Company's products, the
Company is able to customize advertising and marketing for each of its brands in
each of its distribution channels. The Company's marketing strategy allows it to
emphasize those features of its products that have special appeal to the
applicable targeted consumer.
The Company advertises and promotes its products through a variety of methods
including national and regional print advertising, national television
advertising, public relations, point-of-sale displays, catalogs and packaging,
product licensing agreements and sponsorships, out-of-home advertising, online
promotion, and through co-promotion with dealers.
Manufacturing and Sourcing
Traditionally, the Company manufactured the majority of its rubber, leather and
vinyl products in its United States manufacturing facilities. During the last
few years, the quality and timeliness of product provided by offshore sources
has improved substantially. This has resulted in the consumer shifting its
allegiance from domestically produced product to product that offers the best
value, regardless of origin of manufacture.
As a result of this shift, the Company now outsources products unless value can
be added in the domestic manufacturing process. This shift to outsourcing
resulted in the closing of three U.S. manufacturing plants in 2001 and one U.S.
manufacturing plant in 2002. As a result of closing the La Crosse, Wisconsin
manufacturing facility, the Company recorded a $4.3 million sourcing realignment
and impairment charge in the second quarter of 2001, and as a result of closing
the Racine, Wisconsin factory, recorded a non-recurring charge of $1.1 million
in the second quarter of 2002. The Company outsourced over 70% of the product it
sold in 2002 compared to 60% in 2001 and expects that number to increase over
the next couple of years.
The Company sources a majority of its footwear and protective clothing from a
variety of foreign manufacturing facilities, primarily located in the
Asian-Pacific region. The Company has established criteria for its third party
manufacturers in order to monitor product quality and labor practices.
-4-
The raw materials used in production of the Company's products are quality
leather, crude rubber and oil-based vinyl compounds for vinyl footwear and
protective clothing products. Since these products are all available on a global
basis, the Company has no reason to believe these raw materials will not
continue to be available at competitive prices.
The Company, or its contract manufacturers, purchases GORE-TEX(R) waterproof
fabric directly from W.L. Gore and Associates ("Gore"), for both the LaCrosse
and Danner footwear. Gore has traditionally been Danner's single largest
supplier, in terms of dollars spent on raw materials. Approximately 90% of
Danner's footwear, in terms of number of pairs produced, incorporate GORE-TEX(R)
waterproof fabric. Agreements with Gore may be terminated by either party upon
90 days written notice. The Company considers its relationship with Gore to be
good. GORE-TEX(R) is a registered trademark of W.L. Gore & Associates, Inc.
Backlog
At December 31, 2002, the Company had unfilled orders from its customers in the
amount of approximately $8.0 million compared to $9.4 million at December 31,
2001. The decrease in backlog is primarily the result of reduced orders due to
slowing economic conditions. All orders at December 31, 2002 are expected to be
filled during 2003. Because a major portion of the Company's orders are placed
in January through June for delivery in June through November, the Company's
backlog is lowest during the fourth quarter and peaks during the second quarter.
Factors other than seasonality, such as pending large national account orders or
United States government orders, could have a significant impact on the
Company's backlog. Therefore, backlog at any one point in time may not be
indicative of future results. Generally, orders may be cancelled by customers
prior to shipment without penalty.
Competition
The various categories of the protective footwear, rainwear and protective
clothing markets in which the Company operates are highly competitive. The
Company competes with numerous other manufacturers, many of whom have
substantially greater financial, distribution and marketing resources than the
Company. Because the Company has a broad product line, its competition varies by
product category. The Company has two to three major competitors in most of its
rubber and vinyl product lines, at least four major competitors in connection
with the Company's sporting footwear, at least six major competitors in
connection with hiking boots and at least four major competitors in connection
with its occupational footwear, rainwear and protective clothing. The Company
also faces competition from offshore manufacturers, particularly in the
occupational and sporting markets.
LaCrosse believes it maintains a competitive position compared to its
competitors through its attention to quality and the delivery of value, its
position as an innovator in common product segments, its record of delivering
products on a timely basis, its strong customer relationships and, in some
cases, the breadth of its product line. Some of the Company's competitors
compete mainly on the basis of price.
-5-
Further, because the manufacturing process for vinyl footwear products is much
less labor intensive than for rubber footwear, lower offshore labor rates are
less of a competitive advantage in the production of vinyl footwear.
Leather boot manufacturers and suppliers, some of which have strong brand name
recognition in the markets they serve, are the major competitors of the
Company's DANNER(R) and LACROSSE(R) leather product line. These competitors
manufacture domestically and/or import products from offshore. Domestically
manufactured DANNER(R) brand products effectively compete with other
domestically produced products, but are generally at a price disadvantage
against lower-cost imported products, because offshore manufacturers generally
pay significantly lower labor costs. Danner focuses on the premium quality,
premium price segment of the market in which product function, design, comfort
and quality, continued technological improvements, brand awareness, timeliness
of product delivery and product pricing are all important. The Company believes,
by attention to these factors, that the DANNER(R) footwear line has maintained a
strong competitive position in its current market niches. In leather boots, the
LACROSSE(R) brand, because of its market position, sources product from
offshore. Therefore, it competes with other distributors with products sourced
from offshore locations.
Employees
As of December 31, 2002, the Company had approximately 400 employees, all
located in the United States. Approximately 30 of the Company's employees at the
La Crosse, Wisconsin facility are represented by the United Steel Workers of
America under a two-year collective bargaining agreement which expires in
September 2003 and approximately 110 of the Company's employees at the Portland,
Oregon facility are represented by the United Food & Commercial Workers Union
under a collective bargaining agreement which expires in January 2006. The
Company has approximately 100 employees at a manufacturing facility located in
Claremont, New Hampshire that is not represented by a union. The Company
considers its employee relations to be good.
Trademarks and Trade Names; Patents
The Company owns United States federal registrations for several of its marks,
including LACROSSE(R), DANNER(R), RED BALL(R), RAINFAIR(R), LACROSSE and
stylized Indianhead design that serve as the Company's logo, RAINFAIR and
stylized horse design that serve as Rainfair's logo, FIRETECH(R), FLY-LITE(R),
ICE KING(R), ICEMAN(R), TERRAIN KING(R), AIRTHOTIC(R), GAMEMASTER(R),
GENESYS(R), TERRA FORCETM, HYPER-DRI(R), CAMOHIDETM and RED BALL JETS(R). The
Company generally attempts to register a trademark relating to a product's name
only where the Company intends to heavily promote the product or where the
Company expects to sell the product in large volumes. However, the Company
relies on common law trademark rights for all unregistered brands. The Company
defends its trademarks and trade names against infringement to the fullest
extent practicable under the law. Other than registrations relating to the
LACROSSE(R), DANNER(R) and RAINFAIR(R) names, the Company does not believe any
trademark is material to its business.
The Company is not aware of any material conflicts concerning its marks or its
use of marks owned by other companies.
-6-
The Company owns several patents that improve its competitive position in the
marketplace, including patents for a cold cement process for affixing varying
outsole compositions to a rubber upper; a method of manufacture for attaching a
nylon upper to a rubber bottom; a rubber footwear product in which a heel
counter is trapped or embedded within the rubber boot to improve the support
provided to the wearer's foot; the DANNER BOB(R) outsole; TERRA FORCETM, a
three-shank cement and stitch-down manufacturing process; and a patent for its
AIRTHOTIC(R) ventilated arch support that fits under the heel.
Seasonality/Working Capital
As has traditionally been the case, the Company's sales in 2002 were higher in
the last two quarters of the year than in the first two quarters and, in order
to satisfy shipping requirements, the Company places orders for product during
the first quarter with delivery to the Company starting in the second quarter.
As a result, inventories generally peak early in the third quarter. The Company
expects these trends to continue. The Company has historically financed
operations with cash generated from operations, long-term lending arrangements
and short-term borrowings under a line of credit. The Company requires working
capital to support fluctuating accounts receivable and inventory levels caused
by our seasonal business cycle. The Company's working capital needs are the
lowest in the first quarter and highest from August through November in each
year.
Foreign Operations and Export Sales
Other than the Company's 12% equity interest in Danner Japan, Ltd., the Company
does not have any foreign operations. International sales accounted for less
than 3% of the Company's net sales in 2002.
Environmental Matters
The Company and the industry in which it competes are subject to environmental
laws and regulations concerning emissions to the air, discharges to waterways
and the generation, handling, storage, transportation, treatment and disposal of
waste materials. The Company's policy is to comply with all applicable
environmental, health and safety laws and regulations. These laws and
regulations are constantly evolving and it is difficult to predict accurately
the effect they will have on the Company in the future. Compliance with
applicable environmental regulations and controls has not had, nor are they
expected to have in 2003, any material impact on the capital expenditures,
earnings or competitive position of the Company.
-7-
Executive Officers of the Registrant
The following table sets forth certain information, as of March 14, 2003,
regarding the executive officers of the Company.
Name Age Position
- ----------------------------------- ---------- -----------------------------------------------------
George W. Schneider 80 Chairman of the Board and Director
Joseph P. Schneider 43 President, Chief Executive Officer and Director
David P. Carlson 47 Executive Vice President and Chief Financial Officer
George W. Schneider was elected to the Board of Directors of the Company's
predecessor in 1968 and was the principal investor and motivating force behind
the management buyout of the Company's predecessor in 1982. Since 1982, Mr.
Schneider also has served as Chairman of the Board of the Company.
Joseph P. Schneider has served as a director of the Company since March 1999 and
as President and Chief Executive Officer since August 4, 2000. Prior thereto,
Mr. Schneider served as Executive Vice President-Danner of the Company since May
1999, as President and Chief Executive Officer of Danner since October 1998, as
Vice President of the Company since June 1996, as President and Chief Operating
Officer of Danner since December 1997, as Executive Vice President and Chief
Operating Officer of Danner since June 1996 and as Vice President - Retail Sales
of the Company from January 1993 until June 1996. From 1985, when he joined the
Company, until January 1993, Mr. Schneider held various sales management
positions.
David P. Carlson was named Executive Vice President in August 2001 and Chief
Financial Officer of the Company in April 2002. Mr. Carlson has also served as
President and Chief Operating Officer of Danner from August 2000 to August 2001.
Prior thereto, he served as Vice President-Finance and Chief Financial Officer
of Danner from March 1998, when he joined Danner, until August 2000. Prior to
joining Danner, Mr. Carlson was the Vice President-Finance of The Palace Inc.,
an Internet software company, from 1996 to 1998. Prior thereto, he was the Vice
President-Controller of Cadre Technologies Inc., a global provider of software
development tools, from 1983 to 1996.
Joseph P. Schneider is the son of George W. Schneider. None of the other
directors or executive officers are related to each other. The term of office of
each of the executive officers expires at the annual meeting of shareholders.
-8-
Item 2. Properties
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The following table sets forth certain information, as of December 31, 2002,
relating to the Company's principal facilities.
Properties
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Owned or Approximate Floor
Location Leased Area in Square Feet Principal Uses
- -------------------------- ------------------ -------------------- ------------------------------------------
Portland, OR Leased(1) 55,000 Principal sales, marketing and executive
offices and warehouse space
Portland, OR Leased(2) 36,000 Manufacturing operations and retail
outlet store
La Crosse, WI Leased(3) 212,000 Warehouse space
La Crosse, WI Leased(4) 226,000 Warehouse and distribution facility
La Crosse, WI Leased 11,000 Retail outlet store
Claremont, NH Owned 150,000 Manufacture vinyl injection-molded
products
Claremont, NH Leased(5) 37,000 Warehouse and distribution facility
Racine, WI Leased(6) 104,700 Vacant manufacturing, distribution and
office space
_______________
(1) The lease for this facility expires in 2007.
(2) The lease for this facility expires in March 2009, but the Company has the
option to extend the term for an additional five years.
(3) The lease for this 212,000 square foot building in La Crosse, Wisconsin
expires in 2007. Approximately 8% of this building is currently sublet to a
third party through April 2007. The balance of the facility is used by the
Company for warehouse space.
(4) The lease for space in this facility expires in December 2003.
(5) The lease of this facility expires in June 2003. This space is leased in a
facility adjacent to the Company's manufacturing plant in Claremont, New
Hampshire.
-9-
(6) The lease for this facility was entered into in May 1996 and expires in May
2006. At December 31, 2002, the Company has established an estimated
liability for the expense due for the remainder of the lease term using
both the estimated market lease rate and length of time needed to sublet
the facility.
Based on present plans, management believes that the Company's current
facilities will be adequate to meet the Company's anticipated needs for at least
the next two years.
Item 3. Legal Proceedings
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From time to time, the Company, in the normal course of business, is involved in
various other claims and legal actions arising out of its operations. The
Company does not believe that the ultimate disposition of any currently pending
claims or actions would have a material adverse effect on the Company or its
financial condition.
In October 2002, the Company received a letter from a public interest
environmental group alleging that the Company is in violation of product
labeling requirements contained in the California Safe Drinking Water and Toxic
Enforcement Act of 1986 ("Proposition 65" or the "Act"). In January 2003, the
Company was served with a complaint by the same public interest group alleging
violations of the Act and California Business and Professions Code Section
17200. The Act requires, among other things, that manufacturers of products sold
in California provide "clear and reasonable warning" if the product contains a
chemical listed by the State of California as a carcinogen or reproductive
toxicant above "No Significant Risk Levels." In the Company's situation, the
environmental group alleges polyvinyl chloride (PVC) in the Company's rainwear
products contains lead and/or lead compounds above the California standards. If
in fact the lead or lead compounds in the Company's rainwear products exceed the
California standards, the Company plans to take the appropriate corrective or
remedial action warranted. While the maximum statutory penalties for violating
Proposition 65 are severe, the Company does not believe that violations, if any,
of Proposition 65 by it will have a material adverse effect on the Company, or
its business, operations or financial position.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of shareholders during the quarter ended
December 31, 2002.
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
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Price Range of Common Stock
The Company's Common Stock is publicly traded on the Nasdaq National Market
under the ticker symbol BOOT. On March 14, 2003, the sale price of our Common
Stock was $2.26 per share, as reported on the Nasdaq National Market. The table
below shows the high and low sales prices per share of our Common Stock as
reported by the Nasdaq National Market:
-10-
2002 2001 2000
--------------------------- -------------------------- ----------------------
High Low High Low High Low
--------------------------- -------------------------- ----------------------
First Quarter $4.32 $2.96 $3.94 $2.50 $5.75 $3.69
Second Quarter 3.19 2.10 3.30 2.00 5.00 3.81
Third Quarter 2.70 1.06 3.27 2.04 5.75 2.25
Fourth Quarter 3.14 1.90 4.81 2.15 4.00 2.50
As of March 14, 2003, there were approximately 333 shareholders of record and
approximately 1,218 beneficial owners of the Company's Common Stock.
Dividends
The Company did not declare a cash dividend in 2000, 2001 or 2002 because of
operating results and we do not anticipate paying any dividends in the
foreseeable future. Future dividend policy will depend upon earnings and
financial condition of the Company, the Company's need for funds and other
factors. In addition, our credit agreement restricts the payment of dividends.
Equity Compensation Plan Information
Certain information with respect to the Company's equity compensation plans is
contained in Part III, Item 12 of this Annual Report on Form 10-K.
-11-
Item 6. Selected Financial Data
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Selected Income Statement Data
Year Ended December 31 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Net sales $97,785 $125,301 $138,161 $124,328 $133,405
Operating income (loss) (3,999) (5,308) (2,126) (2,208) 5,598
Net income (loss) (5,086) (7,949) (4,769) (2,637) 2,260
Selected Balance Sheet Data
Year Ended as of December 31 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Working capital $25,607 $27,853 $27,760 $40,792 $44,801
Total assets 60,845 79,925 97,598 98,020 98,615
Notes payable, bank 8,378 17,645 20,840 14,088 9,500
Long-term obligations, including current portion 4,432 6,031 10,406 12,414 12,496
Shareholders' equity 35,089 41,545 49,494 56,388 63,035
Selected Share Data
Year Ended December 31 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $(0.87) $(1.35) $(0.80) $(0.41) $0.34
Diluted earnings (loss) per share $(0.87) $(1.35) $(0.80) $(0.41) $0.34
Dividends per share -- -- -- $ 0.13 $0.13
Basic shares outstanding (in thousands) 5,874 5,874 5,974 6,465 6,662
Diluted shares outstanding (in thousands) 5,874 5,874 5,974 6,465 6,676
As discussed in Note 9 to the consolidated financial statements, effective
January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets" and ceased amortizing goodwill. Accordingly, the 2002
operating results do not include such amortization expense which represented
approximately $0.11 and $0.12 of the basic and diluted net loss per share as
presented above for 2001 and 2000, respectively. Furthermore, the adoption of
SFAS No. 142 in 2002 resulted in an impairment charge of approximately $0.18 net
loss per share.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
The following table sets forth selected financial information derived from our
consolidated financial statements. The discussion that follows the table should
be read in conjunction with the consolidated financial statements:
-12-
Year Ended December 31 2002 2001 2000
- --------------------------------------------------------------------------------
($ in thousands)
Net sales $97,785 $125,301 $138,161
Cost of goods sold 71,574 95,158 104,413
--------------------------------------
Gross profit 26,211 30,143 33,748
Gross margin 26.8% 24.1% 24.4%
Selling and administrative expenses 30,210 35,451 35,874
Non-operating expenses, net 1,597 2,641 3,549
Income tax expense (benefit) (1,538) -- (906)
FISCAL 2002 COMPARED TO FISCAL 2001
Net Sales
Net sales in 2002 decreased $27.5 million, or 22.0%, to $97.8 million from
$125.3 million in 2001. The decrease in net sales was due to a 34.1% decrease in
the retail channel of distribution of LACROSSE(R) brand products, a 24.8%
decrease in the industrial channel of distribution of LACROSSE(R) and
RAINFAIR(R) brand products, partially offset by a 2.7% sales increase for the
DANNER(R) brand products over the same period of last year. These decreases were
the result of a softening economy on retailers and industrial distributors and
reduced fill-in business for cold weather products in the LACROSSE(R) brand
retail channel. In addition, the Company discontinued manufacturing children's
insulated footwear which resulted in 6.8% of the retail channel decrease in net
sales. Net sales in the industrial channel of distribution declined 13.5% from
2001 as a result of management's decision to discontinue the mass market apparel
business and reduce the number of retail channel products offered in the
industrial channel of distribution. The 2.7% sales increase for DANNER(R) brand
products was primarily related to the introduction of new styles using the TERRA
FORCETM technology platform within the uniform, hunting, work and outdoor
cross-training product lines.
Gross Profit
Gross profit in 2002 decreased $3.9 million, or 13.0%, to $26.2 million from
$30.1 million in 2001. As a percent of sales, gross profit increased to 26.8% in
2002 compared to 24.1% in 2001. The increase in gross profit as a percent of
sales is primarily due to our focus on shifting to higher margin sourced
products and a one-time charge of $3.7 million during the first half of 2001
related to closing the La Crosse factory. Both 2002 and 2001 were favorably
impacted by a $0.5 million and $1.8 million, respectively, reduction in the LIFO
inventory reserve as the manufactured pool of inventory was reduced.
Selling and Administrative Expenses
Selling and administrative expenses decreased $5.3 million, or 14.8%, to $30.2
million from $35.5 million in 2001. During 2002, we recorded $3.0 million of
charges associated with the move of the corporate headquarters to Portland,
Oregon from La Crosse, Wisconsin ($1.9 million) and the move of the Industrial
division to Portland, Oregon from Racine, Wisconsin ($1.1 million). This
includes one-time charges of $1.1 million of depreciation
-13-
expense related to a change in the estimated life of the Company's former
enterprise software package and related system and a non-cash property and
equipment impairment charge of $0.6 million. Factoring out one-time
restructuring charges in 2002 and 2001, the Company decreased selling and
administrative expenses approximately $5.8 million mainly as a result of
reductions in sales commissions and distribution costs associated with the
reduced sales volume and operating efficiencies and cost savings by
consolidating the administrative and office functions in Portland, Oregon.
Non-operating Expenses
Non-operating expenses in 2002 decreased $1.0 million, or 39.5%, to $1.6 million
from $2.6 million in 2001. The decrease is primarily a result of a decrease in
interest expense that was the result of lower average borrowings and lower
interest rates.
Income Taxes
The Company recognized an income tax benefit of $1.5 million in 2002, due to tax
provisions enacted as part of the Job Creation and Worker Assistance Act of
2002. The law extends the loss carryback period for certain losses from two to
five years. This law will allow the Company to carry back certain losses
incurred during 2002 to reduce taxable income from 1997 and 1998. As a result,
the Company will receive a tax refund of approximately $2.9 million during 2003.
Direct Charge To Equity
During 2002, the Company recorded a $1.4 million charge directly to equity as a
result of recognizing the minimum pension liability. The charge is necessary
when the accumulated benefit obligation is in excess of the sums of the
respective plan assets and accrued pension liabilities, see Note 7 to the
consolidated financial statements.
FISCAL 2001 COMPARED TO FISCAL 2000
Net Sales
Net sales in 2001 decreased $12.9 million, or 9.0%, to $125.3 million from
$138.2 million in 2000. While net sales of DANNER(R) brand footwear increased
approximately 5.0%, this increase was more than offset by decreases in net sales
of LACROSSE(R) brand products through the retail channel of distribution and
weakness in the industrial channel of distribution. The increase in sales of the
DANNER(R) brand product was the result of acceptance of new product offerings,
strength in the duty footwear business and favorable weather in the primary
markets served. Sales through the LaCrosse retail channel of distribution and
the industrial channel of distribution were both negatively impacted by the
unfavorable weather conditions during the fourth quarter of 2001, the weakness
in the industrial and retail sectors of the economy, spot product outages (which
occurred as a result of the shift of the Company's rubber boots from a
domestically produced product to a sourced product), as well as a reduction in
the offerings in the LACROSSE(R) brand product line.
-14-
Gross Profit
Gross profit as a percentage of net sales decreased to 24.1% in 2001 from 24.4%
in 2000. The Company has been going through a period of transition since 1999
and, as a result, has incurred costs in both 2001 and 2000 which impacted
margins. The Company experienced increased selling margins on current line
products over the past two years as a result of the outsourcing effort. However,
these improvements were impacted in both years by the switch from domestic
sourcing to outsourcing. In 2001, the Company announced the closing of its La
Crosse, Clintonville and Hillsboro, Wisconsin manufacturing facilities. As a
result, the Company incurred charges for severance expenses, labor
inefficiencies, raw material and component part write-downs, and the closing of
the facilities. During the second quarter of 2001, the Company incurred an
impairment charge of $1.9 million and a sourcing realignment charge of $1.8
million. In addition, the Company narrowed its product offering in several areas
of the LACROSSE(R) brand product offering, which resulted in establishing
reserves related to the disposal of the discontinued products. In 2000, the
Company incurred charges for labor inefficiencies, severance costs and a $1.0
million charge for the partial curtailment of the union pension plan as the
Company reduced employment at its La Crosse manufacturing facility. In addition,
costs were incurred related to raw materials and component parts which were no
longer required for domestic manufacturing. During 2001 and 2000, gross profit
was impacted favorably by a $1.8 million and $1.3 million, respectively,
reduction in the LIFO inventory reserve as the manufactured pool of inventory
was reduced.
Selling and Administrative Expenses
Selling and administrative expenses decreased by $0.4 million, or 1.0%, in 2001
as compared to 2000. The reduction in selling and administrative expenses was
driven by the Company's strategy to outsource its rubber footwear (which
resulted in substantial reductions in employment), a reduction in marketing
programs supporting the LACROSSE(R) brand and a favorable impact from a partial
curtailment of the non-union pension plan. These reductions were largely offset
by an acceleration of the write-off of goodwill and other intangibles due to a
change in useful lives, severance expenses related to the closing of three of
the Company's manufacturing facilities, the relocation of the Company's
headquarters from La Crosse, Wisconsin to Portland, Oregon and costs incurred to
implement the conversion of all of the Company's systems to the enterprise
resource planning system (which was already in use at the Portland, Oregon
location).
Interest Expense
Interest expense decreased $0.4 million, or 13.0%, in 2001 as compared to 2000.
The decrease in interest expense was the result of lower average borrowings
(primarily due to lower inventories and receivables) coupled with a lower
interest rate on the outstanding debt. The lower interest rate was a result of
the lower market rates which was partially offset by an increase in rates under
the new credit agreement entered into in June 2001.
-15-
Income Taxes
The Company recorded no income tax benefit in 2001. The expected income tax
benefit was offset by an increase in the deferred tax valuation allowance since
the Company has had three consecutive loss years. In 2000, the Company recorded
income tax benefits to the extent tax loss carrybacks were available.
Liquidity and Capital Resources
We have historically funded working capital requirements and capital
expenditures with cash generated from operations and borrowings under a
revolving credit agreement or other long-term lending arrangements. We require
working capital to support fluctuating accounts receivable and inventory levels
caused by our seasonal business cycle. Borrowing requirements are generally the
lowest in the first quarter and the highest during the third quarter.
Our revolving credit agreement provides for advances based on a percentage of
eligible accounts receivable and inventory with maximum borrowings of $52.5
million. The credit agreement is used to support working capital requirements.
Borrowings under the credit agreement and cash flows generated from operations
are expected to be sufficient to meet our cash requirements for the next 12
months. Excess cash flows from operations are used to pay down the credit
agreement. At December 31, 2002, we had $8.4 million of outstanding borrowings
under the credit agreement and unused availability of $3.3 million. The interest
rate on the revolving credit agreement is either prime rate plus 1.0% or LIBOR
plus 3.25%. The weighted average interest rate for the outstanding balance at
December 31, 2002 was 4.98%.
In addition to the revolving credit agreement, the Company has a term loan that
expires on May 28, 2004 that calls for semi-annual payments of $0.75 million,
with the balance of $2.8 million due on May 28, 2004. The term loan is secured
by, among other things, certain properties and equipment. In the event of a sale
of any of the secured properties and equipment, a portion of the net proceeds
will be applied to the term loan. At the Company's option, the interest rate on
the term loan is either the bank's prime rate or LIBOR plus 2.0%. At December
31, 2002, the Company had $4.3 million outstanding under the term loan. In the
first quarter of 2003, we redeemed the cash surrender value of certain of our
life insurance policies for cash totaling approximately $602,000. Such cash was
applied directly to our term loan thereby reducing both the total amount due to
approximately $3.7 million and the amount due in 2004 to $2.2 million.
Net cash provided by operating activities was $11.8 million in 2002 compared to
$9.7 million for 2001. In 2002, the Company incurred a net loss of $5.1 million
offset by non cash expenses including impairment and asset disposal losses
aggregating $1.7 million, depreciation and amortization totaling $3.1 million,
and changes in working capital components, primarily decreases in accounts
receivable of $4.2 million, and inventory of $10.9 million. The decrease in
accounts receivable is related to reduced sales from 2001 and improved
collection techniques. The decrease in inventory is related to the
implementation of our sales forecasting system that allowed us to better
schedule the delivery of products to match with customer demand, a reduction in
the number of styles being offered and the sale of closeouts during 2002. In
2001, the Company incurred a net loss of $7.9 million offset by a decrease in
accounts receivable of $8.6 million and a decrease in inventory of $4.2 million.
-16-
Net cash used in investing activities was $1.2 million in 2002 compared to $0.8
million during 2001. The majority of the cash used in both years was for capital
expenditures.
Net cash used by financing activities was $10.9 million in 2002 compared to $8.6
million for 2001. During 2002, the Company repaid $9.3 million of short-term
borrowings and $1.6 million of long-term obligations compared to repayments of
$3.2 million of short-term borrowings and $4.5 million of long-term obligations.
At December 31, 2002, the Company's pension plans had accumulated benefit
obligations in excess of their respective plan assets and accrued pension
liabilities which resulted in additional minimum liabilities and an equity
reduction of $1.4 million.
As of December 31, 2002, we were not in compliance with the tangible net worth
covenant contained in our revolving agreements with our lenders. Our lenders
waived the violations and amended our agreements thereby limiting the amount of
permitted 2003 capital expenditures to $2 million. We believe that the Company
will have sufficient earnings and cash flows in 2003 to comply with the
covenants in our debt agreements, or we will be able to obtain waivers for any
unforeseen future violations of those covenants.
A summary of our contractual cash obligations at December 31, 2002 is as
follows:
- ----------------------------------- -----------------------------------------------------------------------------------
(In Thousands) Payments due by period
- ----------------------------------- -----------------------------------------------------------------------------------
Contractual Obligations Total 2003 2004 2005 2006 2007 and
Thereafter
- ----------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Long-term debt $ 4,400 $ 1,600 $ 2,800* $ - $ - $ -
- ----------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating leases 6,100 1,900 1,100 1,200 1,000 900
- ----------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total contractual cash
obligations $10,500 $ 3,500 $ 3,900 $ 1,200 $ 1,000 $ 900
- ----------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
* The amount due in 2004 of $2,800 has been reduced to $2,200 as a result of
paying down in the first quarter of 2003, a portion of the term note using cash
proceeds from the redemption of the cash surrender value of certain life
insurance policies held by the Company at December 31, 2002.
We also have a commercial commitment as described below:
(In Thousands)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Other Commercial Commitment Total Amount Committed Outstanding at 12/31/02 Date of Expiration
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Line of credit $52,500 $8,378 June 2004
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Critical Accounting Policies
Our significant accounting policies are summarized in the footnotes to our
consolidated financial statements. Some of our accounting policies require
management to exercise significant judgment in selecting the appropriate
assumptions for calculating financial estimates. Such judgments are subject to
an inherent degree of uncertainty. These judgments are based on our historical
experience, known trends in our industry, terms of existing contracts and other
-17-
information from outside sources, as appropriate. Actual results may differ from
these estimates under different assumptions and conditions. Certain of the most
critical policies that require significant judgment are as follows:
Revenue Recognition. We recognize revenue in accordance with Staff Accounting
Bulletin 101, Revenue Recognition in Financial Statements. Revenues are
recognized when all of the following criteria are met: when persuasive evidence
of an arrangement exists, delivery has occurred, the selling price is fixed or
determinable and collectibility is reasonably assured. Revenue for our product
sales is recognized at the time products are shipped to customers.
Allowance for Doubtful Accounts. We establish estimates of the uncollectibility
of accounts receivable. Our management analyzes accounts receivable, historical
write-offs as bad debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in customer payment terms when evaluating
the adequacy of the allowance for doubtful accounts. We maintain an allowance
for doubtful accounts at an amount that we estimate to be sufficient to provide
adequate protection against losses resulting from collecting less than full
payment on receivables. A considerable amount of judgment is required when
assessing the realizability of receivables, including assessing the probability
of collection and the current credit-worthiness of each customer. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, an additional provision for
doubtful accounts may be required. We have not experienced significant bad debts
expense and our reserve for doubtful accounts of $0.4 million should be adequate
for any exposure to loss in our December 31, 2002 accounts receivable.
Product Warranties. The Company provides a limited warranty for the replacement
of defective products. The Company's standard warranties require the Company to
repair or replace defective products at no cost to the consumer. The Company
estimates the costs that may be incurred under its basic limited warranty and
records a liability in the amount of such costs at the time product revenue is
recognized. Factors that affect the Company's warranty liability include the
number of units sold, historical and anticipated rates of warranty claims, and
cost per claim. The Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary. The Company utilizes
historical trends and information received from its customers to assist in
determining the appropriate loss reserve levels. We believe our warranty
liability of $1.0 million at December 31, 2002 should be adequate to cover the
estimated costs we will incur in the future for warranty claims on products sold
before December 31, 2002.
Pension and Other Postretirement Benefit Plans. The determination of our
obligation and expense for pension and other postretirement benefits is
dependent on our selection of certain assumptions used by actuaries in
calculating such amounts. Those assumptions are described in Note 7 to the
consolidated financial statements and include, among others, the discount rate,
expected long-term rate of return on plan assets and rates of increase in
compensation and healthcare costs. In accordance with accounting principles
generally accepted in the United States of America, actual results that differ
from our assumptions are accumulated and amortized over future periods and
therefore, generally affect our recognized expense and recorded obligation in
such future periods. While we believe that our assumptions are appropriate,
significant differences in our actual experience or significant changes in our
assumptions may materially affect our pension and other postretirement
obligations and our future expense.
-18-
Allowance for Excess and Obsolete Inventory. On a periodic basis, we analyze the
level of inventory on hand, its cost in relation to market value and estimated
customer requirements to determine whether write-downs for excess or obsolete
inventory are required. Actual customer requirements in any future periods are
inherently uncertain and thus may differ from estimates. If actual or expected
requirements were significantly greater or lower than the established reserves,
a reduction or increase to the obsolescence allowance would be recorded in the
period in which such a determination was made. We have established reserves for
slow moving and obsolete inventories and believe the reserve of $1.5 million at
December 31, 2002 is adequate.
Valuation of Long-Lived and Intangible Assets. As a matter of policy, we review
our major assets for impairment at least annually, and whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Our major long-lived and intangible assets are goodwill and
property and equipment. We depreciate our property and equipment over their
estimated useful lives. In connection with the adoption of SFAS No. 142,
"Goodwill and Other Intangible Assets" we determined that the goodwill
associated with our Industrial Division was impaired. Accordingly, we recorded a
$1.0 million charge in the first quarter of 2002. See Note 9 to the consolidated
financial statements for further details.
In assessing the recoverability of the Company's remaining goodwill of $10.8
million related to Danner division and the investments we have made in our other
long-term investments, primarily property and equipment of $5.0 million, we have
made assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, the Company may be required to record
impairment charges for these assets not previously recorded. Please refer to the
"Forward Looking Statements" caption below for a discussion of factors that will
have an effect on our ability to attain future levels of product sales and cash
flows.
Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 eliminates
the amortization of goodwill and other intangibles that are determined to have
an indefinite life and requires, at a minimum, annual impairment test for
goodwill and other intangible assets that are determined to have an indefinite
life. Effective January 1, 2002, the Company adopted SFAS 142 and ceased
amortizing goodwill. In accordance with SFAS 142, the Company completed the
transitional goodwill impairment test for the Industrial division and Danner,
Inc. The impairment test, which was conducted using information that included a
valuation performed by an independent appraiser, indicated that the Industrial
division goodwill was impaired. Accordingly, the Company recorded a $1.0 million
impairment charge as a cumulative effect of change in accounting principle
during the first quarter of 2002. See Note 9 to the consolidated financial
statements.
In September 2001, the FASB issued SFAS No. 143, "Asset Retirement Obligations"
("SFAS 143"). SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs. SFAS 143 will be effective for the Company's fiscal
year ending December 2003. The Company has not yet completed its full assessment
of the effect of SFAS 143 on its financial statements and at this time is
uncertain as to its impact.
-19-
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 was effective for the Company's fiscal year ended December 2002. The
adoption of SFAS 144 did not have a material impact on the Company's operating
results or financial condition.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires the
recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred versus the date the Company commits to
an exit plan. In addition, SFAS 146 specifies that the liability should be
initially measured at fair value. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
believe that the adoption of this pronouncement will have a material effect on
its consolidated financial statements.
In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure" ("SFAS 148"). SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 also amends the disclosure requirements of SFAS 123 to require more
prominent and frequent disclosures in the financial statements about the effects
of stock-based compensation. The transitional guidance and annual disclosure
provisions of SFAS 148 are effective for the December 31, 2002 financial
statements. The interim reporting disclosure requirements will be effective for
the Company in the first quarter of 2003. Because the Company continues to
account for employee stock-based compensation under APB Opinion No. 25, the
transitional guidance of SFAS 148 has no effect on the consolidated financial
statements at this time. However, the December 31, 2002 consolidated financial
statements have incorporated the enhanced disclosure requirements of SFAS 148.
In January 2003, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". FIN 45 clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing certain guarantees. It also
elaborates on the disclosures in SFAS 5, "Accounting for Contingencies", which
are to be made by a guarantor in its interim and annual financial statements
about its obligations under certain guarantees that it has issued, even when the
likelihood of making any payments under the guarantees is remote. The December
31, 2002, consolidated financial statements have incorporated the enhanced
disclosure requirements of FIN 45.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". FIN 46 establishes standards for
identifying a variable interest entity and for determining under what
circumstances a variable interest entity should be consolidated with its primary
beneficiary. Until now, a company generally has included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. FIN 46 changes that by requiring a variable interest entity to
be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or is entitled to
receive a majority of the entity's residual returns or both. The requirements of
FIN 46 will apply to the Company beginning in the third quarter of 2003. The
Company does not
-20-
believe that the adoption of this pronouncement will have a material effect on
its consolidated financial statements.
Forward-Looking Statements
We caution you that this annual report of Form 10-K contains forward-looking
statements within the meaning of the Securities and Exchange Act of 1934.
Forward-looking statements are only predictions or statements of our current
plans, which we review on a continual basis. Forward-looking statements are
intended to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement includes phrases such as we "believe," "expect," or other words of
similar import. Similarly, statements that describe our future plans, objectives
or goals are also forward looking statements. Such forward-looking statements
are subject to certain risks and uncertainties which could cause actual results
or outcomes to differ materially from those currently anticipated. All
forward-looking statements may differ from actual results due to, but not
limited to:
o risks related to general economic conditions including interest rates
o the demand for outdoor footwear products
o performance of its manufacturing facilities
o weather
o acts of terrorism or military activities
o dealer inventory levels
o lead times or delays for sourced products
o trading policies or import and export regulations
o foreign regulation of manufacturers
o increased competition
o changes in consumer buying patterns
o loss of a material customer
o inability to protect intellectual property
o unforecasted work stoppage
o cancellation of current orders
o the cyclical nature of the Footwear sector
You should consider these important factors in evaluating any statement
contained in this release and/or made by us or on our behalf. Additional factors
may be detailed in LaCrosse Footwear's Company SEC reports. The Company has no
obligation to update or revise forward-looking statements to reflect the
occurrence of future events or circumstances.
-21-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company's primary market risk results from fluctuations in interest rates.
The Company enters into interest rate swap agreements ("Swap Agreements") to
reduce its exposure to interest rate fluctuations on its floating rate debt. The
Swap Agreements exchange floating rate for fixed rate interest payments
periodically over the life of the agreements without exchange of the underlying
notional amounts. The notional amounts of interest rate agreements are used to
measure interest to be paid or received and do not represent an amount of
exposure to credit loss. For interest rate instruments that effectively hedge
interest rate exposures, the net cash amounts paid or received on the agreements
are accrued and recognized as an adjustment to interest expense. In addition,
effective January 1, 2001, the Company began recording the fair value of the
Swap Agreements each month as an adjustment to interest expense. As of December
31, 2002, the Company had Swap Agreements in effect totaling $11.0 million
notional amount, of which $7.0 million matured in January 2003 with another $4.0
million maturing in October 2003. The variable rate borrowings not offset by
Swap Agreements at December 31, 2002 totaled $1.7 million. Swap Agreement rates
are based on the three-month LIBOR rate. Based on average floating rate
borrowings outstanding throughout fiscal year 2002, a 100-basis point change in
LIBOR would have caused the Company's monthly interest expense to change by
approximately $9,000. The Company believes that these amounts are not material
to the earnings of the Company.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The consolidated statements of operations, shareholders' equity and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2002, and the related consolidated balance sheets of
the Company as of December 31, 2002 and 2001, together with the related notes
thereto and the independent auditor's report appear on pages F-1 through F-22
hereof.
The following tabulation presents the Company's unaudited quarterly results of
operations for 2002 and 2001:
Thousands of dollars except per share data - 2002
Q1 Q2 Q3 Q4
-----------------------------------------------------------
Net sales $22,821 $19,975 $29,155 $25,834
Gross profit 5,906 4,126 8,888 7,291
Operating income (loss) (2,677) (3,310) 1,296 692
First quarter 2002 net loss as reported before
impairment charge recognized in the second
quarter * (1,983) - - -
Impairment charge recorded in second quarter,
effective January 1, 2002 (1,028) - - -
Net income (loss) as reported (3,011) (3,777) 863 839
Basic and diluted earnings (loss) per share (0.51) (0.64) 0.15 0.14
* The Company completed its transitional impairment test under SFAS No. 142
during the second quarter of 2002. As a result, the Company recorded a $1.0
million ($0.18 loss per share) charge as a cumulative effect of change in
accounting principle, effective January 1, 2002. Accordingly, the first quarter
2002 results as reported did not include the $1.0 million charge.
-22-
Thousands of dollars except per share data - 2001
Q1 Q2 Q3 Q4
-----------------------------------------------------------
Net sales $29,148 $26,075 $39,617 $30,461
Gross profit 7,456 3,353 11,492 7,842
Operating income (loss) (838) (5,196) 2,759 (2,033)
Net income (loss) (1,488) (5,910) 1,689 (2,240)
Basic and diluted earnings (loss) per share (0.25) (1.01) 0.29 (0.38)
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information required by this Item with respect to directors and Section 16
compliance is included under the captions "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance", respectively, in the Company's
definitive Proxy Statement for its 2003 Annual Meeting of Shareholders ("Proxy
Statement") and is hereby incorporated herein by reference. Information with
respect to the executive officers of the Company appears in Part I, of this
Annual Report on Form 10-K.
Item 11. Executive Compensation
----------------------
The information required by this Item is included under the captions "Board of
Directors--Director Compensation" and "Executive Compensation" in the Proxy
Statement and is hereby incorporated herein by reference; provided, however,
that the subsection entitled "Executive Compensation--Report on Executive
Compensation" shall not be deemed to be incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
------------------------------------------------------------------
Related Stockholder Matters
---------------------------
The information required by this Item with respect to Security Ownership of
Certain Beneficial Owners and Management is included under the caption
"Principal Shareholders" in the Proxy Statement and is hereby incorporated
herein by reference.
-23-
The following table provides information about the Company's equity compensation
plans (including individual compensation arrangements) as of December 31, 2002.
Number of securities
remaining available for
Number of securities to future issuance under
be issued upon Weighted-average equity compensation
the exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected in
Plan category warrants and rights(1) warrants and rights the first column)(2)
- -------------------------- --------------------------- --------------------------- -------------------------
Equity compensation
plans approved by
security holders 348,129 $5.69 601,871
Equity compensation
plans not approved by
security holders -- -- --
--------------------------- --------------------------- -------------------------
Total 348,129 $5.69 601,871
=========================== =========================== =========================
- --------------------------
(1) Represents options to purchase the Company's Common Stock granted under the
Company's 1993 Employee Stock Incentive Plan (the "1993 Plan"), 1997
Employee Stock Incentive Plan (the "1997 Plan"), 2001 Stock Incentive Plan
(the "2001 Plan") and 2001 Non-Employee Director Stock Option Plan (the
"Director Plan").
(2) Includes 62,341 shares of the Company's Common Stock available for issuance
under the 1993 Plan; 163,530 shares of the Company's Common Stock available
for issuance under the 1997 Plan; 300,000 shares of the Company's Common
Stock available for issuance under the 2001 Plan; and 76,000 shares of the
Company's Common Stock available for issuance under the Director Plan.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information required by this Item is included under the captions "Certain
Transactions" and "Executive Compensation--Compensation Committee Interlocks and
Insider Participation" in the Proxy Statement and is hereby incorporated herein
by reference.
Item 14. Controls and Procedures
-----------------------
(a) Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in alerting them in a timely
manner to material information relating to our company (including our
consolidated subsidiary) required to be included in our periodic SEC filings.
(b) There have been no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
date we carried out this evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
-24-
PART IV
-------
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a)1. Financial statements - The following financial statements are included
in this Annual Report on Form 10-K beginning on the pages indicated
below:
Independent Auditor's Report............................................................ F-1
Consolidated Balance Sheets as of December 31, 2002 and 2001............................ F-2
Consolidated Statements of Operations for the Years ended December 31,
2002, 2001 and 2000................................................................ F-4
Consolidated Statements of Shareholders' Equity and Comprehensive Loss for the Years
ended December 31, 2002, 2001 and 2000............................................. F-5
Consolidated Statements of Cash Flows for the Years ended December 31,
2002, 2001 and 2000................................................................ F-6
Notes to Consolidated Financial Statements for the Years ended December 31, 2002, 2001
and 2000........................................................................... F-7
2. Financial statement schedule - The financial statement schedule for
the years ended December 31, 2002, 2001 and 2000 is included in this
Annual Report on Form 10-K and should be read in conjunction with the
Consolidated Financial Statements.
Independent Auditor's Report on Financial Statement Schedule............................ 30
Schedule II Valuation and Qualifying Accounts........................................... 31
3. Exhibits - The exhibits listed in the accompanying index to exhibits
are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 2002.
All other financial statement schedules are omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedules, or because the information required is included in
the consolidated financial statements and notes thereto.
-25-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 27th day of March
2003.
LACROSSE FOOTWEAR, INC.
By /s/ Joseph P. Schneider
----------------------------------------
Joseph P. Schneider
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ George W. Schneider Chairman of the Board and Director March 27, 2003
- -------------------------------
George W. Schneider
/s/ Joseph P. Schneider President, Chief Executive Officer and Director March 27, 2003
- ------------------------------- (Principal Executive Officer)
Joseph P. Schneider
/s/ David P. Carlson Executive Vice President and Chief Financial March 27, 2003
- ------------------------------- Officer (Principal Financial and Accounting
David P. Carlson Officer)
/s/ Richard A. Rosenthal Vice Chairman of the Board and Director March 27, 2003
- -------------------------------
Richard A. Rosenthal
/s/Stephen Loughlin Director March 27, 2003
- -------------------------------
Stephen Loughlin
/s/ Luke E. Sims Director March 27, 2003
- -------------------------------
Luke E. Sims
/s/ Frank J. Uhler, Jr. Director March 27, 2003
- -------------------------------
Frank J. Uhler, Jr.
/s/ John D. Whitcombe Director March 27, 2003
- -------------------------------
John D. Whitcombe
-26-
CERTIFICATION
-------------
I, Joseph P. Schneider, certify that:
1. I have reviewed this annual report on Form 10-K of LaCrosse Footwear, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 27, 2003 /s/ Joseph P. Schneider
--------------------------------------
Joseph P. Schneider
President and Chief Executive Officer
-27-
CERTIFICATION
-------------
I, David P. Carlson , certify that:
1. I have reviewed this annual report on Form 10-K of LaCrosse Footwear, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 27, 2003 /s/ David P. Carlson
----------------------------------------
David P. Carlson
Executive Vice President and Chief
Financial Officer
-28-
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
LaCrosse Footwear, Inc.
Portland, Oregon
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/s/ McGladrey & Pullen, LLP
---------------------------------------
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 7, 2003, except for the
last paragraph of Note 4, as to
which the date is February 11, 2003
-29-
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
--------------------------------
Balance at Balance
Beginning Charged To Costs Charged To at End
Description of Period and Expenses Other Accounts Deductions of Period
----------- --------- ------------ -------------- ---------- ---------
Year ended December 31, 2000:
Accounts receivable allowances:
Allowance for cash discounts $ 30,000 $ 124,573 $ -- $ 124,573 $ 30,000
Allowance for doubtful accounts 369,000 248,673 -- 317,679 299,994
Allowance for uncollectible interest 63,793 75,065 -- 70,609 68,249
---------- ---------- --------- ---------- ----------
Total $ 462,793 $ 448,311 $ -- $ 512,861 $ 398,243
========== ========== ========= ========== ==========
Inventory allowance:
Allowance for obsolescence $2,849,103 $2,163,891 $ -- $2,851,465 $2,161,529
========== ========== ========= ========== ==========
Property and equipment allowance:
Reserve for excess equipment $ 200,000 $ 447,795 $ -- $ 306,795 $ 341,000
========== ========== ========= ========== ==========
Deferred income taxes:
Deferred tax asset valuation allowance $ -- $1,290,000 $ -- $ -- $1,290,000
========== ========== ========= ========== ==========
Allowance for warranties $ 939,128 $2,941,703 $ -- $2,788,877 $1,091,954
========== ========== ========= ========== ==========
Year ended December 31, 2001:
Accounts receivable allowances:
Allowance for cash discounts $ 30,000 $ -- $ -- $ 30,000 $ --
Allowance for doubtful accounts 299,994 654,283 -- 565,277 389,000
Allowance for uncollectible interest 68,249 125,930 -- 160,929 33,250
---------- ---------- --------- ---------- ----------
Total $ 398,243 $ 780,213 $ -- $ 756,206 $ 422,250
========== ========== ========= ========== ==========
Inventory allowance:
Allowance for obsolescence $2,161,529 $2,243,494 $ -- $ 559,023 $3,846,000
========== ========== ========= ========== ==========
Property and equipment allowance:
Reserve for excess property and equipment $ 341,000 $ 142,629 $ -- $ -- $ 483,629
========== ========== ========= ========== ==========
Deferred income taxes:
Deferred tax asset valuation allowance $1,290,000 $2,339,000 $ -- $ -- $3,629,000
========== ========== ========= ========== ==========
Allowance for warranties $1,091,954 $2,431,261 $ -- $2,411,117 $1,112,098
========== ========== ========= ========== ==========
-30-
SCHEDULE II - continued
Additions
------------------------------
Balance at Balance
Beginning Charged To Costs Charged To at End
Description of Period and Expenses Other Accounts Deductions of Period
----------- --------- ------------ -------------- ---------- ---------
Year ended December 31, 2002:
Accounts receivable allowances:
Allowance for doubtful accounts $ 389,000 $ 274,748 $ -- $ 248,872 $ 414,876
Allowance for uncollectible interest 33,250 -- -- 33,250 --
---------- ---------- --------- ---------- ----------
Total $ 422,250 $ 274,748 $ -- $ 282,122 $ 414,876
========== ========== ========= ========== ==========
Inventory allowance:
Allowance for obsolescence $3,846,000 $ 559,000 $ -- $2,860,000 $1,545,000
========== ========== ========= ========== ==========
Property and equipment allowance:
Reserve for excess property and equipment $ 483,629 $ 625,000 $ -- $1,108,629 $ --
========== ========== ========= ========== ==========
Deferred income taxes:
Deferred tax asset valuation allowance $3,629,000 $ 601,000 $ -- $ -- $4,230,000
========== ========== ========= ========== ==========
Allowance for warranties $1,112,098 $2,860,228 $ -- $2,973,401 $ 998,925
========== ========== ========= ========== ==========
The accounts receivable, inventory, property and equipment and deferred tax asset allowances above were deducted from the
applicable asset accounts.
-31-
EXHIBIT INDEX
Sequential
Exhibit Page
Number Exhibit Description Number
------ ------------------- ------
(3.1) Restated Articles of Incorporation of LaCrosse Footwear, Inc. [Incorporated by --
reference to Exhibit (3.0) to LaCrosse Footwear, Inc.'s Form S-1 Registration
Statement (Registration No. 33-75534)]
(3.2) By-Laws of LaCrosse Footwear, Inc., as amended to date. [Incorporated by --
reference to Exhibit (3.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 2001]
(4.1) Credit Agreement, dated as of June 15, 2001, by and among LaCrosse Footwear, Inc., --
Danner Shoe Manufacturing Co., as borrowers, and General Electric Capital
Corporation and the CIT Group/Commercial Services, Inc., as lenders.
[Incorporated by reference to Exhibit (4.1) to LaCrosse Footwear, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001]
(4.2) Credit Agreement, dated as of June 15, 2001, by and between LaCrosse Footwear, --
Inc., as borrower, and Firstar Bank, N.A., as lender. [Incorporated by reference
to Exhibit (4.2) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001]
(4.3) Amendment, dated as of December 31, 2001, to Credit Agreement, dated as of June --
15, 2001, by and among LaCrosse Footwear, Inc. and Danner Shoe Manufacturing Co.,
as borrowers, and General Electric Capital Corporation and the CIT
Group/Commercial Services, Inc., as lenders. [Incorporated by reference to Exhibit
(4.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002]
(4.4) Limited Waiver and Amendment No. 2 to Credit Agreement, dated as of February 28, --
2002, to Credit Agreement, dated as of June 15, 2001, by and among LaCrosse
Footwear, Inc. and Danner Shoe Manufacturing Co., as borrowers, and General
Electric Capital Corporation and the CIT Group/Commercial Services, Inc., as
lenders. [Incorporated by reference to Exhibit (4.2) to LaCrosse Footwear, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002]
-32-
Sequential
Exhibit Page
Number Exhibit Description Number
------ ------------------- ------
(4.5) First amendment, dated August 12, 2002, to Credit Agreement dated June 15, 2001, by and --
among LaCrosse Footwear, Inc., as borrowers, and U.S. Bank National Association (f/k/a
Firstar Bank, N.A.), the lender). [Incorporated by reference to Exhibit (4.1) to
LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September
28, 2002]
(4.6) Limited Waiver and Amendment No. 3 to Credit Agreement, dated as of June 28, 2002, to --
Credit Agreement, dated as of June 15, 2001, by and among LaCrosse Footwear, Inc. and
Danner, Inc., as borrowers, and General Electric Capital Corporation and the CIT
Group/Commercial Services, Inc., as lenders. [Incorporated by reference to Exhibit
(4.2) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 28, 2002]
(9.1) Voting Trust Agreement, dated as of June 21, 1982, as amended [Incorporated by --
reference to Exhibit (9) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement
(Registration No. 33-75534)]
(9.2) Amendment No. 9 to Voting Trust Agreement, dated June 30, 1997. [Incorporated by --
reference to Exhibit (9.2) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1997]
(9.3) Extension of Term, dated as of March 31, 1999, of the Voting Trust Agreement, dated as --
of June 21, 1982, as amended. [Incorporated by reference to Exhibit (4) to LaCrosse
Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended April 3, 1999]
(10.1)* LaCrosse Footwear, Inc. Retirement Plan [Incorporated by reference to Exhibit (10.18) --
to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No.
33-75534)]
(10.2)* LaCrosse Footwear, Inc. Employees' Retirement Savings Plan [Incorporated by reference --
to Exhibit (10.19) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement
(Registration No. 33-75534)]
(10.3)* LaCrosse Footwear, Inc. 1993 Employee Stock Incentive Plan [Incorporated by reference --
to Exhibit (10.20) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement
(Registration No. 33-75534)]
(10.4)* LaCrosse Footwear, Inc. 1997 Employee Stock Incentive Plan [Incorporated by reference --
to Exhibit (10.17) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996]
- --------------------
* A management contract or compensatory plan or arrangement.
-33-
Sequential
Exhibit Page
Number Exhibit Description Number
------ ------------------- ------
(10.5)* LaCrosse Footwear, Inc. 2001 Stock Incentive Plan [Incorporated by reference to --
Appendix B of LaCrosse Footwear, Inc.'s Definitive Proxy Statement on Schedule 14A for
the 2001 Annual Meeting of Shareholders]
(10.6)* LaCrosse Footwear, Inc. 2001 Non-Employee Director Stock Option Plan [Incorporated by --
reference to Appendix C of LaCrosse Footwear, Inc.'s Definitive Proxy Statement on
Schedule 14A for the 2001 Annual Meeting of Shareholders]
(10.7) Lease, dated as of March 14, 1994, between JEPCO Development Co. and LaCrosse Footwear, --
Inc. [Incorporated by reference to Exhibit (10.22) to LaCrosse Footwear, Inc.'s Form
S-1 Registration Statement (Registration No. 33-75534)]
(10.8) Amendment, dated as of March 17, 1998, to Lease between JEPCO Development Co., LLC and --
LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.17) to LaCrosse
Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998]
(10.9) Manufacturing Certification Agreement, dated as of October 19, 1993, between W.L. Gore --
& Associates, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to
Exhibit (10.23) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement
(Registration No. 33-75534)]
(10.10) Trademark License, dated as of October 19, 1993, between W.L. Gore & Associates, Inc. --
and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.24) to
LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)]
(21) List of subsidiaries of LaCrosse Footwear, Inc.
(23) Consent of McGladrey & Pullen, LLP
(99.1) Written Statement of the Chief Executive Officer pursuant to 18 U.S.C.ss. 1350
(99.2) Written Statement of the Chief Financial Officer pursuant to 18 U.S.C.ss. 1350
-34-
Sequential
Exhibit Page
Number Exhibit Description Number
------ ------------------- ------
(99.3) Proxy Statement for the 2003 Annual Meeting of Shareholders --
[The Proxy Statement for the 2003 Annual Meeting of Shareholders
will be filed with the Securities and Exchange Commission under
Regulation 14A within 120 days after the end of the Company's
fiscal year. Except to the extent specifically incorporated by
reference, the Proxy Statement for the 2003 Annual Meeting of
Shareholders shall not be deemed to be filed with the Securities
and Exchange Commission as part of this Annual Report on Form
10-K.]
-35-
INDEX
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT ON THE
CONSOLIDATED FINANCIAL STATEMENTS F-1
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets F-2 and F-3
Consolidated statements of operations F-4
Consolidated statements of shareholders' equity F-5
and comprehensive loss
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-7 - F-22
- --------------------------------------------------------------------------------
F-INDEX
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of LaCrosse Footwear, Inc.
Portland, Oregon
We have audited the accompanying consolidated balance sheets of LaCrosse
Footwear, Inc. and Subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, shareholders' equity and
comprehensive loss, and cash flows for each year in the three year period ended
December 31, 2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LaCrosse Footwear,
Inc. and Subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each year in the three year period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.
Effective in 2002, and as discussed in Notes 1 and 9, the Company adopted
Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets" and
changed its method of accounting for goodwill.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 7, 2003, except for the last paragraph
of Note 4, as to which the date is February 11, 2003
F-1
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
(In Thousands, except for share data)
ASSETS (Note 4) 2002 2001
- ------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ - $ 271
Trade accounts receivable, less allowances of
$0.4 million 15,302 19,474
Inventories (Note 2) 23,460 34,371
Refundable income taxes (Note 3) 2,888 -
Prepaid expenses, deferred tax assets and other (Note 3) 1,519 2,880
-----------------------------------
Total current assets 43,169 56,996
-----------------------------------
PROPERTY AND EQUIPMENT (Note 8)
Land, land improvements and buildings 2,835 3,634
Machinery and equipment 19,017 23,378
-----------------------------------
21,852 27,012
Less accumulated depreciation 16,873 19,790
-----------------------------------
Net property and equipment 4,979 7,222
-----------------------------------
OTHER ASSETS
Goodwill (Note 9) 10,753 11,781
Deferred tax and other assets (Notes 3 and 7) 1,944 3,926
-----------------------------------
Total other assets 12,697 15,707
-----------------------------------
TOTAL ASSETS $60,845 $79,925
===================================
See Notes to Consolidated Financial Statements.
F-2
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2001
- -------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term obligations (Note 4) $ 1,611 $ 1,599
Notes payable, bank (Note 4) 8,378 17,645
Accounts payable 4,667 6,205
Accrued compensation 1,122 1,899
Other accruals 1,784 1,795
--------------------------------
Total current liabilities 17,562 29,143
--------------------------------
LONG-TERM OBLIGATIONS (Note 4) 2,821 4,432
COMPENSATION AND BENEFITS (Note 7) 4,711 4,805
DEFERRED TAX LIABILITY (Note 3)
662 -
COMMITMENTS AND CONTINGENCIES
(Notes 5, 6 and 7)
--------------------------------
Total liabilities 25,756 38,380
--------------------------------
SHAREHOLDERS' EQUITY (Note 6)
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued 6,717,627 shares 67 67
Additional paid-in capital 26,434 26,434
Accumulated other comprehensive loss (Note 7) (1,370) -
Retained earnings 14,771 19,857
Less cost of 843,178 shares of treasury stock (4,813) (4,813)
--------------------------------
Total shareholders' equity 35,089 41,545
--------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $60,845 $79,925
================================
F-3
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2002, 2001 and 2000
(In Thousands, except for share and per share data)
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------
Net sales (Note 10) $97,785 $125,301 $138,161
Cost of goods sold (Note 8) 71,574 95,158 104,413
-------------------------------------------------
Gross profit 26,211 30,143 33,748
Selling and administrative expenses (Notes 8 and 9) 30,210 35,451 35,874
-------------------------------------------------
Operating loss (3,999) (5,308) (2,126)
Non-operating income (expense):
Interest expense (1,777) (2,812) (3,246)
Miscellaneous 180 171 (303)
-------------------------------------------------
(1,597) (2,641) (3,549)
-------------------------------------------------
Loss before income tax benefit and cumulative
effect of accounting change (5,596) (7,949) (5,675)
Provision for income tax benefit (Note 3) (1,538) - (906)
-------------------------------------------------
Net loss before cumulative effect of accounting
change (4,058) (7,949) (4,769)
Cumulative effect of change in accounting
principle (Note 9) (1,028) - -
-------------------------------------------------
Net loss $(5,086) $ (7,949) $ (4,769)
=================================================
Net loss per common share before
cumulative effect of change in accounting principle
Basic and diluted $ (0.69) $ (1.35) $ (0.80)
Cumulative effect of change in accounting principle
Basic and diluted $ (0.18) $ - $ -
Net loss per common share
Basic and diluted $ (0.87) $ (1.35) $ (0.80)
Basic and diluted weighted average shares outstanding 5,874,449 5,874,449 5,974,176
See Notes to Consolidated Financial Statements.
F-4
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
Years Ended December 31, 2002, 2001 and 2000
(In Thousands, except for share and per share data)
Accumulated
Additional Other Total
Common Paid-In Comprehensive Retained Treasury Shareholders'
Stock Capital Loss Earnings Stock Equity
- -----------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $67 $26,434 $ - $32,575 $(2,688) $56,388
Net loss - - - (4,769) - (4,769)
Purchase of 500,000
shares of treasury stock - - - - (2,125) (2,125)
-------------------------------------------------------------------------------
Balance, December 31, 2000 67 26,434 - 27,806 (4,813) 49,494
Net loss - - - (7,949) - (7,949)
-------------------------------------------------------------------------------
Balance, December 31, 2001 67 26,434 - 19,857 (4,813) 41,545
Net loss - - - (5,086) - (5,086)
Minimum pension liability - - (1,370) - - (1,370)
-------------
Comprehensive loss - - - - - (6,456)
-------------------------------------------------------------------------------
Balance, December 31, 2002 $67 $26,434 $(1,370) $14,771 $(4,813) $35,089
===============================================================================
See Notes to Consolidated Financial Statements.
F-5
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002, 2001 and 2000
(In Thousands)
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net loss $(5,086) $(7,949) $(4,769)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 2,773 3,210 3,310
Amortization 363 1,024 681
Loss on disposal/impairment of property and equipment 624 1,790 307
Intangibles impairment charge 1,028 1,282 -
Deferred income taxes 3,695 (560) -
Other 14 98 385
Changes in current assets and liabilities:
Trade accounts receivable 4,172 8,564 (6,375)
Inventories 10,911 4,193 1,773
Refundable income taxes (2,888) - -
Accounts payable (1,538) (108) 403
Accrued expenses and other (2,298) (1,834) 2,518
-----------------------------------------------------
Net cash provided by (used in)
operating activities 11,770 9,710 (1,767)
Cash Flows from Investing Activities
Purchase of property and equipment (1,161) (2,207) (3,269)
Proceeds from sale of property and equipment 8 1,383 1,035
Other (22) (20) (96)
-----------------------------------------------------
Net cash used in investing activities (1,175) (844) (2,330)
Cash Flows from Financing Activities
Principal payments on long-term obligations (1,599) (4,487) (1,712)
Net proceeds from (payments on)
short-term borrowings (9,267) (3,195) 6,752
Payment of deferred financing costs - (924) -
Cash dividends paid - - (829)
Purchase of treasury stock - - (2,125)
-----------------------------------------------------
Net cash provided by (used in) financing activities (10,866) (8,606) 2,086
Increase (decrease) in cash and cash
equivalents (271) 260 (2,011)
Cash and cash equivalents:
Beginning 271 11 2,022
-----------------------------------------------------
Ending $ - $ 271 $ 11
SUPPLEMENTAL INFORMATION
Cash payments (refunds) of:
Interest $ 1,962 $ 3,005 $ 3,141
Income taxes $ (2,297) $ (342) $ (913)
Notes to Consolidated Financial Statements.
F-6
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
The Company designs, manufactures and markets premium quality protective
footwear and clothing for sale principally throughout the United States.
Significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of LaCrosse
Footwear, Inc. and its wholly owned subsidiaries (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 reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant
items subject to estimates and assumptions include valuation allowances for
inventories and deferred tax assets. Actual results could differ from those
estimates.
Reclassifications:
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 2002 presentation.
Fair value of financial instruments:
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
The carrying amount of cash and cash equivalents approximates fair
value because of the short maturity of those investments.
The carrying amount of long-term debt approximates fair value based on
the interest rates, maturities and collateral requirements currently
available for similar financial instruments.
The fair value of the interest rate swap agreements is recognized at
the end of each quarter by recording the estimated market value of the
swap agreements.
F-7
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies, Continued
Outsourced production:
A significant portion of the Company's products are outsourced to foreign
suppliers. Approximately 70% of the Company's sales in 2002 were of
outsourced products. The Company is not aware of any matters that would
affect its ability to outsource its products and does not believe it is
dependent on any single supplier.
Cash and cash equivalents:
The Company considers all highly liquid debt instruments (including
short-term investment grade securities and money market instruments)
purchased with maturities of three months or less to be cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times,
exceed federally insured limits. The Company has not experienced any losses
in such accounts.
Trade receivables:
Trade receivables are carried at original invoice amount less an estimate
for an allowance for doubtful receivables based on a review of all
outstanding amounts on a monthly basis. Management determines the allowance
for doubtful accounts after reviewing individual customer accounts as well
as considering both historical and expected credit loss experience. Trade
receivables are written off when deemed uncollectible. Recoveries of trade
receivables previously written off are recorded when received.
The Company grants credit to its customers, who are primarily domestic
retail stores, direct mail catalog merchants and wholesalers, based on an
evaluation of each customer's financial condition. Exposure to losses on
receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and
maintains an allowance for anticipated losses.
Inventories:
Inventories are stated at the lower of cost or market. All inventories,
except for vinyl products, leather boots, leather boot components and
rainwear, are valued using the last-in, first-out (LIFO) method. Vinyl
products, leather boots, leather boot components and rainwear are valued
using the first-in, first-out (FIFO) method. Provision for potentially
obsolete or slow-moving inventory is made based on management's analysis of
inventory levels and future sales forecasts. At December 31, 2002 and 2001,
inventories have been reduced by obsolete or slow-moving inventory reserves
of approximately $1.5 and $3.8 million, respectively.
Property and equipment:
Property and equipment are carried at cost and are being depreciated using
straight-line and accelerated methods over their estimated useful lives as
follows: land improvements, 15 years; buildings and improvements, 10 to 25
years; and machinery and equipment, 3 to 7 years.
F-8
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies, Continued
Intangible assets:
Goodwill represents the excess of cost over net assets acquired of Danner,
Inc. Goodwill is not subject to amortization; however, it is tested for
impairment on an annual basis.
Impairment of long-lived assets:
The Company reviews its long-lived assets and intangibles periodically to
determine potential impairment by comparing the carrying value of these
assets with expected future net cash flows provided by operating activities
of the business. Should the sum of the expected future net cash flows be
less than the carrying value, the Company would determine whether an
impairment loss should be recognized. An impairment loss would be measured
by comparing the amount by which the carrying value exceeds the fair value
of the long-lived assets and intangibles based on appraised market value.
The Company recognized impairment losses in 2002 and 2001 (See Notes 8 and
9).
Product warranties:
The Company provides a limited warranty for the replacement of defective
products. The Company's standard warranties require the Company to repair
or replace defective products at no cost to the consumer. The Company
estimates the costs that may be incurred under its basic limited warranty
and records a liability in the amount of such costs at the time product
revenue is recognized. Factors that affect the Company's warranty liability
include the number of units sold, historical and anticipated rates of
warranty claims, and cost per claim. The Company periodically assesses the
adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary. The Company utilizes historical trends and information received
from its customers to assist in determining the appropriate loss reserve
levels.
Changes in the Company's warranty liability during the periods are as
follows:
(In Thousands)
December 31,
----------------------------
2002 2001
----------------------------
Balance, beginning $1,112 $1,092
Accruals for products sold 2,860 2,431
Costs incurred (2,973) (2,411)
----------------------------
Balance, ending $ 999 $1,112
============================
Employee stock-based compensation:
At December 31, 2002, the Company has stock-based employee compensation
plans (See Note 6). The Company accounts for those plans under the APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. No stock-based employee compensation cost is reflected in
the consolidated statements of operations, as all options granted under
those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table
illustrates the effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.
F-9
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies, Continued
-----------------------------------------------------------------------------------------------------------------
(In Thousands, except for share and per share data) 2002 2001 2000
-----------------------------------------------------------------------------------------------------------------
Net loss- as reported $ (5,086) $ (7,949) $ (4,769)
Deduct: Total stock-based employee compensation
expense determined under the fair value
based method for all awards, net of the
related tax effects (83) (153) (173)
----------------------------------------------------------
Pro forma net loss $ (5,169) $ (8,102) $ (4,942)
Loss per share:
Basic and diluted - as reported $ (0.87) $ (1.35) $ (0.80)
Basic and diluted - pro forma $ (0.88) $ (1.38) $ (0.83)
The above pro forma effects on net loss and net loss per share are not
likely to be representative of the effects on reported net income (loss)
for future years because options vest over several years and additional
awards generally are made each year.
Interest rate swap agreements:
The Company uses interest rate swap agreements to manage its exposure to
certain interest rate changes. In the first quarter of 2001, the Company
adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. As interest rates change, the
differential paid or received is recognized in interest expense for the
period. In addition, the change in the fair value of the swap is recognized
as interest expense during each reporting period. The adoption of SFAS 133
resulted in an increase in interest expense of approximately $0.4 million
during 2001.
Revenue recognition:
Revenue is recognized at the time products are shipped to customers.
Revenue is recorded net of freight, estimated discounts and returns.
Amounts billed to customers relating to shipping and handling are
classified as revenue. Costs incurred by the Company for shipping and
handling are classified as cost of goods sold.
Income taxes:
Deferred taxes are provided on an asset and liability method whereby
deferred tax assets and liabilities are recognized for 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.
F-10
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies, Continued
Advertising and promotion:
The Company advertises and promotes its products through national and
regional media, displays, and catalogs and through cooperative advertising
programs with retailers. Costs for these advertising and promotional
programs are generally charged to expense as incurred. Advertising and
promotional expense included in the consolidated statements of operations
for the years ended December 31, 2002, 2001 and 2000 is approximately $2.1,
$2.1 and $3.3 million, respectively.
Net income (loss) per share:
Because the Company has potential common stock outstanding, as discussed in
Note 6, it is required to present basic and diluted net income (loss) per
share. Diluted per share amounts assume the conversion, exercise or
issuance of all potential common stock instruments unless the effect is to
reduce the loss or increase the income per common share from continuing
operations.
The numerators and denominators are the same for the basic and diluted net
income (loss) per share computations for all years presented. Options to
purchase shares of common stock were not included in the computation of
diluted net income (loss) per share in 2002, 2001 and 2000 because to do so
would be antidilutive.
Recent accounting pronouncements:
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142
eliminates the amortization of goodwill and other intangibles that are
determined to have an indefinite life and requires, at a minimum, annual
impairment test for goodwill and other intangible assets that are
determined to have an indefinite life. Effective January 1, 2002, the
Company adopted SFAS 142 and ceased amortizing goodwill. In accordance with
SFAS 142, the Company completed the transitional goodwill impairment test
for the Industrial division and Danner, Inc. The impairment test, which was
conducted using information that included a valuation performed by an
independent appraiser, indicated that the Industrial division goodwill was
impaired. Accordingly, the Company recorded a $1.0 million impairment
charge as a cumulative effect of change in accounting principle during the
first quarter of 2002, see Note 9.
In September 2001, the FASB issued SFAS No. 143, "Asset Retirement
Obligations" ("SFAS 143"). SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated retirement costs. SFAS 143 will be
effective for the Company's fiscal year ending December 2003. The Company
has not yet completed its full assessment of the effect of SFAS 143 on its
financial statements and at this time is uncertain as to its impact.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 was effective for the Company's fiscal year ended December
2002. The adoption of SFAS 144 did not have a material impact on the
Company's operating results or financial condition.
F-11
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies, Continued
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
requires the recognition of a liability for a cost associated with an exit
or disposal activity when the liability is incurred versus the date the
Company commits to an exit plan. In addition, SFAS 146 specifies that the
liability should be initially measured at fair value. SFAS 146 is effective
for exit or disposal activities that are initiated after December 31, 2002.
The Company does not believe that the adoption of this pronouncement will
have a material effect on its consolidated financial statements.
In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure" ("SFAS 148"). SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In
addition, SFAS 148 also amends the disclosure requirements of SFAS 123 to
require more prominent and frequent disclosures in the financial statements
about the effects of stock-based compensation. The transitional guidance
and annual disclosure provisions of SFAS 148 are effective for the December
31, 2002 financial statements. The interim reporting disclosure
requirements will be effective for the Company in the first quarter of
2003. Because the Company continues to account for employee stock-based
compensation under APB Opinion No. 25, the transitional guidance of SFAS
148 has no effect on the consolidated financial statements at this time.
However, the December 31, 2002 consolidated financial statements have
incorporated the enhanced disclosure requirements of SFAS 148 as presented
in these financial statements under the caption "Employee stock-based
compensation".
In January 2003, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others". FIN 45 clarifies
that a guarantor is required to recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in issuing
certain guarantees. It also elaborates on the disclosures in SFAS 5,
"Accounting for Contingencies", which are to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued, even when the likelihood of making any
payments under the guarantees is remote. The December 31, 2002,
consolidated financial statements have incorporated the enhanced disclosure
requirements of FIN 45, as presented in these financial statements under
the caption "Product warranties".
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". FIN 46 establishes standards
for identifying a variable interest entity and for determining under what
circumstances a variable interest entity should be consolidated with its
primary beneficiary. Until now, a company generally has included another
entity in its consolidated financial statements only if it controlled the
entity through voting interests. FIN 46 changes that by requiring a
variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest
entity's activities or is entitled to receive a majority of the entity's
residual returns or both. The requirements of FIN 46 will apply to the
Company beginning in the third quarter of 2003. The Company does not
believe that the adoption of this pronouncement will have a material effect
on its consolidated financial statements.
F-12
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Inventories
A summary of inventories is as follows:
(In Thousands)
December 31,
----------------------------
2002 2001
----------------------------
Finished goods $21,673 $32,169
Work in process 183 289
Raw materials 1,604 1,913
----------------------------
Total inventories $23,460 $34,371
============================
If all inventories were valued on the FIFO method, total inventories for 2002
and 2001 would have been $23.3 and $35.0 million, respectively.
During 2002 and 2001, certain inventory quantity reductions resulted in
liquidation of LIFO inventory layers carried at lower costs which prevailed in
prior years. The net impact from these reductions and price changes decreased
the net loss by $0.4 million ($0.07 per share) in 2002, $1.8 million ($0.31 per
share) in 2001 and $1.3 million ($0.22 per share) in 2000.
Note 3. Income Tax Matters
Net deferred tax assets and liabilities consist of the following components:
(In Thousands)
December 31,
----------------------------
2002 2001
----------------------------
Deferred tax assets:
Receivable allowances $ 163 $ 165
Inventory differences 1,242 2,030
Compensation and benefits 2,046 2,223
Insurance reserves and other 513 1,277
Net operating loss carryforwards 1,825 2,807
Valuation allowance (4,230) (3,629)
----------------------------
1,559 4,873
Deferred tax liabilities, principally intangibles 1,559 1,178
----------------------------
$ - $3,695
============================
At December 31, 2002 the Company has a valuation allowance of approximately $4.2
million to reduce its deferred tax assets to estimated realizable value. The
valuation allowance increased in the current year primarily as a result of net
operating losses generated during the year in which management has provided a
valuation allowance. In the future when management believes it can reasonably
estimate future operating results and those estimated results reflect taxable
income, the amount of deferred tax assets considered realizable could be
adjusted by a reduction of the valuation allowance.
F-13
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Income Tax Matters, Continued
The components giving rise to the net deferred tax assets described above have
been included in the accompanying consolidated balance sheets as follows:
(In Thousands)
December 31,
----------------------------
2002 2001
----------------------------
Current assets $ 662 $1,917
Noncurrent assets - 1,778
Noncurrent liabilities (662) -
----------------------------
$ - $3,695
============================
The provision for income taxes (benefit) consists of the following:
(In Thousands)
Years Ending December 31,
----------------------------------------------
2002 2001 2000
----------------------------------------------
Current
Federal $(5,227) $ 360 $ (957)
State (6) 200 51
Deferred 3,695 (560) -
----------------------------------------------
$(1,538) $ - $ (906)
==============================================
The Federal income tax benefit recorded in 2002 of approximately $5.2 million is
due to tax changes enacted as part of the Job Creation and Worker Assistance Act
of 2002. The law extended the loss carryback period for certain losses from two
to five years. The Company was able to carry back tax losses incurred in 2001 to
reduce taxable income from 1996 and, in May of 2002, received an income tax
refund of $2.3 million. This law also allows the Company to carry back losses
incurred during 2002 to reduce taxable income from 1997 and 1998. Therefore, the
Company has recorded refundable income taxes of $2.9 million at December 31,
2002.
The differences between statutory federal tax rates and the effective tax rates
reflected in the consolidated statements of operations are as follows:
Years Ending December 31,
2002 2001 2000
-------------------------------------------
Statutory federal tax rate (35.0)% (35.0)% (35.0)%
State taxes, net of federal tax benefit and other (2.4) 2.7 (3.7)
Valuation allowance 10.7 32.3 22.7
-------------------------------------------
Effective tax rate (26.7)% (0.0)% (16.0)%
===========================================
At December 31, 2002, the Company has a federal net operating loss carryforward
of approximately $3.7 million which will expire in 2022.
F-14
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Income Tax Matters, Continued
In addition, the Company has state net operating loss carryforwards of
approximately $24.7 million which will expire as follows: $2.4 million in 2014,
$3.3 million in 2015, $7.0 million in 2016, and $12.0 million in 2017.
Note 4. Financing Arrangements
Revolving credit agreement:
On June 15, 2001, the Company entered into a three-year credit agreement with
General Electric Capital Corporation (GECC) serving as the lead lender to
refinance its previous bank revolving line of credit. Amounts borrowed under the
agreement are primarily secured by all of the assets of the Company. Borrowing
limits against the line of credit are the lesser of $52.5 million or agreed upon
percentages of qualified receivables and inventory. At the Company's option, the
interest rate is either the prime rate plus 1% or LIBOR plus 3.25%. Interest is
payable monthly on prime rate loans and at maturity on LIBOR based loans. The
weighted average interest rate for the outstanding balance at December 31, 2002
was 4.98%.
At December 31, 2002 and 2001, there was $8.4 million and $17.6 million,
respectively, outstanding under the revolving line of credit. In addition, at
December 31, 2002, there were no letter of credit commitments outstanding and at
December 31, 2001, there were letter of credit commitments outstanding of $0.6
million.
In 1998, the Company entered into interest rate swap agreements to manage its
exposure to interest rate fluctuations on its floating rate debt. As of December
31, 2002, the Company had swap agreements in effect totaling $11.0 million, of
which $7.0 million will mature in January of 2003 with the remaining $4.0
million maturing in October 2003. The Company is exposed to credit loss in the
event of nonperformance by the counterparty to the interest rate swap
agreements. However, the Company does not anticipate nonperformance by the
counterparty. The variable rate borrowings not offset by swap agreements at
December 31, 2002 and 2001 totaled $1.7 million and $12.4 million, respectively.
Long-term obligations:
In conjunction with the refinancing of the line of credit on June 15, 2001, the
Company also refinanced its term loan with U.S. Bank, N.A. (formerly Firstar
Bank, N.A.), the lead lender on the previous term loan. The amount of the
refinanced term loan was $7.5 million. The term loan expires May 28, 2004 and
calls for semi-annual payments of $0.75 million which commenced in November of
2001 with a final payment due on May 28, 2004. The term loan is secured by,
among other things, certain properties and equipment of the Company, and a
personal guarantee from the Company's principal shareholder. In the event of a
sale of any of the secured properties and equipment, a portion of the net
proceeds will be applied to the term loan. At the Company's option, the interest
rate on the term loan is either the bank's prime rate or LIBOR plus 2.0%.
F-15
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Financing Arrangements, Continued
(In Thousands)
December 31,
-----------------------------------
2002 2001
-----------------------------------
Term loan under credit agreement, due in semi-annual
payments of $0.75 million with a final principal
payment due on May 28, 2004 $4,321 $5,791
Other 111 240
-----------------------------------
4,432 6,031
Less current maturities 1,611 1,599
-----------------------------------
$2,821 $4,432
===================================
Maturities of long-term obligations are as follows (in millions): 2003, $1.6;
and 2004, $2.8.
The credit agreements contain certain restrictive covenants, which among other
things, require the Company to maintain certain levels of net availability
(depending on the time of the year), to meet certain tangible net worth
requirements on a quarterly basis and to limit capital spending to less than
$3.5 million per year. The Company had unused borrowing availability of $3.3
million and was in violation of the tangible net worth requirement at December
31, 2002. On February 4, 2003 and February 11, 2003, the lenders waived this
violation. In consideration for the waiver, the Company agreed to limit capital
spending to less than $2 million for 2003.
Note 5. Lease Commitments and Contingencies
Lease Commitments: The Company leases office space, retail stores, manufacturing
facilities, equipment and warehouse space under non-cancelable agreements
expiring on various dates through 2009 which are recorded as operating leases.
The total rental expense included in the consolidated statements of operations
for the years ended December 31, 2002, 2001 and 2000 is approximately $2.4,
$2.1, and $1.9 million, respectively. Approximate future minimum lease payments
of $6.1 million are due as follows (in millions): 2003, $1.9; 2004, $1.1; 2005,
$1.2; 2006, $1.0; 2007, $0.6; and $0.3 thereafter.
Contingencies: In the normal course of business, the Company is subject to
claims and litigation. Management believes that such matters will not have a
material adverse effect on the Company's results of operations, liquidity or
financial condition.
Note 6. Stock Options
The Company has granted stock options to officers, directors and key employees
under the 1993, 1997 and 2001 stock option plans pursuant to which options for
up to 950,000 shares of common stock may be granted. The option price per share
shall not be less than 100% of the fair market value at the date of grant and
the options expire 10 years after grant or such shorter period as the
compensation committee of the Board so determines. Substantially all of the
options vest in equal increments over a five-year period.
F-16
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6. Stock Options, Continued
The following summarizes all stock options granted under the plans:
Common Weighted Average
Shares Exercise Price
--------------------------------------
December 31, 1999 415,863 $10.83
Granted 104,950 4.43
Canceled (149,613) 9.72
---------------
December 31, 2000 371,200 9.46
Granted 135,317 3.13
Canceled (185,914) 8.11
---------------
December 31, 2001 320,603 7.57
Granted 178,010 3.31
Canceled (150,484) 6.90
---------------
December 31, 2002 348,129 $5.69
===============
The weighted average remaining life of outstanding options is 6.9 years as of
December 31, 2002. Options exercisable as of December 31, 2002, 2001 and 2000
were approximately 133,000 shares, 149,000 shares and 191,000 shares,
respectively, at a weighted average exercise price of $8.60, $10.67 and $11.26,
respectively.
The weighted-average fair value at date of grant for options granted during
2002, 2001 and 2000 were $1.61, $1.25 and $2.44 per share, respectively. The
fair value of each option is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following assumptions:
2002 2001 2000
-------------------------------
Expected dividend yield 0% 0% 0%
Expected stock price volatility 25% 25% 25%
Risk-free interest rate 6.5% 6.5% 6.5%
Expected life of options 6 years 6 years 7 years
Note 7. Compensation and Benefit Agreements
The Company has defined benefit pension plans covering eligible past employees
and approximately 10% of its current employees. Eligible participants are
entitled to monthly pension benefits beginning at normal retirement age (65).
The monthly benefit payable at the normal retirement date under the Company's
pension plans is equal to a specified dollar amount or percentage of average
monthly compensation, as defined in the plans, multiplied by years of benefit
service (maximum of 38 years). The Company's funding policy is to make not less
than the minimum contribution that is required by applicable regulations, plus
such amounts as the Company may determine to be appropriate from time to time.
F-17
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Compensation and Benefit Agreements, Continued
The Company sponsors an unfunded defined benefit postretirement medical and life
insurance plan that covers eligible past employees and approximately 7% of its
current employees until they qualify for Medicare. The plan is contributory for
retirees with contributions established annually as a specified dollar amount.
The Company funds the postretirement benefit obligation as the costs are
incurred. In 2002, the Company amended the plan which resulted in a decrease in
the projected benefit obligation of approximately $0.6 million.
As a result of workforce reductions in 2002, 2001, and 2000 the Company incurred
a curtailment gain of $0.4 million for the postretirement plan in 2002 and
curtailment losses of $0.3 million and $0.2 million in 2001 and 2000,
respectively. For the defined benefit pension plan, the Company incurred a
curtailment gain of $0.2 million in 2001 and a curtailment loss of $0.8 million
in 2000.
Information relative to the Company's defined pension and other postretirement
benefit plans is presented below.
Pension Benefits Other Benefits
(In Thousands) (In Thousands)
December 31, December 31,
------------------------- -------------------------
2002 2001 2002 2001
------------------------- -------------------------
Changes in benefit obligations:
Obligations at beginning of year $16,079 $16,555 $ 1,085 $ 1,016
Service cost 62 289 5 27
Interest cost 1,082 1,110 47 110
Plan amendments - - (581) (3,078)
Benefits paid (966) (874) (158) (398)
Curtailment (325) (733) (63) 830
Actuarial (gains) losses (622) (268) 143 2,578
------------------------- -------------------------
Obligations at end of year $15,310 $16,079 $ 478 $ 1,085
========================= =========================
Changes in plan assets:
Fair value of assets at beginning of year $14,864 $16,583 $ - $ -
Actual return on assets (1,837) (887) - -
Company contributions 113 42 158 398
Participant contributions - - 148 56
Benefits paid (966) (874) (306) (454)
------------------------- -------------------------
Fair value of assets at end of year $12,174 $14,864 $ - $ -
========================= =========================
Funded status at end of year:
Plan assets less than obligations $(3,136) $(1,215) $ (478) $(1,085)
Unrecognized (gain) loss 1,370 (1,033) 2,109 2,236
Unrecognized prior service cost 140 153 (2,518) (2,968)
------------------------- -------------------------
Accrued benefit cost $(1,626) $(2,095) $ (887) $(1,817)
========================= =========================
F-18
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Compensation and Benefit Agreements, Continued
At December 31, 2002, the Company's pension plans had accumulated benefit
obligations in excess of the sums of their respective plan assets and accrued
pension liabilities, such that additional minimum liabilities and equity
reduction components had to be recorded as follows:
Accumulated benefit obligations $15,310
Plan assets (12,174)
Accrued pension liability (1,626)
---------
Additional minimum liability 1,510
Recordable as intangible asset 140
---------
Equity reduction component $1,370
=========
Pension Benefits Other Benefits
(In Thousands) (In Thousands)
Years Ending December 31, Years Ending December 31,
------------------------------------ ----------------------------------
2002 2001 2000 2002 2001 2000
------------------------------------ ----------------------------------
Cost recognized during the year:
Service cost $ 62 $ 289 $ 542 $ 5 $ 27 $ 72
Interest cost 1,082 1,110 1,082 47 110 94
Expected return on plan assets (1,161) (1,295) (1,267) - - -
Amortization of prior gains (26) (100) (99) 206 (51) (85)
Amortization of prior service cost 14 57 137 (675) 13 53
Amortization of transition obligation - 8 45 - 21 70
Curtailment - (207) 809 (355) 301 183
------------------------------------ ----------------------------------
Net period cost (benefit) $ (29) $ (138) $ 1,249 $(772) $421 $387
==================================== ==================================
Pension Benefits Other Benefits
December 31, December 31,
-------------------------- --------------------------
2002 2001 2000 2002 2001 2000
-------------------------- --------------------------
Assumptions used in computations:
Discount rate 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Rate of compensation increase 4.5% 4.5% 4.5% N/A N/A N/A
Expected return on plan assets 8.0% 8.0% 8.0% * * *
*This plan does not have separate assets, so there is no actual or expected return on plan assets.
F-19
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Compensation and Benefit Agreements, Continued
For measurement purposes of other benefits, an 8.5% annual rate of increase in
the cost of covered healthcare benefits was assumed for 2002. The rate was
assumed to decrease gradually to 5.0% at 2009 and remain at that level
thereafter. A one-percentage-point change in the assumed healthcare cost trend
rates would have the following effects for the year ended December 31, 2002 (in
thousands):
Increase Decrease
-------- --------
Effect on total of service and interest cost
components $2 $(2)
Effect on postretirement benefit obligation 12 (11)
Note 8. Sourcing Realignment and Facility Shutdown Charge
In the second quarter of 2001, the Company announced a strategic realignment
that led to charges of $3.7 million recorded in cost of goods sold and $0.7
million recorded in selling and administrative expenses related to the closure
of the manufacturing facility in La Crosse, Wisconsin. The Company eliminated
134 production and support positions, primarily in manufacturing. A summary of
the activity in the exit costs accrual since December 31, 2001 is as follows (in
thousands):
Balance Payments or Balance
December 31, New Reserves December 31,
2001 Charges Used 2002
--------------------------------------------------------------------
Inventory reserves $379 $ - $ 379 $ -
====================================================================
In the second quarter of 2002, the Company announced a strategic decision to
relocate the Racine, Wisconsin administrative and distribution functions as well
as close the manufacturing facility at that location. This decision led to
charges of $1.1 million including a $0.6 million leasehold improvements
impairment charge. The expense was recorded in selling and administrative
expenses. The Company eliminated 91 administrative, distribution and production
positions in Racine. The activity is as follows (in thousands):
Balance Payments or Balance
December 31, New Reserves December 31,
2001 Charges Used 2002
--------------------------------------------------------------------
Facility shutdown reserves $ - $ 1,120 $ 753 $ 367
====================================================================
F-20
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Goodwill and Other Intangibles
Effective January 1, 2002, the Company adopted SFAS 142, which established a new
method of testing goodwill and other intangible assets for impairment using a
fair-value based approach. Under the new standard, goodwill is no longer
amortized as was previously required. Upon adoption, amortization of goodwill
ceased. Amortization of goodwill would have been $0.6 million for the year ended
December 31, 2002.
The Company completed the transitional impairment test during 2002 for the
Industrial and Danner division's goodwill. The impairment test, which was
conducted using information that included a valuation performed by an
independent appraiser, indicated that the Industrial division goodwill was
impaired. Accordingly, the Company recorded a $1.0 million charge as a
cumulative effect of change in accounting principle in the first quarter of
2002.
The following table presents adjusted (proforma) net loss and basic and diluted
loss per share for the years 2002, 2001 and 2000, respectively, as adjusted for
the non-amortization provisions of SFAS 142 (in thousands):
2002 2001 2000
-----------------------------------
Reported net loss $(5,086) $(7,949) $(4,769)
Addback: Goodwill amortization - 681 681
-----------------------------------
Adjusted net loss (5,086) (7,268) (4,088)
Addback: Cumulative effect of change in accounting principle 1,028 - -
Intangible impairment charge in 2001 - 1,282 -
-----------------------------------
Adjusted net loss before cumulative effect of change in accounting
principle $(4,058) $(5,986) $(4,088)
===================================
2002 2001 2000
-----------------------------------
Reported basic and diluted loss per share $(0.87) $(1.35) $(0.80)
Addback: Goodwill amortization - 0.11 0.12
-----------------------------------
Adjusted basic and diluted loss per share (0.87) (1.24) (0.68)
Addback: Cumulative effect of change in accounting principle 0.18 - -
Intangible impairment charge in 2001 - 0.22 -
-----------------------------------
Adjusted basic and diluted loss per share before cumulative effect of
change in accounting principle $(0.69) $(1.02) $(0.68)
===================================
The changes in the net carrying amount of goodwill for the year ended December
31, 2002 are as follows (in thousands):
Industrial Danner Total
---------------------------------------
Balance as of January 1, 2002 $1,028 $10,753 $11,781
Cumulative effect of change in accounting principle (1,028) - (1,028)
---------------------------------------
Balance as of December 31, 2002 $ - $10,753 $10,753
=======================================
F-21
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Goodwill and Other Intangibles, Continued
During 2001, the Company recorded impairment charges in selling and
administrative expense totaling approximately $1.3 million relating to the
write-down of intangibles primarily associated with the purchase of Red Ball and
Lake of the Woods. The Company determined that Red Ball and Lake of the Woods
are not core brands and therefore were impaired.
Note 10. Enterprise-wide Disclosures
Segment information is not presented since all of the Company's revenue is
attributed to a single reportable segment. Information about the Company's
groups of products within its one segment is presented below.
(In Thousands)
Years Ending December 31,
----------------------------------------
2002 2001 2000
----------------------------------------
Footwear $ 86,406 $108,943 $119,064
Protective clothing 11,379 16,358 19,097
----------------------------------------
$ 97,785 $125,301 $138,161
========================================
The following table presents information about the Company's revenue attributed
to countries based on the location of the customer.
(In Thousands)
Years Ending December 31,
----------------------------------------
2002 2001 2000
----------------------------------------
United States $ 95,054 $120,794 $132,139
Foreign Countries 2,731 4,507 6,022
----------------------------------------
$ 97,785 $125,301 $138,161
========================================
Long-lived assets located outside of the United States totaled approximately
$0.1 million and $0.2 million at December 31, 2002 and 2001.
No single customer provided revenue of 10.0% or more of consolidated revenues in
any of the years presented.
F-22