For Immediate Release
Investor Contact: Laura Kelley
978-664-1100
Media Contacts: Mark Shuster or
John Burke
978-664-7478
CONVERSE INC. VOLUNTARILY FILES UNDER CHAPTER 11;
PLANS TO RESTRUCTURE DEBT AND FOCUS
ON WORLDWIDE LICENSING OF ITS VALUABLE BRAND
Company To Exit Manufacturing And Shift To Licensing Model; With Court
Approval, Global Brand Marketing, Inc., Led By Industry Veteran, Killick
Datta, To Be U.S. Footwear Licensee
Company Expects Adequate Financing For Continued Operations
Through New Credit Facility Signed With Existing Lenders
Company Sees Positive Order Trends Aiding Turnaround
North Reading, Massachusetts - January 22, 2001 - Converse, Inc. [OTCBB:CVEO],
today announced it has filed a voluntary petition to reorganize under Chapter 11
of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of
Delaware. In connection with the filing, the world-renowned designer,
manufacturer and marketer of athletic footwear intends to propose a plan of
reorganization that includes a restructuring of its debt and a shift of its
operations to be exclusively a licensor of Converse-brand products. The plan is
designed to reduce costs, increase competitiveness and help Converse emerge from
Chapter 11 with renewed financial health.
Financing In Place To Fund Continued Operations
The Company expects to have the necessary financing to continue operations while
it restructures. It has signed a post-petition credit facility with its existing
lender group, led by Bankers Trust Company, an affiliate of Deutsche Banc Alex.
Brown. The credit facility, upon court approval, will provide loans to the
Company and also allow the Company the use of the cash generated from its
ongoing operations. Converse expects that this facility will provide adequate
financing to enable it to operate in Chapter 11 and to meet its post-petition
supply and vendor obligations.
The filing should have no significant impact on the Company's ability to meet
its post-petition obligations and to continue to keep its business running
during the reorganization process.
The components of Converse's restructuring are:
. Continuation of talks that are already underway with the Company's debt
holders on a financial restructuring.
. Completion of a shift to the licensing model - already used in all overseas
markets - to focus on worldwide management of the valuable Converse brand. To
effect this change, Converse has filed a motion with the court seeking
approval of an agreement reached with Global Brand Marketing, Inc. (GBMI)
under which GBMI, headed by industry veteran, Killick Datta, will become the
licensee for Converse-brand footwear in the United States. GBMI is currently
the global licensee for Diesel Footwear.
. Elimination of Converse-owned and operated manufacturing facilities, which
will involve the closing of plants in North America and shifting the
production capacity of these plants to a supplier in Asia. This action also
is subject to court approval.
. Reduction of the Company's secured debt as a result of a decrease in working
capital needs after the transition to a licensing-only business model.
. Development of various long-term financing alternatives, including a
potential securitization of licensing income.
In addition, prior to today's filing, the Company sold its North Reading,
Massachusetts, headquarters building for $15.1 million. The net proceeds of this
sale have been used to reduce the Company's secured debt.
Goal To Emerge As "Leaner And Financially Healthier Business"
Glenn Rupp, Chairman and Chief Executive Officer of Converse, said, "This
voluntary filing, together with our plans to streamline Converse as an efficient
worldwide manager of our strong brand, will give us the opportunity to return
Converse to financial health. We believe the strength of our brand provides our
business with a solid foundation. Moreover, we believe that recent, positive
trends in the order backlog for our products, as well as the reduction of our
secured revolving credit debt from $71.6 million on January 1, 2000 to $47.8
million on December 30, 2000, point to significant prospects for renewed growth
and profitability, provided we take this opportunity to put our financial house
in order."
"When the royalty income from GBMI is added to that of our existing licensing
agreements, Converse will be generating a substantial stream of royalty income,"
Mr. Rupp said. "We believe that this revenue stream will increase with the
growth in sales of Converse-brand products by our licensees, and that the
profitability we expect to result from the resizing of Converse will create new
financing alternatives for our Company, including potentially a securitization
of licensing income."
"Chapter 11 makes it possible for us to restructure our debt," Mr. Rupp
continued. "We are already engaged in discussions with our financing sources.
Over the next several months, we will work with our creditors to finalize a plan
of reorganization. Our goal is to emerge from this process as a leaner and
financially healthier business."
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Company Intends To Fulfill Retail Supply Commitments
Mr. Rupp emphasized that Converse and its new U.S. licensee fully intend
to fulfill supply commitments to retailers. "Our plan calls for our retail
customers and licensing partners around the world to receive deliveries of
Converse products on schedule throughout the spring and back-to-school
seasons of 2001 - from the same product lines we have been previewing for
retailers. We also are proceeding with our scheduled product development,
and our 2002 product line is well underway."
He added, "We are grateful to our customers, licensing partners, suppliers,
lenders and, of course, our employees for their continuing loyalty and
understanding during this challenging period."
Shift To Licensing Model
Following court approval of the licensing agreement with GBMI, GBMI will
acquire rights to distribute and market Converse-brand footwear throughout
the U.S. Approval and implementation of its licensing agreement with GBMI
will complete Converse's transition to a licensing-only business model and
allow the Company to take advantage of reduced operating costs in its
effort to reorganize.
During 2000, the Company converted its remaining overseas subsidiaries in
the Benelux countries, France, Scandinavia, the U.K. and Germany to
licensees and now operates exclusively through licensing agreements with
third parties internationally.
Through the first half of 2001, including the spring retail sales season,
Converse will continue to supply product to U.S. retailers directly. As of
June 15/th/, when the back-to-school retail sales season begins, GBMI will
assume responsibility for supplying the U.S. wholesale market.
Also, as part of the agreement, GBMI will have the right to acquire the
retail outlets operated by Converse.
Mr. Rupp said, "We are enthusiastic about our new partnership with GBMI
and Killick Datta. Their reputation for brand building and their record of
success in our industry mean that we will have an exceptionally strong
partner driving the continued success of our brand. We expect a seamless
transition to the licensing arrangement."
Mr. Datta of GBMI said, "This is an extraordinary and exciting opportunity
for anyone in our business. We are confident that our new partnership with
Converse Inc. will be a tremendous success. Throughout its 97-year
heritage, Converse has always been - and it continues to be - one of the
preeminent authentic brands of athletic shoes in the world with a
powerful appeal to American consumers."
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About Global Brand Marketing, Inc. and Killick Datta
Global Brand Marketing, Inc., based in Santa Barbara, California, is currently
the worldwide licensee for Diesel Footwear, marketed in 130 countries worldwide.
Diesel Footwear has been available for only two years and already ranks as a
leading young casual brand in a number of major markets. Its sales were
approximately $40 million in 2000, only its second full year of business. In the
U.S., Diesel footwear is sold by such quality retailers as Barney's, Nordstrom
and Bloomingdale's and supported by innovative advertising campaigns. GBMI has
assembled in a very short time a talented group of professionals with many years
of experience in the footwear industry. GBMI plans to set up a completely
separate division for Converse.
GBMI's owner, Killick Datta, previously was President of the International
Division at Skechers, President of Wolverine Worldwide International, Ltd., and
President of Brooks. He also has held senior executive positions at L.A. Gear
and Nike. Killick Datta and his team have been involved in building major global
brands, and their combined experience will help Converse become a stronger brand
in the U.S. and internationally.
Company To Exit Manufacturing
Converse intends to close the North American plants by no later than March 31,
2001. The current production output of these plants will be shifted to a new
supplier in Asia.
Mr. Rupp said the Company would ask the bankruptcy court to approve appropriate
severance benefits for eligible employees who are affected by the closings. The
Company also plans to offer other forms of transition help, including
outplacement assistance to affected employees.
This was a difficult but absolutely essential action for the future of the
Company and all of its stakeholders," Mr. Rupp said. "We are proud of our
Company's history as a domestic manufacturer, but to meet today's tough industry
challenges, we have no choice but to move to a more competitive system of
production. At the same time, we will maintain the high standards of quality in
all Converse-brand products that our loyal customers around the world expect,
and we have selected a number of suppliers with a global reputation for
producing high-quality, vulcanized footwear."
Over 50% of Converse Footwear Already Produced in Asia
The new Asian plant is part of the Pou Chen Group, the world's largest supplier
of athletic footwear and one of four key suppliers of Converse's current
offshore production. Today, these four Asian suppliers produce over 50% of
Converse footwear.
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The Pou Chen Group issued this statement, "We are delighted to have this
opportunity to continue our close association with Converse's world-class
products and look forward to working in partnership with GBMI, a highly
respected industry leader, to meet the growing demand for Converse-brand
footwear in the U.S. marketplace."
Converse's other major offshore suppliers also have indicated their continuing
support of the Company and its licensees.
All of Converse's offshore suppliers have an established record of outstanding
performance in keeping with the high standards for labor practices and human
rights that Converse requires of its suppliers and licensees globally.
Need to Restructure Long-Term Debt
Mr. Rupp explained that the reasons for the Company's Chapter 11 filing stem
from a need to restructure its long-term indebtedness. Converse incurred
significant debt in connection with a 1995 acquisition of ApexOne. Additional
debt was incurred in 1997 to meet extraordinary working capital needs during a
period of dramatic growth for the Company. Subsequently, global demand for
athletic shoes began to decline across the industry, causing the Company to
incur additional indebtedness to fund its operations.
Mr. Rupp noted, "Converse is among the leading athletic shoe brands in the
world, and has exhibited considerable resiliency despite the industry-wide
downturn in demand. Among the positive signs for our business in the U.S., year-
to-date trend lines are up in both shipments and backlogs. As of December 30,
2000, U.S. wholesale sales were up 9% over the previous year, and on the same
date, our backlog of orders in the U.S. was 36% higher than the level on
December 30, 1999. We are especially pleased by the strong demand for Converse
products in key U.S., European and Asian markets, as well as the tremendous
success of our lifestyle product line in the U.S. In Japan, the Chuck Taylor(R)
All Star(R) continues to be the number-one selling athletic shoe."
He added, "Despite these positive trends in demand for our products, it has
become critically necessary to eliminate and reduce costs for our Company to
maintain its historically solid position in increasingly competitive markets. As
we begin the process of restructuring our debt, we are taking aggressive steps
to ensure that our Company, when it emerges from Chapter 11, will be a more
cost-effective enterprise, focused on managing the continued strong growth of
the Converse brand worldwide."
The Company has engaged Conway, Del Genio, Gries & Co. as its financial advisor
and Willkie Farr & Gallagher as its legal advisor in this process.
Background on Chapter 11
Chapter 11 of the U.S. Bankruptcy Code allows a company to continue operating
its business and to maintain possession of its property while it restructures
under the protection of the bankruptcy court. Enactment of the federal law was
based on the rationale that the value of a business is maximized as an ongoing
concern.
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About Converse, Inc.
Converse is a leading designer, marketer and licensor of high quality athletic
footwear, sports apparel and accessories for men, women and children. Its
products are distributed worldwide in over 90 countries through specialty
retail, sporting goods, department and shoe stores.
This press release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Words such as "expect,"
"believe," "intend" and words or terms of similar substance used in connection
with any discussion of the future operations, financial performance or financial
position of Converse identify forward-looking statements. All forward-looking
statements are management's present expectations of future events that are
subject to a number of factors and uncertainties that could cause actual results
to differ materially from those described in the forward-looking statements.
Potential risks and uncertainties include such factors as the unpredictability
of rulings of the court where the Company's bankruptcy proceedings are filed,
the availability of continued financing, the financial strength and performance
of the Company's licensees, the competitive pricing environment and inventory
levels within the footwear and apparel industries, consumer demand for athletic
footwear, market acceptance of Converse-branded products, the strength of the
U.S. dollar, the success of advertising, marketing and promotional campaigns and
other risks identified in documents filed by the Company with the Securities and
Exchange Commission.
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