UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 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 39-1446816
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18550 NE Riverside Parkway
Portland, Oregon 97230
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(Address, zip code of principal executive offices)
(503) 766-1010
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(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, outstanding as of November 1, 2002: 5,874,449
shares
LaCrosse Footwear, Inc.
Form 10-Q Index
For Quarter Ended September 28, 2002
Page
PART I. Financial Information
Item 1. Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
Item 4. Controls and Procedures 14
PART II. Other Information
Item 1. Legal Proceedings 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Certifications 17
Exhibit Index 19
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
LACROSSE FOOTWEAR, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data) September 28, December 31,
2002 2001
------------- ------------
Assets (Unaudited)
Current Assets:
Cash and cash equivalents $ -- $ 271
Accounts receivable, net 24,898 18,865
Inventories (2) 27,268 34,371
Prepaid expenses, deferred tax assets and other 3,287 2,880
-------- --------
Total current assets 55,453 56,387
Property, plant and equipment, net 5,202 7,222
Goodwill, net (6) 10,753 11,781
Deferred tax assets and other 1,975 3,926
-------- --------
Total assets $ 73,383 $ 79,316
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term obligations $ 1,599 $ 1,599
Notes payable, bank 21,260 17,645
Accounts payable 4,596 6,205
Accrued expenses 2,807 3,085
-------- --------
Total current liabilities 30,262 28,534
Long-term obligations 3,609 4,432
Compensation and benefits 3,892 4,805
-------- --------
Total liabilities 37,763 37,771
Shareholders' Equity:
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
Retained earnings 13,932 19,857
Less cost of 843,178 shares of treasury stock (4,813) (4,813)
-------- --------
Total shareholders' equity 35,620 41,545
-------- --------
Total liabilities and shareholders' equity $ 73,383 $ 79,316
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
LACROSSE FOOTWEAR, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited) Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
----------------------------------------------------------
Net sales $ 29,155 $ 39,617 $ 71,951 $ 94,839
Cost of goods sold (3) 20,267 28,126 53,031 72,539
-------- -------- -------- --------
Gross profit 8,888 11,491 18,920 22,300
Selling and administrative expenses (3) 7,590 8,732 23,611 25,576
-------- -------- -------- --------
Operating income (loss) 1,298 2,759 (4,691) (3,276)
Non-operating income (expense):
Interest expense (474) (1,091) (1,344) (2,512)
Miscellaneous 39 21 138 79
-------- -------- -------- --------
(435) (1,070) (1,206) (2,433)
-------- -------- -------- --------
Income (loss) before income tax benefit 863 1,689 (5,897) (5,709)
Provision for income tax benefit (4) -- -- (1,000) --
-------- -------- -------- --------
Net income (loss) before cumulative effect
of change in accounting principle 863 1,689 (4,897) (5,709)
Cumulative effect of change in accounting
principle (6) -- -- (1,028) --
-------- -------- -------- --------
Net income (loss) $ 863 $ 1,689 $ (5,925) $ (5,709)
======== ======== ======== ========
Net income (loss) per common share before
cumulative effect of change in
accounting principle:
Basic $ 0.15 $ 0.29 $ (0.83) $ (0.97)
Diluted $ 0.15 $ 0.29 $ (0.83) $ (0.97)
Cumulative effect of change in accounting
principle:
Basic $ -- $ -- $ (0.18) $ --
Diluted $ -- $ -- $ (0.18) $ --
Net income (loss) per common share:
Basic $ 0.15 $ 0.29 $ (1.01) $ (0.97)
Diluted $ 0.15 $ 0.29 $ (1.01) $ (0.97)
Weighted average shares outstanding:
Basic and diluted 5,874 5,874 5,874 5,874
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
LACROSSE FOOTWEAR, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Nine Months Ended
(Unaudited) September 28, September 29,
2002 2001
----------------------------
Cash flows from operating activities:
Net (loss) $ (5,925) $ (5,709)
Adjustments to reconcile net (loss) to net cash used in
operating activities:
Depreciation and amortization 2,327 2,868
Loss on disposal and impairment charge for plant and equipment 624 1,844
Goodwill impairment charge 1,028 --
Changes in assets and liabilities:
Trade accounts receivable (6,033) (11,490)
Inventories 7,103 (4,895)
Deferred taxes 1,472 --
Accounts payable (1,609) (687)
Accrued expenses and other (1,406) 657
-------- --------
Net cash used in operating activities (2,419) (17,412)
-------- --------
Cash flows from investing activities:
Capital expenditures (644) (1,453)
Proceeds from sale of property and equipment -- 1,324
Prepaid loan fees -- (924)
Other -- 163
-------- --------
Net cash used in investing activities (644) (890)
-------- --------
Cash flows from financing activities:
Net proceeds from short-term borrowings 3,615 21,943
Principal payments on long-term obligations (823) (3,575)
-------- --------
Net cash provided by financing activities 2,792 18,368
-------- --------
Net increase (decrease) in cash and cash equivalents (271) 66
Cash and cash equivalents:
Beginning 271 11
-------- --------
Ending $ -- $ 77
======== ========
Supplemental information Cash payments (refunds) for:
Interest $ 1,391 $ 1,954
Income taxes $ (2,340) $ --
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
LACROSSE FOOTWEAR, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation and Use of Estimates
LaCrosse Footwear, Inc. is referred to as "we", "us" or "our" in this
report. We have prepared these unaudited condensed consolidated financial
statements in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, we have condensed or omitted certain information and footnote
disclosures. In our opinion, these financial statements include all normal
recurring adjustments necessary to present fairly the results for the
interim periods shown.
Preparing financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make
estimates and assumptions which affect the amounts of assets, liabilities,
revenue and expenses we have reported and our disclosure of contingent
assets and liabilities at the date of the financial statements. The
results of the interim periods are not necessarily indicative of the
results for the full year. You should read these condensed consolidated
financial statements in conjunction with the audited consolidated
financial statements and the related notes included in our Annual Report
on Form 10-K for the year ended December 31, 2001.
We report our quarterly interim financial information based on 13-week
periods.
b. Principles of Consolidation
The consolidated financial statements include the accounts of LaCrosse
Footwear, Inc. and our wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
c. Revenue Recognition and Product Warranty
Revenue is recognized at the time products are shipped to customers.
Revenue is recorded net of freight, discounts and returns. We warranty our
products against defects in design, materials and workmanship for a period
of generally one year. A provision for estimated future warranty cost is
recorded when products are shipped. Amounts billed to customers relating
to shipping and handling are classified as revenue. Costs incurred for
shipping and handling are classified as cost of goods sold.
d. Net Income (Loss) Per Share
We follow the provisions of Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share" which requires presentation of both
basic and diluted earnings per share (EPS) on the face of the condensed
consolidated statement of operations. Basic EPS excludes all dilution and
is computed using the weighted average number of common shares outstanding
during the period. The diluted EPS calculation assumes that all stock
options or other arrangements to issue common stock (common stock
equivalents) were exercised or converted into common stock at the
beginning of the period, unless their effect would be anti-dilutive. Basic
and diluted weighted average shares outstanding are the same for each
period presented, as the inclusion in the calculation of diluted weighted
average shares of any of the common stock equivalents outstanding would
have an anti-dilutive effect.
6
e. Recently Issued Accounting Standards
In April 2002, the FASB issued Statement 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendments of FASB Statement No. 13, and
Technical Corrections. The Company does not believe that the adoption of
this pronouncement will have a material effect on its financial
statements.
In June 2002, the FASB issued Statement 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement 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, this Statement states that the
liability should be initially measured at fair value. The Statement 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 financial statements.
2. INVENTORIES
Inventories are comprised of the following:
(In thousands) September 28, December 31,
2002 2001
--------------- ---------------
Raw materials $ 1,998 $ 1,913
Work in process 183 289
Finished goods 25,087 32,169
------- -------
Total $27,268 $34,371
======= =======
Inventory is valued at the lower of cost or market. Rubber boot products
are valued using the last-in, first-out (LIFO) method. All other inventory
items are valued using the first-in, first-out (FIFO) method. The
inventory values at September 28, 2002 and December 31, 2001 are net of
reserves of $1.7 million and $3.8 million, respectively, to cover losses
incurred in the disposition of slow moving and obsolete inventory.
Approximately $1.0 million of the reduction in the reserves is related to
the disposal of raw materials that were fully reserved at December 31,
2001. The LIFO reserve was $0.4 million at September 28, 2002 and December
31, 2001.
3. SOURCING REALIGNMENT AND OTHER NON-RECURRING CHARGES
In the second quarter of 2001, we announced a strategic decision 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. We 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:
Balance
(In thousands) Balance Payments or September 28,
December 31, 2001 New Charges Reserves Used 2002
------------------- ------------ ----------------- ----------------
Inventory reserves $ 379 -- 379 $ --
Severance and related costs -- -- -- --
------------------- ------------ ----------------- ----------------
Total $ 379 -- 379 $ --
=================== ============ ================= ================
7
In the second quarter of 2002, we announced a strategic decision to
relocate the administrative and distribution functions as well as close
the manufacturing facility at our Racine, Wisconsin location. This
decision led to charges of $1.0 million primarily related to facility
shutdown costs. The expense was recorded in selling and administrative
expenses. We eliminated 91 administrative, distribution and production
positions in Racine. The activity is as follows:
Balance
(In thousands) Balance Payments or September 28,
December 31, 2001 New Charges Reserves Used 2002
------------------- ------------ ----------------- ----------------
Facility shutdown reserves $ -- 1,000 -- $ 1,000
------------------- ------------ ----------------- ----------------
Total $ -- 1,000 -- $ 1,000
=================== ============ ================= ================
4. INCOME TAXES
We recorded an income tax benefit in the first quarter of 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 us to use losses incurred during
2002 to reduce taxable income from 1997. In May 2002, we received an
income tax refund of $2.3 million for tax losses incurred in 2001.
Deferred tax assets are described in detail in our Annual Report on Form
10-K for the year ended December 31, 2001.
During the first nine months of 2002, we generated a $2.3 million deferred
tax asset related to net operating losses, but $1.3 million of this was
offset by a corresponding increase in the deferred tax valuation
allowance.
5. STOCK OPTION GRANTS
During 2002, the Board of Directors granted options to purchase
approximately 163,000 shares of common stock to certain officers, key
employees and non-employee directors under existing stock incentive plans.
The average exercise price for these options is $3.34 per share. The
exercise price is calculated as the mean between the highest and lowest
reported selling prices of the common stock on the day before the options
were granted. The options generally vest in equal increments over a
five-year period.
6. GOODWILL
Effective January 2002, we adopted SFAS 142, Goodwill and Other Intangible
Assets. This pronouncement provides that goodwill be reviewed for
impairment rather than amortized. As a result, we ceased amortization of
goodwill.
In accordance with SFAS 142, we completed the transitional goodwill
impairment test during the second quarter 2002 for our Industrial and
Danner divisions. The impairment test, which was performed by an
independent appraiser, indicated that the Industrial division goodwill was
impaired. Accordingly, we recorded a $1.0 million charge as a cumulative
effect of change in accounting principle. This charge has been reflected
in the first quarter pursuant to implementation guidelines. Accordingly,
we have restated our first quarter 2002 results to reflect this change as
follows:
8
(In thousands) March 31,
2002
------------
Reported net loss for the quarter ended $ (1,983)
Less: Cumulative effect of change in accounting principle
(1,028)
------------
Net loss as restated $ (3,011)
============
Basic and diluted loss per share as reported $ (0.34)
Less: Cumulative effect of change in accounting principle
(0.18)
------------
Basic and diluted loss per share as restated $ (0.52)
============
The changes in the carrying amount of goodwill 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 September 28, 2002 $ -- $10,753 $ 10,753
============= ============ ============
Had SFAS 142 been effective at the beginning of 2001, the non-amortization
provisions would have had the following effect on the third quarter and
nine month results:
3 months ended 9 months ended
----------------------------- ----------------------------
SFAS 142 effect on net income (loss) September 28, September 29, September 28, September 29,
(In thousands) 2002 2001 2002 2001
--------------- ------------- -------------- -------------
Reported net income (loss) $ 863 $ 1,689 $ (5,925) $ (5,709)
Add back: Goodwill amortization -- 148 -- 445
--------------- ------------- -------------- -------------
Adjusted net income (loss) $ 863 $ 1,837 $ (5,925) $ (5,264)
Add back: Cumulative effect of change in
accounting principle -- -- 1,028 --
--------------- ------------- -------------- -------------
Adjusted income (loss) before cumulative
effect of change in accounting principle $ 863 $ 1,837 $ (4,897) $ (5,264)
=============== ============= ============== =============
3 months ended 9 months ended
----------------------------- ----------------------------
Earnings (loss) per share September 28, September 29, September 28, September 29,
2002 2001 2002 2001
--------------- ------------- -------------- -------------
Reported basic and diluted income (loss) per share $ 0.15 $ 0.29 $ (1.01) $ (0.97)
Add back: Goodwill amortization -- 0.02 -- 0.07
--------------- ------------- -------------- -------------
Adjusted basic and diluted income (loss) per share $ 0.15 $ 0.31 $ (1.01) $ (0.90)
Add back: Cumulative effect of change in
accounting principle -- -- 0.18 --
--------------- ------------- -------------- -------------
Adjusted basic and diluted income (loss) per
share before cumulative effect of change in
accounting principle $ 0.15 $ 0.31 $ (0.83) $ (0.90)
=============== ============= ============== =============
9
ITEM 2
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
condensed consolidated financial statements. The discussion that follows the
table should be read in conjunction with the condensed consolidated financial
statements. In addition, please see Management's Discussion and Analysis of
Financial Condition and Results of Operations, audited financial statements and
related notes included in our Annual Report on Form 10-K for the year ended
December 31, 2001.
(In thousands) Three Months Ended Nine Months Ended
----------------------------------------- ----------------------------------------
September 28, September 29, % September 28, September 29, %
2002 2001 Change 2002 2001 Change
-------------- -------------- ---------- ------------- -------------- ---------
Net Sales $29,155 $39,617 (26.4) $71,951 $94,839 (24.1)
Gross Profit 8,888 11,491 (22.7) 18,920 22,300 (15.2)
Selling and Administrative
Expenses 7,590 8,732 (13.1) 23,611 25,576 (7.7)
Non-Operating Expenses 435 1,070 (59.3) 1,206 2,433 (50.4)
Income Tax Benefit -- -- -- 1,000 -- 100.0
Our business is seasonal with lower revenues historically being generated during
the first six months of the year. As a result, revenue for the nine-month period
ending September 28, 2002 should not be considered to be indicative of results
to be reported for the balance of the fiscal year.
Net Sales
Net sales for the three months ended September 28, 2002 decreased $10.5 million,
or 26.4%, to $29.2 million from $39.6 million from the respective period in
2001. The decrease in net sales was due to a 41.3% decrease in the retail
channel of distribution of LaCrosse(R) brand products, a 15.6% decline in
shipments in the industrial channel of distribution of LaCrosse(R) and
Rainfair(R) brand products, offset by a 1.7% increase in shipments for the
Danner(R) brand over the same period of last year. These decreases were the
result of a continued softening economy on retailers and industrial distributors
coupled with tighter inventory management by our channel partners, reduced fall
pre-season orders and our decision to reduce the number of products offered
through the retail and industrial channels. The retail channel experienced a
$1.4 million decrease in shipments of sporting products from the third quarter
of last year primarily due to our customers efforts to reduce their stock on
hand. In addition, shipments in the pac boot product line were down $4.1 million
compared to the third quarter of 2001 due to inventory management objectives of
timing product receipts with anticipated shipments and stock-keeping units (SKU)
reductions over the past two fiscal years (due to excess inventory, obsolete
styling and eliminating unprofitable styles). Further, our children's fashion
line has declined $1.7 million from the third quarter of 2001 as a result of our
decision to no longer sell in the insulated children's boot market.
Net sales for the nine months ended September 28, 2002 decreased $22.8 million,
or 24.1%, to $72.0 million from $94.8 million for the comparable nine months of
2001. The decrease in net sales during the nine months was due to a 38.1%
decrease in the retail channel of distribution of LaCrosse(R) brand products and
a 25.3% decline in shipments in the industrial channel of distribution of
LaCrosse(R) and Rainfair(R) brand products. These decreases were the result of a
softening economy on retailers and industrial distributors, reduced fill-in
business for cold weather products in the LaCrosse(R) brand retail channel, and
an overall reduction in the number of products being offered for sale as
management worked to eliminate slow moving styles. Approximately 5.1% of the
decrease in net sales for the industrial division is due to a reduction in
apparel shipments to a mass merchant and another 7.1% of the decrease is related
to a management decision to reduce the number of products offered through the
industrial channel. These decreases were partially offset by a 2.6% increase in
shipments for the Danner(R) brand over the same period of last year, which is
related primarily to the introduction of new styles using the TERRA FORCE(TM)
technology platform within the uniform, hunting, work and outdoor cross-training
product lines.
10
Gross Profit
Gross profit for the three months ended September 28, 2002 decreased to $8.9
million, or 30.5% of net sales, from $11.5 million, or 29.0% of net sales, for
the third quarter of 2001. Gross margins have improved 2.7% over the third
quarter of the prior year due to a larger portion of our sales being from
products manufactured outside the United States. These margin improvements were
offset by $0.2 million of costs incurred in closing the industrial division
manufacturing facility.
Gross profit for the nine months ended September 28, 2002 decreased to $18.9
million, or 26.3% of net sales, from $22.3 million, or 23.5% of net sales, for
the same period of 2001. The net increase in gross profit as a percent of sales
is primarily due to our focus of shifting to higher margin sourced quality
products and a one-time charge of $3.7 million during the first half of 2001
related to closing the La Crosse factory.
Selling and Administrative Expenses
Selling and administrative expenses decreased $1.1 million, or 13.1%, to $7.6
million for the quarter ended September 28, 2002 compared to $8.7 million for
the same period a year ago. The decrease is primarily a result of reductions in
sales commissions and distribution costs associated with the reduced sales
volume.
Selling and administrative expenses decreased $2.0 million, or 7.7%, to $23.6
million for the nine months ended September 28, 2002 compared to $25.6 million
for the same period a year ago. In the nine months ended September 28, 2002, we
recorded $2.9 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 Rainfair division to Portland, Oregon from Racine, Wisconsin
($1.0 million). This includes one-time charges of $1.1 million of depreciation
expense related to a change in the estimated life of our 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 the
first nine months of 2002 and 2001, we decreased selling and administrative
expenses approximately $4.2 million mainly as a result of reductions in sales
commissions and distribution costs associated with the reduced sales volume. The
nine months ended September 29, 2001 included $0.7 million of restructuring
charges related to closing the manufacturing facility in La Crosse, Wisconsin.
Non-Operating Expenses
Non-operating expenses for the three months ended September 28, 2002 decreased
59.3% to $0.4 million, or 1.5% of net sales, from $1.1 million, or 2.7% of net
sales, for the three months ended September 29, 2001. The decrease is primarily
the result of a decrease in interest expense which was the result of lower
interest rates, lower average borrowings and the impact of recording interest
rate swap agreements at fair market value.
Non-operating expenses for the nine months ended September 28, 2002 decreased
50.4% to $1.2 million, or 1.7% of net sales, from $2.4 million, or 2.6% of net
sales, for the nine months ended September 29, 2001. The decrease is primarily
the result of a decrease in interest expense that was the result of lower
interest rates, lower average borrowings and the impact of recording interest
rate swap agreements at fair market value.
Income Tax Benefit
We recorded an income tax benefit of $1.0 million in the first quarter of 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 us to use certain losses incurred during
2002 to reduce taxable income from 1997.
During the first nine months of 2002, we generated a $2.3 million deferred tax
asset related to net operating losses, but $1.3 million of this was offset by a
corresponding increase in the deferred tax valuation allowance.
11
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 September 28, 2002, we had $21.3 million of outstanding borrowings
under the credit agreement and unused availability of $10.4 million.
Net cash used in operating activities was $2.4 million in the first nine months
of 2002 compared to $17.4 million used in operating activities in the same
period of 2001. In the first nine months of 2002, we incurred a loss of $5.9
million and an increase in accounts receivable of $6.0 million offset by
decreases in inventory of $7.1 million. The increase in accounts receivable is
normal for the period and the decrease in inventory is related to the
implementation of our sales forecasting system to reduce the number of styles
being offered and the success we had in selling closeouts during the first nine
months of 2002. In the first nine months of 2001, accounts receivable increased
$11.5 million, inventory increased $4.9 million, and a net loss of $5.7 million
was incurred. These were offset by depreciation and amortization of $2.9
million, and a loss on disposal and impairment charge of plant and equipment of
$1.8 million. Net cash used in investing activities was $0.6 million in the
first nine months of 2002 compared to $0.9 million for the same period of 2001.
The majority of the cash used in both years was for capital expenditures.
Net cash provided by financing activities was $2.8 million in the first nine
months of 2002 compared to $18.4 million provided by financing activities in the
same period of 2001. During the first nine months of 2002, we borrowed $3.7
million in short-term borrowings and repaid $0.8 million in long-term
obligations. In June 2001, we entered into a banking relationship with
asset-based lenders. During the same period of 2001, we borrowed $21.9 million
in short-term borrowings and repaid $3.6 million in long-term obligations.
Due to the restructuring completed earlier this year, we were not in compliance
with our tangible net worth covenants in our credit agreements' at the end of
the second and third quarter of 2002. We will likely not be in compliance as of
December 31, 2002. Our lenders have waived our violations for the second and
third quarter of 2002.
12
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within
the meaning of the Securities Exchange Act of 1934. Forward-looking statements
are only predictions or statements of our current plans, which we review on a
continual basis. These statements are based on our beliefs, expectations and
assumptions and on information currently available to us. We are not required to
update or revise forward-looking statements. The words "may", "should",
"expect", "anticipate", "intend", "plan", "continue", "believe", "estimate" or
similar expressions used in this report are intended to identify forward-looking
statements.
The forward-looking statements in this quarterly report on Form 10-Q involve
certain risks, uncertainties and assumptions. They are not guarantees of future
performance. Factors that may cause actual results to differ materially from
those expressed or implied in any forward-looking statements include, but are
not limited to, any of the following possibilities:
o Weather conditions
o Dealer inventory levels
o Inventory levels required for sourced product and emphasis on
forecasting capabilities
o Lead times (or delays) for sourced product and dependence on
independent manufacturers or suppliers
o Limited ability to resupply customer for fill-in orders for sourced
product
o Trading policies or import and export regulations and foreign
regulation of manufacturers or suppliers
o Actions of competitors
o Changes in consumer buying patterns
o Loss of a material customer
o Increase in interest rates
o West coast domestic port of entry work slowdown or stoppage due to
failed union contact negotiations
You should consider these important factors in evaluating any statement
contained in this report and/or made by us or on our behalf.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk results from fluctuations in interest rates. We enter
into interest rate swap agreements (swap agreements) to reduce our exposure to
interest rate fluctuations on our 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, we record the fair value of
the swap agreements each month as an adjustment to interest expense. As of
September 28, 2002, we had swap agreements in effect totaling $11.0 million
notional amount, of which $7.0 million will mature in January 2003 with another
$4.0 million maturing October 2003. The variable rate borrowings not offset by
swap agreements at September 28, 2002 totaled $15.5 million. Swap agreement
rates are based on the three-month LIBOR rate. Based on average floating rate
borrowings outstanding throughout the first nine months of 2002, a 100-basis
point change in LIBOR would have caused our monthly interest expense to change
by approximately $9,000. We believe that these amounts are not material to our
earnings.
13
ITEM 4. 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.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
We are party to routine litigation arising in the normal course of business. We
do not expect these matters, individually or in the aggregate, to have a
material adverse effect on our financial position, results of operations or cash
flows.
In October 2002, we received a letter from a public interest environmental group
alleging that we are in violation of product labeling requirements contained in
the California Safe Drinking Water and Toxic Enforcement Act of 1986
(Proposition 65 or the Act). 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 our
situation, the environmental group alleges polyvinyl chloride (PVC) in our
rainwear products contains lead and/or lead compounds above the California
standards. If in fact, the lead or lead compounds exceed the California
standards, we plan to take the appropriate corrective or remedial action
warranted. While the maximum statutory penalties for violating Proposition 65
are severe, we do not believe that violations, if any, of Proposition 65 by us
will have a material adverse effect on us, or our business, operations or
financial position.
ITEM 5. Other Information
Our Board of Directors ("Board") is seeking up to two additional directors, at
least one of which has a strong sales and marketing background in consumer
products. The Board is looking for prospective directors that meet the Nasdaq
standard for "independent" directors. While the Board pursues its search
process, the Board has determined that it is appropriate to keep Luke E. Sims as
a member of its Audit Committee even though he is not viewed as "independent"
under Nasdaq rules (because of his position as a partner in the law firm of
Foley & Lardner, which has served as general counsel for us since 1982). Because
of a recent director resignation, the Board does not currently have any other
"independent" directors that could fill a vacancy on the Audit Committee if Mr.
Sims left that Committee. Accordingly, Mr. Sims' departure from the Audit
Committee would only serve to reduce the human resources available to the Audit
Committee at a time when the Audit Committee's role and responsibilities are
expanding. The Board has determined that the next qualified "independent"
director that joins the Board will be invited to serve on the Audit Committee to
fill the vacancy created by Mr. Sims' anticipated departure from that Committee.
14
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4.1) 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).
(4.2) 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.
(99.1) Certification of President and Chief Executive Officer
pursuant to 18 U.S.C. section 1350
(99.2) Certification of Executive Vice President and Chief Financial
Officer pursuant to 18 U.S.C. section 1350
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LACROSSE FOOTWEAR, INC.
(Registrant)
Date: November 8, 2002 By: /s/ Joseph P. Schneider
--------------------------------
Joseph P. Schneider
President and Chief Executive
Officer
Date: November 8, 2002 By: /s/ David P. Carlson
--------------------------------
David P. Carlson
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
CERTIFICATIONS
I, Joseph P. Schneider, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LaCrosse Footwear,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 we 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 quarterly 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
quarterly report (the "Evaluation Date"); and
(c)presented in this quarterly 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
quarterly report whether or not 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: November 8, 2002 By: /s/ Joseph P. Schneider
-------------------------------
Joseph P. Schneider
President and Chief Executive
Officer
17
CERTIFICATIONS
I, David P. Carlson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LaCrosse Footwear,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 we 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 quarterly 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
quarterly report (the "Evaluation Date"); and
(c)presented in this quarterly 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
quarterly report whether or not 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: November 8, 2002 By: /s/ David P. Carlson
--------------------------------
David P. Carlson
Executive Vice President and
Chief Financial Officer
18
LaCrosse Footwear, Inc.
Exhibit Index to Quarterly Report on Form 10-Q
for the Quarter ended September 28, 2002
Exhibit
No. Exhibit Description
(4.1) 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).
(4.2) 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.
(99.1) Certification of President and Chief Executive Officer pursuant to 18
U.S.C. section 1350
(99.2) Certification of Executive Vice President and Chief Financial Officer
pursuant to 18 U.S.C. section 1350
19