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 March 29, 2003
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.
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(Exact name of Registrant as specified in its charter)
Wisconsin 39-1446816
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(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
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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 May 1, 2003: 5,874,449 shares
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes No X
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LaCrosse Footwear, Inc.
Form 10-Q Index
For Quarter Ended March 29, 2003
Page
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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 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
Item 4. Controls and Procedures 15
PART II. Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Certifications 19
Exhibit Index 21
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) March 29, December 31,
2003 2002
----------------------------------------
Assets (Unaudited)
Current Assets:
Cash and cash equivalents $ -- $ --
Trade accounts receivable, net 12,271 15,302
Inventories (2) 23,774 23,460
Refundable income taxes (3) 2,888 2,888
Prepaid expenses, deferred tax assets and other 1,125 1,519
----------------------------------------
Total current assets 40,058 43,169
Property and equipment, net 4,816 4,979
Goodwill (6) 10,753 10,753
Deferred income tax assets and other 1,263 1,944
----------------------------------------
Total assets $ 56,890 $ 60,845
========================================
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term obligations $ 1,611 $ 1,611
Notes payable, bank 7,848 8,378
Accounts payable 3,373 4,667
Accrued expenses 2,321 2,906
----------------------------------------
Total current liabilities 15,153 17,562
Long-term obligations 2,192 2,821
Compensation and benefits 4,435 4,711
Deferred income tax liability 670 662
----------------------------------------
Total liabilities 22,450 25,756
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
Accumulated other comprehensive loss (1,370) (1,370)
Retained earnings 14,122 14,771
Less cost of 843,178 shares of treasury stock (4,813) (4,813)
----------------------------------------
Total shareholders' equity 34,440 35,089
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Total liabilities and shareholders' equity $ 56,890 $ 60,845
========================================
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)
Quarter Ended
March 29, March 30,
2003 2002
---------------------------------
Net sales $ 19,874 $ 22,821
Cost of goods sold 13,888 16,915
---------------------------------
Gross profit 5,986 5,906
Selling and administrative expenses 6,329 8,583
---------------------------------
Operating loss (343) (2,677)
Non-operating income (expense):
Interest expense (291) (358)
Miscellaneous (15) 52
---------------------------------
(306) (306)
---------------------------------
Loss before income tax benefit (649) (2,983)
Provision for income tax benefit (3) -- (1,000)
---------------------------------
Net loss before cumulative effect of change
in accounting principle (649) (1,983)
Cumulative effect of change in accounting
principle (6) -- (1,028)
---------------------------------
Net loss $ (649) $ (3,011)
=================================
Net loss per common share before cumulative effect of change in
accounting principle:
Basic and diluted $ (0.11) $ (0.34)
Cumulative effect of change in accounting principle:
Basic and diluted $ -- $ (0.18)
Net loss per common share:
Basic and diluted $ (0.11) $ (0.52)
Weighted average shares outstanding:
Basic and diluted 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) Quarter Ended
(Unaudited) March 29, March 30,
2003 2002
----------------------------------
Cash flows from operating activities
Net loss $ (649) $ (3,011)
Adjustments to reconcile net loss to net cash provided in
operating activities:
Depreciation and amortization 428 1,316
Deferred income taxes -- (866)
Goodwill impairment charge -- 1,028
Other 32 --
Changes in assets and liabilities:
Trade accounts receivable 3,031 2,428
Inventories (314) 1,715
Accounts payable (1,294) (991)
Accrued expenses and other 147 925
----------------------------------
Net cash provided by operating activities 1,381 2,544
----------------------------------
Cash flows from investing activities
Capital expenditures (243) (202)
Proceeds from sale of property and equipment 23 --
Other (2) --
----------------------------------
Net cash used in investing activities (222) (202)
----------------------------------
Cash flows from financing activities
Net payments on short-term borrowings (530) (2,076)
Principal payments on long-term obligations (629) (24)
----------------------------------
Net cash used in financing activities (1,159) (2,100)
----------------------------------
Net increase (decrease) in cash and cash equivalents -- 242
Cash and cash equivalents:
Beginning -- 271
----------------------------------
Ending $ -- $ 513
==================================
Supplemental information
Cash payments for:
Interest $ 447 $ 426
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, 2002.
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
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 for shipping and handling are
classified as cost of goods sold.
d. Product Warranties
In December 2002, we adopted Financial Accounting Standards Board
Interpretation ("FIN) No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others." We adopted the disclosure requirements of the Interpretation as
of December 31, 2002. We provide a limited warranty for the replacement of
defective products. Our standard warranties require us to repair or replace
defective products at no cost to the consumer. We estimate the costs that
may be incurred under our basic limited warranty and record a liability in
the amount of such costs at the time product revenue is recognized. Factors
that affect our warranty liability include the number of units sold,
historical and anticipated rates of warranty claims, and cost per claim. We
periodically assess the adequacy of the recorded warranty liabilities and
adjust the amounts as necessary. We utilize historical trends and
information received from customers to assist in determining the
appropriate loss reserve levels.
6
Changes in our warranty liability during the quarters ended March 29, 2003
and March 30, 2002 are as follows:
For the Quarter Ended
(In thousands) March 29, 2003 March 30, 2002
-------------------------------------
Balance, beginning $ 999 $ 1,112
Accruals for products sold 660 814
Costs incurred (663) (814)
-------------------------------------
Balance, ending $ 996 $ 1,112
=====================================
e. 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.
f. Stock-Based Compensation
At March 29, 2003, we had stock-based employee compensation plans, which
are described in more detail in Note 4 to these condensed consolidated
financial statements. We account for those plans under the recognition and
measurement principles of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees" and have adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" and SFAS No. 148, " Accounting for Stock-Based Compensation -
Transition and Disclosure." No stock-based employee compensation cost is
reflected in the condensed 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 grant date. The following table
illustrates the effect on net loss and net loss per share if we had applied
the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation.
For the Quarter Ended
(In Thousands, except for per share data) March 29, 2003 March 30, 2002
------------------------------------------------------------------------------------------------------------
Net loss- as reported $ (649) $ (3,011)
Deduct: Total stock-based employee compensation
expense determined under the fair value based method for all
awards (41) (26)
---------------------------------------
Pro forma net loss $ (690) $ (3,037)
Loss per share:
Basic and diluted - as reported $(0.11) $ (.52)
Basic and diluted - pro forma $(0.12) $ (.52)
The above pro forma effects on net income (loss) and net income (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.
g. Recently Issued Accounting Standards
In September 2001, the FASB issued SFAS No. 143, "Accounting for 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. We adopted
SFAS 143 in the
7
first quarter of 2003 and the adoption did not impact our financial
position, results of operations or cash flows.
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 initial adoption of this pronouncement did not have a material impact
on our results of operations or financial position.
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 financial
statements issued for fiscal years ending after December 15, 2002. The
interim disclosure provisions of SFAS 148 were effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002. We have adopted the disclosure provisions 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 condensed 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 us
beginning in the third quarter of 2003. We do not believe that the adoption
of FIN 46 will have a material effect on our consolidated financial
statements.
2. INVENTORIES
Inventories are comprised of the following:
(In thousands) March 29, December 31,
2003 2002
---------------------------------
Raw materials $ 1,906 $ 1,604
Work in process 176 183
Finished goods 21,692 21,673
---------------------------------
Total $ 23,774 $ 23,460
=================================
Inventories are 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 March 29, 2003 and December 31, 2002 are net of reserves of $1.5
million to cover losses incurred in the disposition of slow moving and
obsolete inventories. If the FIFO method had been
8
2. INVENTORIES, Continued
used to value all inventories, inventories would have been approximately
$0.2 million lower than reported at March 29, 2003 and December 31, 2002.
3. INCOME TAXES
We recorded an income tax benefit in the fourth 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 allowed us to use losses incurred during 2002 to
reduce taxable income from 1997 and 1998. We expect to receive the income
tax refund of $2.9 million in the second quarter of 2003 for tax losses
incurred in 2002. Deferred tax assets are described in detail in our Annual
Report on Form 10-K for the year ended December 31, 2002.
During the first quarter of 2003, we generated a deferred tax asset related
to net operating losses, but this was offset by a corresponding increase in
the deferred tax valuation allowance. During the first quarter of 2002, we
recorded an income tax refund receivable for $2.3 million and as a result
we also recorded a tax benefit of $1.0 million and reduced our deferred
income tax assets by $1.3 million.
4. STOCK OPTIONS
We have granted stock options to officers, directors and key employees
under our 1993, 1997 and 2001 stock option plans pursuant to which options
for up to an aggregate of 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 of Directors
so determines. Substantially all of the options vest in equal increments
over a five-year period.
During the first quarter of 2003, the Board of Directors granted options to
purchase approximately 190,000 shares of common stock to certain officers,
key employees and non-employee directors under the stock option plans. The
average exercise price for these options is $2.58 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.
5. FACILITY SHUTDOWN CHARGE
In the second quarter of 2002, we announced a strategic decision to
relocate our Racine, Wisconsin administrative and distribution functions as
well as close the manufacturing facility at that location. At December 31,
2002, we had a reserve of $0.4 million. The activity for the first quarter
of 2003 related to this reserve is as follows (in thousands):
Balance Payments or Balance
December 31, New Reserves March 29,
2002 Charges Used 2003
--------------------------------------------------------------------
Facility shutdown reserves $ 367 $ -- $ 55 $ 312
====================================================================
6. GOODWILL
Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets "SFAS 142" which
established a new method of testing goodwill and other intangible assets
for impairment using a fair-value based approach. Under SFAS 142, goodwill
is no longer amortized as was previously required. Upon adoption,
amortization of goodwill ceased. We 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, we
9
6. GOODWILL, Continued
recorded a $1.0 million charge as a cumulative effect of change in
accounting principle in the first quarter of 2002. During the first quarter
of 2003, we completed the impairment test using an independent appraiser,
noting no further impairment at this time.
The changes in the carrying amount of goodwill for the year ended December
31, 2002 and the quarter ended March 29, 2003 are as follows (in
thousands):
Industrial Danner Total
---------------------------------------
Balance as of January 1, 2002 $ 1,028 $10,753 $ 11,781
Impairment loss (1,028) -- (1,028)
---------------------------------------
Balance as of December 31, 2002 -- 10,753 10,753
---------------------------------------
Goodwill acquired during the period -- -- --
---------------------------------------
Balance as of March 29, 2003 $ -- $10,753 $ 10,753
=======================================
10
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, 2002.
(In thousands) Quarter Ended
--------------------------------------------------------
March 29, 2003 March 30, 2002 % Change
--------------------------------------------------------
Net Sales $ 19,874 $ 22,821 (12.9)
Gross Profit 5,986 5,906 1.4
Selling and Administrative Expenses 6,329 8,583 (26.3)
Non-Operating Expenses 306 306 --
Income Tax Benefit -- (1,000) --
Cumulative Effect of Change in
Accounting Principle -- 1,028 (100.0)
Our business is seasonal with lower revenues historically being generated during
the first two quarters of the year. As a result, revenue for the quarter ending
March 29, 2003 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 quarter ended March 29, 2003 decreased $2.9 million, or 12.9%,
to $19.9 million from $22.8 million from the respective period in 2002. The
decrease in net sales was due to a to a 24.9% decrease in the retail channel of
LaCrosse (R) brand products, a 22.4% decline in the industrial channel of
LaCrosse (R) and Rainfair (R) brand products, partially offset by an increase of
8.8% in Danner (R) brand products over the same period of last year. The retail
channel experienced a decline in net sales from the first quarter of 2002 due to
a continued soft economy and the further reduction of our retail brand product
offerings. Net sales in the industrial channel of distribution declined from the
first quarter of 2002 as a result of a continued soft economy and a reduction in
the number of products being offered for sale particularly in the private label
and mass merchant markets in the industrial channel of distribution. Danner's
net sales increase is primarily related to improved product offerings for niche
hunting, occupational and uniform markets.
Gross Profit
Gross profit for the quarter ended March 29, 2003 increased to $6.0 million, or
30.1% of net sales, from $5.9 million, or 25.9% of net sales, for the first
quarter of 2002. Gross margins as a percent of net sales have improved due to a
focus of sales on higher margin footwear and eliminating lower margin products.
Selling and Administrative Expenses
Selling and administrative expenses decreased $2.3 million, or 26.3%, to $6.3
million for the quarter ended March 29, 2003 compared to $8.6 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, back-office consolidation of the Retail and Industrial operations in
Portland, Oregon, and management's focus on reducing variable expenses.
Excluding a $1.6 million charge incurred in the first quarter of 2002 associated
with the move of the corporate
11
headquarters to Portland, Oregon from La Crosse, Wisconsin, selling and
administrative costs declined 9.4% from $6.9 million in the first quarter of
2002 to $6.3 million in the first quarter of 2003.
Non-Operating Expenses
Non-operating expenses increased by 0.2% to 1.5% of net sales for the quarter
ended March 29, 2003, from 1.3% of net sales, or $0.3 million for the quarter
ended March 30, 2002. In the first quarter of 2003 as compared to the same
period of 2003, interest expense has decreased due to lower interest rates and
lower average borrowings.
Income Tax Benefit
We recorded an income tax benefit of $2.9 million in the fourth 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.
During the first quarter of 2003, we generated a deferred tax asset related to
net operating losses, but this was offset by a corresponding increase in the
deferred tax valuation allowance. During the first quarter of 2002, we recorded
an income tax refund receivable for $2.3 million and as a result we also
recorded a tax benefit of $1.0 million and reduced our deferred income tax
assets by $1.3 million.
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. Our 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 March 29, 2003, we had $7.8 million of outstanding borrowings
under the credit agreement and unused availability of $5.4 million.
Net cash provided by operating activities was $1.4 million in the first quarter
of 2003 compared to $2.5 million provided by operating activities in the same
period of 2002. In the first quarter of 2003, accounts receivable decreased by
$3.0 million. This was offset by a net loss of $0.6 million, an increase in
inventory of $0.3 million and a decrease of $1.3 million in accounts payable.
The increase in inventory of $0.3 million is due to a new niche occupational
product for the LaCrosse(R) brand. The decrease in accounts receivable is normal
for the period. In the first quarter of 2002, accounts receivable and inventory
decreased by $2.4 million and $1.7 million, respectively, and we recorded a
non-cash goodwill impairment charge of $1.0 million. These were offset by a net
loss of $3.0 million, and a decrease of $1.0 million in accounts payable.
Net cash used in investing activities was $0.2 million in the first quarter of
2003 compared to $0.2 million for the same period of 2002. The majority of the
cash used in both years was for capital expenditures.
Net cash used in financing activities was $1.2 million in the first quarter of
2003 compared to $2.1 million for the same period of 2002. During the first
quarter of 2003, we repaid $0.5 million in short-term borrowings and $0.6
million in long-term obligations. During the same period of 2002, we repaid $2.1
million in short-term borrowings. In the first quarter of 2003, we redeemed the
cash surrender value of certain of our life insurance policies for cash totaling
approximately $0.6 million. 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.
At the end of the first quarter 2003, we were in compliance with all covenants
in our credit agreements.
12
A summary of our contractual cash obligations at March 29, 2003 is as follows:
- -----------------------------------------------------------------------------------------------------------------------
(In Thousands) Payments due by period
- -----------------------------------------------------------------------------------------------------------------------
Contractual Obligations Remaining 2007 and
Total in 2003 2004 2005 2006 Thereafter
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt $ 3,800 $ 1,600 $ 2,200 $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
Operating leases 5,600 1,400 1,100 1,200 1,000 900
- -----------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $ 9,400 $ 3,000 $ 3,300 $ 1,200 $ 1,000 $ 900
- -----------------------------------------------------------------------------------------------------------------------
We also have a commercial commitment as described below:
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------
Other Commercial Commitment Total Amount Committed Outstanding at 3/29/03 Date of Expiration
- -----------------------------------------------------------------------------------------------------------------------
Line of credit $52,500 $ 7,848 June 2004
- -----------------------------------------------------------------------------------------------------------------------
Critical Accounting Policies
Our significant accounting policies are summarized in the footnotes to our
annual 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
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 March 29, 2003 accounts receivable.
Product Warranties. We provide a limited warranty for the replacement of
defective products. Our standard warranties require us to repair or replace
defective products at no cost to the consumer. We estimate the costs that may be
incurred under our basic limited warranty and record a liability in the amount
of such costs at the time product revenue is recognized. Factors that affect our
warranty liability include the number of units sold, historical and anticipated
rates of warranty claims, and cost per claim. We periodically assess the
adequacy of our recorded warranty liabilities and adjust the amounts as
necessary. We utilize historical trends and information received from customers
to assist in determining the appropriate loss reserve levels. We believe our
warranty liability of $1.0 million at March 29, 2003 should be adequate to cover
the estimated costs we will incur in the future for warranty claims on products
sold before March 29, 2003.
13
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
annual 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.
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
March 29, 2003 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. In assessing the
recoverability of our 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 $4.8 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, we 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.
Forward-Looking Statements
We caution you that this quarterly report on Form 10-Q 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 Weather conditions
o Those related to general economic conditions including interest rates
o Outbreak of disease affecting product development and sourcing
production
o The demand for outdoor footwear products
o Inventory levels required for sourced product and emphasis on
forecasting capabilities
o Performance of its manufacturing facilities
o Limited ability to resupply customer for fill-in orders for sourced
product
o Dealer inventory levels
o Cancellation of current orders
o Trading policies or import and export regulations and foreign
regulation of manufacturers or suppliers
14
o Increased competition
o Ability to protect intellectual property
o Cyclical nature of the Footwear sector
o Changes in consumer buying patterns
o Loss of a material customer
o Lead times (or delays) for sourced product
o Unforeseen work stoppages
o Acts of terrorism or military activities
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 March
29, 2003, we had swap agreements in effect totaling $4.0 million notional amount
maturing October 2003. The variable rate borrowings not offset by swap
agreements at March 29, 2003 totaled $7.7 million. Swap agreement rates are
based on the three-month LIBOR rate. Based on average floating rate borrowings
outstanding throughout the first quarter of 2003, a 100-basis point change in
LIBOR would have caused our monthly interest expense to change by approximately
$6,000. We believe that these amounts are not material to our earnings.
ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. In accordance with Rule
13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), within 90
days prior to the filing date of this Quarterly Report on Form 10-Q, an
evaluation was carried out under the supervision and with the participation of
the Company's management, including the Company's President and Chief Executive
Officer and Executive Vice President and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in Rule 13a-14(c) under the Exchange Act). Based upon
their evaluation of these disclosure controls and procedures, the President and
Chief Executive Officer and the Executive Vice President and Chief Financial
Officer concluded that the disclosure controls and procedures were effective as
of the date of such evaluation to ensure that material information relating to
the Company, including its consolidated subsidiaries, was made known to them by
others within those entities, particularly during the period in which this
Quarterly Report on Form 10-Q was being prepared.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
15
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.
16
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(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.
17
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: May 12, 2003 By: /s/ Joseph P. Schneider
--------------------------------------
Joseph P. Schneider
President and Chief Executive Officer
Date: May 12, 2003 By: /s/ David P. Carlson
--------------------------------------
David P. Carlson
Executive Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
18
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: May 12, 2003 By: /s/ Joseph P. Schneider
--------------------------------------
Joseph P. Schneider
President and Chief Executive Officer
19
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: May 12, 2003 By: /s/ David P. Carlson
---------------------------------------
David P. Carlson
Executive Vice President and Chief
Financial Officer
20
LaCrosse Footwear, Inc.
Exhibit Index to Quarterly Report on Form 10-Q
for the Quarter ended March 29, 2003
Exhibit No. Exhibit Description
- ----------- -------------------
(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
21