<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended July 1, 2000
Commission File Number 1-13430
Converse Inc.
(Exact name of registrant as specified in its charter)
Delaware 43-1419731
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Fordham Road 01864
North Reading, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (978) 664-1100
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 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 practical date.
As of July 1, 2000, 17,513,861 shares of common stock were outstanding.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheet 1
B. Consolidated Statement of Operations 2
C. Consolidated Statement of Cash Flows 3
D. Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures 20
About Market Risk
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 23
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONVERSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
January 1, 2000 July 1, 2000
--------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................................. $ 2,305 $ 2,559
Receivables, less allowances of $3,945 and $2,298, respectively....... 40,511 45,016
Inventories (Note 3).................................................. 76,414 69,037
Prepaid expense and other current assets.............................. 2,866 3,027
------------ -----------
Total current assets............................................. 122,096 119,639
Net property, plant and equipment.......................................... 18,855 16,474
Other assets............................................................... 11,412 12,076
------------ -----------
$ 152,363 $ 148,189
============ ===========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Short-term debt (Note 4).............................................. $ 1,951 $ 3,459
Credit facility (Note 4).............................................. 71,551 77,010
Current portion long-term debt(Note 4)................................ 28,223 102,784
Accounts payable...................................................... 41,257 40,616
Accrued expenses...................................................... 15,063 15,004
Income taxes payable.................................................. 6,455 6,505
------------ -----------
Total current liabilities........................................ 164,500 245,378
Long-term debt (Note 4).................................................... 74,265 --
Current assets in excess of reorganization value........................... 26,143 25,105
Stockholders' equity (deficiency):
Common stock, $1.00 stated value, 50,000,000 shares
authorized, 17,479,025 and 17,513,861 shares issued and
outstanding at January 1, 2000 and July 1, 2000, respectively... 17,479 17,514
Preferred stock, no par value, 10,000,000 shares authorized
none issued and outstanding..................................... -- --
Additional paid-in capital............................................ 4,764 4,604
Unearned compensation................................................. (1,061) (644)
Retained earnings (deficit)........................................... (131,737) (141,514)
Accumulated other comprehensive income................................ (1,990) (2,254)
------------ -----------
Total stockholders' equity (deficiency) ......................... (112,545) (122,294)
------------ -----------
$ 152,363 $ 148,189
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CONVERSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------- -----------------------------------
July 3, 1999 July 1, 2000 July 3, 1999 July 1, 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenue....................................... $58,320 $56,524 $ 129,318 $ 108,919
Cost of sales..................................... 43,268 44,286 95,525 85,126
------------ ------------ ------------ ------------
Gross profit...................................... 15,052 12,238 33,793 23,793
Selling, general and administrative expenses...... 18,714 14,451 40,365 29,093
Royalty income.................................... 4,940 4,051 9,782 8,218
Restructuring and other unusual charges........... 543 (387) 543 (387)
------------ ------------ ------------ ------------
Earnings from operations.......................... 735 2,225 2,667 3,305
Interest expense, net............................. 5,283 5,658 10,522 10,981
Other (income) expense, net....................... 94 639 (902) 735
------------ ------------ ------------ ------------
Loss before income tax............................ (4,642) (4,072) (6,953) (8,411)
Income tax expense................................ 938 638 1,866 1,366
------------ ------------ ------------ ------------
Net loss.......................................... $(5,580) $(4,710) $ (8,819) $ (9,777)
============ ============ ============ ============
Net basic and diluted loss per share (Note 2)..... $ (0.32) $ (0.27) $ (0.51) $ (0.56)
============ ============ ============ ============
Weighted average number of common shares
outstanding (Note 2).............................. 17,396 17,514 17,363 17,503
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CONVERSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------
July 3, 1999 July 1, 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (8,819) $ (9,777)
Adjustments to reconcile net loss to net cash required for
operating activities:
Depreciation of property, plant and equipment............. 2,164 2,278
Amortization of intangible assets......................... 100 --
Amortization of current assets in excess of reorganization
value................................................... (1,038) (1,038)
Amortization of note discount/warrants.................... 318 296
Amortization of deferred compensation..................... 211 260
Loss on disposal of property, plant and equipment......... -- 14
Changes in assets and liabilities:
Receivables............................................... 2,257 (4,505)
Inventories............................................... (6,431) 7,377
Prepaid expenses and other current assets................ 2,350 (161)
Accounts payable and accrued expenses..................... (2,094) (517)
Income taxes payable...................................... 493 50
Other long-term assets and liabilities.................... (314) (928)
------------ ------------
Net cash required for operating activities............ (10,803) (6,651)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment...................... (1,211) (94)
------------ ------------
Net cash used by investing activities................. (1,211) (94)
------------ ------------
Cash flows from financing activities:
Net proceeds from exercise of warrants.......................... 268 --
Net proceeds from sale of common stock (Note 7)................. 73 32
Net proceeds from (payment of) short-term debt.................. (547) 1,508
Net proceeds from (payment of) credit facility.................. 11,263 5,459
------------ ------------
Net cash provided by financing activities............. 11,057 6,999
Net increase (decrease) in cash and cash equivalents.............. (957) 254
Cash and cash equivalents at beginning of period.................. 3,274 2,305
------------ ------------
Cash and cash equivalents at end of period........................ $ 2,317 $ 2,559
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CONVERSE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Summary of Significant Accounting Policies
Basis of presentation:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation. This interim
financial information and notes thereto should be read in conjunction with the
Company's annual report on Form 10-K for the year ended January 1, 2000. The
Company's consolidated results of operations for the three and six months ended
July 1, 2000 are not necessarily indicative of the results to be expected for
any other interim period or the entire fiscal year. In the prior year financial
statements and related notes certain amounts have been reclassified to conform
with the Fiscal 2000 presentation.
2. Net Earnings (Loss) per Common Share
Net earnings (loss) per common share is computed based on the weighted
average number of common shares and common equivalent shares, if dilutive,
assumed outstanding for the applicable period.
3. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
January 1, 2000 July 1, 2000
--------------- ------------
<S> <C> <C>
Retail merchandise.................... $ 6,452 $ 5,550
Finished products..................... 62,157 57,609
Work in process....................... 4,120 2,947
Raw materials......................... 3,685 2,931
----------- ---------
$76,414 $69,037
=========== =========
</TABLE>
4. Debt
As more fully described in Note 9 to the Consolidated Financial Statements
for the year ended January 1, 2000 included within the Company's annual report
on Form 10-K, in May 1997 the Company issued $80,000 of 7% Convertible
Subordinated Notes due June 1, 2004 (the "Convertible Notes"). The Convertible
Notes are convertible at any time prior to maturity, unless previously redeemed
into common stock of the Company, at the option of the holder, at a price of
$21.83 per share, subject to adjustment in certain events. In addition, the
Convertible Notes may be redeemed, in whole or in part, at the option of the
Company, at any time on or after June 5, 2000, at redemption prices set forth
therein, plus accrued interest to the date of redemption. Interest is payable
semi-annually on June 1 and December 1. Proceeds from the Convertible Notes were
used to repay indebtedness under the Company's then existing credit facility. As
discussed further below, in September 1998 the Company repurchased and cancelled
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$5,735 face amount of the Convertible Notes. As of July 1, 2000, $74,265 face
amount of Convertible Notes remain outstanding. The Company did not make the
interest payment due on June 1, 2000 with respect to the Convertible Notes. This
interest payment remains outstanding and constitutes an Event of Default under
the related indenture. On August 4, 2000, the trustee under the indenture for
the Convertible Notes sent Converse a letter stating that holders of more than
twenty-five percent (25%) of the Convertible Notes had directed it to declare
the full amount of principal and interest under the notes to be due and payable.
Simultaneously with the issuance of the Convertible Notes in May 1997, the
Company entered into a new $150,000 secured credit agreement (the "Credit
Facility") with BT Commercial Corporation ("BTCC") for revolving loans, letters
of credit, foreign exchange contracts and banker acceptances and repaid the then
existing credit facility. In July 1997 BTCC, as agent, syndicated the Credit
Facility to a group of participating lenders (the "Banks"). The credit
commitment was subsequently reduced by the Company to $120,000 in September 1998
and to $90,000 in November 1999. The amount of credit available to the Company
at any time is limited by a borrowing base formula, as defined in the Credit
Facility, consisting primarily of U.S. accounts receivable and inventory. The
aggregate letters of credit, foreign exchange contracts and banker acceptances
may not exceed $40,000 at any time; revolving loans are limited only by the
Credit Facility's maximum availability less any amounts outstanding for letters
of credit, foreign exchange contracts or banker acceptances.
The Credit Facility is for a five-year term with an expiration date of May
21, 2002. However, the total revolving loans and banker acceptances outstanding
under the Credit Facility of $77,010 are classified as current due to the Event
of Default as more fully described below and due to the Company's lockbox
arrangement (whereby payments made by the Company's customers are deposited in a
lockbox controlled by the Banks) and certain clauses contained in the Credit
Facility regarding mandatory repayment that involve subjective judgments by the
Banks. This classification is required by Emerging Issues Task Force Issue No.
95-22, "Balance Sheet Classification of Borrowings Outstanding under a Revolving
Credit Agreement that Includes both a Subjective Acceleration Clause and a
Lockbox Arrangement".
In May 1999, the Company's Credit Facility was amended to allow for $6,000
of additional borrowing base through July 31, 1999. Subsequent amendments to the
Credit Facility extended this additional borrowing base from July 31, 1999
through July 31, 2000. As of August 1, 2000, the $6,000 of additional borrowing
base has expired and is no longer in effect.
Obligations under the Credit Facility are secured by first priority liens
on substantially all of the Company's U.S. assets. The Credit Facility requires
compliance with customary affirmative and negative covenants, including certain
financial covenants. At July 1, 2000 the Company was not in compliance with the
minimum EBITDA (as defined therein) covenant contained in the Credit Facility
and such failure to comply constitutes an Event of Default under the Credit
Facility. Also, the default in payment of interest due with respect to the
Convertible Notes (see above) constitutes an Event of Default under the Credit
Facility.
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As of July 1, 2000 the Company's calculated borrowing base was $90,657, but
limited to the total credit commitment of $90,000. Utilization under the Credit
Facility amounted to $80,974 consisting of revolving loans of $74,486, banker
acceptances of $2,524 and outstanding letters of credit of $3,964. Accordingly,
$9,026 of the maximum available borrowing base remained unutilized as of July 1,
2000. Under the terms of the Third Supplement to Note Purchase Agreements (the
"Third Supplement") executed in June 2000 (see Secured Notes below), the Company
may not borrow amounts as revolving loans under the Credit Facility if such
amounts would exceed the maximum permitted amount available to borrow less
$5,750. As a result, net availability under the Credit Facility was $3,276 as of
July 1, 2000. With the expiration of the $6,000 additional borrowing base as of
August 1, 2000 (see above), the Company has failed to maintain availability
under the Credit Facility in excess of the $5,750 required by the Third
Supplement.
Revolving loans under the Credit Facility bear interest either at the Prime
Lending Rate (as defined therein) plus one percent (1.00%) per annum or at the
Adjusted LIBOR Rate (as defined therein) plus a margin of three percent (3.00%)
per annum. At July 1, 2000, revolving loans outstanding under the Credit
Facility bore interest of 9.86% based upon the weighted average of the Prime
Lending Rate and Adjusted LIBOR Rate.
In September 1998, the Company issued $28,643 aggregate principal amount of
15% Senior Secured Notes (the "Secured Notes") due September 16, 2000 (the
"Initial Maturity Date"). Interest on the Secured Notes is payable quarterly in
arrears. The Secured Notes were issued in two series: Series A in the aggregate
principal amount of $24,858 (the "Series A Secured Notes") and Series B in the
aggregate principal amount of $3,785 (the "Series B Secured Notes"). The Secured
Notes are redeemable at any time at face amount plus accrued interest.
The Secured Notes require compliance with customary affirmative and
negative covenants, including certain financial covenants, substantially the
same as the requirements contained in the Credit Facility. The Company was not
in compliance with the minimum EBITDA (as defined therein) covenant contained in
the Secured Notes agreement for the six month period ending July 1, 2000 and
such failure to comply constitutes an Event of Default under the Secured Notes.
Also, the default in payment of interest due with respect to the Convertible
Notes (described above) constitutes an Event of Default under the Secured Notes.
Under the terms of the Third Supplement, as of July 31, 2000 the holders of the
Secured Notes were free to proceed to enforce their rights, including, but not
limited to, declaring all or any part of the notes outstanding to be immediately
due and payable.
Upon issuance of the Series A Secured Notes, the Company received gross
proceeds of $24,000 after discount from the face amount. In connection with the
issuance of the Series A Secured Notes, the Company issued warrants to purchase
360,000 shares of the Company's common stock to the purchasers and paid funding
fees to certain purchasers amounting to $350. The warrants were valued at $1.22
per share, vested immediately and expire on March 16, 2003. In May 1999 warrants
to purchase 91,412 shares of the Company's common stock were exercised, leaving
268,588 outstanding. The Company paid a placement fee of 4% of the gross
proceeds, or $960, with respect to the Series A Secured Notes. The Series A
Secured Notes carry
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a second priority perfected lien on substantially all real and personal,
tangible and intangible assets of the Company.
The Series B Secured Notes were issued in exchange for the surrender of
$5,735 face amount of Convertible Notes, which were subsequently cancelled by
the Company. In connection with the issuance of the Series B Secured Notes, the
Company paid a placement fee of 2% of the face amount, or $76. The Series B
Secured Notes carry a third priority perfected lien on substantially all real
and personal, tangible and intangible assets of the Company.
Subsidiaries of the Company maintain asset-based financing arrangements in
certain European countries, principally with NMB-Heller, N.V. In general, these
financing arrangements allow for borrowings based upon eligible accounts
receivable and inventory at varying advance rates and varying interest rates. As
of July 1, 2000, total short-term borrowings outstanding under these financing
arrangements totaled $3,459. These obligations are secured by first priority
liens on the respective European assets being financed. In addition, Converse
Inc. provided guarantees with respect to the outstanding borrowings for certain
of the financing arrangements.
During the second quarter of 2000, the Company wrote-off deferred financing
costs of $701 related to the royalty securitization financing which is no longer
being pursued.
As announced on August 9, 2000, the Company has received a commitment
letter from Euro American Investment Corporation, a private investment concern,
to provide $25,000 in credit enhancement to afford the Company additional
liquidity under its credit agreement. The financing is subject to customary
closing conditions and requires the consent of the existing secured creditors of
the Company. Euro American and the Company have been in communication with the
secured creditors and certain holders of the Convertible Notes. Converse
expects these communications to continue. This financing transaction is expected
to close by August 31, 2000, subject to receipt of required consents and
regulatory review.
5. Restructuring and Other Unusual Charges
As more fully described in Note 4 to the Consolidated Financial Statements
for the year ended January 1, 2000 included within the Company's annual report
on Form 10-K, the Company recorded restructuring and other unusual charges of
$9.4 million in 1999 related primarily to initiatives aimed at reducing future
operating costs. Principal costs included in the charge were: (i) costs for
employee severance and related benefits for the termination of 49 corporate
employees; (ii) costs related to the closing of five unprofitable retail stores;
(iii) lease termination costs related to the R&D facility; (iv) termination
costs related to endorser contracts; and (v) costs of converting wholly-owned
subsidiaries with foreign operations into licensee/distributor arrangements. The
following table summarizes the related reserves remaining at July 1, 2000:
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<TABLE>
<CAPTION>
January 1, 2000 Change in Charges/ July 1, 2000
Balance Provisions Write-offs Balance
--------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Corporate Employee Severance & Related Costs....... $1,135 $(285) $ 850 $ ---
Retail Store Closings.............................. 728 --- 402 326
R&D Building Lease Termination Costs............... 136 (136) --- ---
Contract Termination Costs......................... 1,667 (242) 284 1,141
Conversion of Subsidiaries into Licensees.......... 4,007 276 1,319 2,964
--------- -------- ------- ------------
July 1, 2000 Balance............................... $7,673 $(387) $2,855 $4,431
========= ======== ======= ============
</TABLE>
During the first six months of 2000, the Company charged $2,855 of costs
against the reserves for restructuring and other unusual charges. These charges
include $850 for employee severance related to the termination of corporate
employees, lease termination costs of $219 and writedown of fixed assets of $183
related to the closing of three unprofitable retail stores and costs of $1,319
related to the conversion of wholly-owned foreign subsidiaries in Canada,
Mexico, Italy, Benelux and France. Due to attrition, the Company incurred less
than anticipated severance costs and reversed restructuring costs of $285. The
Company also had lower than the anticipated restructuring charges related to the
R&D building lease termination costs and contract termination costs. The Company
recorded an additional restructuring charge of $276 related to the write-off of
cumulative translation adjustment for Benelux. The remaining costs, as well as
additional cumulative translation adjustment charges and employee severance
costs relating to the conversion of the wholly-owned foreign subsidiaries into
licensee/distributor arrangements, are expected to be incurred during 2000. At
July 1, 2000, $4,431 of the charges recorded remain in current liabilities on
the balance sheet.
On July 1, 2000, Converse entered into a long-term agreement with a third
party company to convert its wholly-owned subsidiary into a licensee for the
exclusive distribution and license rights for Converse footwear and apparel in
France, Guadeloupe, Martinique, Reunion and Monaco. This agreement becomes
effective January 1, 2001 and will have the impact of reducing the Company's
future global order backlog, net revenue and expenses, while increasing royalty
income. The losses from this transaction have been included in restructuring and
other unusual charges for the year ended January 1, 2000.
6. Comprehensive Income
For the three months ended July 3, 1999 and July 1, 2000, comprehensive
income (loss) items included in stockholders' equity consisted of cumulative
translation adjustments of $(564) and $(133), respectively. Total comprehensive
income (loss) for the second quarter of 1999 was $(6,144) compared to $(4,843)
for the second quarter of 2000.
For the six months ended July 3, 1999 and July 1, 2000, comprehensive
income (loss) items included in stockholders' equity consisted of cumulative
translation adjustments of $(1,109) and $(264), respectively. Total
comprehensive income (loss) for the first six months of 1999 was $(9,928)
compared to $(10,041) for the first six months of 2000.
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7. Employee Stock Plans
During the first six months of 2000, 55,000 shares of restricted stock were
cancelled due to employee terminations resulting in the reversal of paid in
capital and unearned compensation of $157. All restricted stock grants are
subject to restrictions as to continuous employment. The restricted stock vests
100% on the third anniversary of the grant date. As there is no exercise payment
associated with the restricted stock awards, the cost of the awards, determined
as the fair market value of the shares on the date of grant, is charged to
expense ratably over the three year vesting period.
In February 2000, 34,836 shares of common stock were issued under the
Company's Employee Stock Purchase Plan. Proceeds of $32 were recorded in
conjunction with this purchase.
8. Commitments and Contingencies
Converse is or may become a defendant in a number of pending or threatened
legal proceedings relating to its business and operations. Converse believes
that the ultimate outcome of any pending proceedings will not have a material
adverse effect on its financial position or results of operations.
9. Recently Issued Accounting Standards
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 is effective for all
fiscal years beginning after June 15, 1999 (January 2, 2000 for the Company).
FAS 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management of the Company
anticipates that, due to its limited use of derivative instruments, the adoption
of FAS 133 will not have a significant effect on the Company's results of
operations or its financial position.
On July 8, 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" ("FAS 137"). FAS 137 defers the effective date of FAS 133
from all fiscal years beginning after June 15, 1999 to all fiscal years
beginning after June 15, 2000 (December 31, 2000 for the Company).
10. Subsequent Events
On August 8, 2000, the Company received a commitment letter from Euro
American Investment Corporation ("Euro American"), a private investment concern,
to provide $25,000 in credit enhancement to afford the Company additional
liquidity under its Credit Facility. Under
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the terms of the commitment letter, Euro American would also purchase, at $0.001
per share, 20,000,000 shares of common stock of Converse and would have an
option, for six months following the closing of the $25,000 financing, to
provide an additional $50,000 in secured debt financing and receive warrants to
purchase up to 50,000,000 shares of stock at $1.50 per share. The commitment
letter also provides for designees of Euro American to become a majority of the
Board of Directors.
The $25,000 financing is subject, among other things, to the negotiation of
definitive legal documentation, approval by the Company's Board of Directors,
and other customary closing conditions (including Hart-Scott-Rodino clearance if
required) and requires the existing secured creditors of Converse to consent to
the transaction. The transaction is scheduled to close by August 31, 2000
subject to receipt of required consents and regulatory review.
11. Business Segment Information
As more fully described in Note 19 to the Consolidated Financial Statements
for the year ended January 1, 2000 included within the Company's annual report
on Form 10-K, the Company has adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information". Summarized financial information concerning the Company's
reportable business segments is shown in the following table:
<TABLE>
<CAPTION>
Europe, Americas
Middle East, (excluding
United States Africa Asia Pacific United States) Eliminations Consolidated
-------------- ------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Six months ending July 1, 2000:
Net revenue to customer................... $ 73,878 $22,485 $10,969 $1,587 $ ---- $108,919
Intersegment net revenue.................. 8,919 ---- ---- ---- (8,919) ----
Segment pretax profit (loss).............. (6,824) (2,340) 594 159 ---- (8,411)
Segment total assets at July 1, 2000...... $127,053 $17,464 $ 2,606 $1,066 ---- $148,189
Six months ending July 3, 1999:
Net revenue to customer................... $ 69,042 $35,683 $19,698 $4,895 $ ---- $129,318
Intersegment net revenue.................. 14,888 ---- ---- ---- (14,888) ----
Segment pretax profit (loss).............. (9,584) (229) 3,807 (947) ---- (6,953)
Segment total assets at January 1, 2000... $127,670 $19,466 $ 3,839 $1,388 ---- $152,363
Three months ending July 1, 2000:
Net revenue to customer................... $ 39,972 $ 9,557 $ 6,177 $ 818 $ ---- $ 56,524
Intersegment net revenue.................. 2,692 ---- ---- ---- (2,692) ----
Segment pretax profit (loss).............. (2,711) (1,614) 252 1 ---- (4,072)
Three months ending July 3, 1999:
Net revenue to customer................... $ 33,402 $13,275 $ 9,901 $1,742 $ ---- $ 58,320
Intersegment net revenue.................. 6,189 ---- ---- ---- (6,189) ----
Segment pretax profit (loss).............. (5,346) (1,561) 2,471 (206) ---- (4,642)
</TABLE>
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain items relating to the Company's
operating results as a percentage of net revenue for the three months ended July
3, 1999 ("Second Quarter 1999") and for the three months ended July 1, 2000
("Second Quarter 2000").
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
July 3, 1999 % July 1, 2000 %
------------ --- ------------ ---
<S> <C> <C> <C> <C>
Net revenue.................................... $ 58,320 100.0 $ 56,524 100.0
Gross profit................................... 15,052 25.8 12,238 21.7
Selling, general and administrative
expenses..................................... 18,714 32.1 14,451 25.6
Royalty income................................. 4,940 8.5 4,051 7.2
Restructuring and other unusual
charges...................................... 543 0.9 (387) (0.7)
Earnings from operations....................... 735 1.3 2,225 3.9
Interest expense, net.......................... 5,283 9.1 5,658 10.0
Other (income) expense, net.................... 94 0.2 639 1.1
Loss before income tax......................... (4,642) (8.0) (4,072) (7.2)
Income tax expense............................. 938 1.6 638 1.1
Net loss....................................... (5,580) (9.6) (4,710) (8.3)
Net basic and diluted loss
per share.................................... $ (0.32) -- $ (0.27) --
</TABLE>
Net Revenue
Net revenue for Second Quarter 2000 decreased to $56.5 million from $58.3
million for Second Quarter 1999, a 3.0% decline. The $1.8 million reduction in
net revenue was attributable to a decrease of 43.5% for Second Quarter 2000 in
the performance category, mainly offset by increases of 14.0%, 26.2% and 46.7%
in the athletic originals, children's and action sports categories as compared
to Second Quarter 1999.
Net revenue in the United States increased 19.8% to $40.0 million for
Second Quarter 2000 from $33.4 million for Second Quarter 1999. Net revenue
decreased 33.7% internationally to $16.5 million for Second Quarter 2000 from
$24.9 million for Second Quarter 1999. The international net revenue reduction
was impacted by $2.4 million from converting wholly-owned subsidiaries with
foreign operations into licensee arrangements.
The downward United States net revenue trend that has impacted the Company
over the past two years has turned positive in the Second Quarter 2000. The
Company believes this reversal is
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<PAGE>
primarily attributable to the improving athletic footwear and apparel market as
well as the efforts the Company has made to broaden its product offerings.
The decline in the E.M.E.A. and Latin America regions was partly
attributable to the conversion of the Company's wholly-owned subsidiaries
operating in Italy, Benelux and Mexico to third-party licensing entities,
revenues from which are now recorded as royalty income rather than net revenue.
The revenue decline in the Pacific region was primarily attributable to the
softening of demand for the traditionally strong athletic originals product
offerings in that region.
Gross Profit
Gross profit decreased to $12.2 million for Second Quarter 2000 from $15.0
million for Second Quarter 1999, an 18.7% reduction. The decline in net revenue
and the Company's efforts to keep inventory levels down through the sale of
excess inventory at reduced margins accounted for the majority of the gross
profit reduction over the period. As a percentage of net revenue, gross profit
decreased to 21.7% in Second Quarter 2000 compared to 25.8% for the prior year
period.
Selling, General and Administrative Expenses
The Company took aggressive actions in 1999 to reduce its on-going
operating expenses in order to address the current industry conditions. Selling,
general and administrative expenses decreased $4.2 million to $14.5 million for
Second Quarter 2000 from $18.7 million for Second Quarter 1999, a 22.5%
decrease. This reduction was mainly attributable to decreased spending in global
selling, marketing, advertising and promotion activities, as well as corporate
staff reductions and expense reductions associated with converting wholly-owned
subsidiaries with foreign operations into licensee arrangements. As a percentage
of net revenue, selling, general and administrative expenses decreased to 25.6%
for Second Quarter 2000 from 32.1% for the prior year period.
Royalty Income
Royalty income decreased 18.4% to $4.0 million for Second Quarter 2000 from
$4.9 million for Second Quarter 1999. International royalty income, which
represented 72.9% of the Company's total royalty income in Second Quarter 2000,
decreased 25.8%. This reduction was primarily attributable to the elimination
of Japanese non-footwear trademark licensee agreements, which were sold in
November 1999 and which generated $1.1 million of royalty income in Second
Quarter 1999. This reduction was partially offset by improvement primarily
attributable to an increase of 226.1% in the EMEA region. As a percentage of
net revenue, royalty income decreased to 7.2% for Second Quarter 2000 as
compared to 8.5% in the prior year period.
On November 29, 1999, the Company completed the sale of all its non-
footwear trademarks in Japan and the assignment of its Japanese non-footwear
trademark license agreements to Itochu Corporation for $25.0 million cash. The
licensees of these trademarks generated royalty income
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<PAGE>
of $1.1 million in Second Quarter 1999 as stated above. Royalty income adjusted
to eliminate the Japanese non-footwear trademarks was $4.0 million in Second
Quarter 2000 and $3.8 million in Second Quarter 1999.
Restructuring and Other Unusual Charges
In the Second Quarter 2000, the Company recorded a credit of $0.4 million
based upon lower than anticipated costs from the lease termination costs related
to the Company's R&D facility and termination costs related to endorser
contracts. In the Second Quarter 1999, the Company recorded a charge totaling
$0.5 million relating to the conversion of our Canada operation from a Company
owned subsidiary (direct operating unit) to a third party licensee/distributor
arrangement.
Earnings from Operations
The Company recorded earnings from operations in Second Quarter 2000 of
$2.2 million compared to $0.7 million in Second Quarter 1999. This change was
primarily due to the factors discussed above.
Interest Expense
Interest expense for Second Quarter 2000 increased to $5.7 million from
$5.3 million for Second Quarter 1999.
Other (Income) Expense
Other expenses for Second Quarter 2000 were $0.6 million compared to $0.1
million for Second Quarter 1999. The Company wrote off deferred financing fees
associated with a royalty securitization financing transaction which the Company
is no longer pursuing.
Income Tax Expense
Income tax expense for Second Quarter 2000 was $0.6 million compared to
$0.9 million for Second Quarter 1999. The Company continued to fully reserve the
income tax benefit of the quarterly losses by recording an additional valuation
allowance of $2.0 million in Second Quarter 2000, the same amount recorded in
Second Quarter 1999.
Net Loss
The Company recorded a net loss of $4.7 million for Second Quarter 2000
compared to a net loss of $5.6 million for Second Quarter 1999. The net loss
for Second Quarter 2000 and Second Quarter 1999 each included a charge of $2.0
million to increase the deferred tax valuation reserve. Excluding this non-
operating charge, the net loss was $2.7 million for Second Quarter 2000 and $3.6
million for Second Quarter 1999.
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<PAGE>
Net Loss Per Share
Net loss per share for Second Quarter 2000 was $0.27 compared to net loss
per share of $0.32 for Second Quarter 1999. The net loss per share for Second
Quarter 2000 and Second Quarter 1999 included a charge of $0.12 per share and
$0.11 per share, respectively, to increase the deferred tax valuation reserve.
Excluding this non-operating charge, the net loss per share for Second Quarter
2000 was $0.15 compared to net loss per share of $0.21 for Second Quarter 1999.
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<PAGE>
Comparison of six months ended July 3, 1999 to six months ended July 1, 2000
The following table sets forth certain items relating to the Company's
operating results as a percentage of net revenue for the six months ended July
3, 1999 ("First Half 1999") and for the six months ended July 1, 2000 ("First
Half 2000").
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------------------------
July 3, 1999 % July 1, 2000 %
------------ --- ------------ ---
<S> <C> <C> <C> <C>
Net revenue........................... $129,318 100.0 $108,919 100.0
Gross profit.......................... 33,793 26.1 23,793 21.8
Selling, general and administrative
expenses............................ 40,365 31.2 29,093 26.7
Royalty income........................ 9,782 7.6 8,218 7.5
Restructuring and other unusual
charges............................. 543 0.4 (387) (0.4)
Earnings from operations.............. 2,667 2.1 3,305 3.0
Interest expense, net................. 10,522 8.1 10,981 10.1
Other (income) expense ............... (902) (0.7) 735 0.7
Loss before income tax................ (6,953) (5.4) (8,411) (7.7)
Income tax expense.................... 1,866 1.4 1,366 1.3
Net loss.............................. $ (8,819) (6.8) $ (9,777) (9.0)
Net basic and diluted loss
per share........................... $ (0.51) -- $ (0.56) --
</TABLE>
Net Revenue
Net revenue for First Half 2000 decreased 15.8% to $108.9 million from
$129.3 million for First Half 1999. Compared to the prior year period, the $20.4
million reduction in net revenue was attributable to decreases of 34.7%, 6.1%,
7.5% and 2.0% in the categories of performance, athletic originals, children's,
and action sports, respectively.
Net revenue in the United States increased 7.1% to $73.9 million in First
Half 2000 from $69.0 million for First Half 1999. Net revenue decreased 42.0%
internationally to $35.0 million in First Half 2000 from $60.3 million in First
Half 1999. The conversion of wholly-owned subsidiaries with foreign operations
into licensing arrangements accounts for $9.6 million of the total reduction of
$25.3 million in international net revenue.
The downward United States net revenue trend that has impacted the Company
over the past two years turned positively in the First Half 2000. The decline
in the E.M.E.A. and Latin America regions was partly attributable to the
conversion of the Company's wholly-owned subsidiaries operating in Italy,
Benelux and Mexico to third-party licensing entities, revenues from which are
now recorded as royalty income rather than net revenue. The revenue decline in
the Pacific region was primarily attributable to the softening of demand for the
traditionally strong athletic originals product offerings in that region.
-15-
<PAGE>
Gross Profit
Gross profit decreased to $23.8 million for First Half of 2000 from $33.8
million for First Half 1999, a 29.6% reduction. The decline of $20.4 million
in net revenue and the Company's efforts to keep inventory levels down through
the sale of excess inventory at reduced margins accounted for the majority of
the gross profit reduction over the period. As a percentage of net revenue,
gross profit decreased to 21.8% for First Half 2000 compared to 26.1% for the
prior year period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $11.3 million to $29.1
million for First Half 2000 from $40.4 million for First Half 1999, a 28.0%
decrease. This reduction was mainly attributable to decreased spending in
global selling, marketing, advertising, and promotion activities, as well as
corporate staff reductions and expense reductions associated with converting
wholly-owned subsidiaries with foreign operations into licensee arrangements.
As a percentage of net revenue, selling, general and administrative expenses
decreased to 26.7% for First Half 2000 from 31.2% for the prior year period.
Royalty Income
Royalty income decreased 16.3% to $8.2 million in First Half 2000 from $9.8
million in First Half 1999. International royalty income, which represented
78.9% of the Company's total royalty income in First Half 2000, decreased 19.5%.
This reduction was primarily attributable to the elimination of Japanese non-
footwear trademark licensee agreements which were sold in November 1999, which
generated $2.2 million of royalty income in the First Half 1999. This reduction
was partially offset by improvement primarily attributable to increases of
101.9% in the EMEA region and 20.7% in Japanese footwear. As a percentage of
net revenue, royalty income decreased to 7.5% in the First Half 2000 compared to
7.6% in the prior year period.
On November 29, 1999, the Company completed the sale of all of its non-
footwear trademarks in Japan and the assignment of its Japanese non-footwear
trademark license agreements to Itochu Corporation for $25.0 million cash. The
licensees of these trademarks generated royalty income of $2.2 million in First
Half 1999, as stated above. Royalty income adjusted to eliminate the Japanese
non-footwear trademarks was $8.2 million in First Half 2000 and $7.6 million in
First Half 1999.
Restructuring and Other Unusual Charges
In the First Half 2000, the Company recorded a credit of $0.4 million based
upon lower than anticipated costs from the lease termination costs related to
the Company R&D facility and termination costs related to endorser contracts.
In the First Half 1999, the Company recorded a charge totaling $0.5 million
related to the conversion of our Canada operation from a Company owned
subsidiary (direct operating unit) to a third party licensee/distributor
arrangement.
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<PAGE>
Earnings from Operations
The Company recorded earnings from operations in the First Half 2000 of $3.3
million compared to $2.7 million in the First Half 1999. This change was
primarily due to the factors discussed above.
Interest Expense
Interest expense for First Half 2000 increased to $11.0 million from $10.5
million for First Half 1999.
Other (Income) Expense
Other expenses for First Half 2000 was $0.7 million primarily from writing off
deferred financing fees associated with a royalty securitization financing
arrangement which the Company is no longer pursuing. The First Half 1999 other
income of $0.9 million was primarily related to foreign exchange gains
associated with foreign currency exchange contracts and put options the Company
had entered into as part of its strategy to reduce exposure to foreign currency
fluctuations.
Income Tax Expense
Income tax expense for First Half 2000 was $1.4 million compared to $1.9
million for First Half 1999. The Company fully reserved the income tax benefit
of the first half losses by recording an additional valuation allowance of $4.2
million in First Half 2000 and $3.8 million in First Half 1999.
Net Loss
The Company recorded a net loss of $9.8 million for First Half 2000 compared
to net loss of $8.8 million for First Half 1999. The net loss for First Half
2000 and First Half 1999 included a charge of $4.2 million and $3.8 million,
respectively, to increase the deferred tax valuation reserve. Excluding this
non-operating charge, the net loss was $5.6 million for First Half 2000 and $5.0
million for First Half 1999.
Net Loss Per Share
Net loss per share for First Half 2000 was $0.56 compared to net loss per share
of $0.51 for First Half 1999. The net loss per share for First Half 2000 and
First Half 1999 included a charge of $0.24 per share and $0.22 per share,
respectively, to increase the deferred tax valuation reserve. Excluding this
non-operating charge, the net loss per share for First Half 2000 was $0.32
compared to net loss per share of $0.29 for First Half 1999.
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<PAGE>
Liquidity and Capital Resources
As of July 1, 2000, the Company's working capital (net of cash) position
decreased $83.6 million to a deficit of $128.3 million from a deficit of $44.7
million at January 1, 2000. The principal reason for the decrease was the
reclassification of the Convertible Notes in the principal amount of $74.3
million from long-term debt to current liabilities. The Company did not make
the interest payment due on June 1, 2000 with respect to these notes and such
non-payment constitutes an Event of Default under the related indenture. In
August 2000, the trustee for the holders of the Convertible Notes notified the
Company in writing that at least twenty-five percent (25%) of the holders had
directed the Trustee to declare the full amount of principal and interest on the
Convertible Notes to be immediately due and payable.
Total borrowings under the Company's Credit Facility increased $5.4 million to
$77.0 million on July 1, 2000 versus $71.6 million at January 1, 2000 and short
term debt increased $1.5 million to $3.5 million at July 1, 2000 versus $2.0
million at January 1, 2000.
For the First Half 2000 and First Half 1999, net cash required for operating
activities was $6.7 million and $10.8 million, respectively. Net cash required
for operating activities in the First Half 2000 was principally the result of
the net loss partially offset by a reduction in working capital requirements.
Cash required for operating activities in First Half 1999 was used primarily to
fund a net loss and seasonal working capital requirements. Net cash used by
investing activities was $0.1 million in the First Half 2000 versus $1.2 million
in the First Half 1999 for additions to the property, plant and equipment. Net
cash provided by financing activities was $7.0 million and $11.1 million in the
First Half 2000 and the First Half 1999, respectively. Cash provided by
financing activities was derived primarily from net proceeds of the Company's
asset-based borrowing facilities.
As discussed in Note 4 of the Notes to the Condensed Consolidated Financial
Statements, in May 1999, the Company's Credit Facility was amended to allow for
$6.0 million of additional borrowing base through July 1999. Subsequent
amendments to the Credit Facility extended this additional borrowing base from
July 31, 1999 through July 31, 2000. As of August 1, 2000, the $6.0 million of
additional borrowing base has expired and is no longer in effect.
At July 1, 2000, the Company was not in compliance with the minimum EBITDA (as
defined therein) covenant contained in the Credit Facility and in the Secured
Notes agreement and such failure to comply constitutes an Event of Default under
the Credit Facility and the Secured Notes. Also, the default in payment of
interest due with respect to the Convertible Notes constitutes an Event of
Default under the Credit Facility and the Secured Notes.
The Company will require a new source of liquidity in order to sustain its
operations, as well as forbearance from the holders of its outstanding
indebtedness which is in default. There can be no assurance that these
requirements will be achieved. As announced on August 9, 2000, the Company has
received a commitment letter from Euro American Investment Corporation, a
private investment concern, to provide $25,000 in credit enhancement to afford
the Company additional liquidity under its credit agreement. The financing is
subject to customary closing conditions and requires the consent of the existing
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<PAGE>
secured creditors of the Company. Euro American and the Company have been in
communication with the secured creditors and certain holders of the Convertible
Notes. Converse expects these communications to continue. This financing
transaction is expected to close by August 31, 2000, subject to receipt of
required consents and regulatory review. See Note 10 to the Company's Condensed
Consolidated Financial Statements set forth elsewhere herein for a description
of a new commitment letter to provide credit enhancement.
Backlog
At the end of Second Quarter 2000, the Company's global order backlog was
$67.6 million, compared to $75.9 million at the end of Second Quarter 1999, a
decrease of 10.9%. The 1999 backlog figure has been adjusted to eliminate the
Company's backlog in Canada, Italy and Benelux, where the Company's subsidiaries
have been converted to licensee/distributor arrangements. The backlog in the
athletic originals and children's categories increased 2.7% and 8.0%,
respectively, offset by a decline of 26.8% in the performance category. The
amount of backlog at a particular time is affected by a number of factors,
including the scheduling of the introduction of new products and the timing of
the manufacturing and shipping of the Company's products. The Company continues
to convert its international wholly-owned operating units to new licensee
arrangements which, based on the results of conversions already completed, will
reduce the Company's global backlog and lower future new revenue, while
increasing royalty income. Accordingly, a comparison of the actual backlog as
of two different dates is not necessarily meaningful.
Forward-looking statements
Any statements set forth above which are not historical facts, including the
statements concerning the outlook for revenue, earnings and anticipated cost
savings, and the product and industry developments for 2000 and beyond are
forward looking statements that involve certain risks and uncertainties that
could cause actual results to differ materially from those in the forward
looking statements. Potential risks and uncertainties include such factors as
the financial strength of the Company, the competitive pricing environment and
inventory levels within the footwear and apparel industries, consumer demand for
athletic footwear, market acceptance of the Company's products, the strength of
the U.S. dollar and the success of planned advertising, marketing and
promotional campaigns and other risks identified in documents filed by the
Company with the Securities and Exchange Commission.
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<PAGE>
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
At July 1, 2000, the carrying value of the Company's debt totaled $183.2
million. This debt includes amounts at both fixed and variable interest rates.
For fixed rate debt, interest rate changes affect the fair market value but do
not impact earnings or cash flows. Conversely, for variable rate debt, interest
rate changes generally do not affect the fair market value but do impact
earnings and cash flows, assuming other factors are held constant.
At July 1, 2000, the Company had fixed rate debt of $102.7 million and
variable rate debt of $80.5 million. Holding other variables constant (such as
foreign exchange rates and debt levels), a one percentage point decrease in
interest rates would increase the unrealized fair market value of fixed rate
debt by approximately $2.5 million. Based on the amounts of variable rate debt
outstanding at July 1, 2000, the earnings and cash flow impact for the next year
resulting from a one percentage point increase in interest rates would be
approximately $0.8 million, holding other variables constant.
Foreign Currency Risk
Converse sells its products in a number of countries throughout the world and,
as a result, is exposed to movements on foreign currency exchange rates.
Although Converse has some of its products manufactured outside of the United
States on a per order basis, these purchases are made in U.S. dollars. The
major foreign currency exposures involve the markets in Western Europe, Japan
and Australia. In order to protect against the volatility associated with
earnings currency translations of foreign subsidiaries and royalty income from
sources outside the United States, the Company may, from time to time, utilize
forward foreign exchange contracts and/or foreign currency options with
durations generally from three to twelve months. As of July 1, 2000, the Company
had no outstanding foreign exchange forward contracts.
Commodity Price Risk
Raw materials used by the Company are subject to price volatility caused by
weather, supply conditions and other unpredictable factors. The Company does
not have a program of hedging activity to address these risks.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material changes from the information previously
reported under Item 3 of the Company's annual report on Form 10-K for
the fiscal year ended January 1, 2000.
Item 2. Changes in Securities.
Not Applicable
Item 3. Defaults Upon Senior Securities.
As described in Note 4 of the Notes to Consolidated Financial
Statements under Item 1 of this report, there is currently a covenant
default under the Company's Senior Secured Credit Facility and Secured
Notes, as well as a payment default under its subordinated, unsecured
Convertible Notes. The Company did not make a scheduled interest
payment of $2,600 on June 1, 2000, which became an Event of Default
after the passage of a thirty (30) day grace period. On August 4,
2000, the trustee under the indenture for the Convertible Notes
notified Converse in writing that holders of not less than twenty-five
percent (25%) of the Convertible Notes had directed it to declare the
full amount of principal and interest under such notes to be due and
payable. Due to such notice, the entire $74,265 face amount of
Convertible Notes is currently due and payable, together with
interest, which accrues at 7% per annum.
Under the Credit Facility, as a result of the default, the Banks may
declare the entire amount outstanding and payable at any time,
although they have not done so.
Under the terms of the Third Supplement, as of July 31, 2000, the
holders of the Secured Notes may proceed to enforce their rights
including, but not limited to, declaring all $28,643 principal to be
due and payable.
Item 4. Submission of Matters to a Vote of Security-Holders.
On June 29, 2000, the Company conducted its annual meeting of
stockholders pursuant to due notice. A quorum being present either in
person or by proxy, the stockholders voted on the following matters:
1. To elect ten directors to hold office until the next annual
meeting and until their successors are elected and qualified.
2. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent auditors for the next fiscal year.
3. To amend the Converse Inc. 1994 Stock Option Plan to permit
grants to non-employee directors.
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<PAGE>
No other matters were voted upon. The votes cast were as follows:
1. Election of directors. The following directors were elected to
the Company's Board:
NUMBER OF VOTES CAST
FOR AGAINST
--- -------
Donald J. Barr 16,937,315 269,225
Julius W. Erving 16,925,057 281,483
Robert H. Falk 16,936,499 270,041
Gilbert Ford 16,925,411 281,129
Michael S. Gross 16,932,872 273,668
John J. Hannan 16,918,876 287,664
Joshua J. Harris 16,922,481 284,059
John H. Kissick 16,920,517 286,023
Glenn N. Rupp 16,933,395 273,145
Michael D. Weiner 16,921,959 284,581
2. Ratification of the selection of PricewaterhouseCoopers LLP as
the Company's independent auditors.
For 17,099,365
Against 91,513
Abstain 15,662
3. Amendment of Converse Inc. 1994 Stock Option Plan.
For 16,609,502
Against 546,013
Abstain 51,025
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are contained in this report:
10 Amendment Number Twelve to Credit Agreement.
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<PAGE>
10.1 Third Supplement to Note Purchase Agreements.
27 Financial Data Statement
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended
July 1, 2000.
SIGNATURE
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.
Dated: August 15, 2000 Converse Inc.
By: /s/ Donald J. Camacho
--------------------------
Donald J. Camacho
Senior Vice President and
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10 Amendment Number Twelve to Credit Agreement.
10.1 Third Supplement to Note Purchase Agreements.
27 Financial Data Statement
