UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number 0-238001
LaCrosse Footwear, Inc.
------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Wisconsin 39-1446816
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1319 St. Andrew Street, La Crosse, Wisconsin 54603
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(608) 782-3020
-----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, outstanding as of November 1, 1998: 6,644,427
shares
<PAGE>
LaCrosse Footwear, Inc.
Form 10-Q Index
For Quarter Ended September 26, 1998
Page
PART I. Financial Information
Item 1. Condensed Consolidated Balance Sheets 3-4
Condensed Consolidated Statements of Income 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 26, December 31,
1998 1997
(unaudited)
--------------------- ----------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $73,430 $426,165
Accounts receivable, less allowances of
$1,588,569 and $1,677,116, respectively 41,847,737 27,390,134
Inventories (2) 45,980,851 39,073,368
Prepaid expenses 2,976,531 2,537,648
Deferred tax assets 1,625,100 2,131,500
--------------------- ----------------------
Total current assets 92,503,649 71,558,815
PROPERTY AND EQUIPMENT, net of
depreciation and amortization 13,701,755 13,275,445
INTANGIBLES (3) 15,689,445 15,430,341
OTHER ASSETS 1,449,020 1,654,919
--------------------- ----------------------
Total assets $123,343,869 $101,919,520
===================== ======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
<TABLE>
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (cont'd)
<CAPTION>
September 26, December 31,
1998 1997
(unaudited)
----------------------- -------------------
CURRENT LIABILITIES
<S> <C> <C>
Current maturities of long-term obligations $2,663,565 $3,349,000
Borrowings under credit agreement 31,520,000 4,000,000
Accounts payable 4,801,183 6,384,876
Accrued expenses 7,163,751 7,031,115
Dividends payable 0 866,805
Income taxes payable 398,230 1,513,674
----------------------- -------------------
Total current liabilities 46,546,729 23,145,470
ACCRUED POSTRETIREMENT BENEFIT COST 1,389,551 1,364,401
LONG-TERM OBLIGATIONS 10,662,156 12,499,035
DEFERRED COMPENSATION 1,544,379 1,556,275
----------------------- -------------------
Total liabilities 60,142,815 38,565,181
----------------------- -------------------
MINORITY INTEREST 0 1,505,879
----------------------- -------------------
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share 67,176 67,176
Additional paid-in capital 27,580,355 27,579,147
Retained earnings 36,166,998 34,645,000
Treasury stock (613,475) (442,863)
----------------------- -------------------
Total shareholders' equity 63,201,054 61,848,460
----------------------- -------------------
Total liabilities and shareholders' equity $123,343,869 $101,919,520
======================= ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales (3) $37,506,369 $41,884,450 $96,903,011 $103,003,126
Cost of goods sold 27,346,329 29,462,251 71,286,728 74,643,212
------------------ ----------------- ----------------- -----------------
Gross profit 10,160,040 12,422,199 25,616,283 28,359,914
Selling and administrative expenses 7,323,993 7,269,995 21,664,114 20,541,615
------------------ ----------------- ----------------- -----------------
Operating income 2,836,047 5,152,204 3,952,169 7,818,299
Non-operating income (expense)
Interest expense (686,896) (597,206) (1,629,987) (1,369,241)
Miscellaneous 24,039 268,436 181,141 493,890
------------------ ----------------- ----------------- -----------------
(662,857) (328,770) (1,448,846) (875,351)
Income before income taxes 2,173,190 4,823,434 2,503,323 6,942,948
Provision for income taxes 851,918 1,886,457 981,325 2,717,310
------------------ ----------------- ----------------- -----------------
Net income before
Minority interest $1,321,272 $2,936,977 $1,521,998 $4,225,638
------------------ ----------------- ----------------- -----------------
Minority interest in net income
of subsidiary 0 3,493 0 208,188
------------------ ----------------- ----------------- -----------------
Net income $1,321,272 $2,933,484 $1,521,998 $4,017,450
================== ================= ================= =================
Basic earnings per share $0.20 $0.44 $0.23 $0.60
================== ================= ================= =================
Diluted earnings per share $0.20 $0.44 $0.23 $0.60
================== ================= ================= =================
Weighted average shares outstanding
Basic earnings per share 6,665,581 6,667,727 6,667,886 6,667,693
Diluted earnings per share 6,672,461 6,729,724 6,688,718 6,712,736
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended
September 26, September 27,
1998 1997
----------------------- -------------------
<S> <C> <C>
Net cash used in operating activities ($18,899,336) ($22,445,450)
----------------------- -------------------
Cash flows from investing activities
Purchase of property and equipment (3,063,612) (2,397,358)
Purchase of minority interest-Rainfair, Inc. (2,364,567) 0
Purchase of Pro-Trak Corporation 0 (7,294,073)
Security deposit 0 (450,000)
Other 13,301 16,624
----------------------- -------------------
Net cash used in investing activities (5,414,878) (10,124,807)
Cash flows from financing activities
Cash dividends paid (866,805) (733,439)
Proceeds from short-term borrowings 27,520,000 28,650,000
Principal payments on long-term obligations (2,514,287) (1,746,453)
Purchase of treasury stock (185,700) 0
Other 8,271 (25,615)
----------------------- -------------------
Net cash provided by financing activities 23,961,479 26,144,493
Decrease in cash and cash equivalents (352,735) (6,425,764)
Cash and cash equivalents:
Beginning 426,165 6,716,183
----------------------- -------------------
Ending $73,430 $290,419
======================= ===================
Supplemental information--cash payments for:
Interest $1,395,298 $1,056,581
======================= ===================
Income taxes $1,793,765 $1,781,290
======================= ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
LaCrosse Footwear, Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. INTERIM FINANCIAL REPORTING
The Company reports its quarterly interim financial information based
on 13 week periods. In the opinion of management, the unaudited
condensed consolidated financial statements include all adjustments
(consisting only of normal recurring adjustments) considered necessary
for a fair presentation of financial position, results of operations
and cash flows in accordance with generally accepted accounting
principles.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with
the financial statements and the applicable notes thereto that are
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
2. INVENTORIES
Inventories are comprised of the following:
September 26, 1998 December 31, 1997
------------------ -----------------
Raw Materials $8,724,518 $8,217,160
Work-in Process 2,553,657 1,966,916
Finished Goods 37,845,117 32,007,233
LIFO Reserve (3,142,441) (3,117,941)
----------- -----------
Total $45,980,851 $39,073,368
=========== ===========
The finished goods inventory values at December 31, 1997 and September
26, 1998 are net of reserves to cover losses incurred in the
disposition of slow moving, markdown and obsolete inventory. During
March 1998, the Company decided to rationalize the RED BALL(R) and LAKE
OF THE WOODS(R) product lines and change the method of distributing the
products. This has resulted in higher levels of markdown inventories, a
portion of which were disposed of during the second and third quarters
of 1998. While it is not expected that losses in excess of the reserves
will be incurred in disposition of this markdown inventory, the sales
of these goods at lower margins may impact margins reported in the
fourth quarter of 1998 and the first half of 1999.
7
<PAGE>
3. ACQUISITIONS
In July 1997, the Company acquired all of the outstanding shares of
capital stock of Pro-Trak Corporation, which operated under the Lake of
the Woods tradename. The purchase price, including the assumption of
liabilities, was approximately $7.3 million. The acquisition has been
accounted for as a purchase. Accordingly, the purchase price has been
allocated to assets and liabilities based on their estimated fair value
as of the date of acquisition.
The Company's condensed consolidated statements of income for the three
months and nine months ended September 26, 1998 include the sales of
LAKE OF THE WOODS(R) products. The following unaudited pro forma
summary represents the consolidated results of operations as if the
acquisition of Pro-Trak Corporation had occurred at the beginning of
the periods presented and does not purport to be indicative of what
would have occurred had the acquisition been made as of those dates or
of results which may occur in the future:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net Sales $37,506 $41,884 $96,903 $108,505
Net Income 1,321 2,933 1,522 4,107
Basic Earnings Per Share $.20 $.44 $.23 $.62
Diluted Earnings Per Share $.20 $.44 $.23 $.61
</TABLE>
4. PER SHARE INFORMATION
A reconciliation of the shares used in the basic and diluted earnings
per share computation for the three months and nine months ended
September 26, 1998 and September 27, 1997 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic - weighted average 6,665,581 6,667,727 6,667,886 6,667,693
Shares outstanding
Dilutive securities:
Stock options 6,880 61,997 20,832 45,043
----- ------ ------ ------
Diluted - weighted average
Shares outstanding 6,672,461 6,729,724 6,688,718 6,712,736
========= ========= ========= =========
</TABLE>
8
<PAGE>
ITEM 2
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, selected financial
information derived from the Company's condensed consolidated financial
statements, expressed as a percentage of net sales. The discussion that follows
the table should be read in conjunction with the condensed consolidated
financial statements.
<TABLE>
<CAPTION>
Percentage of Net Sales
Three Months Ended Nine Months Ended
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 72.9 70.3 73.6 72.5
---- ---- ---- ----
Gross Profit 27.1 29.7 26.4 27.5
Selling and Administrative Expenses 19.5 17.4 22.3 19.9
---- ---- ---- ----
Operating Income 7.6 12.3 4.1 7.6
</TABLE>
The Company's business is seasonal with lower revenues historically being
generated during the first six months of the year. As a result, revenue for the
nine-month period ending September 26, 1998 should not be considered to be
indicative of results to be reported for the balance of the fiscal year.
Three Months Ended September 26, 1998 Compared to Three Months Ended September
27, 1997
Net Sales
Net sales for the three months ended September 26, 1998 decreased $4,378,081, or
10%, to $37,506,369 from $41,884,450 for the three months ended September 27,
1997. The decrease in net sales was primarily due to (i) reduced fill-in orders
during the third quarter as a result of hot, dry weather during August and
September, (ii) reduced shipments of LAKE OF THE WOODS(R) leather products due
to the transition of the LAKE OF THE WOODS(R) product line and distribution to
the LACROSSE(R) brand, (iii) a reduction in shipments of rubber bottoms to L.L.
Bean and (iv) reduced shipments of advance orders. The advance orders available
for shipment declined due to the mild 1997-98 winter weather which left dealers
with carryover inventory (resulting in reduced advance orders), particularly for
LACROSSE(R) and RED BALL(R) brand cold weather products. These declines were
partially offset by a 2% increase in DANNER(R) brand shipments.
9
<PAGE>
Gross Profit
Gross profit for the three months ended September 26, 1998 decreased 18% to
$10,160,040, or 27.1% of net sales, from $12,422,199, or 29.7% of net sales, in
the third quarter of 1997. The reduction in gross profit as a percent of sales
was primarily the result of increased closeout shipments at reduced margins
combined with generally lower production levels, which reduced the overhead
absorption. Employment levels have been reduced at several plants in response to
the lower production levels.
Selling and Administrative Expenses
Selling and administrative expenses in the third quarter of 1998 increased 1%,
to $7,323,993, or 19.5% of net sales, from $7,269,995, or 17.4% of net sales, in
the third quarter of 1997. The increase in operating expenses was primarily a
result of a planned increase in consumer media advertising, increased selling
and marketing expense in support of the growth of the DANNER(R) brand, and
additional product development personnel. A new product research and development
center was opened in La Crosse, Wisconsin during May 1998.
Interest Expense
Interest expense for the three months ended September 26, 1998 increased 15% to
$686,896, or 1.8% of net sales, from $597,206, or 1.4% of net sales, for the
three months ended September 27, 1997. Higher average borrowings, primarily as a
result of higher inventories, was the primary reason for the increase in
interest expense.
Net Income
Primarily as a result of the reduction in sales and gross margin as a percentage
of net sales, net income for the third quarter of 1998 decreased to $1,321,272
from $2,933,484 in the third quarter of 1997.
Nine Months Ended September 26, 1998 Compared to Nine Months Ended September 27,
1997
Net Sales
Net sales for the nine months ended September 26, 1998 decreased $6,100,115, or
6%, to $96,903,011 from $103,003,126 for the first nine months of 1997. A
weather-related decline in advance and fill-in orders for LACROSSE(R) and RED
BALL(R) cold weather products combined with a decline in L.L. Bean rubber bottom
shipments was partially offset by the continued growth in DANNER(R) brand sales
(up 12% in the first nine months) and $2.5 million of incremental net sales from
the LAKE OF THE WOODS(R) brand which was acquired in July 1997.
10
<PAGE>
Gross Profit
Gross profit for the nine months ended September 26, 1998 decreased 10% to
$25,616,283, or 26.4% of net sales, from $28,359,914, or 27.5% of net sales, in
the first nine months of 1997. The decrease in gross profit as a percentage of
net sales was primarily due to increased closeout shipments at reduced margins
combined with generally lower production levels, which reduced the overhead
absorption. In addition, gross profit as a percentage of net sales was
negatively impacted by approximately $200,000 (.2% of net sales) of costs
incurred to consolidate leather boot production.
Selling and Administrative Expenses
Selling and administrative expenses in the first nine months of 1998 increased
5% to $21,664,114, or 22.3% of net sales, from $20,541,615, or 19.9% of net
sales, the first nine months of 1997. The increase in operating expenses was
primarily the result of a planned increase in consumer media advertising,
increased selling and marketing expense in support of the growth of the
DANNER(R) brand, increased distribution cost in support of the LAKE OF THE
WOODS(R) brand and additional product development personnel.
Interest Expense
Interest expense in the first nine months of 1998 increased 19% to $1,629,987,
or 1.7% of net sales, from $1,369,241, or 1.3% of net sales, for the first nine
months of 1997. The increase in interest expense was primarily the result of
higher average borrowings to support increased levels of inventory.
Income Tax Expense
The Company's effective income tax rate was 39.2% in the first nine months of
1998 compared to 39.1% in the first nine months of 1997.
Net Income
As a result of the lower sales and lower gross profit as a percent of net sales,
coupled with higher operating expenses, net income for the first nine months of
1998 decreased to $1,521,998 from $4,225,638 the first nine months of 1997.
11
<PAGE>
Liquidity and Capital Resources
The Company has historically financed its operations with cash generated from
operations, long-term lending arrangements and short-term borrowings under an
unsecured revolving credit agreement. The Company requires working capital
primarily to support fluctuating accounts receivable and inventory levels caused
by the Company's seasonal business cycle. The Company invests excess cash
balances in short-term investment grade securities or money market investments.
Net cash used in operating activities was $18.9 million in the first nine months
of 1998, $3.5 million less than the $22.4 million used in the first nine months
of 1997. The primary reason for the reduction in cash used in operating
activities was a $4.6 million reduction in accounts receivable from September
1997, which was a result of the decrease in net sales.
Net cash used in investing activities was $5.4 million in the first nine months
of 1998 compared to $10.1 million in the first nine months of 1997. During the
first nine months of 1998, in addition to $3.1 million expended for property and
equipment, the Company purchased all Rainfair, Inc. common stock held by the
former principal owner for approximately $2.4 million, which made Rainfair, Inc.
a 100% owned subsidiary of the Company. In the first nine months of 1997, in
addition to $2.4 million expended for property and equipment, the Company
acquired 100% of the outstanding shares of capital stock of Pro-Trak Corporation
for approximately $7.3 million. Pro-Trak Corporation owned and operated under
the LAKE OF THE WOODS(R) tradename.
Net cash provided by financing activities was $24.0 million in the first nine
months of 1998 compared to $26.1 million in the first nine months of 1997.
Borrowings under the revolving line of credit were $1.1 million less in the
first nine months of 1998 as compared to the first nine months of 1997,
primarily because of reduced sales, which resulted in lower accounts receivable.
In addition, repayments of long-term debt were $2.5 million in the first nine
months of 1998 as compared to $1.7 million in the first nine months of 1997 as
payments commenced on a term loan taken out in 1996.
In March 1995, the Company announced plans to repurchase up to 130,000 shares of
common stock in the open market. During the third quarter of 1998, the Company
repurchased 20,000 shares bringing the total shares repurchased to 70,000
shares. An additional 5,000 shares were repurchased during October 1998.
Year 2000
The Year 2000 issue (Y2K issue) is the result of computer programs using a two
digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to a disruption in
operations.
12
<PAGE>
The Company began work on Y2K issues in early 1997. In early 1998, the Company
established a team of people (Y2K team) to evaluate whether, and to what extent,
the Year 2000 issue would impact the Company's business. While the Company sells
no products which are impacted by the Y2K issue, the team did review application
programs, operating systems, and equipment used in operations. A vendor contact
program was also established. The Y2K team is monitoring the Company's progress
in resolving all Y2K issues. To date, the Company is not aware of any Y2K issues
which cannot be resolved in a timely manner.
The Company will be using outside consultants to address the Y2K issue for the
application programs at one subsidiary, otherwise all work will be done
internally. The Company believes it will be Y2K compliant by the second quarter
of 1999. The Company believes that it will cost approximately $250,000 to
address the Y2K issue, including the use of outside consultants, the purchase of
new and/or updated software where required, the purchase of new equipment and
the internal costs to change application programs.
The estimated costs of, and timetable for, becoming Y2K compliant constitute
"forward looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Shareholders, potential investors and other readers are
cautioned that such estimates are based on numerous assumptions by management,
including assumptions regarding the accuracy of representations made by third
parties concerning their compliance with Y2K issues and other factors. The
estimated costs of Y2K compliance also does not give effect to any future
corporate acquisitions made by the Company or its subsidiaries.
13
<PAGE>
PART II - Other Information
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibit Number Description
(27) Financial Data Schedule (EDGAR version
only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
September 26, 1998
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LACROSSE FOOTWEAR, INC.
(Registrant)
Date: November 6, 1998 By: /s/ Patrick K. Gantert
--------------------------------------------
Patrick K. Gantert
President and Chief Executive Officer
Date: November 6, 1998 By: /s/ Robert J. Sullivan
--------------------------------------------
Robert J. Sullivan
Vice President-Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
LACROSSE FOOTWEAR, INC.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
for the Quarterly Period ended September 26, 1998
Exhibit
(27) Financial Data Schedule (EDGAR version only)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
financial statemtents of LaCrosse Footwear, Inc. as of and for the
period ended September 26, 1998 and is qulaified in its entirety by
reference to such financial statements
</LEGEND>
<CIK> 0000919443
<NAME> LACROSSE FOOTWEAR, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-26-1998
<CASH> 73430
<SECURITIES> 0
<RECEIVABLES> 43436306
<ALLOWANCES> 737875
<INVENTORY> 45980851
<CURRENT-ASSETS> 92503649
<PP&E> 36584261
<DEPRECIATION> 22882506
<TOTAL-ASSETS> 123343869
<CURRENT-LIABILITIES> 46546729
<BONDS> 10662156
0
0
<COMMON> 67176
<OTHER-SE> 63133878
<TOTAL-LIABILITY-AND-EQUITY> 123343869
<SALES> 96903011
<TOTAL-REVENUES> 96903011
<CGS> 71286728
<TOTAL-COSTS> 21459120
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 204994
<INTEREST-EXPENSE> 1629987
<INCOME-PRETAX> 2503323
<INCOME-TAX> 981325
<INCOME-CONTINUING> 1521998
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1521998
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
