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 October 2, 1999
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, 1999:
- ---------------------------------------------------------------------
6,379,449 shares
- ----------------
<PAGE>
LaCrosse Footwear, Inc.
Form 10-Q Index
For Quarter Ended October 2, 1999
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
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14
PART II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
2
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PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
--------------------
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 2, December 31,
1999 1998
(unaudited)
--------------- ---------------
CURRENT ASSETS
Cash and cash equivalents $72,087 $363,966
Accounts receivable, less allowances of
$1,112,029 and $957,649, respectively 40,446,443 23,150,999
Inventories (2) 45,369,676 39,697,660
Prepaid expenses 2,900,528 2,296,340
Deferred tax assets 1,752,000 1,992,900
--------------- ---------------
Total current assets 90,540,734 67,501,865
PROPERTY AND EQUIPMENT, net of
depreciation and amortization 13,428,102 14,001,642
INTANGIBLES 14,925,209 15,528,357
OTHER ASSETS 1,751,568 1,582,648
--------------- ---------------
Total assets $120,645,613 $98,614,512
=============== ===============
The accompanying notes are an integral part of the financial statements.
3
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LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (cont'd)
October 2, December 31,
1999 1998
(unaudited)
------------- -------------
CURRENT LIABILITIES
Current maturities of long-term obligations $1,310,000 $2,668,565
Borrowings under credit agreement 35,989,000 9,500,000
Accounts payable 3,387,783 3,469,159
Accrued expenses 5,318,629 5,536,163
Dividends payable 0 863,776
Income taxes payable 65,937 662,285
------------- -------------
Total current liabilities 46,071,349 22,699,948
ACCRUED POSTRETIREMENT BENEFIT COST 1,626,551 1,462,401
LONG-TERM OBLIGATIONS 11,136,020 9,827,182
DEFERRED COMPENSATION 1,584,806 1,589,414
------------- -------------
Total liabilities 60,418,726 35,578,945
------------- -------------
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share 67,176 67,176
Additional paid-in capital 26,434,480 27,582,547
Retained earnings 36,384,239 36,041,194
Treasury stock (2,659,008) (655,350)
------------- -------------
Total shareholders' equity 60,226,887 63,035,567
------------- -------------
Total liabilities and shareholders' equity $120,645,613 $98,614,512
============= ============
The accompanying notes are an integral part of the financial statements.
4
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<TABLE>
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
October 2, September 26, October 2, September 26,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $37,024,101 $37,506,369 $91,758,491 $96,903,011
Cost of goods sold 27,233,828 27,346,329 67,409,335 71,286,728
------------- ------------- ------------- -------------
Gross profit 9,790,273 10,160,040 24,349,156 25,616,283
Selling and administrative expenses 7,830,976 7,323,993 22,428,400 21,664,114
------------- ------------- ------------- -------------
Operating income 1,959,297 2,836,047 1,920,756 3,952,169
Non-operating income (expense)
Interest expense (677,736) (686,896) (1,503,888) (1,629,987)
Miscellaneous 56,111 24,039 147,350 181,141
------------- ------------- ------------- -------------
(621,625) (662,857) (1,356,538) (1,448,846)
Income before income taxes 1,337,672 2,173,190 564,218 2,503,323
Provision for income taxes 524,389 851,918 221,173 981,325
------------- ------------- ------------- -------------
Net income $813,283 $1,321,272 $343,045 $1,521,998
============= ============= ============= =============
Basic earnings per share $0.13 $0.20 $0.05 $0.23
============= ============= ============= =============
Diluted earnings per share $0.13 $0.20 $0.05 $0.23
============= ============= ============= =============
Weighted average shares outstanding
Basic earnings per share 6,397,608 6,665,581 6,493,185 6,667,886
Diluted earnings per share 6,397,608 6,672,461 6,493,185 6,688,718
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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<TABLE>
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended
October 2, September 26,
1999 1998
-------------- ---------------
<S> <C> <C>
Net cash used in operating activities ($20,532,994) ($18,899,336)
-------------- ---------------
Cash flows from investing activities
Purchase of property and equipment (1,783,745) (3,063,612)
Investment in Danner - Japan (70,134) 0
Purchase of minority interest-Rainfair, Inc. 0 (2,364,567)
Other (73,786) 13,301
-------------- ---------------
Net cash used in investing activities (1,927,665) (5,414,878)
Cash flows from financing activities
Cash dividends paid (863,775) (866,805)
Proceeds from long-term obligations 12,500,000 0
Proceeds from short-term borrowings 26,489,000 27,520,000
Principal payments on long-term obligations (12,804,720) (2,514,287)
Purchase of treasury stock (2,003,658) (185,700)
Settlement of Danner acquisition contingency (1,148,067) 0
Other 0 8,271
-------------- ---------------
Net cash provided by financing activities 22,168,780 23,961,479
Decrease in cash and cash equivalents (291,879) (352,735)
Cash and cash equivalents:
Beginning 363,966 426,165
-------------- ---------------
Ending $72,087 $73,430
============== ===============
Supplemental information--cash payments for:
Interest $1,274,071 $1,395,298
============== ===============
Income taxes $644,456 $1,793,765
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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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, 1998.
2. INVENTORIES
Inventories are comprised of the following:
October 2, 1999 December 31, 1998
--------------- -----------------
Raw Materials $7,693,176 $8,539,889
Work-in Process 1,650,114 1,535,855
Finished Goods 38,827,229 32,391,759
LIFO Reserve (2,800,843) (2,769,843)
----------- -----------
Total $45,369,676 $39,697,660
=========== ===========
The finished goods inventory values at December 31, 1998 and October 2,
1999 are net of reserves to cover losses incurred in the disposition of
slow moving, markdown and obsolete inventory.
7
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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
October 2, September 26, October 2, September 26,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 73.6 72.9 73.5 73.6
---- ---- ---- ----
Gross Profit 26.4 27.1 26.5 26.4
Selling and Administrative Expenses 21.1 19.5 24.4 22.3
---- ---- ---- ----
Operating Income 5.3 7.6 2.1 4.1
</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 October 2, 1999 should not be considered to be
indicative of results to be reported for the balance of the fiscal year.
Three Months Ended October 2, 1999 Compared to Three Months Ended September 26,
1998
Net Sales
Net sales for the three months ended October 2, 1999 decreased $482,268, or 1%,
to $37,024,101 from $37,506,369 for the three months ended September 26, 1998.
The decrease in net sales was primarily due to reduced shipments of cold weather
pac boots due to the mild 1998-99 winter weather which left dealers with
carryover inventory (which resulted in reduced advance orders) and reduced
shipments of at-once business, primarily as a result of the drought on the East
Coast and the Southeast during the second quarter and the first half of the
third quarter. These declines were largely offset by a 10% increase in shipments
of DANNER(R) product during the quarter (primarily due to new products) and an
increase in shipments of LACROSSE(R) brand leather boots, primarily driven by
shipments of the Gamemaster(TM) series of hunting boots that had initial
shipments during the third quarter of this year.
8
<PAGE>
Gross Profit
Gross profit for the three months ended October 2, 1999 decreased 4% to
$9,790,273, or 26.4% of net sales, from $10,160,040, or 27.1% of net sales, in
the third quarter of 1998. The reduction in gross profit as a percent of sales
was primarily the result of lower production levels at LACROSSE(R) brand
domestic manufacturing facilities, which reduced overhead absorption, and start
up costs associated with leather footwear production in the Company's
Clintonville, Wisconsin plant. Employment levels have been reduced at several
plants in response to the lower production levels. Partially offsetting these
higher costs were improved margins on DANNER(R) brand shipments and shipments of
products through the industrial channel of distribution, both as a result of
product mix.
Selling and Administrative Expenses
Selling and administrative expenses in the third quarter of 1999 increased 7%,
to $7,830,976, or 21.1% of net sales, from $7,323,993, or 19.5% of net sales, in
the third quarter of 1998. The increase in selling and administrative expenses
was primarily a result of increased distribution costs for both the retail and
industrial channels of distribution coupled with increased product development
spending for both the LACROSSE(R) and DANNER(R) brands.
Interest Expense
Interest expense for the three months ended October 2, 1999 decreased 1% to
$677,736, or 1.8% of net sales, from $686,896, or 1.8% of net sales, for the
three months ended September 26, 1998. The impact of higher average borrowings
during the quarter, primarily as a result of stock repurchases during the past
year, was offset by lower average borrowing costs.
Nine Months Ended October 2, 1999 Compared to Nine Months Ended September 26,
1998
Net Sales
Net sales for the nine months ended October 2, 1999 decreased $5,144,520, or 5%,
to $91,758,491 from $96,903,011 for the first nine months of 1998. The reduction
in net sales was largely the result of a nonrecurring $1.4 million shipment of
consumer rainwear to a large mass merchant during the first half of 1998, a $1.5
million reduction in shipments to L.L. Bean, the result of their April 1998
decision to discontinue the use of handcrafted bottoms in their "Bean Boot"
line, and a reduction in shipments of LACROSSE(R) and RED BALL(R) branded cold
weather and sporting rubber products, the result of the mild 1998-99 winter
weather which left dealers with carryover inventory. These declines were
partially offset by a 4% increase in shipments of DANNER(R) brand product,
primarily due to new products, and an increase in shipments of LACROSSE(R) brand
leather sporting and work boots.
9
<PAGE>
Gross Profit
Gross profit for the nine months ended October 2, 1999 decreased 5%, to
$24,349,156, or 26.5% of net sales, from $25,616,283, or 26.4% of net sales, in
the first nine months of 1998. The increase in gross profit as a percentage of
net sales was driven by improved margins on shipments of DANNER(R) brand
products and on shipments through the industrial channel of distribution, both
as a result of product mix. These improvements were largely offset by unabsorbed
overhead due to lower production levels and start up costs associated with
leather footwear production in the Company's Clintonville, Wisconsin plant.
Selling and Administrative Expenses
Selling and administrative expenses in the first nine months of 1999 increased
4% to $22,428,400, or 24.4% of net sales, from $21,664,114, or 22.3% of net
sales in the first nine months of 1998. The increase in selling and
administrative expenses was primarily the result of increased distribution
expenses for the industrial and retail channels of distribution coupled with
increased product development spending for both the LACROSSE(R) and DANNER(R)
brands.
Interest Expense
Interest expense in the first nine months of 1999 decreased 8% to $1,503,888, or
1.6% of net sales, from $1,629,987, or 1.7% of net sales, for the first nine
months of 1998. The decrease in interest expense was the result of lower average
borrowings, primarily as a result of lower levels of accounts receivable and
inventories.
Income Tax Expense
The Company's effective income tax rate was 39.2% in the first nine months of
both 1999 and 1998.
10
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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 $20.5 million in the first nine months
of 1999 compared to $18.9 million in the first nine months of 1998. A $17.3
million seasonal increase in accounts receivable in the first nine months of
1999 compared to a $14.5 million seasonal increase in the first nine months of
1998 was the primary reason for the higher level of cash used in operating
activities in the first nine months of 1999 compared to 1998. This change in
receivables was the result of extended credit terms granted in 1997 which
increased accounts receivable as of December 31, 1997.
Net cash used in investing activities was $1.9 million in the first nine months
of 1999 compared to $5.4 million in the first nine months of 1998. During the
first nine months of 1998, $2.4 million of cash was used to purchase all
Rainfair, Inc. common stock held by the former principal owner, which made
Rainfair, Inc. a 100% owned subsidiary of the Company. Also contributing to the
reduction in cash used in investing activities was reduced expenditures for
property and equipment ($1.8 million in 1999 as compared to $3.1 million in
1998).
Net cash provided by financing activities was $22.2 million in the first nine
months of 1999 compared to $24.0 million in the first nine months of 1998.
During the first nine months of 1999, $12.5 million of new long-term obligations
and $26.5 million of short-term borrowings were used to repay $12.8 million of
long-term obligations, purchase treasury stock ($2.0 million), pay an obligation
related to the shares issued in the 1994 acquisition of Danner ($1.1 million),
pay dividends ($.9 million), for capital expenditures ($1.8 million) and fund
the $20.5 million of cash used in operating activities. During the first half of
1998, $27.5 million of short-term borrowings under the revolving line of credit
were used to make principal payments on long-term obligations ($2.5 million),
pay cash dividends ($.9 million), for capital expenditures ($3.1 million),
purchase shares in Rainfair, Inc. ($2.4 million) and used to support the growth
in working capital, primarily inventories (balance of borrowings).
In March 1995, the Company announced plans to repurchase up to 130,000 shares of
common stock in the open market. In March 1999, the Board of Directors approved
an additional share repurchase of 375,000 shares, bringing the total share
repurchase authorization to 505,000 shares. During the third quarter of 1999,
the Company repurchased 21,000 shares bringing the total shares repurchased
under these authorizations to 204,800.
In May 1999, the Company renegotiated its unsecured credit agreement with
Firstar Bank Milwaukee, N.A. as the lead bank. Under the terms of the revised
agreement, the line of credit was increased to $75.0 million, including a $12.5
million term loan, from the previous maximum level of $60.1 million, including a
$10.1 million term loan which was repaid. The term loan which the Company
received in May 1999, is due May 28, 2004 and calls for quarterly payments of
$.4 million commencing in August 1999. At the Company's option, the interest
rate on the
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<PAGE>
revolving portion of the loan is either the bank's prime rate or LIBOR (for the
applicable loan period) plus either .75% of 1.0% depending upon the Company's
leverage ratio. The Company currently qualifies for LIBOR plus .75%. The rate
for the term loan is .375% higher than for the revolving loans. Under the
revised agreement, the Company also has an option to sell unrated commercial
paper through Firstar Bank Milwaukee, N.A. The credit agreement expires on May
28, 2002.
Year 2000
---------
The Year 2000 (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
may 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.
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 Y2K 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 established which to date has uncovered no material issues. 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 currently estimates that it will spend approximately $300,000 during
the years 1997 through 1999 to address the Y2K issue, with approximately
$125,000 of these funds to be expended during 1999. These costs include the use
of outside consultants, the purchase of new/or updated software where required,
the purchase of new equipment and the internal costs to change application
programs. The estimated costs of Y2K compliance do not give effect to any future
corporate acquisitions made by the Company or its subsidiaries.
The Company believes it is essentially Y2K ready at its headquarters in La
Crosse, Wisconsin and its Danner Shoe Manufacturing subsidiary. Work is
continuing at these two locations for year-end procedures.
The Company's Rainfair, Inc. subsidiary was using an outside consultant to
address Y2K issues in its application programs. Due to scheduling conflicts, the
outside consultant is unable to perform the necessary changes in the code. Thus,
all work will be performed internally. The Company believes it will be able to
successfully complete all program modifications by the middle of December 1999.
Major operating system modifications will be performed first, so even if 100% of
the modifications are not completed by December 31, 1999, no significant impact
on operations is anticipated. Programming for other projects at the Rainfair,
Inc. subsidiary will be delayed as a result of using internal resources for Y2K
program modifications.
The Company does not believe that the implementation of its Y2K compliance plan
will have a material effect on the Company's business operations, financial
condition, liquidity or capital resources. Management of the Company believes it
has an effective program in place to address the Y2K issue in a timely manner.
As a component of the Company's Y2K compliance plan, the Company will be
developing contingency plans to mitigate the effects of potential problems
experienced by it or its key vendors or suppliers as problems are identified.
Nevertheless, since it is not possible to anticipate all future outcomes,
especially when third parties are involved, there could be circumstances in
which the Company's operations would be adversely affected.
The timetable for becoming Y2K compliant constitutes a "forward looking
statement" 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
12
<PAGE>
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>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has not experienced any material changes in its market risk
exposures since December 31, 1998.
PART II - Other Information
---------------------------
Item 1 Legal Proceedings
In November 1993, the Company, in order to preserve its legal rights,
instituted litigation against the United States Government in the
United States Court of Federal Claims ("USCFC") seeking a refund of
amounts previously paid to the Internal Revenue Service ("IRS")
relating to the Company's treatment of its LIFO inventory stemming
from the Company's 1982 leveraged buyout. The Company received a
favorable decision, dated May 15, 1998, from the USCFC, which resulted
in a judgment awarded to the Company. However, the Government appealed
the decision to the U.S. Federal Circuit Court of Appeals and, on
September 14, 1999, the Court ruled in favor of the Government. The
Company does not intend to appeal the decision to the Supreme Court.
As a result of this decision, the IRS may attempt to assess the
Company for additional tax, penalties, interest and other amounts for
prior periods as a result of recalculating the portion of the
Company's LIFO inventory reserve which was not included in the
lawsuit. The Company estimates that its exposure for taxes as a result
of this decision is approximately $500,000. The tax provision for the
LIFO reserve has been previously recorded. Therefore, there will be no
material impact on earnings as a result of this decision.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit Number Description
-------------- -----------
(10) (10) Employment Agreement, dated as of June 1,
1999, between LaCrosse Footwear, Inc. and
Patrick K. Gantert
(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 October 2, 1999.
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 12, 1999 By:/s/ Patrick K. Gantert
------------------------------------
Patrick K. Gantert
President and Chief Executive Officer
Date: November 12, 1999 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 October 2, 1999
Exhibit
(10) Employment Agreement, dated as of June 1, 1999 between LaCrosse
Footwear, Inc. and Patrick K. Gantert
(27) Financial Data Schedule (EDGAR version only)
16
Exhibit 10
05/31/99
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made as of the 1st day of June, 1999, between Patrick
K. Gantert, an individual resident of Wisconsin ("Gantert"), and LaCrosse
Footwear, Inc., a Wisconsin corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Company desires to continue to retain the services of
Gantert as President and Chief Executive Officer;
WHEREAS, Gantert desires to continue to be employed by the Company on
the terms and conditions hereinafter set forth in this Agreement;
WHEREAS, the Company desires to provide Gantert with supplemental
retirement benefits sufficient to provide him with a retirement income of
sixty-five percent (65%) of his base salary, assuming retirement at age 65
(after taking into account qualified plan and Social Security benefits);
WHEREAS, the Company could provide such supplemental retirement
benefits to Gantert directly, or indirectly through an insurance policy or other
funding mechanism;
WHEREAS, Gantert, who already has a substantial portion of his net
worth in the Company's common stock (including stock options) and is otherwise
financially dependent on the future success of the Company, prefers to have such
supplemental retirement benefits funded indirectly through an insurance policy
in order to diversify his credit risk; and
WHEREAS, the Company is willing to accede to Gantert's request on the
understanding that the parties have made certain assumptions about the future
that are incorporated in such insurance policy, and that Gantert will look
solely to such insurance policy to provide such supplemental retirement
benefits.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and the mutual benefits to be derived from this Agreement, the parties
hereto, intending to be legally bound, hereby agree as follows:
1. Positions and Duties. Subject to the terms and conditions of this
Agreement, from the effective date of this Agreement until January 31, 2005, the
Company shall employ Gantert as its President and Chief Executive Officer. In
such position, Gantert shall perform such duties of a managerial nature as shall
be assigned to him from time to time by the Board of Directors of the Company.
Gantert will devote his best efforts to his employment with the Company and
shall devote substantially all of his business time and attention to the
performance of his duties under this Agreement.
<PAGE>
2. Term of Employment. Except if terminated earlier as provided below,
the Company's employment of Gantert under this Agreement shall continue until
January 31, 2005; provided, however, that the term of employment under this
Agreement shall be automatically renewed for successive one-year periods unless,
at least one hundred eighty (180) days prior to January 31, 2005, or the end of
the then current term of this Agreement, either party shall give written notice
to the other party of such party's intent not to renew the term of employment
under this Agreement as of the end of the then current term. The Company's
employment of Gantert under this Agreement shall terminate prior to the end of
the term hereof only under the following circumstances:
(a) Death. Gantert's death;
(b) Disability. If, as a result of Gantert's illness, physical or
mental disability or other incapacity resulting in Gantert's inability to
perform his duties under this Agreement for any period of six (6)
consecutive months, and within thirty (30) days after written notice of
termination is given by the Company (which may occur before or after the
end of such 6-month period), he shall not have returned to the performance
of his duties hereunder on a full-time basis, the Company may terminate
Gantert's employment hereunder;
(c) Termination for Good Cause. The Company may, upon written notice,
terminate Gantert's employment for Good Cause. "Good Cause" for purposes of
this Paragraph (2)(c) shall mean Gantert's conviction of a felony,
conviction of a crime involving moral turpitude or such other serious
personal misconduct by Gantert of such a nature as would render his
continued employment detrimental to the best interests of the Company;
(d) Consolidation, Merger or Comparable Transaction. In the event that
the Company consolidates with or merges with and into any other entity or
enters into a comparable capital transaction pursuant to which the Company
is not the continuing or surviving corporation or if the Company is the
continuing or surviving corporation and the beneficial owners of the
Company have substantially changed, Gantert's employment may, by written
notice of termination, be terminated by the Company upon the later of (i)
the consummation of such consolidation, merger or comparable transaction or
(ii) January 31, 2005;
(e) Voluntary Termination by Gantert. Gantert's employment shall
terminate sixty (60) days after written notice of termination is delivered
by Gantert to the Company or such earlier time as the Company may specify
in writing upon receipt of Gantert's notice of termination;
(f) Voluntary Termination by the Company. The Company may terminate
Gantert's employment for any reason after January 31, 2005; or
(g) Retirement. Gantert may terminate employment by retirement upon
attaining age 55 in accordance with the then existing retirement policy of
the Company or by mutual agreement with the Company. The Company may
require Gantert to
-2-
<PAGE>
retire upon attaining age 65; such a decision shall not be treated as a
voluntary termination by the Company for purposes of Paragraph 2(f) above.
In no event shall the termination of Gantert's employment affect the rights and
obligations of the parties set forth in this Agreement, except as expressly set
forth herein. Under certain circumstances the Company's obligations to pay
certain insurance premiums and to make certain deferred compensation accruals
shall survive the term of Gantert's employment with the Company.
3. Compensation. During the term of this Agreement, Gantert shall be
entitled to the following compensation for services rendered to the Company:
(a) Gantert shall be entitled to receive a minimum annual base salary
of $238,000, effective June 1, 1999. Thereafter, any increase in minimum
annual base salary shall be determined at least annually by the Company's
Board of Directors with consideration given to the average increase in base
salaries made available to the Company's executive management group
generally; provided, however, that in no event shall Gantert's annual base
salary be reduced without his prior consent.
(b) For each Company fiscal year during the term of this Agreement,
Gantert shall be entitled to participate in any incentive bonus or
compensation plan made available by the Company to its executives
generally. With respect to any such incentive bonus or compensation plan,
in the event Gantert is not employed by the Company for a full Company
fiscal year, he shall be entitled to receive a pro rata incentive bonus or
compensation payment equal to (i) the number of full calendar months during
which he was employed by the Company during such fiscal year, divided by
twelve (12), multiplied by (ii) the incentive bonus or compensation that he
would have been entitled to receive had he been employed by the Company for
the full fiscal year; provided, however, that Gantert shall not be entitled
to any incentive bonus or compensation payment if his termination of
employment with the Company was for Good Cause as provided in Paragraph
2(c) hereof.
(c) Gantert's base salary shall be paid ratably during each 12-month
period under this Agreement on a monthly basis. The bonus provided in
Paragraph 3(b) shall be paid in a single payment no later than thirty (30)
days after the independent certified public accountants regularly employed
by the Company have made available to the Company the financial statements
for the appropriate fiscal year. All payments under this Agreement shall be
subject to withholding or deduction by reason of the Federal Insurance
Contribution Act, Federal income tax, state income tax and similar laws and
regulations.
4. Fringe Benefits. During the term of this Agreement:
(a) Gantert shall be entitled to four (4) weeks paid vacation for each
year during the term of this Agreement. Gantert shall also be entitled to
participate at the Company's expense, in any retirement plan, pension plan,
employee stock purchase plan, employee stock option plan, life insurance
plan, health insurance plan or fringe or
-3-
<PAGE>
other benefit which the Company from time to time makes available generally
to its executive employees; provided, however, that (i) the supplemental
retirement benefits provided under subparagraph (d) shall be taken into
account by the Company in determining Gantert's eligibility or extent of
participation in any future retirement plan, pension plan or comparable
benefit plan and (ii) any vacation not taken as of the end of any year
during the term of this Agreement shall be forfeited. Gantert shall be
compensated by the Company for all reasonable business expenses incurred by
him on behalf of the Company upon presentation of appropriate
documentation.
(b) As long as life insurance on Gantert's life is available at
regular rates, the Company shall purchase and maintain a term life
insurance policy on Gantert's life in the face amount of $500,000 which
shall be payable to a beneficiary designated by Gantert. Gantert agrees to
submit to any requested physical examination and to cooperate fully in
connection with the purchase and retention of such life insurance policy.
(c) The Company and Gantert shall establish a "split dollar" life
insurance policy (the "Split Dollar Policy"), which shall be owned by
Gantert and with respect to which Gantert shall enjoy all of the attributes
of ownership, subject only to the Company's right to be reimbursed, without
interest or any increase or decrease, for the dollar amount of premiums it
expends. Subject to the terms and conditions of this Agreement, the Company
shall make premium payments to such Split Dollar Policy in accordance with
the attached Exhibit A. The Company shall retain the right to be reimbursed
for the dollar amount of the aggregate premiums paid with respect to the
Split Dollar Policy upon the later of (i) the sixteenth (16th) anniversary
date of the effective date of the Split Dollar Policy or (ii) the
termination of Gantert's employment with the Company in accordance with the
then current retirement policy of the Company. The Company and Gantert
shall cooperate in good faith to ensure that their relative rights are
properly recorded on the books of the insurance company that issues the
Split Dollar Policy. The Company shall make the required premium payments
to the Split Dollar Policy until the earlier of (i) January 1, 2015, or
(ii) the termination of Gantert's employment with the Company as a result
of death (Paragraph 2(a)), disability (Paragraph 2(b)), termination for
Good Cause (Paragraph 2(c)), a consolidation, merger or comparable
transaction after January 31, 2005, involving the Company (Paragraph 2(d)),
Gantert's voluntary termination (Paragraph 2(e)) or Gantert's retirement in
accordance with the then existing retirement policy of the Company
(Paragraph 2(g)) (except for retirement on or after age 55 under
circumstances where the Company has not allowed Gantert to continue as the
Chief Executive Officer); provided, however, that in the event that the
Company does not allow Gantert to continue as the Chief -------- -------
Executive Officer of the Company at any time after January 31, 2005, the
Company shall continue to make such premium payments to the Split Dollar
Policy (but in no event shall any such premium payment be required after
January 1, 2015).
(d) The Company shall establish an unfunded deferred compensation
account (the "Deferred Compensation Account") for Gantert effective as of
the date
-4-
<PAGE>
hereof. Gantert and/or his personal representative(s) or estate shall not
have any right to receive any amount from such Deferred Compensation
Account until the later of (i) January 31, 2015, or (ii) the termination of
Gantert's employment with the Company in accordance with the then current
retirement policy of the Company. The Deferred Compensation Account shall
be established solely for measurement purposes, and Gantert and/or his
personal representative(s) or estate shall have no right to receive any
amount from such Deferred Compensation Account except in strict compliance
with the provisions of this Agreement. Subject to the terms and conditions
of this Agreement, the Company shall credit amounts to such Deferred
Compensation Account in accordance with the attached Exhibit B. The
Deferred Compensation Account shall not be increased or decreased to
reflect the time value of money or foregone interest or other income, but
shall represent solely the actual dollar amount of the amounts credited to
such account. The Company shall make the required credits to the Deferred
Compensation Account until the earlier of (i) January 1, 2015, or (ii) the
termination of Gantert's employment with the Company as a result of death
(Paragraph 2(a)), disability (Paragraph 2(b)), termination for Good Cause
(Paragraph 2(c)), a consolidation, merger or comparable transaction after
January 31, 2005, involving the Company (Paragraph 2(d)), Gantert's
voluntary termination (Paragraph 2(e)) or Gantert's retirement in
accordance with the then existing retirement policy of the Company
(Paragraph 2(g)) (except for retirement on or after age 55 under
circumstances where the Company has not allowed Gantert to continue as the
Chief Executive Officer); provided, however, that (i) in the event that the
Company does not allow Gantert to continue as the Chief Executive Officer
of the Company at any time after January 31, 2005, the Company shall
continue to make such credits to the Deferred Compensation Account (but in
no event shall any such credit be required after January 1, 2015) and (ii)
in the event Gantert dies prior to retiring from the Company, or retires in
contemplation of death or voluntarily terminates employment with the
Company (in either case prior to attaining age 65) in contemplation of
death, any amounts then due him pursuant to such Deferred Compensation
Account shall be forfeited and no further payments shall be due or owing to
Gantert or his estate pursuant to the provisions of such Deferred
Compensation Account. The Company shall pay Gantert and/or his personal
representative(s) or estate the value of the Deferred Compensation Account
in ten (10) substantially equal installments commencing upon the earliest
of his retirement in accordance with the current retirement plan of the
Company, death, permanent disability or January 31, 2015. Gantert
acknowledges that, in partial consideration for the establishment and
funding of the Deferred Compensation Account, he forfeits, waives and
releases any right he has to receive any amount under the Company's
Deferred Compensation Plan for Key Employees. Gantert and/or his personal
representative(s) or estate have the status of a general unsecured creditor
of the Company and this Agreement constitutes a mere promise by the Company
to make the payments set forth above in the future. Gantert and the Company
intend that these arrangements be unfunded for tax purposes and for
purposes of Title I of ERISA. Nothing in this Agreement shall give Gantert,
or any other person, any right, title, interest, or claim in or to any
specific assets, fund, reserve, account, or property of any kind whatsoever
owned by the Company or in which it may have any right, title, or interest
now or in the future.
-5-
<PAGE>
(e) The Company shall guarantee a bank loan (or any replacement bank
loan) arranged by Gantert for his personal benefit with a maximum principal
balance of One Hundred Fifty Thousand Dollars ($150,000); provided,
however, that such maximum principal balance shall be reduced by
Twenty-five Thousand Dollars ($25,000) each February 15th commencing
February 15, 2000, until such bank loan (or any replacement bank loan)
shall mature, and related guarantee shall expire, on February 15, 2005. The
parties understand and agree that this bank loan shall be used to repay
promptly in full the outstanding principal balance and interest on the
Promissory Note, dated October 9, 1998, executed and delivered by Gantert
to the Company.
(f) During each calendar year during the term of this Agreement, the
Company shall pay or reimburse Gantert for up to Two Thousand Five Hundred
Dollars ($2,500) for personal financial, tax, accounting and/or estate
planning services upon request and presentation of appropriate invoices or
other documentation.
5. Termination Payments. In addition to any benefits due under the
Company's Retirement Plan ("Retirement Plan"), Gantert shall be entitled to
receive the following payments upon termination of his employment hereunder:
(a) In the event of the termination of Gantert's employment pursuant
to Paragraph 2(b) hereof, the Company shall continue to pay the base salary
due Gantert under Paragraph 3 hereof for a period of twelve (12) months
from and after the date of such termination; provided, however, that any
disability insurance payments received by Gantert shall be offset against
the amounts otherwise required to be paid by the Company hereunder.
(b) In the event of termination of Gantert's employment pursuant to
Paragraph 2(c) hereof, the Company shall pay to Gantert only such amounts
due him as of the date of such termination.
(c) In the event of termination of Gantert's employment pursuant to
Paragraph 2(d) hereof under circumstances where Gantert does not continue
to be employed by the Company or such continuing or successor corporation,
the Company shall continue to pay the base salary and incentive
compensation due Gantert under Paragraph 3 hereof for a period of twelve
(12) months from and after the date of such termination.
(d) In the event of termination of Gantert's employment pursuant to
Paragraph 2(f) hereof, the Company shall continue to pay the base salary
due Gantert under Paragraph 3 hereof for a period of six (6) months from
and after the date of such termination.
(e) In the event that Gantert violates the provisions of Paragraph 6
hereof after the termination of his employment with the Company, the
payments and benefits provided under this Agreement shall be automatically
forfeited.
-6-
<PAGE>
6. Covenant Not to Compete and Non-Disclosure.
------------------------------------------
(a) During the term of this Agreement and for a period of two (2)
years following the termination of his employment with the Company, Gantert
covenants and agrees that neither he nor any of his affiliates (including
any corporation or entity in which he is an officer, director or partner,
or in which he owns beneficially five percent (5%) or more of any class of
equity securities) shall within the United States or Canada, whether
directly or indirectly, with or without compensation, enter into, engage in
or be employed by or act as a consultant to any corporation or other
commercial enterprise which competes with the Company, or solicit or do any
business with any existing customers of the Company.
(b) Gantert agrees to disclose promptly to the Company and does assign
and agree to assign to the Company, free from any obligation to him, all
his right, title and interest in and to any and all ideas, concepts,
processes, improvements and inventions made, conceived, written, acquired,
disclosed or developed by him, solely or in concert with others, during the
term of his employment by the Company, which relate to the business,
activities or facilities of the Company, or resulting from or suggested by
any work he may do for the Company or at its request. Gantert further
agrees to deliver to the Company any and all drawings, notes, photographs,
copies, outlines, specifications, memoranda and data relating to such
ideas, concepts, processes, improvements and inventions, to cooperate fully
during his employment and thereafter in the securing of copyright,
trademark or patent protection or other similar rights in the United States
and foreign countries, and to give evidence and testimony and to execute
and deliver to the Company all documents requested by it in connection
therewith.
(c) Except as expressly set forth below, Gantert agrees, whether
during his employment pursuant to this Agreement or thereafter, except as
authorized or directed by the Company in writing, not to disclose to
others, use for his benefit, copy or make notes of any confidential
knowledge or trade secrets or any other knowledge or information of or
relating to the business, activities or facilities of the Company or any of
its affiliates which may come to his knowledge during his employment
pursuant to this agreement or thereafter. Gantert shall not be bound to
this obligation of confidentiality and nondisclosure if:
(i) the knowledge or information shall become part of the public
domain by publication or otherwise through no fault of Gantert;
(ii) the knowledge or information is known to the recipient prior
to the receipt of the disclosure from Gantert; or
(iii) the knowledge or information is disclosed to the recipient
by a third party who is in lawful possession of the knowledge or
information and has the lawful right to make disclosure thereof.
-7-
<PAGE>
(d) Upon termination of employment pursuant to this Agreement for any
reason whatsoever, Gantert will deliver to the Company all records, notes,
data, memoranda, photographs, models and equipment of any nature which are
in his possession or control and which are the property of the Company or
which relate to his employment or to the business, activities or facilities
of the Company or any of its affiliates.
(e) The parties understand and agree that the remedies at law for
breach of the covenants in this Paragraph 6 would be inadequate and that
the Company shall be entitled to injunctive or such other equitable relief
as a court may deem appropriate for any breach of these covenants. If any
of these covenants shall at any time be adjudged invalid to any extent by
any court of competent jurisdiction, such covenant shall be deemed modified
to the extent necessary to render it enforceable.
7. Entire Agreement. This instrument embodies the entire agreement
between the parties hereto with respect to Gantert's employment with the
Company, and there have been and are no agreements, representations or
warranties between the parties other than those set forth or provided for
herein.
8. No Assignment. This Agreement shall not be assigned by Gantert
without the prior written consent of the Company and any attempted assignment
without such prior written consent shall be null and void and without legal
effect. Gantert's rights to benefit payments hereunder are not subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment by creditors of Gantert and/or his
personal representative(s), estate or beneficiaries.
9. Notices. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given if delivered by hand or if
mailed, by certified or registered mail, with postage prepaid:
(a) If to Gantert, to Patrick K. Gantert, c/o LaCrosse Footwear, Inc.,
1407 St. Andrew Street, P.0. Box 1328, La Crosse, Wisconsin 54601, or to
such other person or place as Gantert may specify in a prior written notice
to the Company;
(b) If to the Company, to LaCrosse Footwear, Inc., 1407 St. Andrew
Street, P.0. Box 1328, La Crosse, Wisconsin 54601, Attention: Chairman of
the Board, or to such other person or place as the Company may specify in
prior written notice to Gantert.
10. Amendment; Modification. This Agreement shall not be amended,
modified or supplemented other than in a writing signed by both parties hereto.
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
-8-
<PAGE>
12. Headings. The headings in the sections of this Agreement are
inserted for convenience only and shall not constitute a part of this Agreement.
13. Severability. The parties agree that if any provision of this
Agreement shall under any circumstances be deemed invalid or inoperative, the
Agreement shall be construed with the invalid or inoperative provision deleted,
and the rights and obligations of the parties shall be construed and enforced
accordingly.
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the internal law of the State of Wisconsin.
15. Remedies. Each party to this Agreement shall have available all
rights and remedies (including claims for damages and equitable relief) for any
breach or violation of this Agreement by the other party, and any provision in
this Agreement specifically allowing a particular remedy shall not be construed
or interpreted to limit the rights and remedies available to such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
/s/ Patrick K. Gantert (SEAL)
-------------------------------------
Patrick K. Gantert ("Gantert")
LACROSSE FOOTWEAR, INC.
("Company")
By:/s/ George W. Schneider
-------------------------------------
Attest: /s/ Luke E. Sims
-----------------------------
Attachment: Exhibit A
Exhibit B
-9-
<PAGE>
Exhibit A
---------
--------------------------------------------------------------------
Date Amount
---- ------
--------------------------------------------------------------------
August 19, 1999 $73,786
--------------------------------------------------------------------
August 19, 2000 $73,786
--------------------------------------------------------------------
August 19, 2001 $73,786
--------------------------------------------------------------------
August 19, 2002 $73,786
--------------------------------------------------------------------
August 19, 2003 $73,786
--------------------------------------------------------------------
August 19, 2004 $30,786
--------------------------------------------------------------------
August 19, 2005 $30,786
--------------------------------------------------------------------
August 19, 2006 $30,786
--------------------------------------------------------------------
August 19, 2007 $30,786
--------------------------------------------------------------------
August 19, 2008 $30,786
--------------------------------------------------------------------
August 19, 2009 $30,786
--------------------------------------------------------------------
August 19, 2010 $30,786
--------------------------------------------------------------------
August 19, 2011 $30,786
--------------------------------------------------------------------
August 19, 2012 $30,786
--------------------------------------------------------------------
August 19, 2013 $30,786
--------------------------------------------------------------------
August 19, 2014 $30,786
--------------------------------------------------------------------
<PAGE>
Exhibit B
---------
--------------------------------------------------------------------
Date Amount
---- ------
--------------------------------------------------------------------
August 19, 1999 $73,786
--------------------------------------------------------------------
August 19, 2000 $73,786
--------------------------------------------------------------------
August 19, 2001 $73,786
--------------------------------------------------------------------
August 19, 2002 $73,786
--------------------------------------------------------------------
August 19, 2003 $73,786
--------------------------------------------------------------------
August 19, 2004 $30,786
--------------------------------------------------------------------
August 19, 2005 $30,786
--------------------------------------------------------------------
August 19, 2006 $30,786
--------------------------------------------------------------------
August 19, 2007 $30,786
--------------------------------------------------------------------
August 19, 2008 $30,786
--------------------------------------------------------------------
August 19, 2009 $30,786
--------------------------------------------------------------------
August 19, 2010 $30,786
--------------------------------------------------------------------
August 19, 2011 $30,786
--------------------------------------------------------------------
August 19, 2012 $30,786
--------------------------------------------------------------------
August 19, 2013 $30,786
--------------------------------------------------------------------
August 19, 2014 $30,786
--------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF LACROSSE FOOTWEAR, INC. AS
OF AND FOR THE PERIOD ENDED OCTOBER 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-02-1999
<CASH> 72,087
<SECURITIES> 0
<RECEIVABLES> 41,558,472
<ALLOWANCES> 481,847
<INVENTORY> 45,369,676
<CURRENT-ASSETS> 90,540,734
<PP&E> 39,417,758
<DEPRECIATION> 25,989,656
<TOTAL-ASSETS> 120,645,613
<CURRENT-LIABILITIES> 46,071,349
<BONDS> 11,136,020
0
0
<COMMON> 67,176
<OTHER-SE> 60,159,711
<TOTAL-LIABILITY-AND-EQUITY> 120,645,613
<SALES> 91,758,491
<TOTAL-REVENUES> 91,758,491
<CGS> 67,409,335
<TOTAL-COSTS> 22,306,594
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 121,806
<INTEREST-EXPENSE> 1,503,888
<INCOME-PRETAX> 564,218
<INCOME-TAX> 221,173
<INCOME-CONTINUING> 343,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 343,045
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
