UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1446816
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1319 St. Andrew Street
La Crosse, Wisconsin 54603
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (608) 782-3020
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, $.01 par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the registrant at February 29, 2000: $11,610,844.
Number of shares of the registrant's common stock outstanding at February 29,
2000: 6,374,449 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1999 (incorporated by reference into Parts I, II and IV)
Portions of the Proxy Statement for 2000 Annual Meeting of Shareholders (to be
filed with the Commission under Regulation 14A within 120 days after the end of
the registrant's fiscal year and, upon such filing, to be incorporated by
reference into Part III)
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PART I
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Item 1. Business
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General
LaCrosse Footwear, Inc. ("LaCrosse" or the "Company") is a leader in the
design, development, marketing and manufacturing of premium quality protective
footwear and clothing for the sporting and outdoor, farm and general utility,
occupational and children's markets. The Company markets its products primarily
under the LACROSSE(R), RED BALL(R), RAINFAIR(R) and DANNER(R) brands through an
employee sales force, selected distributors and independent representatives. It
also manufactures private label footwear, footwear components and protective
clothing. LaCrosse's products are characterized by innovative design,
performance features and durability, and are relatively unaffected by changing
fashion trends.
Historically, LaCrosse has produced footwear primarily of rubber or vinyl,
some of which includes leather or fabric uppers. In March 1994, the Company
acquired the business of Danner Shoe Manufacturing Co. ("Danner"), a producer of
premium quality leather footwear for the sporting and occupational markets,
which is sold primarily under the DANNER(R) brand. To broaden the base of
business in the protective clothing area, in May 1996, a 50%-owned subsidiary of
the Company purchased the assets of Rainfair, Inc. ("Rainfair") of Racine,
Wisconsin. Rainfair designs and markets rainwear and other protective clothing
generally for the occupational markets, which are sold primarily under the
RAINFAIR(R) brand. Operations of Rainfair have been included in the Company's
financial statements since the date of acquisition. In January 1998, the Company
acquired the remaining 50% of Rainfair that it did not own, thereby making it a
100%-owned subsidiary. Also in May 1996, the Company acquired certain operating
assets and trademarks of Red Ball, Inc. ("Red Ball"). Red Ball historically sold
products which competed in many of the same product categories as the
LACROSSE(R) brand. In July 1997, the Company acquired all of the outstanding
shares of Pro-Trak Corporation, the company that operated under the Lake of the
Woods tradename. Lake of the Woods was a designer, manufacturer and marketer of
branded leather footwear for both the outdoor and occupational markets. From
1997 to 1999, the Company transitioned the Lake of the Woods products offerings
to the LACROSSE(R) brand.
The Company was incorporated in Wisconsin in 1983 but traces its history to
1897 when La Crosse Rubber Mills Company was founded. Current management
purchased LaCrosse's predecessor from the heirs of the founding family and other
shareholders in 1982.
Strategy
The Company's business strategy is to continue to (i) build, position and
capitalize on the strength of established brands, (ii) extend its offerings of
footwear, rainwear and other complementary products under the established brands
and (iii) expand and enhance its strong distribution network of sales
representatives, customer service and retail and industrial customers.
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Brand Positioning
Within the retail channels of distribution, the Company markets footwear
and rainwear under the well-established DANNER(R), LACROSSE(R) and RED BALL(R)
brands. Each brand is positioned differently in the marketplace in order to
capitalize on differences in end user expectations for performance. The
DANNER(R) brand represents the highest level of performance, with a select line
of high quality, feature driven leather footwear products at premium prices. The
LACROSSE(R) brand has a more extensive product line including rubber, vinyl and
leather footwear and rainwear, distributed to a broad base of independent
retailers. The RED BALL(R) brand offers a narrower line of lower price and
performance footwear directed to a broad consumer market.
The Company sells products through the industrial distributor channel
principally under the LACROSSE(R) and RAINFAIR(R) brands. The brands are
positioned as complementary, with the LACROSSE(R) brand including a full
performance range of rubber and vinyl footwear, while the RAINFAIR(R) brand
includes an extensive line of rainwear and protective clothing.
Products
The Company's brand product offering includes these major categories:
Rubber/Vinyl Footwear
The Company's rubber/vinyl footwear line is the most extensive of the
product categories with product offerings covering the sporting and outdoor and
occupational markets. The Company markets rubber/vinyl footwear mainly under the
LACROSSE(R) and RED BALL(R) brands. The product line ranges from low cost
vinyl-molded products to high performance, hand-crafted rubber products directed
to specific occupational market niches.
In addition, the Company is a leader in rubber/vinyl bottom, leather/fabric
upper footwear for extreme cold and other high performance applications. A
rubber bottom boot with a leather or fabric upper combines the waterproofness
and flexibility of rubber footwear with the fit and support of a laced leather
boot.
Leather Footwear
The Company markets leather footwear under two brand names, DANNER(R) and
LACROSSE(R). The DANNER(R) products consist of premium quality sporting,
occupational and recreational boots available in numerous styles and usually
featuring the stitch-down manufacturing process which provides outstanding
built-in comfort for the owner. Danner was the first footwear manufacturer to
include a waterproof, breathable GORE-TEX(R) bootie (seam taped insert) in
leather boots, and it continues to include that bootie in over 90% of its
products. The LACROSSE(R) brand markets a line of indoor and outdoor work boots
and hikers appealing to consumers who desire durability and comfort.
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Rainwear and Protective Clothing
Rainwear and footwear are complementary products in many occupational and
outdoor environments. Rainfair offers a broad line of quality rainwear and
protective clothing appealing to those workers in utility, construction,
chemical processing, law enforcement and other groups traditionally purchasing
through industrial distributors. While most of the garments are developed for
general workwear, a number are constructed for specific applications such as
acid environments and flame environments. The RAINFAIR(R) brand is recognized in
the industry for its durability, quality and heritage. In recent years, the
brand name has been extended to include other protective garments such as aprons
and extreme cold weather clothing. Recently, a limited line of occupational and
sporting rainwear was introduced under the LACROSSE(R) brand.
LaCrosse also sells footwear accessories such as liners, wader suspenders
and socks. During 1999, the Company offered approximately 500 styles of footwear
and rainwear.
Product Design and Development
The Company's product design and development ideas originate within the
Company and through communication with its customers and suppliers based upon
perceived customer or consumer needs or new technological developments in
footwear, rainwear and materials. Consumers, sales personnel and suppliers
provide information to the Company's marketing division, which interacts with
product development during the development and testing of new product. New
product needs generally can be related to functional or technical
characteristics which are addressed by the Company's pattern, design and
chemistry lab staffs. The final aesthetics of the product are determined by
marketing personnel, at times in conjunction with outside design consultants.
Once a product design is approved for production, responsibility shifts to
manufacturing or outside sourcing facilities for pattern development and
commercialization.
Customers, Sales and Distribution
The Company markets its brands and associated products through two separate
channels of distribution: retail and industrial.
Within the retail market, the LACROSSE(R) and RED BALL(R) brands are
marketed through a sales force comprised of 17 Company-employed sales people and
six independent sales representative groups. The DANNER(R) brand is marketed
through independent sales representative groups, some of which are dedicated
independent agents and some of which are multi-line representative groups. A
national account sales team complements the sales activities for the brands.
The Company's industrial products are distributed through the LaCrosse
Rainfair Safety Products Division using independent representatives and a
national account team.
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The Company's products are sold directly to more than 5,400 accounts,
including sporting goods/outdoor retailers, general merchandise and independent
shoe stores, wholesalers, industrial distributors, catalog operations and the
United States government. The Company's customer base is also diversified as to
size and location of customer and markets served. As a result, the Company is
not dependent upon a few customers, and adverse economic conditions or mild or
dry weather conditions in a specific region are less likely to have a material
effect on the Company's results of operations.
The Company currently operates three internet websites for use by consumers
and customers. The primary purpose of the websites at this time is to provide
product and Company information. However, the Company will be evaluating its
internet strategy during the next twelve months.
The Company operates three factory outlet stores whose primary purpose is
disposal of slow moving, factory seconds and obsolete merchandise. Two of these
stores are located at the manufacturing facilities in La Crosse, Wisconsin and
Portland, Oregon.
The Company also derives royalty income from Danner Japan Ltd., a Japanese
joint venture in which the Company has a 19% ownership interest, on Danner Japan
Ltd.'s distribution of products in Japan under the DANNER(R) brand that are
manufactured by others overseas.
Advertising and Promotion
Because a majority of the Company's marketing expenditures are for
promotional materials, cooperative advertising and point-of-sale advertising
designed to assist dealers and distributors in the sale of the Company's
products, the Company is able to customize advertising and marketing for each of
its brands in each of its distribution channels. The Company's marketing
strategy allows it to emphasize those features of its products that have special
appeal to the applicable targeted consumer.
The Company advertises and promotes its products through a variety of
methods including national and regional print advertising, public relations,
point-of-sale displays, catalogs and packaging.
Manufacturing
The Company produces the majority of its rubber, leather and vinyl products
in its United States manufacturing facilities in La Crosse, Wisconsin, Portland,
Oregon and Claremont, New Hampshire. The Company's Hillsboro, Wisconsin facility
manufactures a line of waders with nylon uppers and rubber or vinyl boot
bottoms, using a heat-sealing process. Leather tops and liners for the
LACROSSE(R) brand rubber bottom/leather top pac boots and some leather boots are
produced at the Company's Clintonville, Wisconsin facility.
The Company manufactures a majority of its LACROSSE(R) and DANNER(R) brand
footwear in the United States because the Company believes it is able to
maintain better control
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over quality, inventory production scheduling and inventory levels. "Made in the
USA" is prominently displayed in the Company's advertising, promotion and
marketing materials for the LACROSSE(R) and DANNER(R) brands.
The Company is sourcing an increased percentage of its products from
offshore sources. A large percentage of the LACROSSE(R) brand leather boots and
rubber bottom/leather top pac boots are now sourced offshore, primarily from the
Pacific Rim. The RAINFAIR(R) and RED BALL(R) brands, which the Company started
distributing during 1996 and 1997, respectively, source a substantial portion of
their product from offshore. The Company intends to continue to outsource these
products. The Company believes that there are adequate sources of supply for
these imported products.
Suppliers
The Company's three principal raw materials used in the production of the
Company's products, based upon dollar value, are leather, crude rubber and
oil-based vinyl compounds for vinyl footwear and rainwear products. While the
Company saw price increases during 1995 for all three of these raw materials,
prices have since stabilized at lower levels and the Company has no reason to
believe that all three of these raw materials will not continue to be available
at competitive prices. The Company also uses technical components in the
Company's products including THINSULATE(R), GORE-TEX(R), CORDURA(R), DRI-LEX(R),
COMFORTEMP(R) and VIBRAM(R). No interruption in the supply of any of these
components is anticipated.
The Company purchases GORE-TEX(R) waterproof fabric directly from W.L. Gore
& Associates ("Gore"), for both LaCrosse and Danner footwear. Gore has
traditionally been Danner's single largest supplier, in terms of dollars spent
on raw materials. Approximately 90% of Danner's footwear, in terms of number of
pairs produced, incorporates GORE-TEX(R) waterproof fabric. Agreements with Gore
may be terminated by either party upon 90 days' written notice. The Company
considers its relationships with Gore to be good.
Quality Assurance
The Company's quality control programs are important to its reputation for
manufacturing superior footwear. The Company's La Crosse, Wisconsin and
Portland, Oregon facilities are ISO 9001 certified.
The Company's La Crosse, Wisconsin plant has a chemistry lab which is
responsible for incoming raw material and in-process quality testing. All crude
rubber is tested to assure that each batch meets the high values specified by
the Company for range of plasticity and rate of cure, both of which have a
direct relationship to the ultimate quality of the product. Fabrics are sample
tested to meet LaCrosse's requirements for strength and weight. Incoming leather
skins are inspected for color, brand and weight.
The Company's Danner operation tests 100% of all GORE-TEX(R) bootie liners
for leaks prior to sewing them into boots. At least 10% of all completed
waterproof boots are
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filled with water for testing. Leather is tested for lasting ability, tear
strength, finish and thickness.
Backlog
At December 31, 1999, the Company had unfilled orders from its customers in
the amount of approximately $14.8 million compared to $13.7 million at December
31, 1998. The increase in backlog is primarily the result of an increase in
spring advance orders for Danner hiking boots and LaCrosse leather boots. All
orders at December 31, 1999 are expected to be filled during 2000. Because a
major portion of the Company's orders are placed in January through July for
delivery in June through October, the Company's backlog is lowest during the
fourth quarter and peaks during the second quarter. Factors other than
seasonality, such as pending large national account orders or United States
government orders, could have a significant impact on the Company's backlog.
Therefore, backlog at any one point in time may not be indicative of future
results. Generally, orders may be cancelled by customers prior to shipment
without penalty.
Competition
The various categories of the protective footwear, rainwear and protective
clothing markets in which the Company operates are highly competitive. The
Company competes with numerous other manufacturers, many of whom have
substantially greater financial, distribution and marketing resources than the
Company. Because the Company has a broad product line, its competition varies by
product category. The Company has two to three major domestic competitors in
most of its rubber and vinyl product lines, at least four major competitors in
connection with the Company's sporting footwear, at least six major competitors
in connection with hiking boots and at least four major competitors in
connection with its occupational footwear, rainwear and protective clothing. The
Company also faces competition from offshore manufacturers, particularly in the
occupational, sporting and children's markets.
LaCrosse believes it maintains a competitive position compared to its
competitors through its attention to quality and the delivery of value, its
position as an innovator in common product segments, its above-average record of
delivering products on a timely basis, its strong customer relationships and, in
some cases, the breadth of its product line. Some of the Company's competitors
compete mainly on the basis of price.
Offshore manufacturers offer significantly lower labor costs to produce
rubber and vinyl products. However, shipping costs and times, requirements for
short runs on some items, and unpredictable weather patterns that would force
offshore manufacturers or their distributors to store large inventories in the
United States to be able to meet sudden increases in demand are some
disadvantages the offshore manufacturers face. Further, because the
manufacturing process for vinyl footwear products is much less labor intensive
than for rubber footwear, lower offshore labor rates are less of a competitive
advantage in the production of vinyl footwear. Moreover, the Company's vinyl
footwear products enable the Company to compete more effectively against
offshore manufacturers of rubber footwear.
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Leather boot manufacturers and suppliers, some of which have strong brand
name recognition in the markets they serve, are the major competitors of the
Company's Danner and LaCrosse leather product line. These competitors
manufacture domestically and/or import products from offshore. Danner products
effectively compete with domestically produced products, but are generally at a
price disadvantage against lower cost imported products, because offshore
manufacturers generally pay significantly lower labor costs. Danner focuses on
the premium quality, premium price segment of the market in which product
function, design, comfort and quality, continued technological improvements,
brand awareness, timeliness of product delivery and product pricing are all
important. The Company believes, by attention to these factors, the Danner
protective footwear line has maintained a strong competitive position in its
current market niches. In leather boots, the LACROSSE(R) brand, because of its
market position, sources product both domestically and from offshore. Therefore,
it competes with other distributors with products sourced from offshore
locations.
Employees
As of December 31, 1999, the Company had approximately 1,100 employees, all
located in the United States. Approximately 380 of the Company's employees at
the La Crosse, Wisconsin facility are represented by the United Steel Workers of
America under a three-year collective bargaining agreement which expires in
September 2001, approximately 150 of the Company's employees at the Portland,
Oregon facility are represented by the United Food & Commercial Workers Union
under a collective bargaining agreement which expires in January 2002 and
approximately 70 of the Company's employees at the Racine, Wisconsin facility
are represented by the International Ladies Garment Workers Union under a
collective bargaining agreement which expires in July 2000. The Company has
approximately 230 employees at manufacturing facilities located outside of La
Crosse, Wisconsin, Portland, Oregon and Racine, Wisconsin. None of these
employees are represented by a union. The Company considers its employee
relations to be good.
Trademarks and Trade Names; Patents
The Company owns United States federal registrations for several of its
marks, including LACROSSE(R), DANNER(R), RED BALL(R), LAKE OF THE WOODS(R),
RAINFAIR(R), LACROSSE and stylized Indianhead design that serve as the Company's
logo, RAINFAIR and stylized horse design that serve as Rainfair's logo,
ALLTEMP(R), DURALITE(R), FIRETECH(R), FLY-LITE(R), ICE KING(R), ICECUBE(R),
ICEMAN(R), TERRAIN KING(R), AIRTHOTIC(R), CROSS-HIKER(R), THERMONATOR(R),
GAMEMASTER(R), GENESYS(R) and RED BALL JETS(R). The Company also has
registrations for the "L" shape design associated with the lacing system on the
Alltemp Boot Systems, and the stylized Indianhead design associated with the
Company's logo. In addition, the Company owns registrations in Canada for its
marks ALLTEMP(R), ICEMAN(R), AIRBOB(R) and stylized Indianhead design and in
Mexico for its mark LACROSSE and stylized Indianhead design. The Company
generally attempts to register a trademark relating to a product's name only
where the Company intends to heavily promote the product or where the Company
expects to sell the product in large volumes. The Company defends its trademarks
and trade names against infringement to the fullest extent
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practicable under the law. Other than registrations relating to the LACROSSE(R),
DANNER(R), RED BALL(R) and RAINFAIR(R) names, the Company does not believe any
trademark is material to its business.
The Company is not aware of any material conflicts concerning its marks or
its use of marks owned by other companies.
The Company owns several patents that improve its competitive position in
the marketplace, including patents for a cold cement process for affixing
varying outsole compositions to a rubber upper; a method of manufacture for
attaching a nylon upper to a rubber bottom; a rubber footwear product in which a
heel counter is trapped or embedded within the rubber boot to improve the
support provided to the wearer's foot; the DANNER BOB(R) outsole; a neoprene
wader upper with an expandable chest; and a patent for its AIRTHOTIC(R), which
is a ventilated arch support that fits under the heel. In addition, the Company
has pending a patent application for footwear made with a full length
biomechanical shank.
Seasonality/Working Capital
As has traditionally been the case, the Company's sales in 1999 were higher
in the last two quarters of the year than in the first two quarters and, in
order to satisfy shipping requirements, the Company builds inventory during the
first half of the year and offers customers price discounts and extended terms
during such time. The Company expects these trends to continue. Additional
information about the seasonality and working capital requirements of the
Company's business is contained under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" on page 5 of the
Company's 1999 Annual Report to Shareholders and such information is hereby
incorporated herein by reference.
Foreign Operations and Export Sales
Other than the Company's 19% equity interest in Danner Japan, Ltd., the
Company does not have any foreign operations. International sales accounted for
less than 5% of the Company's net sales in 1999.
Environmental Matters
The Company and the industry in which it competes are subject to
environmental laws and regulations concerning emissions to the air, discharges
to waterways and the generation, handling, storage, transportation, treatment
and disposal of waste materials. The Company's policy is to comply with all
applicable environmental, health and safety laws and regulations. These laws and
regulations are constantly evolving and it is difficult to predict accurately
the effect they will have on the Company in the future. Compliance with
applicable environmental regulations and controls has not had, nor are they
expected to have in 2000, any material impact on the capital expenditures,
earnings or competitive position of the Company.
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Executive Officers of the Registrant
The following table sets forth certain information, as of March 15, 2000,
regarding the executive officers of the Company.
Name Age Position
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George W. Schneider 77 Chairman of the Board and Director
Patrick K. Gantert 50 President, Chief Executive Officer and Director
Mark E. Leopold 49 Executive Vice President and Chief Operating
Officer
Joseph P. Schneider 40 Executive Vice President--Danner of the
Company, President and Chief Executive Officer
of Danner and Director
Robert J. Sullivan 53 Vice President--Finance and Administration and
Chief Financial Officer
George W. Schneider was elected to the Board of Directors of the Company's
predecessor in 1968 and was the principal investor and motivating force behind
the management buyout of the Company's predecessor in 1982. Since 1982, Mr.
Schneider also has served as Chairman of the Board of the Company.
Patrick K. Gantert has served as President, Chief Executive Officer and as
a director of the Company since December 31, 1994. Prior thereto, Mr. Gantert
served as Executive Vice President and Chief Operating Officer of the Company
since August 1993 and as Executive Vice President since June 1992. From March
1985, when he joined the Company, until June 1992, Mr. Gantert was Vice
President-Finance.
Mark E. Leopold has served as Executive Vice President and Chief Operating
Officer of the Company since he joined the Company in July, 1999. Prior thereto,
he held various executive level sales and marketing positions with SC Johnson &
Son, Inc.
Joseph P. Schneider has served as a director of the Company since March
1999, as Executive Vice President-Danner of the Company since May 21, 1999 and
as President and Chief Executive Officer of Danner since October 1998. Prior
thereto, Mr. Schneider served as Vice President of the Company since June 1996,
as President and Chief Operating Officer of Danner since December 1997, as
Executive Vice President and Chief Operating Officer of Danner since June 1996
and as Vice President - Retail Sales of the Company from January
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1993 until June 1996. From 1985, when he joined the Company, until January 1993,
Mr. Schneider held various sales management positions.
Robert J. Sullivan joined the Company in November 1992 as Manager of
Finance and Administration, was elected Vice President - Finance and
Administration in March 1994 and was given the additional title of Chief
Financial Officer in March 1997. From 1987 until joining the Company, Mr.
Sullivan was Vice President-Finance of Skipperliner Industries, Inc., a
manufacturer of houseboats.
Joseph P. Schneider is the son of George W. Schneider. None of the other
directors or executive officers are related to each other. The term of office of
each of the executive officers expires at the annual meeting of directors.
Item 2. Properties
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The following table sets forth certain information, as of December 31,
1999, relating to the Company's principal facilities.
Properties
--------------------------
Owned Approximate
or Floor Area in
Location Leased Square Feet Principal Uses
- -------- ------ ----------- --------------
La Crosse, WI Leased(1) 212,000(1) Principal sales, marketing and
executive offices and warehouse
space
La Crosse, WI Owned 400,000 Manufacture rubber boots
La Crosse, WI Leased(2) 283,500 Main warehouse and distribution
facility
La Crosse, WI Owned 11,000 Retail outlet store
Clintonville, WI Owned 42,500 Manufacture leather components
and construct leather boots
Clintonville, WI Leased 4,000 Warehouse and raw material
storage
Hillsboro, WI Leased(3) 40,000 Manufacture component parts
Kenosha, WI Leased 3,000 Retail outlet store
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Properties
--------------------------
Owned Approximate
or Floor Area in
Location Leased Square Feet Principal Uses
- -------- ------ ----------- --------------
Claremont, NH Owned 150,000 Manufacture vinyl injection-
molded products
Claremont, NH Leased(4) 68,000 Warehouse and distribution
facility
Portland, OR Leased(5) 36,000 Manufacture DANNER(R)products,
offices, retail outlet store and
warehouse space
Portland, OR Leased(6) 16,000 Warehouse and distribution
facility
Racine, WI Leased(7) 104,700 Manufacturing, warehousing and
offices for Rainfair
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(1) The lease for this 212,000 square foot building adjacent to the Company's
manufacturing plant in La Crosse, Wisconsin expires in 2007. Approximately
50% of this building is currently sublet to the former owner. Of the
portion occupied by the Company, 6,600 square feet is used for office space
and the balance is used for warehouse space.
(2) The lease for 183,000 square feet of this facility expires in December
2000. The Company leases the balance of the space on short-term leases.
(3) There are two facilities leased by the Company in Hillsboro, Wisconsin with
approximately 40,000 square feet.
(4) The lease of this facility expires in 2003. This space is leased in a
facility adjacent to the Company's manufacturing plant in Claremont, New
Hampshire.
(5) The lease for this facility expires in March 2009, but the Company has the
option to extend the term for an additional five years.
(6) The lease for this facility expires in December 2000.
(7) The lease for this facility was entered into in May 1996 and expires in May
2001.
Based on present plans, management believes that the Company's current
facilities will be adequate to meet the Company's anticipated needs for
production of LaCrosse products for at least the next two years. Once the
manufacturing facilities have reached capacity, the
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Company can expand further by leasing or purchasing facilities or by outsourcing
products or components.
Item 3. 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.
From time to time, the Company, in the normal course of business, is also
involved in various other claims and legal actions arising out of its
operations. The Company does not believe that the ultimate disposition of any
currently pending claims or actions would have a material adverse effect on the
Company or its financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of shareholders during the quarter
ended December 31, 1999.
PART II
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Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters
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The portion of page 20 which describes the market for and dividends
declared on the Company's Common Stock which is contained in the Company's 1999
Annual Report to Shareholders is hereby incorporated herein by reference in
response to this Item.
Item 6. Selected Financial Data
-----------------------
The information set forth in the table on page 4 of the Company's 1999
Annual Report to Shareholders under the caption "Five Year Summary of Selected
Financial Data" is hereby incorporated herein by reference in response to this
Item.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The information set forth on pages 5 through 8 in the Company's 1999 Annual
Report to Shareholders under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" is hereby incorporated herein
by reference in response to this Item.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company enters into interest rate swap agreements ("Swap Agreements")
to reduce its exposure to interest rate fluctuations on its floating rate debt.
The Swap Agreements exchange floating rate for fixed rate interest payments
periodically over the life of the agreements without exchange of the underlying
notional amounts. The notional amounts of interest rate agreements are used to
measure interest to be paid or received and do not represent an amount of
exposure to credit loss. For interest rate instruments that effectively hedge
interest rate exposures, the net cash amounts paid or received on the agreements
are accrued and recognized as an adjustment to interest expense. As of December
31, 1999, the Company had Swap Agreements in effect totaling $11.0 million
notional amount, of which $7.0 million will mature in 2002 with another $4.0
million maturing in 2003. The variable rate borrowings not offset by Swap
Agreements at December 31, 1999 totaled $14.8 million. Swap Agreement rates are
based on the three-month LIBOR rate. Based on average floating rate borrowings
outstanding throughout fiscal year 1999, a 100-basis point change in LIBOR would
have caused the Company's monthly interest expense to change by approximately
$16,500. The Company believes that these amounts are not material to the
earnings of the Company.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999,
and the related consolidated balance sheets of the Company as of December 31,
1999 and 1998, together with the related notes thereto and the independent
auditor's report, and the Company's unaudited quarterly results of operations
for the two-year period ended December 31, 1999, all set forth on pages 9
through 20 of the Company's 1999 Annual Report to Shareholders, are hereby
incorporated herein by reference in response to this Item.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
-14-
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information required by this Item with respect to directors and Section
16 compliance is included under the captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance", respectively, in the
Company's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders
("Proxy Statement") and is hereby incorporated herein by reference. Information
with respect to the executive officers of the Company appears in Part I, pages
10 through 11, of this Annual Report on Form 10-K.
Item 11. Executive Compensation
----------------------
The information required by this Item is included under the captions "Board
of Directors-Director Compensation" and "Executive Compensation" in the Proxy
Statement and is hereby incorporated herein by reference; provided, however,
that the subsection entitled "Executive Compensation-Report on Executive
Compensation" shall not be deemed to be incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information required by this Item is included under the caption
"Principal Shareholders" in the Proxy Statement and is hereby incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information required by this Item is included under the captions
"Certain Transactions" and "Executive Compensation-Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement and is hereby
incorporated herein by reference.
-15-
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) 1. Financial statements - The financial statements listed in the
accompanying index to financial statements and financial
statement schedules are incorporated by reference in this Annual
Report on Form 10-K.
2. Financial statement schedules - The financial statement schedules
listed in the accompanying index to financial statements and
financial statement schedules are filed as part of this Annual
Report on Form 10-K.
3. Exhibits - The exhibits listed in the accompanying index to
exhibits are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1999.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 28th day of
March, 2000.
LACROSSE FOOTWEAR, INC.
By /s/ Patrick K. Gantert
------------------------------------
Patrick K. Gantert
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ George W. Schneider Chairman of the Board and March 28, 2000
- ------------------------------- Director
George W. Schneider
/s/ Patrick K. Gantert President, Chief Executive March 28, 2000
- ------------------------------- Officer and Director
Patrick K. Gantert (Principal Executive Officer)
/s/ Robert J. Sullivan Vice President-Finance and March 28, 2000
- ------------------------------- Administration and Chief
Robert J. Sullivan Financial Officer (Principal
Financial and Accounting Officer)
/s/ Frank J. Uhler, Jr. Vice Chairman of the Board and March 28, 2000
- ------------------------------- Director
Frank J. Uhler, Jr.
-17-
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Craig L. Leipold Director March 28, 2000
- -------------------------------
Craig L. Leipold
/s/ Richard A. Rosenthal Director March 28, 2000
- -------------------------------
Richard A. Rosenthal
/s/ Luke E. Sims Director March 28, 2000
- -------------------------------
Luke E. Sims
/s/ John D. Whitcombe Director March 28, 2000
- -------------------------------
John D. Whitcombe
/s/ Joseph P. Schneider Director March 28, 2000
- -------------------------------
Joseph P. Schneider
-18-
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
Page
---------------------------
Annual Report
Form 10-K to Shareholders
--------- ---------------
Consolidated Balance Sheets at December 31, 1999
and 1998 - 9
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1999 - 10
Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended
December 31, 1999 - 11
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1999 - 12
Notes to Consolidated Financial Statements - 13-18
Independent Auditor's Report - 19
Independent Auditor's Report on Financial Statement
Schedule 20 -
Financial Statement Schedule:
II - Valuation and Qualifying 21-22 -
Accounts
All other financial statement schedules are omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedules, or because the information required is included in
the consolidated financial statements and notes thereto.
-19-
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
LaCrosse Footwear, Inc.
La Crosse, Wisconsin
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
McGLADREY & PULLEN, LLP
La Crosse, Wisconsin
February 10, 2000, except for Note 10 of the
consolidated financial statements, as to
which the date is March 14, 2000.
-20-
<PAGE>
<TABLE>
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Additions
----------------------------------
Balance at Balance
Beginning Charged To Costs Charged To at End
Description of Period And Expenses Other Accounts Deductions of Period
----------- --------- ---------------- -------------- ---------- ---------
Year ended December 31, 1997:
<S> <C> <C> <C> <C> <C>
Accounts receivable allowances:
Allowance for returns $ 567,000 $1,142,866 $ 280,700 $1,152,866 $ 837,700
Allowance for cash discounts 189,000 63,345 65,000 217,345 100,000
Allowance for doubtful accounts 705,500 161,524 -- 292,069 574,955
Allowance for uncollectible interest 45,802 106,290 -- 95,631 56,461
---------- ---------- --------- ---------- ----------
Total $1,507,302 $1,474,025 $ 345,700 $1,757,911 $1,569,116
========== ========== ========= ========== ==========
Inventory allowances:
Allowance for obsolescence $1,201,000 $ 586,560 $ -- $ 561,140 $1,226,420
========== ========== ========= ========== ==========
Warranty allowance:
Allowance for warranties $ 925,000 $ 769,322 $ -- $1,084,197 $ 610,125
========== ========== ========= ========== ==========
[continued]
</TABLE>
-21-
<PAGE>
<TABLE>
SCHEDULE II - continued
<CAPTION>
Additions
----------------------------------
Balance at Balance
Beginning Charged To Costs Charged To at End
Description of Period And Expenses Other Accounts Deductions of Period
----------- --------- ---------------- -------------- ---------- ---------
Year ended December 31, 1998:
<S> <C> <C> <C> <C> <C>
Accounts receivable allowances:
Allowance for returns $ 837,700 $ 961,211 $ -- $1,290,911 $ 508,000
Allowance for cash discounts 100,000 470,090 -- 482,090 88,000
Allowance for doubtful accounts 574,955 91,562 -- 289,517 377,000
Allowance for uncollectible interest 56,461 131,812 -- 128,624 59,649
---------- ---------- ---------- ---------- ----------
Total $1,569,116 $1,654,675 $ -- $2,191,142 $1,032,649
========== ========== ========== ========== ==========
Inventory allowances:
Allowance for obsolescence $1,226,420 $ 607,472 $ -- $ 533,892 $1,300,000
========== ========== ========== ========== ==========
Warranty allowance:
Allowance for warranties $ 610,125 $ 866,268 $ -- $1,004,952 $ 471,441
========== ========== ========== ========== ==========
Year ended December 31, 1999:
Accounts receivable allowances:
Allowance for returns $ 508,000 $1,082,033 $ -- $1,122,033 $ 468,000
Allowance for cash discounts 88,000 340,354 -- 398,354 30,000
Allowance for doubtful accounts 377,000 165,679 -- 173,679 369,000
Allowance for uncollectible interest 59,649 117,074 -- 112,930 63,793
Reserve for excess equipment -- 200,000 -- -- 200,000
---------- ---------- ---------- ---------- ----------
Total $1,032,649 $1,905,140 $ -- $1,806,996 $1,130,793
========== ========== ========== ========== ==========
Inventory allowances:
Allowance for obsolescence* $1,300,000 $2,113,950 $ -- $ 564,847 $2,849,103
========== ========== ========== ========== ==========
Warranty allowance:
Allowance for warranties $ 471,441 $1,004,010 $ -- $1,004,323 $ 471,128
========== ========== ========== ========== ==========
The accounts receivable and inventory allowances above were deducted from the applicable asset account.
- ---------------
*Includes fourth quarter 1999 charge of $1,644,000.
</TABLE>
-22-
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page
Number Exhibit Description Number
- ------- ------------------- ------
(3.1) Restated Articles of Incorporation of LaCrosse --
Footwear, Inc. [Incorporated by reference to Exhibit
(3.0) to LaCrosse Footwear, Inc.'s Form S-1
Registration Statement (Registration No. 33-75534)]
(3.2) By-Laws of LaCrosse Footwear, Inc., as amended to date.
(4.1) Amended and Restated Credit Agreement, dated as of May --
28, 1999, by and among LaCrosse Footwear, Inc., Firstar
Bank, N.A., The Northern Trust Company, Harris Trust
and Savings Bank and Firstar Bank, N.A., as Agent for
the Banks [Incorporated by reference to Exhibit (4.1)
to LaCrosse Footwear, Inc.'s Quarterly Report on Form
10-Q for the quarter ended July 3, 1999]
(9.1) Voting Trust Agreement, dated as of June 21, 1982, as --
amended [Incorporated by reference to Exhibit (9) to
LaCrosse Footwear, Inc.'s Form S-1 Registration
Statement (Registration No. 33-75534)]
(9.2) Amendment No. 9 to Voting Trust Agreement, dated June --
30, 1997. [Incorporated by reference to Exhibit (9.2)
to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997]
(9.3) Extension of Term, dated as of March 31, 1999, of the --
Voting Trust Agreement, dated as of June 12, 1982, as
amended. [Incorporated by reference to Exhibit (4) to
LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended April 3, 1999]
(10.1) Lease, dated as of January 7, 1991, between LaCrosse --
Footwear, Inc. and Central States Warehouse, Inc.
[Incorporated by reference to Exhibit (10.2) to
LaCrosse Footwear, Inc.'s Form S-1 Registration
Statement (Registration No. 33-75534)]
(10.2) Amendment, dated as of June 29, 1995, to Lease between --
LaCrosse Footwear, Inc. and Central States Warehouse,
Inc. [Incorporated by reference to Exhibit (10.2) to
LaCrosse Footwear, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1995]
-23-
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page
Number Exhibit Description Number
- ------- ------------------- ------
(10.3)* Employment Agreement, dated as of June 1, 1999, between --
Patrick K. Gantert and LaCrosse Footwear, Inc.
[Incorporated by reference to Exhibit (10) to LaCrosse
Footwear, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended October 2, 1999]
(10.4) * Employment Agreement, dated as of June 9, 1994, --
between David Llewellyn and LaCrosse Footwear, Inc.
[Incorporated by reference to Exhibit (10.1) to
LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended July 2, 1994]
(10.5)* LaCrosse Footwear, Inc. Deferred Compensation Plan for --
Key Employees, as amended and restated. [Incorporated
by reference to Exhibit (10.9) to LaCrosse Footwear,
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997]
(10.6)* LaCrosse Footwear, Inc. Retirement Plan [Incorporated --
by reference to Exhibit (10.18) to LaCrosse Footwear,
Inc.'s Form S-1 Registration Statement (Registration
No. 33-75534)]
(10.7) * LaCrosse Footwear, Inc. Employees' Retirement Savings --
Plan [Incorporated by reference to Exhibit (10.19) to
LaCrosse Footwear, Inc.'s Form S-1 Registration
Statement (Registration No. 33-75534)]
(10.8)* LaCrosse Footwear, Inc. 1993 Employee Stock Incentive --
Plan [Incorporated by reference to Exhibit (10.20) to
LaCrosse Footwear, Inc.'s Form S-1 Registration
Statement (Registration No. 33-75534)]
(10.9)* LaCrosse Footwear, Inc. 1997 Employee Stock Incentive --
Plan [Incorporated by reference to Exhibit (10.17) to
LaCrosse Footwear, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996]
(10.10) Agreement, dated as of September 15, 1998, between --
Local No. 14L, United Steel Workers of America,
AFL-CIO, and LaCrosse Footwear, Inc. [Incorporated by
reference to Exhibit (10.15) to LaCrosse Footwear,
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998]
(10.11) Lease, dated as of March 14, 1994, between JEPCO --
Development Co. and LaCrosse Footwear, Inc.
[Incorporated by reference to Exhibit (10.22) to
LaCrosse Footwear, Inc.'s Form S-1 Registration
Statement (Registration No. 33-75534)]
- ----------------
* A management contract or compensatory plan or arrangement.
-24-
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page
Number Exhibit Description Number
- ------- ------------------- ------
(10.12) Amendment, dated as of March 17, 1998, to Lease between --
JEPCO Development Co., LLC and LaCrosse Footwear, Inc.
[Incorporated by reference to Exhibit (10.17) to
LaCrosse Footwear, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1998]
(10.13) Manufacturing Certification Agreement, dated as of --
October 19, 1993, between W.L. Gore & Associates, Inc.
and Danner Shoe Manufacturing Co. [Incorporated by
reference to Exhibit (10.23) to LaCrosse Footwear,
Inc.'s Form S-1 Registration Statement (Registration
No. 33-75534)]
(10.14) Trademark License, dated as of October 19, 1993, --
between W.L. Gore & Associates, Inc. and Danner Shoe
Manufacturing Co. [Incorporated by reference to Exhibit
(10.24) to LaCrosse Footwear, Inc.'s Form S-1
Registration Statement (Registration No. 33-75534)]
(13) Portions of the 1999 Annual Report to Shareholders that
are incorporated by reference herein
(21) List of subsidiaries of LaCrosse Footwear, Inc.
(23) Consent of McGladrey & Pullen, LLP
(27) Financial Data Schedule (EDGAR version only)
(99) Proxy Statement for the 2000 Annual Meeting of --
Shareholders --
[The Proxy Statement for the 2000 Annual Meeting of Shareholders will
be filed with the Securities and Exchange Commission under Regulation
14A within 120 days after the end of the Company's fiscal year. Except
to the extent specifically incorporated by reference, the Proxy
Statement for the 2000 Annual Meeting of Shareholders shall not be
deemed to be filed with the Securities and Exchange Commission as part
of this Annual Report on Form 10-K.]
-25-
BY-LAWS
OF
LACROSSE FOOTWEAR, INC.
(a Wisconsin corporation)
<PAGE>
ARTICLE I.
OFFICES
1.01. Principal and Business Offices. The corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02. Registered Office. The registered office of the corporation
required by the Wisconsin Business Corporation Law to be maintained in the State
of Wisconsin may be, but need not be, identical with the principal office in the
State of Wisconsin, and the address of the registered office may be changed from
time to time by the Board of Directors or by the registered agent. The business
office of the registered agent of the corporation shall be identical to such
registered office.
ARTICLE II.
SHAREHOLDERS
2.01. Annual Meeting. The annual meeting of the shareholders shall be
held on the fourth (4th) Friday in May of each year, or at such other time and
place within thirty days before or after such date as may be fixed by or under
the authority of the Board of Directors, for the purpose of electing directors
and for the transaction of such other business as may come before the meeting.
If the day fixed for the annual meeting shall be a legal holiday in the State of
Wisconsin, such meeting shall be held on the next succeeding business day. If
the election of directors shall not be held on the day designated herein, or
fixed as herein provided, for any annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as is practicable.
2.02. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by the Wisconsin Business
Corporation Law, may be called by the Chairman of the Board, the Vice Chairman
of the Board, the Board of Directors or the President. The corporation shall
call a special meeting of shareholders in the event that the holders of at least
10% of all of the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting sign, date and deliver to the
corporation one or more written demands for the meeting describing one or more
purposes for which it is to be held. The corporation shall give notice of such a
special meeting within thirty days after the date that the demand is delivered
to the corporation.
2.03. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Wisconsin, as the place of meeting
for any annual or special meeting of shareholders. If no designation is made,
the place of meeting shall be the principal office of the corporation. Any
meeting may be adjourned to reconvene at any place designated by vote of a
majority of the shares represented thereat.
B-1
<PAGE>
2.04. Notice of Meeting. Written notice stating the date, time and
place of any meeting of shareholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten days nor more than sixty days before the date of the meeting (unless a
different time is provided by the Wisconsin Business Corporation Law or the
articles of incorporation), either personally or by mail, by or at the direction
of the Chairman of the Board, the Vice Chairman of the Board, the President or
the Secretary, to each shareholder of record entitled to vote at such meeting
and to such other persons as required by the Wisconsin Business Corporation Law.
If mailed, such notice shall be deemed to be effective when deposited in the
United States mail, addressed to the shareholder at his or her address as it
appears on the stock record books of the corporation, with postage thereon
prepaid. If an annual or special meeting of shareholders is adjourned to a
different date, time or place, the corporation shall not be required to give
notice of the new date, time or place if the new date, time or place is
announced at the meeting before adjournment; provided, however, that if a new
record date for an adjourned meeting is or must be fixed, the corporation shall
give notice of the adjourned meeting to persons who are shareholders as of the
new record date.
2.05. Waiver of Notice. A shareholder may waive any notice required by
the Wisconsin Business Corporation Law, the articles of incorporation or these
by-laws before or after the date and time stated in the notice. The waiver shall
be in writing and signed by the shareholder entitled to the notice, contain the
same information that would have been required in the notice under applicable
provisions of the Wisconsin Business Corporation Law (except that the time and
place of meeting need not be stated) and be delivered to the corporation for
inclusion in the corporate records. A shareholder's attendance at a meeting, in
person or by proxy, waives objection to all of the following: (a) lack of notice
or defective notice of the meeting, unless the shareholder at the beginning of
the meeting or promptly upon arrival objects to holding the meeting or
transacting business at the meeting; and (b) consideration of a particular
matter at the meeting that is not within the purpose described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
2.06. Fixing of Record Date. The Board of Directors may fix in advance
a date as the record date for the purpose of determining shareholders entitled
to notice of and to vote at any meeting of shareholders, shareholders entitled
to demand a special meeting as contemplated by Section 2.02 hereof, shareholders
entitled to take any other action, or shareholders for any other purpose. Such
record date shall not be more than seventy days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
If no record date is fixed by the Board of Directors or by the Wisconsin
Business Corporation Law for the determination of shareholders entitled to
notice of and to vote at a meeting of shareholders, the record date shall be the
close of business on the day before the first notice is given to shareholders.
If no record date is fixed by the Board of Directors or by the Wisconsin
Business Corporation Law for the determination of shareholders entitled to
demand a special meeting as contemplated in Section 2.02 hereof, the record date
shall be the date that the first shareholder signs the demand. Except as
provided by the Wisconsin Business Corporation Law for a court-ordered
adjournment, a determination of shareholders entitled to notice of and to vote
at a meeting of shareholders is effective for any
B-2
<PAGE>
adjournment of such meeting unless the Board of Directors fixes a new record
date, which it shall do if the meeting is adjourned to a date more than 120 days
after the date fixed for the original meeting. The record date for determining
shareholders entitled to a distribution (other than a distribution involving a
purchase, redemption or other acquisition of the corporation's shares) or a
share dividend is the date on which the Board of Directors authorized the
distribution or share dividend, as the case may be, unless the Board of
Directors fixes a different record date.
2.07. Shareholders' List for Meetings. After a record date for a
special or annual meeting of shareholders has been fixed, the corporation shall
prepare a list of the names of all of the shareholders entitled to notice of the
meeting. The list shall be arranged by class or series of shares, if any, and
show the address of and number of shares held by each shareholder. Such list
shall be available for inspection by any shareholder, beginning two business
days after notice of the meeting is given for which the list was prepared and
continuing to the date of the meeting, at the corporation's principal office or
at a place identified in the meeting notice in the city where the meeting will
be held. A shareholder or his or her agent may, on written demand, inspect and,
subject to the limitations imposed by the Wisconsin Business Corporation Law,
copy the list, during regular business hours and at his or her expense, during
the period that it is available for inspection pursuant to this Section 2.07.
The corporation shall make the shareholders' list available at the meeting and
any shareholder or his or her agent or attorney may inspect the list at any time
during the meeting or any adjournment thereof. Refusal or failure to prepare or
make available the shareholders' list shall not affect the validity of any
action taken at a meeting of shareholders.
2.08. Quorum and Voting Requirements. Shares entitled to vote as a
separate voting group may take action on a matter at a meeting only if a quorum
of those shares exists with respect to that matter. If the corporation has only
one class of common stock outstanding, such class shall constitute a separate
voting group for purposes of this Section 2.08. Except as otherwise provided in
the articles of incorporation or the Wisconsin Business Corporation Law, a
majority of the votes entitled to be cast on the matter shall constitute a
quorum of the voting group for action on that matter. Once a share is
represented for any purpose at a meeting, other than for the purpose of
objecting to holding the meeting or transacting business at the meeting, it is
considered present for purposes of determining whether a quorum exists for the
remainder of the meeting and for any adjournment of that meeting unless a new
record date is or must be set for the adjourned meeting. If a quorum exists,
except in the case of the election of directors, action on a matter shall be
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action, unless the articles of incorporation or the
Wisconsin Business Corporation Law requires a greater number of affirmative
votes. Unless otherwise provided in the articles of incorporation, each director
shall be elected by a plurality of the votes cast by the shares entitled to vote
in the election of directors at a meeting at which a quorum is present. Though
less than a quorum of the outstanding votes of a voting group are represented at
a meeting, a majority of the votes so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified.
B-3
<PAGE>
2.09. Conduct of Meeting. The Chairman of the Board, and in his or her
absence, the Vice Chairman of the Board, and in his or her absence, the
President, and in his or her absence, a Vice President in the order provided
under Section 4.08 hereof, and in their absence, any person chosen by the
shareholders present shall call the meeting of the shareholders to order and
shall act as chairman of the meeting, and the Secretary of the corporation shall
act as secretary of all meetings of the shareholders, but, in the absence of the
Secretary, the presiding officer may appoint any other person to act as
secretary of the meeting.
2.10. Proxies. At all meetings of shareholders, a shareholder may vote
his or her shares in person or by proxy. A shareholder may appoint a proxy to
vote or otherwise act for the shareholder by signing an appointment form, either
personally or by his or her attorney-in-fact. An appointment of a proxy is
effective when received by the Secretary or other officer or agent of the
corporation authorized to tabulate votes. An appointment is valid for eleven
months from the date of its signing unless a different period is expressly
provided in the appointment form.
2.11. Voting of Shares. Except as provided in the articles of
incorporation or in the Wisconsin Business Corporation Law, each outstanding
share, regardless of class, is entitled to one vote on each matter voted on at a
meeting of shareholders.
2.12. Action without Meeting. Any action required or permitted by the
articles of incorporation or these by-laws or any provision of the Wisconsin
Business Corporation Law to be taken at a meeting of the shareholders may be
taken without a meeting and without action by the Board of Directors if a
written consent or consents, describing the action so taken, is signed by all of
the shareholders entitled to vote with respect to the subject matter thereof and
delivered to the corporation for inclusion in the corporate records.
2.13. Acceptance of Instruments Showing Shareholder Action. If the
name signed on a vote, consent, waiver or proxy appointment corresponds to the
name of a shareholder, the corporation, if acting in good faith, may accept the
vote, consent, waiver or proxy appointment and give it effect as the act of a
shareholder. If the name signed on a vote, consent, waiver or proxy appointment
does not correspond to the name of a shareholder, the corporation, if acting in
good faith, may accept the vote, consent, waiver or proxy appointment and give
it effect as the act of the shareholder if any of the following apply:
(a) The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity.
(b) The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the shareholder
and, if the corporation requests, evidence of fiduciary status acceptable to the
corporation is presented with respect to the vote, consent, waiver or proxy
appointment.
(c) The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence of this
status
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acceptable to the corporation is presented with respect to the vote, consent,
waiver or proxy appointment.
(d) The name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the corporation requests,
evidence acceptable to the corporation of the signatory's authority to sign for
the shareholder is presented with respect to the vote, consent, waiver or proxy
appointment.
(e) Two or more persons are the shareholders as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.
The corporation may reject a vote, consent, waiver or proxy appointment if the
Secretary or other officer or agent of the corporation who is authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
ARTICLE III.
BOARD OF DIRECTORS
3.01. General Powers, Classification and Number. All corporate powers
shall be exercised by or under the authority of, and the business affairs of the
corporation managed under the direction of, the Board of Directors. The number
of directors of the corporation shall be eight (8), divided into three classes
of three (3), two (2) and three (3) directors, respectively, and designated as
Class I, Class II and Class III, respectively. At the 1994 annual meeting of
shareholders, the directors of Class I shall be elected for a term to expire at
the first annual meeting of shareholders after their election, and until their
successors are duly elected and qualified, the directors of Class II shall be
elected for a term to expire at the second annual meeting of shareholders after
their election, and until their successors are duly elected and qualified, and
the directors of Class III shall be elected for a term to expire at the third
annual meeting of shareholders after their election, and until their successors
are duly elected and qualified. At each annual meeting of shareholders after the
1994 annual meeting of shareholders the successors to the class of directors
whose terms shall expire at the time of such annual meeting shall be elected to
hold office until the third succeeding annual meeting of shareholders, and until
their successors are duly elected and qualified.
3.02. Tenure and Qualifications. Each director shall hold office until
the next annual meeting of shareholders in the year in which such director's
term expires and until his or her successor shall have been duly elected and, if
necessary, qualified, or until there is a decrease in the number of directors
which takes effect after the expiration of his or her term, or until his or her
prior retirement, death, resignation or removal. A director may be removed from
office only as provided in the articles of incorporation at a meeting of the
shareholders called for the purpose of removing the director, and the meeting
notice shall state that the purpose, or one of the purposes, of the meeting is
removal of the director. A director may resign at any time by delivering written
notice which complies with the Wisconsin Business
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Corporation Law to the Board of Directors, to the Chairman of the Board, to the
Vice Chairman of the Board or to the corporation. A director's resignation is
effective when the notice is delivered unless the notice specifies a later
effective date. Directors need not be residents of the State of Wisconsin or
shareholders of the corporation. No other restrictions, limitations or
qualifications may be imposed on individuals for service as a director.
3.03. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this by-law immediately after the annual
meeting of shareholders and each adjourned session thereof. The place of such
regular meeting shall be the same as the place of the meeting of shareholders
which precedes it, or such other suitable place as may be announced at such
meeting of shareholders. The Board of Directors shall provide, by resolution,
the date, time and place, either within or without the State of Wisconsin, for
the holding of additional regular meetings of the Board of Directors without
other notice than such resolution.
3.04. Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, the Vice Chairman
of the Board, the President, Secretary or any two directors. The Chairman of the
Board, the Vice Chairman of the Board, the President or Secretary may fix any
place, either within or without the State of Wisconsin, as the place for holding
any special meeting of the Board of Directors, and if no other place is fixed
the place of the meeting shall be the principal business office of the
corporation in the State of Wisconsin.
3.05. Notice; Waiver. Notice of each special meeting of the Board of
Directors shall be given by written notice delivered or communicated in person,
by telegraph, teletype, facsimile or other form of wire or wireless
communication, or by mail or private carrier, to each director at his business
address or at such other address as such director shall have designated in
writing filed with the Secretary, in each case not less than forty-eight hours
prior to the meeting. The notice need not prescribe the purpose of the special
meeting of the Board of Directors or the business to be transacted at such
meeting. If mailed, such notice shall be deemed to be effective when deposited
in the United States mail so addressed, with postage thereon prepaid. If notice
is given by telegram, such notice shall be deemed to be effective when the
telegram is delivered to the telegraph company. If notice is given by private
carrier, such notice shall be deemed to be effective when delivered to the
private carrier. Whenever any notice whatever is required to be given to any
director of the corporation under the articles of incorporation or these by-laws
or any provision of the Wisconsin Business Corporation Law, a waiver thereof in
writing, signed at any time, whether before or after the date and time of
meeting, by the director entitled to such notice shall be deemed equivalent to
the giving of such notice. The corporation shall retain any such waiver as part
of the permanent corporate records. A director's attendance at or participation
in a meeting waives any required notice to him or her of the meeting unless the
director at the beginning of the meeting or promptly upon his or her arrival
objects to holding the meeting or transacting business at the meeting and does
not thereafter vote for or assent to action taken at the meeting.
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3.06. Quorum. Except as otherwise provided by the Wisconsin Business
Corporation Law or by the articles of incorporation or these by-laws, a majority
of the number of directors specified in Section 3.01 of these by-laws shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors. Except as otherwise provided by the Wisconsin Business Corporation
Law or by the articles of incorporation or by these by-laws, a quorum of any
committee of the Board of Directors created pursuant to Section 3.12 hereof
shall consist of a majority of the number of directors appointed to serve on the
committee. A majority of the directors present (though less than such quorum)
may adjourn any meeting of the Board of Directors or any committee thereof, as
the case may be, from time to time without further notice.
3.07. Manner of Acting. The affirmative vote of a majority of the
directors present at a meeting of the Board of Directors or a committee thereof
at which a quorum is present shall be the act of the Board of Directors or such
committee, as the case may be, unless the Wisconsin Business Corporation Law,
the articles of incorporation or these bylaws require the vote of a greater
number of directors.
3.08. Conduct of Meetings. The Chairman of the Board, and in his or
her absence, the Vice Chairman of the Board, and in his or her absence, the
President, and in his or her absence, a Vice President in the order provided
under Section 4.08, and in their absence, any director chosen by the directors
present, shall call meetings of the Board of Directors to order and shall act as
chairman of the meeting. The Secretary of the corporation shall act as secretary
of all meetings of the Board of Directors but in the absence of the Secretary,
the presiding officer may appoint any other person present to act as secretary
of the meeting. Minutes of any regular or special meeting of the Board of
Directors shall be prepared and distributed to each director.
3.09. Vacancies. Any vacancies occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, shall be
filled only as provided in the articles of incorporation. A vacancy that will
occur at a specific later date, because of a resignation effective at a later
date or otherwise, may be filled before the vacancy occurs, but the new director
may not take office until the vacancy occurs.
3.10. Compensation. The Board of Directors, irrespective of any
personal interest of any of its members, may establish reasonable compensation
of all directors for services to the corporation as directors, officers or
otherwise, or may delegate such authority to an appropriate committee. The Board
of Directors also shall have authority to provide for or delegate authority to
an appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers and employees
and to their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the corporation.
3.11. Presumption of Assent. A director who is present and is
announced as present at a meeting of the Board of Directors or any committee
thereof created in accordance with Section 3.12 hereof, when corporate action is
taken, assents to the action taken unless any
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of the following occurs: (a) the director objects at the beginning of the
meeting or promptly upon his or her arrival to holding the meeting or
transacting business at the meeting; (b) the director's dissent or abstention
from the action taken is entered in the minutes of the meeting; or (c) the
director delivers written notice that complies with the Wisconsin Business
Corporation Law of his or her dissent or abstention to the presiding officer of
the meeting before its adjournment or to the corporation immediately after
adjournment of the meeting. Such right of dissent or abstention shall not apply
to a director who votes in favor of the action taken.
3.12. Committees. The Board of Directors by resolution adopted by the
affirmative vote of a majority of all of the directors then in office may create
one or more committees, appoint members of the Board of Directors to serve on
the committees and designate other members of the Board of Directors to serve as
alternates. Each committee shall have two or more members who shall, unless
otherwise provided by the Board of Directors, serve at the pleasure of the Board
of Directors. A committee may be authorized to exercise the authority of the
Board of Directors, except that a committee may not do any of the following: (a)
authorize distributions; (b) approve or propose to shareholders action that the
Wisconsin Business Corporation Law requires to be approved by shareholders; (c)
fill vacancies on the Board of Directors or, unless the Board of Directors
provides by resolution that vacancies on a committee shall be filled by the
affirmative vote of the remaining committee members, on any Board committee; (d)
amend the corporation's articles of incorporation; (e) adopt, amend or repeal
by-laws; (f) approve a plan of merger not requiring shareholder approval; (g)
authorize or approve reacquisition of shares, except according to a formula or
method prescribed by the Board of Directors; and (h) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences and limitations of a class or series of shares,
except that the Board of Directors may authorize a committee to do so within
limits prescribed by the Board of Directors. Unless otherwise provided by the
Board of Directors in creating the committee, a committee may employ counsel,
accountants and other consultants to assist it in the exercise of its authority.
3.13. Telephonic Meetings. Except as herein provided and
notwithstanding any place set forth in the notice of the meeting or these
by-laws, members of the Board of Directors (and any committees thereof created
pursuant to Section 3.12 hereof) may participate in regular or special meetings
by, or through the use of, any means of communication by which all participants
may simultaneously hear each other, such as by conference telephone. If a
meeting is conducted by such means, then at the commencement of such meeting the
presiding officer shall inform the participating directors that a meeting is
taking place at which official business may be transacted. Any participant in a
meeting by such means shall be deemed present in person at such meeting. If
action is to be taken at any meeting held by such means on any of the following:
(a) a plan of merger or share exchange; (b) a sale, lease, exchange or other
disposition of substantial property or assets of the corporation; (c) a
voluntary dissolution or the revocation of voluntary dissolution proceedings; or
(d) a filing for bankruptcy, then the identity of each director participating in
such meeting must be verified by the disclosure at such meeting by each such
director of each such director's social security number to the secretary of the
meeting before a vote may be taken on any of the foregoing
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matters. For purposes of the preceding clause (b), the phrase "sale, lease,
exchange or other disposition of substantial property or assets" shall mean any
sale, lease, exchange or other disposition of property or assets of the
corporation having a net book value equal to 10% or more of the net book value
of the total assets of the corporation on and as of the close of the fiscal year
last ended prior to the date of such meeting and as to which financial
statements of the corporation have been prepared. Notwithstanding the foregoing,
no action may be taken at any meeting held by such means on any particular
matter which the presiding officer determines, in his or her sole discretion, to
be inappropriate under the circumstances for action at a meeting held by such
means. Such determination shall be made and announced in advance of such
meeting.
3.14. Action without Meeting. Any action required or permitted by the
Wisconsin Business Corporation Law to be taken at a meeting of the Board of
Directors or a committee thereof created pursuant to Section 3.12 hereof may be
taken without a meeting if the action is taken by all members of the Board or of
the committee. The action shall be evidenced by one or more written consents
describing the action taken, signed by each director or committee member and
retained by the corporation. Such action shall be effective when the last
director or committee member signs the consent, unless the consent specifies a
different effective date.
Article IV.
OFFICERS
4.01. Number. The principal officers of the corporation shall be a
Chairman of the Board, a Vice Chairman of the Board, a President, the number of
Vice Presidents as authorized from time to time by the Board of Directors, a
Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors. Such other officers and assistant officers as may be deemed necessary
may be elected or appointed by the Board of Directors. The Board of Directors
may also authorize any duly authorized officer to appoint one or more officers
or assistant officers. Any two or more offices may be held by the same person.
4.02. Election and Term of Office. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as is practicable.
Each officer shall hold office until his or her successor shall have been duly
elected or until his or her prior death, resignation or removal.
4.03. Removal. The Board of Directors may remove any officer and,
unless restricted by the Board of Directors or these by-laws, an officer may
remove any officer or assistant officer appointed by that officer, at any time,
with or without cause and notwithstanding the contract rights, if any, of the
officer removed. The appointment of an officer does not of itself create
contract rights.
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4.04. Resignation. An officer may resign at any time by delivering
notice to the corporation that complies with the Wisconsin Business Corporation
Law. The resignation shall be effective when the notice is delivered, unless the
notice specifies a later effective date and the corporation accepts the later
effective date.
4.05. Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term. If a resignation of an
officer is effective at a later date as contemplated by Section 4.04 hereof, the
Board of Directors may fill the pending vacancy before the effective date if the
Board provides that the successor may not take office until the effective date.
4.06. Chairman of the Board. The Chairman of the Board, subject to
control of the Board of Directors, shall determine long-range, strategic
direction and objectives and shall formulate major corporate policies. He or she
shall preside at all meetings of the shareholders and the Board of Directors and
shall have authority, subject to such rules as may be prescribed by the Board of
Directors, to appoint and remove such agents and employees of the corporation as
he or she shall deem necessary, to prescribe their powers, duties and
compensation and to delegate authority to them. He or she shall have authority
to sign, execute and acknowledge, on behalf of the corporation, all deeds,
mortgages, securities, contracts, leases, reports and all other documents
necessary or proper to be executed in the course of the corporation's regular
business, or which shall be authorized by the Board of Directors, and, except as
otherwise provided by law or the Board of Directors, he or she may authorize the
President or any Vice President or other officer or agent of the corporation to
sign, execute and acknowledge such documents or instruments in his or her place
and stead.
4.06A. Vice Chairman of the Board. In the absence of the Chairman of
the Board, the Vice Chairman shall perform the duties of the Chairman of the
Board and, when so acting, shall have all of the powers of and be subject to all
of the restrictions upon the Chairman of the Board.
4.07. President. The President shall be the Chief Executive Officer of
the corporation and shall, in general, be responsible for meeting profit and
growth objectives for the corporation's businesses and shall, in general,
supervise and control the business and affairs of the corporation. He or she
shall ensure that the corporation's management systems, structure and executive
capabilities are effective and to that end he or she shall perform such other
duties as may be delegated to him or her by the Chairman of the Board or the
Vice Chairman of the Board. In the absence of the Chairman of the Board and the
Vice Chairman of the Board, or in the event of the death, inability or refusal
to act of either, the President shall perform the duties of the Chairman of the
Board or the Vice Chairman of the Board and, when so acting, shall have all the
powers and be subject to all restrictions upon the Chairman of the Board or the
Vice Chairman of the Board. The execution of any instrument by the President
shall be conclusive evidence, as to third parties, of his or her authority to
act in the stead of the Chairman of the Board and the Vice Chairman of the
Board.
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4.08. The Vice Presidents. In the absence of the Chairman of the
Board, the Vice Chairman of the Board and the President, or in the event of the
death, inability or refusal to act of any of them, or in the event for any
reason it shall be impracticable for the Chairman of the Board, the Vice
Chairman of the Board and the President to act personally, the Vice President
(or in the event there be more than one Vice President, the Vice Presidents in
the order designated by the Board of Directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the Chairman of the Board, the Vice Chairman of the Board or the President and,
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Chairman of the Board, the Vice Chairman of the Board or
the President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the corporation; and shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him or her by the Chairman of the Board, the Vice Chairman of the
Board, the President or the Board of Directors. The execution of any instrument
of the corporation by any Vice President shall be conclusive evidence, as to
third parties, of his or her authority to act in the stead of the Chairman of
the Board, the Vice Chairman of the Board and the President.
4.09. The Secretary. The Secretary shall: (a) keep minutes of the
meetings of the shareholders and of the Board of Directors (and of committees
thereof) in one or more books provided for that purpose (including records of
actions taken by the shareholders or the Board of Directors (or committees
thereof) without a meeting); (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by the Wisconsin
Business Corporation Law; (c) be custodian of the corporate records and of the
seal of the corporation, if any, and see that the seal of the corporation, if
any, is affixed to all documents the execution of which on behalf of the
corporation under its seal is duly authorized; (d) maintain a record of the
shareholders of the corporation, in a form that permits preparation of a list of
the names and addresses of all shareholders, by class or series of shares and
showing the number and class or series of shares held by each shareholder; (e)
sign with the Chairman of the Board, the Vice Chairman of the Board, the
President or a Vice President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and have such other duties and exercise such authority as from time to
time may be delegated or assigned by the Chairman of the Board, the Vice
Chairman of the Board, the President or by the Board of Directors.
4.10. The Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositaries as shall be selected in
accordance with the provisions of Section 5.04; and (c) in general perform all
of the duties incident to the office of Treasurer and have such other duties and
exercise such other authority as from time to time may be delegated or assigned
by the Chairman of the Board, the Vice Chairman of the Board, the President or
by the Board of Directors. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of
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his or her duties in such sum and with such surety or sureties as the Board of
Directors shall determine.
4.11. Controller. Subject to the control of the Board of Directors,
the Controller shall have charge of the books of account of the corporation and
he or she shall perform such other duties and exercise such other authority as
from time to time may be delegated or assigned to him or her by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board, the
President or the Vice President responsible for financial matters.
4.12. Assistant Secretaries and Assistant Treasurers. There shall be
such number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors may from time to time authorize. The Assistant Secretaries may sign
with the Chairman of the Board, the Vice Chairman of the Board, the President or
a Vice President certificates for shares of the corporation the issuance of
which shall have been authorized by a resolution of the Board of Directors. The
Assistant Treasurers shall respectively, if required by the Board of Directors,
give bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors shall determine. The Assistant Secretaries
and Assistant Treasurers, in general, shall perform such duties and have such
authority as shall from time to time be delegated or assigned to them by the
Secretary or the Treasurer, respectively, or by the Chairman of the Board, the
Vice Chairman of the Board, the President or the Board of Directors.
4.13. Other Assistants and Acting Officers. The Board of Directors
shall have the power to appoint, or to authorize any duly appointed officer of
the corporation to appoint, any person to act as assistant to any officer, or as
agent for the corporation in his or her stead, or to perform the duties of such
officer whenever for any reason it is impracticable for such officer to act
personally, and such assistant or acting officer or other agent so appointed by
the Board of Directors or an authorized officer shall have the power to perform
all the duties of the office to which he or she is so appointed to be an
assistant, or as to which he or she is so appointed to act, except as such power
may be otherwise defined or restricted by the Board of Directors or the
appointing officer.
ARTICLE V.
CONTRACTS, LOANS, CHECKS
AND DEPOSITS; SPECIAL CORPORATE ACTS
5.01. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages and instruments of assignment or
pledge made by the corporation shall be executed in the name of the corporation
by the Chairman of the Board, the Vice Chairman of the Board, the President or
one of the Vice Presidents and by the Secretary, an Assistant Secretary, the
Treasurer or an Assistant Treasurer; the Secretary or an Assistant Secretary,
when necessary or required, shall affix the
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corporate seal, if any, thereto; and when so executed no other party to such
instrument or any third party shall be required to make any inquiry into the
authority of the signing officer or officers.
5.02. Loans. No indebtedness for borrowed money shall be contracted on
behalf of the corporation and no evidences of such indebtedness shall be issued
in its name unless authorized by or under the authority of a resolution of the
Board of Directors. Such authorization may be general or confined to specific
instances.
5.03. Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
or under the authority of a resolution of the Board of Directors.
5.04. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as may be selected by or under the
authority of a resolution of the Board of Directors.
5.05. Voting of Securities Owned by this Corporation. Subject always
to the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders of such other
corporation by the Chairman of the Board of this corporation if he or she be
present, or in his or her absence, the Vice Chairman of the Board of this
corporation if he or she be present, or in his or her absence, the President of
this corporation if he or she be present, or in his or her absence, by any Vice
President of this corporation who may be present, and (b) whenever, in the
judgment of the Chairman of the Board, or in his or her absence, of the Vice
Chairman of the Board, or in his or her absence, of the President, or in his or
her absence, of any Vice President, it is desirable for this corporation to
execute a proxy or written consent in respect to any shares or other securities
issued by any other corporation and owned by this corporation, such proxy or
consent shall be executed in the name of this corporation by the Chairman of the
Board, the Vice Chairman of the Board, the President or one of the Vice
Presidents of this corporation, without necessity of any authorization by the
Board of Directors, affixation of corporate seal, if any, or countersignature or
attestation by another officer. Any person or persons designated in the manner
above stated as the proxy or proxies of this corporation shall have full right,
power and authority to vote the shares or other securities issued by such other
corporation and owned by this corporation the same as such shares or other
securities might be voted by this corporation.
ARTICLE VI.
CERTIFICATES FOR SHARES; TRANSFER OF SHARES
6.01. Certificates for Shares. Certificates representing shares of the
corporation shall be in such form, consistent with the Wisconsin Business
Corporation Law, as
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shall be determined by the Board of Directors. Such certificates shall be signed
by the Chairman of the Board, the Vice Chairman of the Board, the President or a
Vice President and by the Secretary or an Assistant Secretary. All certificates
for shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled, except as provided in Section 6.06.
6.02. Facsimile Signatures and Seal. The seal of the corporation, if
any, on any certificates for shares may be a facsimile. The signature of the
Chairman of the Board, the Vice Chairman of the Board, the President or Vice
President and the Secretary or Assistant Secretary upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent,
or a registrar, other than the corporation itself or an employee of the
corporation.
6.03. Signature by Former Officers. The validity of a share
certificate is not affected if a person who signed the certificate (either
manually or in facsimile) no longer holds office when the certificate is issued.
6.04. Transfer of Shares. Prior to due presentment of a certificate
for shares for registration of transfer, the corporation may treat the
registered owner of such shares as the person exclusively entitled to vote, to
receive notifications and otherwise to have and exercise all the rights and
power of an owner. Where a certificate for shares is presented to the
corporation with a request to register for transfer, the corporation shall not
be liable to the owner or any other person suffering loss as a result of such
registration of transfer if (a) there were on or with the certificate the
necessary endorsements, and (b) the corporation had no duty to inquire into
adverse claims or has discharged any such duty. The corporation may require
reasonable assurance that such endorsements are genuine and effective and
compliance with such other regulations as may be prescribed by or under the
authority of the Board of Directors.
6.05. Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
6.06. Lost, Destroyed or Stolen Certificates. Where the owner claims
that certificates for shares have been lost, destroyed or wrongfully taken, a
new certificate shall be issued in place thereof if the owner (a) so requests
before the corporation has notice that such shares have been acquired by a bona
fide purchaser, (b) files with the corporation a sufficient indemnity bond if
required by the Board of Directors or any principal officer, and (c) satisfies
such other reasonable requirements as may be prescribed by or under the
authority of the Board of Directors.
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6.07. Consideration for Shares. The Board of Directors may authorize
shares to be issued for consideration consisting of any tangible or intangible
property or benefit to the corporation, including cash, promissory notes,
services performed, contracts for services to be performed or other securities
of the corporation. Before the corporation issues shares, the Board of Directors
shall determine that the consideration received or to be received for the shares
to be issued is adequate. The determination of the Board of Directors is
conclusive insofar as the adequacy of consideration for the issuance of shares
relates to whether the shares are validly issued, fully paid and nonassessable.
The corporation may place in escrow shares issued in whole or in part for a
contract for future services or benefits, a promissory note, or otherwise for
property to be issued in the future, or make other arrangements to restrict the
transfer of the shares, and may credit distributions in respect of the shares
against their purchase price, until the services are performed, the benefits or
property are received or the promissory note is paid. If the services are not
performed, the benefits or property are not received or the promissory note is
not paid, the corporation may cancel, in whole or in part, the shares escrowed
or restricted and the distributions credited.
6.08. Stock Regulations. The Board of Directors shall have the power
and authority to make all such further rules and regulations, not inconsistent
with law, as it may deem expedient concerning the issue, transfer and
registration of shares of the corporation.
ARTICLE VII.
SEAL
7.01. The Board of Directors may provide for a corporate seal for the
corporation.
ARTICLE VIII.
INDEMNIFICATION
8.01. Provision of Indemnification. The corporation shall, to the
fullest extent permitted or required by Sections 180.0850 to 180.0859,
inclusive, of the Wisconsin Business Corporation Law, including any amendments
thereto (but in the case of any such amendment, only to the extent such
amendment permits or requires the corporation to provide broader indemnification
rights than prior to such amendment), indemnify its Directors and Officers
against any and all Liabilities, and advance any and all reasonable Expenses,
incurred thereby in any Proceeding to which any such Director or Officer is a
Party because he or she is or was a Director or Officer of the corporation. The
corporation shall also indemnify an employee who is not a Director or Officer,
to the extent that the employee has been successful on the merits or otherwise
in defense of a Proceeding, for all Expenses incurred in the Proceeding if the
employee was a Party because he or she is or was an employee of the corporation.
The rights to indemnification granted hereunder shall not be deemed exclusive of
any other rights to indemnification against Liabilities or the advancement of
Expenses which a Director, Officer or employee may be entitled under any written
agreement, Board resolution, vote of shareholders, the Wisconsin Business
Corporation Law or otherwise. The corporation may,
B-15
<PAGE>
but shall not be required to, supplement the foregoing rights to indemnification
against Liabilities and advancement of Expenses under this Section 8.01 by the
purchase of insurance on behalf of any one or more of such Directors, Officers
or employees, whether or not the corporation would be obligated to indemnify or
advance Expenses to such Director, Officer or employee under this Section 8.01.
All capitalized terms used in this Article VIII and not otherwise defined herein
shall have the meaning set forth in Section 180.0850 of the Wisconsin Business
Corporation Law.
ARTICLE IX.
AMENDMENTS
9.01. By Shareholders. These by-laws may be amended or repealed and
new by-laws may be adopted by the shareholders at any annual or special meeting
of the shareholders at which a quorum is in attendance.
9.02. By Directors. Except as otherwise provided by the Wisconsin
Business Corporation Law or the articles of incorporation, these by-laws may
also be amended or repealed and new by-laws may be adopted by the Board of
Directors by affirmative vote of a majority of the number of directors present
at any meeting at which a quorum is in attendance; provided, however, that the
shareholders in adopting, amending or repealing a particular by-law may provide
therein that the Board of Directors may not amend, repeal or readopt that
by-law.
9.03. Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors which would be inconsistent with the
by-laws then in effect, but which is taken or authorized by affirmative vote of
not less than the number of shares or the number of directors required to amend
the by-laws so that the by-laws would be consistent with such action, shall be
given the same effect as though the by-laws had been temporarily amended or
suspended so far, but only so far, as is necessary to permit the specific action
so taken or authorized.
B-3
Five-Year Summary of Selected Financial Data
<TABLE>
Selected Income Statement Data
Year Ended December 31
<CAPTION>
(In Thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $124,328 $133,405 $145,503 $121,997 $98,571
Operating income (loss) (2,208) 5,598 13,156 10,088 6,662
Net income (loss) (2,637) 2,260 6,779 5,386 3,328
</TABLE>
<TABLE>
Selected Balance Sheet Data
Year Ended December 31
<CAPTION>
(In Thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $40,792 $44,801 $48,413 $46,811 $34,537
Total assets 98,020 98,615 101,920 92,286 74,862
Long-term obligations 10,702 9,827 12,499 16,002 4,893
Shareholders' equity 56,388 63,035 61,848 55,936 51,322
</TABLE>
<TABLE>
Selected Share Data
Year Ended December 31
<CAPTION>
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Basic earnings (loss) per share $ (.41) $ .34 $ 1.02 $ .80 $ .48
Diluted earnings (loss) per share $ (.41) $ .34 $ 1.01 $ .80 $ .48
Dividends per share $ .13 $ .13 $ .13 $ .11 $ .09
Shares used in basic
per share calculation (000's) 6,465 6,662 6,668 6,668 6,680
Shares used in diluted
per share calculation (000's) 6,465 6,676 6,713 6,674 6,680
</TABLE>
04
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking Statements
Certain matters discussed below in this 1999 Annual Report (and, thereby, the
1999 Form 10-K) are "forward-looking statements" intended to qualify for the
safe harbor from liability established by the Private Securities Litigation
Reform Act of 1995. These forward-looking statements can generally be identified
as such because the context of the statement includes phrases such as the
Company "believes," "expects" or other words of similar import. Similarly,
statements that describe the Company's future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which could cause actual results or outcomes to
differ materially from those currently anticipated. Factors that could affect
actual results or outcomes include, without limitation:
o Weather conditions
o Dealer inventory levels
o Actions of Company competitors
o Changes in consumer buying patterns
o Loss of a material customer
o Imports of competitive foreign-sourced products
Shareholders, potential investors and other readers are urged to consider these
factors in evaluating the forward-looking statements and are cautioned not to
place undue reliance on such forward-looking statements. The forward-looking
statements included are made only as of the date of this 1999 Annual Report. The
Company is not obligated to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
Overview
The Company markets and distributes its products through both the industrial and
retail channels of distribution. The less weather sensitive industrial channel
of distribution accounts for approximately 30% of total net sales and serves the
food processing, mining, construction and industrial end use markets with
protective footwear and clothing. In order to build the less weather dependent
industrial business, the Company in 1996 acquired Rainfair, Inc., a manufacturer
and marketer of rainwear and protective clothing. In addition, the Company is
gradually shifting its retail product mix to become less dependent on winter
weather. This is being accomplished through the faster growth of the Danner
leather product line and the addition of leather and protective clothing product
offerings under the LaCrosse brand.
Net sales generated during the last five months of the year can account for over
55% of the Company's net sales and have a significant impact on the Company's
results of operations. Because consumers generally purchase a large percentage
of the Company's products from September through January, retail dealers
generally want delivery of products from June through October for advance orders
and from October through December for restocking (or "fill-in") orders.
Generally mild or dry weather during the late fall and early winter has a
negative impact on the Company's net sales for the current year, while cold or
wet weather during such time has a favorable impact. Further, weather conditions
in one season can affect future net sales, particularly where weather
contributes to high or low dealer inventory levels at the season's end. To
satisfy demands for its products and to provide for uniform production levels,
the Company generally manufactures its footwear products year-round. To assist
in production scheduling, the Company's sales force calls on retail dealers from
January to June to present the product line, review inventory levels and prepare
an advance order. The Company offers price discounts for orders placed prior to
July, although advance orders may be canceled at any time. To attempt to balance
the flow of shipments and the need for warehouse space, the Company offers
extended terms on receivables relating to advance orders to induce retail
dealers to allow some shipments of seasonal products prior to the peak shipment
period. The advance order terms provide for payment by December 1 (January 1 in
the case of Southern dealers). Because of seasonal fluctuations, inventory
levels are highest at mid-year and accounts receivable levels are highest during
the fourth quarter.
<PAGE>
The Company is gradually shifting more of its production to offshore facilities.
This will result in decreased domestically produced products and thereby lower
investments in plant and equipment, and provide a more competitively priced
product in the marketplace. However, the use of offshore sourcing facilities
will require placement of orders 4 to 6 months in advance of the date the
customer requires delivery, thus increasing the emphasis on forecasting
capabilities.
Each year, the Company introduces a number of new products. A new product, if
successful, can generate growing amounts of net sales during the first two to
four years. In some cases, net sales of new products will help to offset adverse
factors, such as mild or dry weather or adverse economic conditions.
05
<PAGE>
Results of Operations
The following table shows the percentage relationship to net sales of items
derived from the Consolidated Statements of Operations and the percentage change
from year to year.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage of Increase (Decrease)
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997 1999 vs. 1998 1998 vs. 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% (7)% (8)%
Cost of goods sold 76.5 74.1 72.0 (4) (6)
Gross profit 23.5 25.9 28.0 (16) (15)
Selling and
administrative expenses (25.3) (21.7) (19.0) 8 5
Operating income (loss) (1.8) 4.2 9.0 -- (57)
Interest expense (1.8) (1.7) (1.4) (2) 11
Other income .1 .3 .4 (76) (36)
Income (loss) before
income taxes (3.5) 2.8 8.0 -- (68)
Income taxes 1.4 (1.1) (3.1) -- (68)
Minority interest -- -- (.2) -- --
Net income (loss) (2.1)% 1.7% 4.7% -- (67)%
</TABLE>
Year Ended December 31, 1999
Compared to Year Ended December 31, 1998
Net Sales. Net sales in 1999 decreased $9.1 million, or 7%, to $124.3 million
from $133.4 million in 1998. The warm, dry weather across most of the country
during the fourth quarter of 1998 and the first and fourth quarters of 1999
resulted in reduced demand for weather-related boots and protective clothing. In
addition, shipments to L.L. Bean were down approximately $1.6 million as
compared to 1998 as a result of L.L. Bean's July 1998 decision to replace their
handcrafted rubber bottoms purchased from the Company with molded bottoms from
another vendor. The Company antici-pates no further reduction in net sales from
L.L. Bean. Consumer rainwear shipments were down approximately $1.0 million,
largely as a result of a $1.5 million shipment to a large mass merchant in 1998
which did not reoccur in 1999. The Company anticipates shipments of
approximately $2.0 million to this mass merchant in 2000. Partially offsetting
these declines was a $2.4 million increase in shipments of LaCrosse brand
leather boots, driven largely by the introduction of the Gamemaster(TM) series.
Gross Profit. Gross profit as a percentage of net sales decreased to 23.5% in
1999 from 25.9% in 1998. The lower gross profit margins were driven largely by a
$1.8 million charge taken in the fourth quarter of 1999 in connection with the
reduction of the LaCrosse rubber product line, the discontinuation of the Lake
of the Woods brand and the tighter focus of the Red Ball brand. The charge,
based on managements' best estimate (subject to change), relates to anticipated
disposition costs on equipment and raw material used in the production of these
products and discontinued finished goods inventory. In addition, there was $.4
million of LIFO expense in 1999, compared to $.8 million of income in 1998. This
LIFO expense in 1999 was driven by inventory mix (a higher proportion of goods
with low base year costs) as compared to 1998, when lower inventory levels in
the LIFO pool resulted in income. In addition, gross margins were adversely
affected by unabsorbed factory overhead (the result of lower production levels
in response to lower demand) and start-up costs associated with the commencement
of leather footwear production in the Company's Clintonville, Wisconsin
manufacturing plant.
<PAGE>
Selling and Administrative Expenses. Selling and administrative expenses
increased $2.4 million, or 8%, in 1999 as compared to 1998. The increase in
selling and administrative expenses was driven by a $.5 million increase in
product development spending due to the emphasis on new product introductions
for the LaCrosse and Danner brands, a $.6 million increase in distribution costs
in support of the retail/industrial channels of distribution ($.3 million of the
increase was a result of allocating facility costs from manufacturing to
warehousing), a $.6 million increase in marketing and selling costs in support
of the Danner brand and the industrial channel of distribution and a $.4 million
increase in consulting services (primarily in support of a LaCrosse brand
strategic marketing study, the layout and functionality of the distribution
center and IT support for the implementation of a new Enterprise Resource
Planning system currently in progress). The Company does not expect significant
increases in product development or distribution costs in 2000.
Interest Expense. Interest expense decreased $55,000, or 2%, in 1999 as compared
to 1998. A slightly lower average borrowing cost was the primary reason for the
decrease.
Income Tax Expense. The Company's effective income tax rate in 1999 was 39.0%,
compared to 39.2% in 1998.
06
<PAGE>
Year Ended December 31, 1998
Compared To Year Ended December 31, 1997
Net Sales. Net sales in 1998 decreased $12.1 million, or 8.3%, to $133.4 million
from $145.5 million in 1997. The mild winter weather across most of the country
from December 1997 through the first quarter of 1998 significantly reduced
fill-in orders in early 1998 and also reduced advance orders for shipment in the
third quarter. In addition, the extremely warm and dry weather from mid-November
through December 1998 lowered retail demand and nearly eliminated late 1998
fill-in orders. While the Company's dealers ended 1998 with excessive inventory,
it is believed the favorable weather conditions in January 1999 reduced
inventory levels below last year's levels. Shipments to L.L. Bean were also down
approximately $1.3 million as compared to 1997, the result of a decision by L.L.
Bean effective July 1998 to replace their handcrafted rubber bottoms purchased
from the Company with molded bottoms from another vendor. Further, consumer
rainwear shipments were down approximately $1.0 million, primarily as a result
of lower shipments to a large discount mass merchant. These decreases were
partially offset by a 10% increase in shipments of our less weather sensitive
Danner brand leather products, largely a result of new products.
Gross Profit. Gross profit as a percentage of net sales decreased to 25.9% in
1998 from 28.0% in 1997. Gross profit margins were adversely affected by
unabsorbed factory overhead (the result of lower production levels in response
to lower demand), a higher level of closeout sales (primarily related to the
transition of the Lake of the Woods brand product line to the LaCrosse brand)
and a reduced volume of higher margin fill-in orders in both the first and
fourth quarters. In addition, production was discontinued at the Company's
factory in Virginia and transferred to another Company facility, which
negatively impacted margins by approximately .2%.
Selling and Administrative Expenses. Selling and administrative expenses
increased $1.3 million, or 5%, in 1998 as compared to 1997. The increase in
selling and administrative expenses was a result of a planned increase in
consumer advertising, increased selling and marketing expenses in support of the
growth of the Danner brand, increased spending on product development and
increased warehousing costs to support the Lake of the Woods brand and as a
result of the consolidation of the Company's industrial warehousing. These
increases more than offset sales volume related decreases in variable expense.
As a percent of net sales, selling and administrative expenses increased from
19.0% in 1997 to 21.7% in 1998, largely as a result of higher planned expenses
and lower sales volume.
Interest Expense. Interest expense increased $220,000, or 11%, in 1998 as
compared to 1997. The increase was primarily the result of $2.4 million in
additional short-term borrowings for the January 1998 purchase of all Rainfair,
Inc. common stock held by the former principal owner. In addition, higher
inventory levels throughout the year, primarily the result of lower fill-in
sales during the winter of 1997-98, contributed to increased borrowings.
Income Tax Expense. The Company's effective income tax rate in 1998 was 39.2%,
the same as the 1997 income tax rate.
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 its
line of credit. The Company requires working capital primarily to support
fluctuating accounts receivable and inventory levels caused by the Company's
seasonal business cycle. The Company's working capital needs are lowest in the
first quarter and highest from August through October. The Company invests
excess cash balances in short-term commercial paper or money market investments.
<PAGE>
In May 1999, the Company renegotiated its unsecured credit agreement with
Firstar Bank, N.A. as the lead bank. Under the terms of the revised agreement,
the maximum amount of borrowings were increased to $75.0 million, including a
$12.5 million term loan, from the previous maximum level of $62.5 million. The
$12.5 million term loan was primarily used to repay the balance due under the
prior term loan and requires quarterly payments of $.4 million which commenced
in August 1999. The credit agreement expires on May 28, 2002.
Cash generated by operations in 1999 amounted to $4.2 million compared to $5.5
million in 1998. Net income in 1999 decreased $4.9 million from the 1998 level,
however, this was more than offset by a $2.4 million increase in accounts
payable (primarily due to timing) as compared to a $2.9 million decrease in
1998. Accounts receivable decreased $2.7 million in 1999 as compared to a $4.2
million decrease in 1998. The reduction in receivables in both years was a
result of lower fourth quarter net sales, primarily as a result of the warm, dry
weather in the fourth quarter of both years. In 1998, cash generated by
operations amounted to $5.5 million compared to $2.1 million in 1997. Net income
in 1998 decreased $4.5 million from the 1997 level, however this was more than
offset by a $4.2 million reduction in receivables (as compared to a $4.0 million
increase in 1997). The reduction in receivables as of December 31, 1998 was
primarily the result of a 25% reduction in sales in December 1998 as compared to
the prior year. During 1998, inventories increased $.6 million, primarily as a
result of lower than anticipated net sales during November and December 1998.
Accounts payable decreased $2.9 million from the 1997 level, reflecting lower
production levels during December 1998.
07
<PAGE>
Net cash used in investing activities during 1999 was $4.2 million, down from
$6.6 million in 1998. During 1999, the Company spent $2.5 million for capital
expenditures, which was down $1.8 million from the 1998 level. The reduced level
of sales the last two years and the absence of any new major projects were the
primary reasons for the decrease. Also contributing to the usage of cash in 1999
was a $1.1 million payment to the former shareholders of Danner to satisfy a
guarantee agreement and $.5 million of other payments. In addition to $4.3
million of capital expenditures in 1998, the Company also paid $2.4 million to
purchase all of the Rainfair, Inc. common stock held by the former principal
owner which made Rainfair, Inc. a 100% owned subsidiary of the Company. It is
anticipated that capital expenditures during 2000 will be at about the same
level as in 1998. During 1998, net cash used in investing activities was $6.6
million, up from $3.7 million in 1997. During 1998, spending on property and
equipment was up approxi-mately $.9 million from the prior year, primarily as a
result of the construction of a product design/development center and the
purchase of Enterprise Resource Planning (ERP) software. The Company commenced
installation of the ERP software during 1999 and several phases will be
completed during 2000. Also contributing to the 1998 increase in cash used in
investing activities was the January 1998 purchase of the balance of Rainfair,
Inc. common stock not already owned for approximately $2.4 million.
Net cash provided by financing activities was $1.6 million in 1999 as compared
to $1.1 million in 1998. During 1999, $4.6 million of short-term borrowings were
used to purchase treasury stock ($2.0 million), pay dividends ($.9 million) and
repay long-term debt ($.1 million). In 1998, $5.5 million of short-term
borrowings were used to repay long-term debt ($3.3 million), pay cash dividends
($.9 million) and purchase treasury stock ($.2 million).
In March 1995, the Company announced plans to repurchase up to 130,000 shares of
common stock in the open market. During 1999, 55,000 shares were repurchased
which completed this authorization. In April 1999, the Company also announced
plans to repurchase up to an additional 375,000 shares of common stock in the
open market. During 1999, the Company repurchased 79,800 shares at a cost of
$587,000.
In April 1999, the Company reported that it had repurchased in a private
transaction, at the current market price, all of the 135,178 shares of common
stock issued in connection with the Company's 1994 acquisition of Danner Shoe
Manufacturing Co. for a total cost of $1,042,000.
In March 2000, the Company repurchased, at the current market price, 500,000
shares of common stock for a total cost of $2,125,000.
In March 1994, the Company acquired substantially all of the assets of Danner
Shoe Manufacturing Co., in part by issuing 277,778 shares of common stock as a
portion of the purchase price. In the acquisition, the Company guaranteed the
holders of this common stock a market price of at least $16.20 per share by
March 1, 1999. In March of 1999, the Company made a payment of $1.1 million to
satisfy this guarantee.
The Company's debt to total capital ratio was 32.0% at December 31, 1999, 25.9%
at December 31, 1998 and 24.3% at December 31, 1997.
Currently available funds, including the line of credit, together with the
anticipated cash flows generated from future operations, are believed to be
adequate to cover the Company's anticipated capital and working capital needs
during 2000.
<PAGE>
From time to time, the Company evaluates acquisitions of businesses or product
lines that could complement the Company's business. The Company has no present
understandings, commitments or agreements with respect to any acquisition.
However, if the Company makes significant future acquisitions, it may be
required to raise funds through additional bank financing or the issuance of
debt or equity securities.
Year 2000
The year 2000 issue is the result of computer programs using two digits (rather
than four) to define years. Computers or other equipment with date sensitive
software may recognize "00" as the year 1900 rather than 2000. This could result
in system failures or miscalculations. If the Company or its significant
customers or suppliers fail to correct year 2000 issues, the Company's ability
to operate could be adversely affected.
The Company spent approximately $250,000 during the years 1997 through 1999 to
address the year 2000 issue. The Company did not experience any significant
malfunctions or errors in its information or non-information technology systems
when the date changed from 1999 to 2000, and the Company has not experienced any
significant problems with its suppliers or customers as a result of the date
change.
Based on operations since January 1, 2000, the Company does not expect any
significant impact on its business as a result of the year 2000 issue. Because
it is possible that the full impact of the date change has not been fully
recognized, the Company will continue to monitor the year 2000 situation through
additional key dates. The Company believes, however, that any potential problems
are likely to be minor and correctable.
08
<PAGE>
LaCrosse Footwear Financial Statements
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(In Thousands, except for share data) 1999 1998
- -------------------------------------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------------------------------------
Current Assets
<S> <C> <C>
Cash and cash equivalents $2,022 $364
Trade accounts receivable, less allowances of $.9 and $1.0 million 20,445 23,151
Inventories (Note 3) 40,337 39,698
Prepaid expenses, deferred tax assets and other (Note 4) 5,725 4,289
-------------------------------
Total current assets 68,529 67,502
-------------------------------
Property and Equipment
Land, land improvements and buildings 8,319 7,997
Machinery and equipment 31,478 29,389
-------------------------------
39,797 37,386
Less accumulated depreciation 26,986 23,384
12,811 14,002
-------------------------------
Other Assets
Goodwill, net of amortization of $3.3 and $2.6 million (Note 2) 13,446 14,125
Deferred tax and other assets (Note 4) 3,234 2,986
-------------------------------
16,680 17,111
-------------------------------
$98,020 $98,615
===============================
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------------------------------
Current Liabilities
Current maturities of long-term obligations (Note 5) $1,712 $2,669
Notes payable, bank (Note 5) 14,088 9,500
Accounts payable 5,910 3,469
Accrued compensation 2,383 3,000
Accrued other 3,644 4,063
Total current liabilities 27,737 22,701
-------------------------------
Long-Term Obligations (Note 5) 10,702 9,827
Compensation and Benefits (Note 8) 3,193 3,052
Commitments and Contingencies (Notes 6, 7 and 8)
Shareholders' Equity (Notes 7 and 10)
Common stock, par value $.01 per share;
authorized 50,000,000 shares; issued 6,717,627 shares 67 67
Additional paid-in capital 26,434 27,582
Retained earnings 32,575 36,041
Less cost of 343,178 and 73,200 shares of treasury stock (2,688) (655)
-------------------------------
Total shareholders' equity 56,388 63,035
-------------------------------
$98,020 $98,615
===============================
See Notes to Consolidated Financial Statements.
</TABLE>
09
<PAGE>
LaCrosse Footwear Financial Statements
<TABLE>
Consolidated Statements of Operations
Years Ended December 31, 1999, 1998 and 1997
<CAPTION>
(In Thousands, except for share and per share data) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 124,328 $ 133,405 $ 145,503
Cost of goods sold 95,129 98,829 104,692
- -------------------------------------------------------------------------------------------------------------
Gross profit 29,199 34,576 40,811
Selling and administrative expenses 31,407 28,978 27,655
- -------------------------------------------------------------------------------------------------------------
Operating income (loss) (2,208) 5,598 13,156
Non-operating income (expense):
Interest expense (2,208) (2,263) (2,043)
Miscellaneous 92 381 593
- -------------------------------------------------------------------------------------------------------------
(2,116) (1,882) (1,450)
- -------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit) (4,324) 3,716 11,706
Provision for income taxes (benefit) (Note 4) (1,687) 1,456 4,588
- -------------------------------------------------------------------------------------------------------------
Net income (loss) before minority interest (2,637) 2,260 7,118
Minority interest in net income of subsidiary -- -- (339)
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,637) $ 2,260 $ 6,779
- ----------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ (.41) $ .34 $ 1.02
- -------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ (.41) $ .34 $ 1.01
- -------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic earnings per share 6,464,685 6,661,683 6,667,702
Diluted earnings per share 6,464,685 6,675,708 6,712,975
</TABLE>
See Notes to Consolidated Financial Statements.
10
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1999, 1998 and 1997
<CAPTION>
Additional Total
(In Thousands, except for Common Paid-In Retained Treasury Shareholders'
share and per share data) Stock Capital Earnings Stock Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $67 $27,579 $28,733 $(443) $55,936
Net income -- -- 6,779 -- 6,779
Dividends ($.13 per share) -- -- (867) -- (867)
---------------------------------------------------------------------------
Balance, December 31, 1997 67 27,579 34,645 (443) 61,848
Net income -- -- 2,260 -- 2,260
Dividends ($.13 per share) -- -- (864) -- (864)
Purchase of 25,000
shares of treasury stock -- -- -- (227) (227)
Issuance of 1,700
shares of treasury stock -- 3 -- 15 18
---------------------------------------------------------------------------
Balance, December 31, 1998 67 27,582 36,041 (655) 63,035
Net (loss) -- -- (2,637) -- (2,637)
Dividends ($.13 per share) -- -- (829) -- (829)
Purchase of 269,978
shares of treasury stock -- -- -- (2,033) (2,033)
Settlement of Danner
acquisition contingency
(Note 7) -- (1,148) -- -- (1,148)
---------------------------------------------------------------------------
Balance, December 31, 1999 $67 $26,434 $32,575 $(2,688) $56,388
===========================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
11
<PAGE>
LaCrosse Footwear Financial Statements
<TABLE>
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
<CAPTION>
(In Thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C> <C>
Net income (loss) $ (2,637) $ 2,260 $ 6,779
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 3,660 3,437 3,180
Amortization 679 680 572
Other154 126 386
Deferred income taxes (725) 207 86
Change in assets and liabilities,
net of effects from acquisition in 1997:
Trade accounts receivable 2,706 4,239 (4,033)
Inventories (639) (625) (3,316)
Accounts payable 2,441 (2,916) (1,065)
Accrued expenses and other (1,405) (1,900) (462)
-----------------------------------------------
Net cash provided by operating activities 4,234 5,508 2,127
Cash Flows from Investing Activities
Settlement of Danner acquisition contingency (1,148) -- --
Purchase of the minority interest in Rainfair, Inc. -- (2,365) --
Acquisition of Pro-Trak Corporation,
net of cash acquired -- -- 77
Purchase of property and equipment (2,513) (4,288) (3,364)
Other (507) 11 (416)
-----------------------------------------------
Net cash (used in) investing activities (4,168) (6,642) (3,703)
Cash Flows from Financing Activities
Proceeds from long-term obligations 12,755 -- --
Principal payments on long-term obligations (12,837) (3,352) (7,981)
Net proceeds from short-term borrowings 4,588 5,500 4,000
Cash dividends paid (864) (867) (733)
Purchase of treasury stock (2,033) (209) --
Other (17) -- --
-----------------------------------------------
Net cash provided by (used in)
financing activities 1,592 1,072 (4,714)
-----------------------------------------------
Increase (decrease) in cash
and cash equivalents 1,658 (62) (6,290)
Cash and cash equivalents:
Beginning 364 426 6,716
-----------------------------------------------
Ending $ 2,022 $ 364 $ 426
-----------------------------------------------
Supplemental Information
Cash payments for:
Interest $ 2,032 $ 2,178 $ 1,891
Income taxes $ 610 $ 2,101 $ 4,055
</TABLE>
See Notes to Consolidated Financial Statements.
12
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies
Nature of business
The Company designs, manufactures and markets premium quality protective
footwear and clothing for sale principally throughout the United States.
Significant accounting policies
Principles of consolidation
The 1999 and 1998 consolidated financial statements include the accounts of
LaCrosse Footwear, Inc. and its wholly owned subsidiaries (the "Company"). The
1997 consolidated financial statements include a 50% owned subsidiary where the
Company had board, operating and financial control. The Company acquired 100%
ownership of its 50% owned subsidiary in January 1998 (Note 2). All material
intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair value of financial instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of those investments.
The carrying amount of long-term debt approximates fair value based on the
interest rates, maturities and collateral requirements currently available for
similar financial instruments.
The fair value of the interest rate swap agreements was not material to the
financial position of the Company based upon the estimated amount the Company
would pay or receive to terminate these agreements.
Concentrations of credit risk
The Company grants credit to its customers, who are primarily domestic retail
stores, direct mail catalog merchants and wholesalers, based on an evaluation of
the customer's financial condition. Exposure to losses on receivables is
principally dependent on each customer's financial condition. The Company
monitors its exposure for credit losses and maintains an allowance for
anticipated losses.
Cash and cash equivalents
The Company considers all highly liquid debt instruments (including short-term
investment grade securities and money market instruments) purchased with
maturities of three months or less to be cash equivalents. The Company maintains
its cash in bank deposit accounts which, at times, exceed federally insured
limits. The Company has not experienced any losses in such accounts.
Inventories
Inventories are stated at the lower of cost or market. All inventories, except
for vinyl products, boot liners, leather boots, leather boot components and
rainwear, are valued using the last-in, first-out (LIFO) method. Vinyl products,
boot liners, leather boots, leather boot components and rainwear are valued
using the first-in, first-out (FIFO) method.
<PAGE>
Property and equipment
Property and equipment are carried at cost and are being depreciated using
straight-line and accelerated methods over their estimated useful lives as
follows: land improvements, 15 years; buildings and improvements, 20 to 40
years; and machinery and equipment, 3 to 7 years.
Intangible assets
Goodwill, representing the excess of cost over net assets acquired, is being
amortized on a straight-line basis over periods of 8 to 30 years. Trademarks are
being amortized on a straight-line basis over 15 years.
Impairment of long-lived assets
The Company reviews its long-lived assets and intangibles periodically to
determine potential impairment by comparing the carrying value of these assets
with expected future net cash flows provided by operating activities of the
business. Should the sum of the expected future net cash flows be less than the
carrying value, the Company would determine whether an impairment loss should be
recognized. An impairment loss would be measured by comparing the amount by
which the carrying value exceeds the fair value of the long-lived assets and
intangibles based on appraised market value.
Interest rate swap agreements
The Company uses interest rate swap agreements to manage its exposure to certain
interest rate changes. As interest rates change, the differential paid or
received is recognized in interest expense of the period.
13
<PAGE>
Notes to Consolidated Financial Statements
Revenue recognition and product warranty
Revenue is recognized at the time products are shipped to customers. Revenue is
recorded net of freight, estimated discounts and returns. The Company warrants
its products against defects in design, materials and workmanship generally for
one year. A provision for estimated future warranty costs is recorded when
products are shipped.
Income taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
and liabilities are recognized for temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Advertising and promotion
The Company advertises and promotes its products through national and regional
media, displays, catalogs and through cooperative advertising programs with
retailers. Costs for these advertising and promotional programs are generally
charged to expense as incurred. Advertising and promotional expense included in
the consolidated statements of operations for the years ended December 31, 1999,
1998 and 1997 is approximately $2.8, $2.9, and $2.2 million, respectively.
Stock-based compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, since the Company grants
options where the exercise price is equal to the market price at the date of the
grant, no compensation costs have been recognized.
Earnings per share
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," requires the presentation of earnings per share by all entities that
have common stock or potential common stock (such as options and convertible
securities) outstanding that trade in a public market. Because the Company has
potential common stock outstanding, as discussed in Note 7, the Company is
required to present basic and diluted earnings per share. Diluted per share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments unless the effect is to reduce the loss or increase the income
per common share from continuing operations.
The numerators are the same for the basic and diluted earnings per share
computations for all years presented. The impact of the stock options on the
denominators of the diluted earnings per share computation was to increase the
shares outstanding by 0 shares, 14,025 shares, and 45,273 shares for the years
ended December 31, 1999, 1998 and 1997, respectively. Options to purchase
415,863 shares of common stock at $7.63 to $14.50 per share were outstanding at
December 31, 1999 but were not included in the computation of diluted earnings
per share because to do so would be antidilutive.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. Management does not believe this will have a material effect on
the Company's operations. Implementation of this standard has recently been
delayed by the FASB for a 12-month period. The Company will adopt SFAS No. 133
as required for its first quarterly filing of fiscal year 2001.
<PAGE>
Note 2. 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 trade
name. The total purchase price was approximately $7.3 million which included the
immediate paydown of liabilities of $6.6 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 values as of the date of
acquisition.
In January 1998, the Company purchased all Rainfair, Inc. common stock held by
the former principal owner for approxi-mately $2.4 million, which made Rainfair,
Inc. a wholly owned subsidiary of the Company. Prior to January 1998, the
Company owned 50% of Rainfair, Inc.
Note 3. Inventories
A summary of inventories is as follows:
December 31,
(In Thousands) 1999 1998
- ------------------------------------------------------
Finished goods $32,487 $29,622
Work in process 1,496 1,536
Raw materials 6,354 8,540
-----------------------
Total inventories $40,337 $39,698
-----------------------
If all inventories were valued on the FIFO method, total inventories for 1999
and 1998 would have been $43.8 and $42.5 million, respectively.
14
<PAGE>
Note 4. Income Tax Matters
Net deferred tax assets and liabilities consist of the following components:
December 31,
(In Thousands) 1999 1998
- ------------------------------------------------------
Deferred tax assets:
Receivable allowances $ 322 $ 455
Inventory differences 1,024 324
Compensation and benefits 2,055 1,997
Insurance reserves and other 713 453
-----------------------
4,114 3,229
Deferred tax liabilities,
principally intangibles 979 819
-----------------------
$3,135 $2,410
-----------------------
The components giving rise to the net deferred tax assets described above have
been included in the accompanying consolidated balance sheets as follows:
December 31,
(In Thousands) 1999 1998
- ------------------------------------------------------
Current assets $2,747 $1,993
Noncurrent assets 388 417
-----------------------
$3,135 $2,410
-----------------------
The provision for income taxes (benefit) consists of the following:
Years Ended December 31,
- ------------------------------------------------------
(In Thousands) 1999 1998 1997
- ------------------------------------------------------
Current:
Federal $ (820) $ 892 $3,684
State (142) 357 818
Deferred (725) 207 86
-----------------------------------
$(1,687) $1,456 $4,588
-----------------------------------
The differences between statutory federal tax rates and the effective tax rates
are as follows:
Years Ending December 31,
1999 1998 1997
- -----------------------------------------------------------
Statutory federal
tax rate (35.0)% 35.0% 35.0%
State taxes, net of
federal tax benefit
and other (4.0) 4.2 4.2
--------------------------------
Effective tax rate (39.0)% 39.2% 39.2%
--------------------------------
Note 5. Financing Arrangements
Credit agreement
The Company has a $75 million unsecured credit agreement. Under the agreement,
the Company has (1) a $62.5 million revolving line of credit which expires on
May 28, 2002 ($12.5 million of which can be used to support letters of credit
and $22.5 million which can be used to issue unsecured commercial paper) and (2)
a $12.5 million term loan due May 28, 2004. At the Company's option, the
interest rate is either the bank's prime rate or Eurodollar rate plus .75% or 1%
for the revolving line of credit and Eurodollar rate plus 1.125% or 1.375% for
the term loan, depending upon the Company's leverage ratio (Eurodollar rate plus
.75% and Eurodollar rate plus 1.125% for the revolving line of credit and term
loan, as of December 31, 1999). Interest is payable monthly on prime rate loans
and at maturity on Eurodollar loans.
<PAGE>
The credit agreement contains various covenants, including minimum consolidated
tangible net worth, sale of assets, indebtedness, interest coverage ratio and
leverage ratio. At December 31, 1999, the Company did not meet the interest
coverage ratio, but this covenant violation was subsequently waived. At December
31, 1999 and 1998, there was $14.1 million and $9.5 million, respectively,
outstanding under the revolving line of credit. In addition, at December 31,
1999 and 1998, there were letter of credit commitments outstanding of $3.3
million and $3.7 million, respectively. In 1998, the Company entered into
interest rate swap agreements to manage its exposure to interest rate
fluctuations on its floating rate debt. As of December 31, 1999, the Company had
swap agreements in effect totaling $11.0 million, of which $7.0 million will
mature in 2002 with the remaining $4.0 million maturing in 2003. The Company is
exposed to credit loss in the event of nonperformance by the counterparty to the
interest rate swap agreements. However, the Company does not anticipate
nonperformance by the counterparty. The variable rate borrowings not offset by
swap agreements at December 31, 1999 and 1998 totaled $14.8 million and $9.4
million, respectively.
Long-term obligations
December 31,
(In Thousands) 1999 1998
- ------------------------------------------------------
Term loan under credit
agreement, due in quarterly
payments of $.4 million
with a final principal
payment of $4.9 million
on May 28, 2004 $11,700 $ --
Term loan under
credit agreement -- 10,900
Notes payable, paid in 1999 -- 1,028
Other 714 568
------------------------
12,414 12,496
Less current maturities 1,712 2,669
------------------------
$10,702 $9,827
------------------------
Maturities of long-term obligations for the next five years are as follows (in
millions): 2000, $1.7; 2001, $1.7; 2002, $1.7; 2003, $1.7; 2004, $5.3; and $.3
thereafter.
15
<PAGE>
Notes to Consolidated Financial Statements
Note 6. Lease Commitments and Total Rental Expense
The Company leases office space, retail stores, manufacturing facilities,
equipment and warehouse space under non-cancelable agreements which expire on
various dates through 2009 and are recorded as operating leases. The total
rental expense included in the consolidated statements of operations for the
years ended December 31, 1999, 1998 and 1997 is approximately $1.8, $1.9, and
$1.8 million, respectively. Approximate future minimum lease payments are as
follows (in millions): 2000, $1.8; 2001, $.9 , 2002, $.7; 2003, $.5; 2004, $.5
and $1.5 thereafter.
Note 7. Stock Options and
Shareholders' Equity
Stock options
The Company has granted stock options to officers and key employees under its
1993 and 1997 stock option plans pursuant to which options for up to 550,000
shares of common stock may be granted. The option price per share shall not be
less than 100% of the fair market value at the date of grant and the options
expire 10 years after grant or such shorter period as the compensation committee
of the Board so determines. Substantially all of the options vest in equal
increments over a five-year period.
The following summarizes all stock options granted under the plans:
Common Weighted Average
Shares Exercise Price
- --------------------------------------------------------
December 31, 1996 208,125 $11.12
Granted 63,500 11.59
Canceled (3,300) 9.06
Exercised (100) 9.06
---------
December 31, 1997 268,225 11.26
Granted 58,563 13.84
Canceled (23,275) 12.10
Exercised (1,700) 9.88
---------
December 31, 1998 301,813 11.70
Granted 116,750 8.54
Canceled (2,700) 9.78
---------
December 31, 1999 415,863 10.83
The weighted average remaining life of outstanding options is 6.7 years as of
December 31, 1999. Options exercisable as of December 31 were approximately
189,000 shares in 1999, 128,000 shares in 1998 and 82,000 shares in 1997 at a
weighted average exercise price of $11.63, $11.66 and $11.89, respectively.
Compensation expense under the plans is accounted for following the provisions
of APB Opinion No. 25 and its related interpretations. Accordingly, no
compensation cost has been recognized for grants made to date. If the Company
had elected to recognize compensation cost based on the fair value of the
options granted at the grant date as provided by SFAS No. 123, the Company's net
income (loss) for the years ended December 31, 1999, 1998 and 1997 would have
been $(2,816), 2,124 and 6,678, respectively. Pro forma diluted earnings (loss)
per share for the years ended December 31, 1999, 1998 and 1997 would have been
$(.44), $.32 and $.99, respectively.
<PAGE>
The weighted average fair value at date of grant for options granted during
1999, 1998 and 1997 was $3.87, $5.81 and $5.18 per share, respectively. The fair
value of each option is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following assumptions:
1999 1998 1997
- -------------------------------------------------------------------------------
Expected
dividend yield 1% 1% 1%
Expected stock
price volatility 20% 25% 25%
Risk-free
interest rate 6.5% 6.5% 6.5%
Expected life
of options 7 years 7 years 8 years
Settlement of acquisition contingency
In 1994, the Company acquired substantially all of the assets of Danner Shoe
Manufacturing Co. ("Danner") in part by issuing common stock as a portion of the
purchase price. In the acquisition, the Company guaranteed the holders of this
common stock a market price of at least $16.20 per share by March 1, 1999. The
fair value of this guarantee was measured by the Company as of the date of
acquisition. On March 1, 1999, the market price of the Company's common stock
was less than $16.20 per share and the Company was required to make a cash
payment of approximately $1.1 million to the former shareholders of Danner who
were parties to the guarantee. As a result, additional paid-in capital was
reduced by approximately $1.1 million.
16
<PAGE>
Note 8. Compensation and Benefit Agreements
The Company has defined benefit pension plans covering approximately 50% of its
employees. Eligible employees are entitled to monthly pension benefits beginning
at normal retirement age (65). The monthly benefit payable at the normal
retirement date under the Company's pension plans is equal to a specified dollar
amount or percentage of average monthly compensation, as defined in the plans,
multiplied by years of benefit service (maximum of 38 years). The Company's
funding policy is to make not less than the minimum contribution that is
required by applicable regulations, plus such amounts as the Company may
determine to be appropriate from time to time. In 1999, the Company's retirement
plan was amended to increase the monthly benefit payable and the eligibility age
for disability benefits. In 1998, the Company's union pension plan was amended
to increase the benefit rate for participants retiring or terminating after
September 30, 1998. These amendments resulted in increases of approximately $.7
and $1.0 million in both unrecognized prior service cost and projected benefit
obligation as of December 31, 1999 and 1998, respectively.
The Company sponsors an unfunded defined benefit postretirement medical and life
insurance plan that covers a majority of its employees until they qualify for
Medicare. The plan is contributory for retirees with contributions established
annually as a specified dollar amount. The Company funds the postretirement
benefit obligation as the costs are incurred.
Information relative to the Company's defined pension and other postretirement
benefit plans is presented below.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
December 31, December 31,
(In Thousands) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
Changes in benefit obligations:
<S> <C> <C> <C> <C>
Obligations at beginning of year $13,952 $12,568 $ 1,395 $ 797
Service cost 558 443 65 74
Interest cost 1,017 856 70 89
Plan amendment 662 996 370 --
Benefits paid (655) (603) (36) (34)
Actuarial losses (gains) 245 (308) (746) 469
- ------------------------------------------------------------------------------------------------------------
Obligations at end of year $15,779 $13,952 $ 1,118 $ 1,395
- ------------------------------------------------------------------------------------------------------------
Changes in plan assets:
Fair value of assets at beginning of year $16,127 $14,719 $ -- $ --
Actual return on assets 716 1,977 -- --
Company contributions 5 34 36 34
Participant contributions -- -- 21 27
Benefits paid (655) (603) (57) (61)
- ------------------------------------------------------------------------------------------------------------
Fair value of assets at end of year $16,193 $16,127 $ -- $ --
- ------------------------------------------------------------------------------------------------------------
Funded status at end of year:
Plan assets in excess of (less than) obligations $ 414 $2,175 $(1,118) $(1,395)
Unrecognized gains (3,316) (4,267) (1,550) (914)
Unrecognized prior service cost 1,816 1,291 318 --
Unrecognized transition obligation 61 112 777 847
- ------------------------------------------------------------------------------------------------------------
Accrued benefit cost $(1,025) $ (689) $(1,573) $(1,462)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
Years Ending December 31, Years Ending December 31,
(In Thousands) 1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Cost recognized during the year:
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 558 $ 443 $ 471 $ 65 $ 74 $ 22
Interest cost 1,017 856 844 70 89 60
Expected return on plan assets (1,264) (1,156) (1,017) -- -- --
Amortization of prior gains (159) (106) 30 (111) (101) (66)
Amortization of prior service cost 137 47 31 53 -- --
Amortization of transition obligation 51 51 51 70 70 70
----------------------------------------------------------------------
Net periodic benefit cost $ 340 $ 135 $ 410 $ 147 $ 132 $ 86
----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
December 31, December 31,
1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Assumptions used in computations:
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Rate of compensation increase 4.5% 4.5% 4.5% N/A N/A N/A
Expected return on plan assets 8.0% 8.0% 8.0% * * *
* This plan does not have separate assets, so there is no actual or expected return on plan assets.
</TABLE>
<PAGE>
For measurement purposes of other benefits, a 9.0% annual rate of increase in
the cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.0% at 2007 and remain at that level
thereafter. A one-percentage-point change in the assumed health care cost trend
rates would have the following effects for the year ended December 31, 1999 (in
thousands):
Increase Decrease
- ------------------------------------------------------------------
Effect on total of
service and interest
cost components $14 $(12)
Effect on postretirement
benefit obligation 80 (71)
Note 9. Enterprise-wide Disclosures
Segment information is not presented since all of the Company's revenue is
attributed to a single reportable segment. Information about the Company's
groups of products within its one segment is presented below.
Years Ending December 31,
(In Thousands) 1999 1998 1997
- -----------------------------------------------------------
Footwear $108,314 $115,643 $126,750
Protective
Clothing 16,014 17,762 18,753
- -----------------------------------------------------------
$124,328 $133,405 $145,503
- -----------------------------------------------------------
The following table presents information about the Company's revenue attributed
to countries based on the location of the customer.
Years Ending December 31,
(In Thousands) 1999 1998 1997
- --------------------------------------------------------
United States $119,981 $128,570 $142,459
Foreign
Countries 4,347 4,835 3,044
- --------------------------------------------------------
$124,328 $133,405 $145,503
- --------------------------------------------------------
Long-lived assets located outside of the United States totaled approximately $.5
million at December 31, 1999.
No single customer provided revenue of 10% or more of consolidated revenues in
any of the years presented.
Note 10. Subsequent Event
On March 14, 2000, the Company repurchased 500,000 shares of its common stock
for approximately $2.1 million.
18
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders of LaCrosse Footwear, Inc.
We have audited the accompanying consolidated balance sheets of LaCrosse
Footwear, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LaCrosse Footwear,
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
La Crosse, Wisconsin
February 10, 2000, except for Note 10, as to which
the date is March 14, 2000
19
<PAGE>
Quarterly Results of Operations (Unaudited)
The Company reports its quarterly results of operations on the basis of 13-week
periods for each of the first three quarters with the year ending on December
31st.
<TABLE>
The following tabulation presents the Company's unaudited quarterly results of operations for 1999 and 1998.
<CAPTION>
Thousands of dollars except per share data-1999 First Quarter Second Quarter Third Quarter Fourth Quarter
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $27,946 $26,788 $37,024 $32,570
Gross profit 7,472 7,087 9,790 4,850
Operating income (loss) 102 (141) 1,959 (4,128)
Net income (loss) (150) (320) 813 (2,980)
Basic and diluted earnings (loss) per share (.02) (.05) .13 (.47)
<CAPTION>
Thousands of dollars except per share data-1998 First Quarter Second Quarter Third Quarter Fourth Quarter
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $29,936 $29,461 $37,506 $36,502
Gross profit 7,767 7,689 10,160 8,960
Operating income 633 483 2,836 1,646
Net income 189 12 1,321 738
Basic and diluted earnings per share .03 .00 .20 .11
</TABLE>
Market Information
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol BOOT. The following table shows the high
and low transaction prices by calendar quarter for the past three years. On
March 24, 2000, there were approximately 300 shareholders of record and
approximately 2,000 beneficial owners of the Company's common stock.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th Year-end
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 $10 3/4 - 14 3/8 $11 - 13 1/2 $12 1/2 - 17 1/4 $14 - 16 $14 1/2
1998 $11 1/2 - 14 1/8 $11 3/8 - 12 1/2 $7 3/4 - 11 1/2 $7 3/4 - 10 $9 1/4
1999 $6 1/4 - 9 1/2 $6 5/8 - 9 $4 9/16 - 8 1/4 $4 1/4 - 6 23/32 $4 7/16
</TABLE>
Cash Dividends Declared Per Share
It is the Company's policy to pay annual cash dividends. The chart below shows
annual cash dividends declared per share for the past three years:
1999 1998 1997
- --------------------------------------------------------------------------------
Dividends declared per share $.13 $.13 $.13
Market Risk Management
The Company enters into interest rate swap agreements ("Swap Agreements") to
reduce its exposure to interest rate fluctuations on its floating rate debt. The
Swap Agreements exchange floating rate for fixed rate interest payments
periodically over the life of the agreements without exchange of the underlying
notional amounts. The notional amounts of interest rate agreements are used to
measure interest to be paid or received and do not represent an amount of
exposure to credit loss. For interest rate instruments that effectively hedge
interest rate exposures, the net cash amounts paid or received on the agreements
are accrued and recognized as an adjustment to interest expense. As of December
31, 1999, the Company had Swap Agreements in effect totaling $11.0 million
notional amount, of which $7.0 million will mature in 2002 with another $4.0
million maturing in 2003. The variable rate borrowings not offset by Swap
Agreements at December 31, 1999 totaled $14.8 million. Swap Agreement rates are
based on the three-month LIBOR rate. Based on average floating rate borrowings
outstanding throughout fiscal year 1999, a 100-basis point change in LIBOR would
have caused the Company's monthly interest expense to change by approximately
$16,500. The Company believes that these amounts are not material to the
earnings of the Company.
20
EXHIBIT (21)
SUBSIDIARIES OF LACROSSE FOOTWEAR, INC.
as of January 1, 2000
Jurisdiction
Name of Incorporation Percent Ownership
---- ---------------- -----------------
Direct
------
Clintonville Products, Inc. Wisconsin 100%
Danner Shoe Manufacturing Co. Wisconsin 100%
EXHIBIT (23)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this Annual Report on
Form 10-K of LaCrosse Footwear, Inc. of our report dated February 10, 2000
(except for Note 10, as to which the date is March 14, 2000), included in the
1999 Annual Report to Shareholders of LaCrosse Footwear, Inc.
We also consent to the incorporation by reference in the Registration Statements
on Form S-8 (Nos. 33-77516, 33-77518 and 333-2702) pertaining to the LaCrosse
Footwear, Inc. Employees' Retirement Savings Plan, the LaCrosse Footwear, Inc.
Union Employees' Retirement Savings Plan and the LaCrosse Footwear, Inc. 1993
Employee Stock Incentive Plan of our report dated February 10, 2000 (except for
Note 10, as to which the date is March 14, 2000), with respect to the
consolidated financial statements incorporated herein by reference, and our
report dated February 10, 2000 (except for Note 10 of the consolidated financial
statements, as to which the date is March 14, 2000), with respect to the
financial statement schedule included in this Annual Report on Form 10-K of
LaCrosse Footwear, Inc. for the year ended December 31, 1999.
McGLADREY & PULLEN, LLP
La Crosse, Wisconsin
March 28, 2000
<TABLE> <S> <C>
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LACROSSE FOOTWEAR, INC. AS OF AND FOR THE PERIOD ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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