<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 30, 1996 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 0-24730
THE FLORSHEIM SHOE COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-3520923
- - ------------------------------------------------ -------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
130 South Canal Street, Chicago, Illinois 60606
- - ------------------------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 559-2500
Not Applicable
-----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 requirement for the past 90 days. Yes [x] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [x] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
8,346,051 Shares as of April 30, 1996
-------------------------------------
================================================================================
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended March 30, 1996.
Consolidated Balance Sheet:
March 30, 1996
December 30, 1995
Consolidated Statement of Operations:
Three Months Ended March 30, 1996
Three Months Ended April 1, 1995
Consolidated Statement of Cash Flows:
Three Months Ended March 30, 1996
Three Months Ended April 1, 1995
Notes to Consolidated Financial Statements
The financial statements are unaudited, but include all adjustments
(consisting of normal recurring adjustments) which the management of the
Company considers necessary for a fair presentation of the period. The
results for the three months ended March 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
2
<PAGE> 3
THE FLORSHEIM SHOE COMPANY
Consolidated Balance Sheet
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 30, March 30,
ASSETS 1995 1996
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,249 $ 12,193
Receivables, less allowances of $2,284 at
December 30, 1995 and $1,726 at March 30, 1996 36,113 27,552
Inventories 84,684 73,620
Deferred tax assets, net 10,027 10,442
Prepaid expenses and other current assets 4,091 4,672
- - ------------------------------------------------------------------------------------------------------------------
Total current assets 140,164 128,479
Property, plant and equipment 34,388 33,945
Less: accumulated depreciation 12,646 13,465
- - ------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 21,742 20,480
Deferred tax assets, net 6,144 5,937
Other assets 18,271 17,963
- - ------------------------------------------------------------------------------------------------------------------
$ 186,321 $ 172,859
==================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------------------------------------------------------------------------------------
Current liabilities:
Notes payable $ 94 $ -
Accounts payable 11,492 11,300
Accrued expenses 13,088 12,964
Accrued interest expense 3,082 828
Accrued income taxes payable 486 53
- - ------------------------------------------------------------------------------------------------------------------
Total current liabilities 28,242 25,145
Long-term debt 80,126 69,450
Other long-term liabilities 22,885 22,992
- - ------------------------------------------------------------------------------------------------------------------
131,253 117,587
Shareholders' equity:
Preferred stock, without par value, 2,000,000 shares
authorized and no shares issued and outstanding - -
Common stock, 20,000,000 shares authorized,
without par value, $1.00 stated value, 8,346,051 shares
issued and outstanding 8,346 8,346
Paid-in capital 50,295 50,295
Accumulated translation adjustment (251) 113
Retained earnings (deficit) (3,322) (3,482)
- - ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 55,068 55,272
- - ------------------------------------------------------------------------------------------------------------------
$ 186,321 $ 172,859
==================================================================================================================
</TABLE>
3
<PAGE> 4
THE FLORSHEIM SHOE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
April 1, March 30,
1995 1996
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 71,131 $ 61,927
Cost of sales 39,250 34,043
- - ----------------------------------------------------------------------------------------------------------------------
Gross profit 31,881 27,884
Selling, general
and administrative expenses 27,983 26,883
- - ----------------------------------------------------------------------------------------------------------------------
Earnings from operations 3,898 1,001
Interest expense, net 3,469 2,794
Other income (expense), net 20 1,544
- - ----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income tax expense 449 (249)
Income tax expense (benefit) 157 (89)
- - ----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 292 $ (160)
- - ----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share $ 0.03 $ (0.02)
- - ----------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding - 8,346,051
Weighted average common shares /
equivalents outstanding 8,415,257 -
======================================================================================================================
</TABLE>
4
<PAGE> 5
THE FLORSHEIM SHOE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
April 1, March 30,
1995 1996
<S> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings (loss) $ 292 $ (160)
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
(excluding assets/liabilities related to
the sale of assets of Hy-Test):
Loss (gain) on disposal of assets 81 (1,850)
Depreciation and amortization 1,245 1,199
Deferred taxes (47) (467)
Noncash interest expense 236 221
Increase in receivables (443) (226)
Decrease (increase) in inventories 4,252 (194)
Increase in prepaid expenses and other assets (1,962) (401)
Decrease in accounts payable, accrued -
interest expense and other accrued expenses (1,333) (2,402)
Increase (decrease)in other long-term liabilities (110) 107
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 2,211 (4,173)
- - -------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of assets of Hy-Test,
net of transaction costs - 22,600
Proceeds from the disposal of assets 3 71
Additions to property, plant and equipment (585) (784)
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (582) 21,887
- - -------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net decrease in notes and loans payable - (94)
Payments of long-term debt (533) (10,676)
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (533) (10,770)
- - -------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,096 6,944
Cash and cash equivalents at beginning of period 4,872 5,249
- - -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,968 $ 12,193
- - -------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure:
Cash payments for income taxes, net $ 846 $ 853
Cash payments for interest $ 3,636 $ 4,827
===============================================================================================================================
</TABLE>
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 30, 1996
(Dollars in thousands)
(Unaudited)
(1) DISTRIBUTION
Effective November 17, 1994, The Florsheim Shoe Company
(Florsheim or the Company) became an independent public company.
Furniture Brands International, Inc., formerly known as INTERCO
INCORPORATED, its former parent company and sole stockholder,
distributed all of the Company's common stock to existing
INTERCO shareholders at a rate of one share of Florsheim common
stock for every six shares of INTERCO common stock (the
Distribution). In connection with the Distribution, Florsheim
issued $85,000 in 12-3/4% Senior Notes due 2002 (Senior Notes)
and entered into a $75,000 secured credit facility (credit
facility). Florsheim used the proceeds from the Senior Notes
and $25,000 borrowed under the credit facility to pay financing
expenses and repay its share of outstanding joint and several
indebtedness issued in connection with the 1992 plan of
reorganization of INTERCO and its principal subsidiaries.
(2) SALE OF ASSETS OF HY-TEST SAFETY SHOE DIVISION
On March 22, 1996, the Company completed the sale of the assets
of its Hy-Test safety shoe division, including its Kirksville,
Missouri factory, to Wolverine World Wide, Inc., for an all cash
sale price of approximately $22,750. A portion of this cash was
used to reduce to zero the $17.6 million of outstanding
borrowings under the Company's bank credit facility as of the
sale date. The balance of the proceeds are available for
investment in the business and for further debt reduction.
Annual net sales of the sold business were $38,659 for the
twelve months ended December 30, 1995. The net gain on sale of
$1,850 is included in other income (expense), net.
(3) NET EARNINGS (LOSS) PER COMMON SHARE
For the three months ended March 30, 1996, net loss per share
data was computed using the average weighted shares outstanding.
Common stock equivalents were not used due to the antidilutive
effect on the computation.
For the three months ended April 1, 1995, net earnings per share
data was computed using the average weighted shares and common
stock equivalents outstanding.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 30, 1996
(Dollars in thousands)
(Unaudited)
(4) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
December 30, March 30,
1995 1996
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail merchandise $45,543 $43,751
Finished Products 29,186 22,043
Work-in-process 1,418 531
Raw materials 8,537 7,295
------- -------
$84,684 $73,620
======= =======
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
(5) SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In connection with the Distribution, Florsheim issued $85,000, of which
$69,450 are outstanding at March 30, 1996, of 12-3/4% Senior Notes due
2002. The Senior Notes are guaranteed, on a joint and several basis, by
all domestic subsidiaries of Florsheim.
The following condensed consolidating information presents:
1. Condensed consolidating balance sheets as of
March 30, 1996 and December 30, 1995 and condensed
consolidating statements of operations and statements of
cash flows for the three months ended March 30, 1996 and
the three months ended April 1, 1995, of (a) Florsheim,
the parent, (b) the guarantor subsidiaries, (c) the
nonguarantor subsidiaries and (d) Florsheim on a
consolidated basis,
2. Florsheim, the parent, with the investments in
the guarantor and nonguarantor subsidiaries accounted for
on the equity method, and
3. Elimination entries necessary to consolidate
Florsheim, the parent, with the guarantor and nonguarantor
subsidiaries.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 30, 1996
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Balance Sheet
March 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 8,766 $ 893 $ 2,534 $ - $ 12,193
Receivables 19,778 150 7,720 (96) 27,552
Inventories 40,066 22,082 11,472 - 73,620
Prepaid expenses and
other current assets 12,817 638 1,659 - 15,114
- - --------------------------------------------------------------------------------------------------------------------------------
Total current assets 81,427 23,763 23,385 (96) 128,479
Net property, plant and
equipment 13,829 4,109 2,542 - 20,480
Other assets 23,316 291 538 (245) 23,900
Investments in subsidiaries 46,582 - - (46,582) -
- - --------------------------------------------------------------------------------------------------------------------------------
Total assets $ 165,154 $ 28,163 $ 26,465 $ (46,923) $ 172,859
================================================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Note payable - - - - -
Accounts payable 7,178 1,050 3,168 (96) 11,300
Accrued expenses
and other current
liabilities 10,262 945 2,638 - 13,845
- - --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 17,440 1,995 5,806 (96) 25,145
Long-term debt, less
current maturities 69,450 - - - 69,450
Other long-term liabilities 22,992 - 245 (245) 22,992
Shareholders' equity 55,272 26,168 20,414 (46,582) 55,272
- - --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 165,154 $ 28,163 $ 26,465 $ (46,923) $ 172,859
================================================================================================================================
</TABLE>
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 30, 1996
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Balance Sheet
December 30, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 2,658 $ 1,131 $ 1,460 $ - $ 5,249
Receivables 15,756 10,490 8,906 961 36,113
Inventories 45,250 28,751 10,683 -- 84,684
Prepaid expenses and
other current assets 11,032 1,450 1,636 -- 14,118
- - ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 74,696 41,822 22,685 961 140,164
Net property, plant and
equipment 14,473 4,640 2,629 - 21,742
Other assets 22,231 1,755 504 (75) 24,415
Investments in subsidiaries 65,006 - - (65,006) -
- - ----------------------------------------------------------------------------------------------------------------------------------
Total assets $176,406 $48,217 $25,818 $(64,120) $186,321
==================================================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Notes payable - - 94 - 94
Accounts payable 5,133 2,469 2,929 961 11,492
Accrued expenses
and other current
liabilities 13,194 874 2,588 - 16,656
- - ----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 18,327 3,343 5,611 961 28,242
Long-term debt, less
current maturities 80,126 - - - 80,126
Other long-term liabilities 22,885 - 75 (75) 22,885
Shareholders' equity 55,068 44,874 20,132 (65,006) 55,068
- - ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $176,406 $48,217 $25,818 $(64,120) $186,321
==================================================================================================================================
</TABLE>
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 30, 1996
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Statements of Operations
For three months ended March 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 41,131 $ 16,999 $ 9,927 $ (6,130) $ 61,927
Cost of sales 24,069 10,233 5,871 (6,130) 34,043
- - -------------------------------------------------------------------------------------------------------------------------
Gross profit 17,062 6,766 4,056 - 27,884
Selling, general and
administrative expenses 15,542 7,256 4,085 26,883
- - -------------------------------------------------------------------------------------------------------------------------
Earnings from operations 1,520 (490) (29) - 1,001
Interest expense 2,794 - - - 2,794
Equity in earnings of subsidiaries,
net of tax 574 - - (574) -
Other income (expense), net 1,544 (12) 12 1,544
- - -------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income
tax expense 844 (502) (17) (574) (249)
Income tax expense (benefit) (513) 361 63 (89)
- - -------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,357 ($863) $ (80) $ (574) $ (160)
=========================================================================================================================
<CAPTION>
For three months ended April 1, 1995
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 42,487 $ 22,968 $ 9,387 $ (3,711) $ 71,131
Cost of sales 23,196 14,262 5,503 (3,711) 39,250
- - -------------------------------------------------------------------------------------------------------------------------
Gross profit 19,291 8,706 3,884 - 31,881
Selling, general and
administrative expenses 16,755 7,570 3,658 - 27,983
- - -------------------------------------------------------------------------------------------------------------------------
Earnings from operations 2,536 1,136 226 - 3,898
Interest expense 3,469 - - - 3,469
Equity in earnings of subsidiaries,
net of tax 901 - - (901) -
Other income (expense), net 17 (1) 4 - 20
- - -------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income
tax expense (15) 1,135 230 (901) 449
Income tax expense (benefit) (307) 447 17 157
- - -------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 292 $ 688 $ 213 $ (901) $ 292
=========================================================================================================================
</TABLE>
10
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 30, 1996
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Statements of Cash Flows
For three months ended March 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities
(excluding assets/liabilities related
to the sale of assets of Hy-Test) $ (5,732) $ (372) $1,218 $ 713 $ (4,173)
- - ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from the sale of assets of
Hy-Test, net of transaction costs 22,600 - - - 22,600
Proceeds from the
disposal of assets 71 - - - 71
Additions to property,
plant and equipment (519) (217) (48) - (784)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) -
investing activities 22,152 (217) (48) - 21,887
- - ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Net decrease in notes and loans payable - - (94) - (94)
Net capital contribution
from (to) Parent 364 351 (2) (713) -
Payment of long-term debt (10,676) - - - (10,676)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (10,312) 351 (96) (713) (10,770)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash
equivalents 6,108 (238) 1,074 - 6,944
Cash and cash equivalents
at beginning of period 2,658 1,131 1,460 - 5,249
- - ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 8,766 $ 893 $2,534 $ - $12,193
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 30, 1996
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Statements of Cash Flows
For three months ended April 1, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities $1,659 ($1,883) $402 $2,033 $2,211
- - ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from the
disposal of assets 3 -- -- -- 3
Additions to property,
plant and equipment (329) (94) (162) (585)
- - ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in
investing activities (326) (94) (162) -- (582)
- - ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Net capital contribution
from (to) Parent (565) 2,601 (3) (2,033) --
Payment of long-term debt (533) -- -- -- (533)
- - ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by
(used in) financing
activities (1,098) 2,601 (3) (2,033) (533)
- - ----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash
and cash equivalents 235 624 237 -- 1,096
Cash and cash equivalents
at beginning of period 2,157 1,061 1,654 -- 4,872
- - ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $2,392 $1,685 $1,891 $ -- $5,968
==================================================================================================================================
</TABLE>
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands)
OVERVIEW
The Florsheim Shoe Company (Florsheim or the Company), founded in 1892,
designs, markets, manufactures, and sources a diverse and extensive range of
products in the middle to upper price range of the men's quality footwear
market. Florsheim distributes its products in more than 6,000 department and
specialty store locations worldwide and through 355 company-operated specialty
stores and outlet stores as of March 30, 1996.
Effective November 17, 1994, Florsheim became an independent public company
when Furniture Brands International, Inc., formerly known as INTERCO
INCORPORATED, its former parent company and sole stockholder, distributed all
of the Company's common stock to existing INTERCO shareholders at a rate of one
share of Florsheim common stock for every six shares of INTERCO common stock
(the Distribution). In connection with the Distribution, Florsheim issued
$85,000 in 12-3/4% Senior Notes due 2002 (Senior Notes) and entered into a
$75,000 secured credit facility (credit facility). Florsheim used the proceeds
from the Senior Notes and $25,000 borrowed under the credit facility to pay
financing expenses and repay its share of the outstanding joint and several
indebtedness issued in connection with the 1992 plan of reorganization of
INTERCO and its principal subsidiaries.
On March 22, 1996, the Company completed the sale of the assets of its Hy-Test
safety shoe division, including its Kirksville, Missouri factory, to Wolverine
World Wide, Inc., for an all cash sale price of approximately $22,750. Annual
net sales of the sold business were $38,659 for the twelve months ended
December 30, 1995.
13
<PAGE> 14
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 1996 COMPARED TO THREE MONTHS ENDED APRIL 1, 1995.
Historical Comparisons
The following tables set forth, for the periods indicated, certain historical
operating data, expressed in thousands of dollars and as a percentage of net
sales, and retail store information.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
Three months ended
-------------------------------------------------------------------------
(Dollars in thousands) April 1, 1995 March 30, 1996
- - ---------------------------------------------------------------------------------------------------------------------------------
Amount % Amount %
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
U.S. Wholesale $ 20,236 28.5 % $16,981 27.4 %
U.S. Retail 28,959 40.7 27,304 44.1
International (including
exports from U.S.) 9,809 13.8 10,679 17.3
- - ---------------------------------------------------------------------------------------------------------------------------------
Subtotal 59,004 83.0 54,964 88.8
Hy- Test (1) 12,127 17.0 6,963 11.2
- - ---------------------------------------------------------------------------------------------------------------------------------
Total net sales $ 71,131 100.0 % $61,927 100.0 %
- - ---------------------------------------------------------------------------------------------------------------------------------
Percent change in same store
sales (2) (10.6)% (3.1)%
EBITDA (3) $ 5,143 7.2 % $2,200 3.6 %
- - ---------------------------------------------------------------------------------------------------------------------------------
Number of retail stores:
U.S. specialty 223 211
U.S. outlets 76 91
International 56 53
------ ------
Total 355 355
====== ======
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represent net sales of the Hy-Test safety shoe
business, which was sold on March 22, 1996.
(2) Includes only those sales figures for U.S. specialty
stores that have been in operation for at least twelve full
months. Percentage change reflects figures for period
depicted as compared to the figures from the preceding period
of comparable length.
(3) Earnings before interest expense, income taxes,
depreciation and amortization, and other income (expense),
net.
14
<PAGE> 15
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------
Three months ended
-----------------------------
April 1, March 30,
Operations data (as a percent of net sales) 1995 1996
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.0 % 100.0 %
Gross profit 44.8 45.0
Selling, general, and administrative expenses 39.3 43.4
Earnings from operations 5.5 1.6
Interest expense 4.9 4.5
Net earnings (loss) 0.4 (0.3)
=============================================================================================================================
</TABLE>
Net sales for the three months ended March 30, 1996 (First Quarter 1996) were
$61,927, down $9,204, or 12.9%, as compared to the three months ended April 1,
1995 (First Quarter 1995). U.S. wholesale net sales decreased $3,255, or
16.1%, due to unit volume decreases, primarily due to difficult market
conditions. U.S. retail net sales decreased $1,655, or 5.7%, as additional
sales from stores opened during or after the First Quarter 1995 were more than
offset by store closings and First Quarter 1996 same store sales decrease of
3.1% at U.S. specialty stores. International sales increased $870, or 8.9%,
primarily due to increased wholesale distribution. Hy-Test sales were down
$5,164, or 42.6%, due to unit volume decreases reflecting the sale of Hy-Test
on March 22, 1996 and a slowdown in orders due to difficult market conditions.
Gross profit margin for First Quarter 1996 was 45.0% of net sales, as compared
to 44.8% of net sales for First Quarter 1995. A decrease due to reduced unit
volumes and price promotion activity was offset by a mix change to a higher
percentage of retail sales which carry a higher gross margin.
Selling, general and administrative expenses for First Quarter 1996 were
$26,883, a decrease of $1,100 or 4.0%, from First Quarter 1995. Selling,
general and administrative expenses for First Quarter 1996 were 43.4% of net
sales, an increase from 39.3% of net sales for First Quarter 1995 as a result
of sales volume decreases. Expense decreases due to the Company's expense
reduction programs were partially offset by increased selling costs.
Earnings from operations for First Quarter 1996 were $1,001, a decrease of
$2,897 or 74.3%, from First Quarter 1995, and EBITDA for First Quarter 1996 was
$2,200, a decrease of $2,943 or 57.2%, from First Quarter 1995, with the
decreases due primarily to sales decreases and price promotion activity. As a
result, earnings from operations for First Quarter 1996 were 1.6% of net sales,
as compared to 5.5% of net sales for First Quarter 1995, and EBITDA for First
Quarter 1996 was 3.6% of net sales, as compared to 7.2% of net sales for First
Quarter 1995.
The net gain on the sale of the assets of the Hy-Test business, $1,850, is
included in other income (expense), net in First Quarter 1996.
Interest expense for First Quarter 1996 was $2,794, as compared to the First
Quarter 1995 amount of $3,468. This decrease is due to the lower amount of
Senior Notes outstanding in First Quarter 1996 and lower average outstanding
borrowings under the credit facility during the First Quarter 1996 as compared
to the average outstanding borrowings during the First Quarter 1995.
Pro forma Comparisons
The following pro forma financial data reflects the sale of the assets of
Hy-Test as if the sale had occurred as of January 1, 1995 for pro forma
statement of operations purposes and as of December 30, 1995 for pro forma
balance sheet purposes. The pro forma data excludes the net sales and direct
costs of the Hy-Test division and the Hy-Test operating profit contribution to
central overhead costs. Management believes that the assumptions used provide
a reasonable basis on which to present the pro forma condensed financial data.
The pro forma data are presented for informational purposes only and are not
necessarily indicative of the results that would have been achieved had the
transaction actually been consummated as of such dates.
15
<PAGE> 16
<TABLE>
<CAPTION>
===========================================================================================
Statement of Operations Data Three months ended
======================================================
Pro forma
======================================================
April 1, March 30,
1995 1996
===========================================================================================
Amount % Amount %
===========================================================================================
<S> <C> <C> <C> <C>
Net sales $59,004 100.0% $54,983 100.0%
Gross profit 28,719 48.7 26,284 47.8
Selling, general, and
administrative expenses 25,861 43.8 24,783 45.1
Earnings from operations 2,858 4.8 1,501 2.7
EBITDA 4,071 6.9 2,700 4.9
===========================================================================================
</TABLE>
Pro forma net sales for First Quarter 1996 were $4,021 (6.8%) lower than for
First Quarter 1995. As noted above, the reductions were primarily due to
decreases in U.S. wholesale unit volume and same store sale decreases at
Company-operated stores.
Pro forma earnings from operations and pro forma EBITDA for First Quarter 1996
were $1,357 and $1,371, respectively, lower than First Quarter 1995. As noted
above, the decreases were a result of lower sales volume and increased price
promotion activity partially offset by expense reduction.
The pro forma operations data percentages reflect the elimination of Hy-Test
without a corresponding reduction in central overhead. As the result of the
asset sale, the Company's sales mix shifts to a higher percentage of the total
sales from the Company-operated retail stores. Accordingly, the pro forma
gross profit increases as a percent of sales as compared to historical results
with an offsetting increase in the pro forma selling, general and
administrative expenses as a percent of sales as compared to historical
results.
<TABLE>
<CAPTION>
=======================================================================================
Balance Sheet Data Pro forma (Unaudited)
--------------------
December 30, March 30,
Assets 1995 1996
=======================================================================================
<S> <C> <C>
Cash and cash equivalents $ 16,227 $ 12,193
Receivables, net 25,810 27,552
Inventories 74,826 73,620
Other current assets 14,111 15,114
=======================================================================================
Total current assets 130,974 128,479
Property, plant and equipment, net 20,686 20,480
Other assets 23,898 23,900
=======================================================================================
Total assets $175,558 $172,859
=======================================================================================
Liabilities and Shareholders' Equity
Current liabilities $ 27,242 $ 25,145
=======================================================================================
Long-term debt 69,450 69,450
Other long-term liabilities 22,885 22,992
=======================================================================================
Total liabilities 119,577 117,587
=======================================================================================
Shareholders' equity 55,981 55,272
Total liabilities & shareholders' equity $175,558 $172,859
=======================================================================================
</TABLE>
16
<PAGE> 17
The pro forma balance sheet data reflects the sale of Hy-Test receivables and
inventory, the sale of the Kirksville, Missouri factory, the transfer of
certain liabilities to Wolverine, the use of cash proceeds from the sale to
eliminate outstanding borrowings under the bank credit facility, and the
unapplied balance of the cash proceeds from the sale, net of transaction costs
and taxes as a result of the transaction.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
As part of a continuing effort to decrease working capital requirements, the
Company initiated a program in 1994 to identify additional opportunities to
reduce working capital. To date, the Company has been successful in
significantly reducing its inventory requirements by: (i) eliminating poor
performing product styles; (ii) reducing the range of sizes and eliminating
duplication of its products; (iii) reducing inventory at Company-operated
stores; (iv) reducing inventory at the Company's Jefferson City, Missouri
distribution center by redesigning certain processes and systems; (v) expanding
supplier partnering programs to reduce lead times and improve quality of raw
materials; and (vi) redesigning management incentives to emphasize working
capital improvements. Under this program, inventory was reduced $27,357
during the 1995 fiscal year. During the three months ended March 30, 1996, the
Company reduced inventory by $11,064, primarily due to the sale of the assets
of the Hy-Test division. The Company intends to continue to implement its
inventory reduction initiatives.
Working capital at March 30, 1996 was $103,334, as compared to $111,922 at
December 30, 1995. The decrease is primarily due to the sale of assets of the
Hy-Test division and the use of a portion of the cash proceeds to reduce to
zero the $17.6 million of outstanding borrowings under the Company's bank
credit facility as of the sale date. Cash interest payments totaled $4,827
during First Quarter 1996, and cash income tax payments were $853 during First
Quarter 1996.
FINANCING ARRANGEMENTS
Credit facility borrowings will be made from time to time to finance future
liquidity requirements, including seasonal working capital requirements.
Maximum availability under the facility is determined by the amount of eligible
accounts receivable and inventory at month end (borrowing base). The Company
had no seasonal borrowings outstanding at March 30, 1996. On March 22, 1996,
cash proceeds from the sale of the assets of Hy-Test were used to reduce to
zero the $17.6 million then outstanding balance under the Company's bank credit
facility. The credit facility provides for borrowings of up to $75,000 based
on a borrowing base formula and includes, as part of and not in addition to the
$75,000 credit limit, a subfacility for the issuance of up to an aggregate of
$60,000 in letters of credit for issuance to Florsheim suppliers in connection
with the importation of foreign goods and for other corporate purposes and
foreign currency hedging obligations. As of March 30, 1996, the Company's
borrowing base was approximately $37,500, outstanding letters of credit were
$2,220, and outstanding borrowings under the credit facility were zero as
compared to $10,676 at December 30, 1995. The borrowing base was reduced by
approximately $11 million due to the sale of the assets of Hy-Test.
On March 22, 1996, the Company received an amendment to its credit facility
agreement allowing it to purchase on the open market (and retire) Senior Notes
using up to $15,000 of proceeds from the credit facility. Such repurchases, if
executed, will enable the Company to reduce its interest expense by replacing a
portion of the Senior Notes with lower cost debt from the credit facility.
However, the amount of availability under the credit facility to meet working
capital and other borrowing needs is reduced by the amount borrowed for the
purpose of purchasing Senior Notes, and the term of the credit facility is less
than the maturity date of the Senior Notes. Nevertheless, Florsheim believes
that available borrowings under the credit facility, together with cash
generated from operations, will be adequate to meet debt service, capital
expenditures, and other liquidity requirements for the foreseeable future.
As of March 30, 1996, the Company had made no purchases of Senior Notes under
the amendment.
17
<PAGE> 18
SEASONALITY OF BUSINESS
Typically, the Company's net sales are somewhat seasonal with slightly greater
net sales occurring in the fourth quarter of each fiscal year.
18
<PAGE> 19
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
11. Statement re Computation of Net Earnings Per Common Share.
(b) A Form 8-K was not required to be filed during the quarter
ended March 30, 1996.
A Form 8-K was filed on April 3, 1996 with regards to the sale of the
assets of the Hy-Test division to Wolverine World Wide, Inc..
19
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE FLORSHEIM SHOE COMPANY
(Registrant)
By Larry J. Svoboda
---------------------------
Larry J. Svoboda
Vice-President, Finance,
Chief Financial Officer and
Secretary
Date: May 14, 1996
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No.
<S> <C>
11 Statement re Computation of Net Earnings Per Common Share.
</TABLE>
21
<PAGE> 1
THE FLORSHEIM SHOE COMPANY EXHIBIT 11
STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
April 1, 1995 March 30, 1996
------------- --------------
<S> <C> <C>
Weighted average common shares during the period 8,346,051 8,346,051
Common shares issuable on exercise of stock options (1) 69,206 -
--------- ---------
Weighted average common and common equivalent shares
outstanding 8,415,257 8,346,051
========= =========
</TABLE>
(1) Include common stock options, the exercise of which would result in
dilution of net earnings per share. If the average common stock price
was higher than the common stock option exercise price during the
period, common stock options were considered as exercised and the
proceeds assumed to be used to purchase common stock at the average
common stock market price.
(2) Common stock options were not included since the exercise of
which would have had an antidilutive effect on the net loss per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 12,193
<SECURITIES> 0
<RECEIVABLES> 27,552
<ALLOWANCES> 1,726
<INVENTORY> 73,620
<CURRENT-ASSETS> 128,479
<PP&E> 33,945
<DEPRECIATION> 13,465
<TOTAL-ASSETS> 172,859
<CURRENT-LIABILITIES> 25,145
<BONDS> 69,450
0
0
<COMMON> 8,346
<OTHER-SE> 46,926
<TOTAL-LIABILITY-AND-EQUITY> 172,859
<SALES> 61,927
<TOTAL-REVENUES> 61,927
<CGS> 34,043
<TOTAL-COSTS> 26,883
<OTHER-EXPENSES> (1,544)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,794
<INCOME-PRETAX> (249)
<INCOME-TAX> (89)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
