<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 29, 1997 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 1-13474
------------------------
FLORSHEIM GROUP INC.
(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.)
200 North LaSalle Street, Chicago, Illinois 60601-1014
- ------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 458-2500
--------------
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 25, 1997
-------------------------------------
===========================================================================
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended March 29, 1997.
Consolidated Balance Sheet:
March 29, 1997
December 28, 1996
Consolidated Statement of Operations:
Three Months Ended March 29, 1997
Three Months Ended March 30, 1996
Consolidated Statement of Cash Flows:
Three Months Ended March 29, 1997
Three Months Ended March 30, 1996
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 29, 1997 are not necessarily indicative of the results to be
expected for the full year.
1
<PAGE> 3
FLORSHEIM GROUP INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
============================================================================================
Unaudited
---------
December 28, March 29,
ASSETS 1996 1997
============================================================================================
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,691 $ 10,437
Receivables, less allowances of $1,705 at
December 28, 1996 and $1,886 at March 29, 1997 26,431 29,380
Inventories 73,824 76,231
Deferred tax assets, net 4,552 4,702
Prepaid expenses and other current assets 4,221 5,662
- ---------------------------------------------------------------------------------------------
Total current assets 130,719 126,412
Property, plant and equipment 41,920 40,743
Less: accumulated depreciation 16,946 17,285
- ---------------------------------------------------------------------------------------------
Net property, plant and equipment 24,974 23,458
Deferred tax assets, net 11,475 9,599
Other assets 18,070 18,157
- ---------------------------------------------------------------------------------------------
$ 185,238 $ 177,626
=============================================================================================
- ---------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------
Current liabilities:
Notes payable $ - $ -
Accounts payable 17,900 10,610
Accrued expenses 14,367 12,464
Accrued interest expense 2,858 698
Accrued income taxes payable 478 595
- ---------------------------------------------------------------------------------------------
Total current liabilities 35,603 24,367
Long-term debt 69,450 69,450
Other long-term liabilities 22,530 22,918
- ---------------------------------------------------------------------------------------------
127,583 116,735
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 372 143
Retained earnings (deficit) (1,358) 2,107
- ---------------------------------------------------------------------------------------------
Total shareholders' equity 57,655 60,891
- ---------------------------------------------------------------------------------------------
$ 185,238 $ 177,626
=============================================================================================
</TABLE>
2
<PAGE> 4
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
======================================================================================
Three months Three months
ended ended
March 30, March 29,
1996 1997
=====================================================================================
<S> <C> <C>
Net sales $ 61,927 $ 59,183
Cost of sales 34,043 29,443
- --------------------------------------------------------------------------------------
Gross profit 27,884 29,740
Selling, general
and administrative expenses 26,883 26,492
Non-recurring selling, general
and administrative expenses - (4,670)
- --------------------------------------------------------------------------------------
Earnings from operations 1,001 7,918
Interest expense, net 2,794 2,502
Other income (expense), net 1,544 (19)
- --------------------------------------------------------------------------------------
Earnings (loss) before income tax expense (249) 5,397
Income tax expense (benefit) (89) 1,932
- --------------------------------------------------------------------------------------
Net earnings (loss) $ (160) $ 3,465
- --------------------------------------------------------------------------------------
Net earnings (loss) per common share $ (0.02) $ 0.41
- --------------------------------------------------------------------------------------
Weighted average common shares outstanding 8,346,051 -
Weighted average common shares /
equivalents outstanding - 8,481,540
======================================================================================
</TABLE>
3
<PAGE> 5
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
============================================================================================
Three months Three months
ended ended
March 30, March 29,
1996 1997
============================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (160) $ 3,465
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 (1,850) (4,832)
Depreciation and amortization 1,199 1,315
Deferred taxes (467) 1,726
Noncash interest expense 221 221
Increase in receivables (226) (2,949)
Increase in inventories (194) (2,407)
Increase in prepaid expenses and other assets (401) (1,828)
Decrease in accounts payable, accrued
interest expense and other accrued expenses (2,402) (11,236)
Increase in other long-term liabilities 107 388
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (4,173) (16,137)
- --------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of assets of Hy-Test 3/96, 130 S.Canal
in 3/97, net of transaction costs 22,600 6,277
Proceeds (write-off) from the disposal of assets 71 5
Additions to property, plant and equipment (784) (1,399)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 21,887 4,883
- --------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net decrease in notes and loans payable (94) -
Payment of long-term debt (10,676) -
- --------------------------------------------------------------------------------------------
Net cash used in financing activities (10,770) -
- --------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 6,944 (11,254)
Cash and cash equivalents at beginning of period 5,249 21,691
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 12,193 $ 10,437
- --------------------------------------------------------------------------------------------
Supplemental disclosure:
Cash payments for income taxes, net $ 853 $ 99
Cash payments for interest $ 4,827 $ 4,441
============================================================================================
</TABLE>
4
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 29, 1997
(Dollars in thousands)
(Unaudited)
(1) DISTRIBUTION
Effective November 17, 1994 (the effective date) Florsheim Group
Inc. (Florsheim or the Company) became an independent public
company. Furniture Brands International, Inc., formerly known as
INTERCO INCORPORATED (INTERCO), 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. 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 CORPORATE HEADQUARTERS BUILDING
On March 20, 1997, the Company completed the sale of the corporate
headquarters building located in downtown Chicago, Illinois, for an
all cash sale price of approximately $8,050. Net cash proceeds were
approximately $6,000 before income taxes. The net gain on sale of
$4,837 is included in non recurring selling, general and
administrative expenses.
(3) TENDER OFFER FOR SENIOR NOTES
On March 31, 1997, the Company commenced a cash tender offer to
purchase all of its outstanding Senior Notes and a related consent
solicitation to eliminate certain restrictive covenants and other
provisions in the indenture pursuant to what the Senior Notes were
issued.
(4) 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
settled at approximately $23.3 million. Net sales of the sold
business were $6,943 for the three months ended March 30, 1996. The
net gain on sale of $1,850 is included in other income (expense),
net.
(5) NET EARNINGS (LOSS) PER COMMON SHARE
For the three months ended March 29, 1997, net earnings per
share data was computed using the average weighted shares and common
stock equivalents outstanding.
5
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 29, 1997
(Dollars in thousands)
(Unaudited)
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.
(6) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------
December 28, March 29,
1996 1997
---------------------------------------------------------
<S> <C> <C>
Retail merchandise $44,474 $46,594
Finished Products 19,588 20,012
Work-in-process 1,363 1,708
Raw materials 8,399 7,917
------- -------
$73,824 $76,231
======= =======
---------------------------------------------------------
</TABLE>
(7) SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In connection with the Distribution, Florsheim issued $85,000, of
which $69,450 are outstanding at March 29, 1997, of Senior Notes.
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 December 28, 1996
and March 29, 1997, condensed consolidating statements of
operations and statements of cash flows for the three months
ended March 30, 1996 and the three months ended March 29,
1997, 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.
There are no restrictions on the parent or guarantor subsidiaries to
obtain funds from the subsidiaries by dividend or loan.
6
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 29, 1997
(Continued)
(Dollars in thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Condensed Consolidating Balance Sheet
December 28, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 18,427 $ 397 $ 2,867 $ - $ 21,691
Receivables 22,724 135 5,692 (2,120) 26,431
Inventories 41,086 20,216 12,522 - 73,824
Prepaid expenses and
other current assets 6,522 820 1,431 - 8,773
- --------------------------------------------------------------------------------------------------------------
Total current assets 88,759 21,568 22,512 (2,120) 130,719
Net property, plant and
equipment 18,182 3,953 2,839 - 24,974
Other assets 29,068 1,369 514 (1,406) 29,545
Investments in subsidiaries 44,110 - - (44,110) -
- --------------------------------------------------------------------------------------------------------------
Total assets $180,119 $26,890 $25,865 $ (47,636) $185,238
==============================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Notes payable - - - - -
Accounts payable 15,916 377 3,727 (2,120) 17,900
Accrued expenses
and other current
liabilities 14,568 548 2,587 - 17,703
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 30,484 925 6,314 (2,120) 35,603
Long-term debt, less
current maturities 69,450 - - - 69,450
Other long-term liabilities 22,530 - 1,406 (1,406) 22,530
Shareholders' equity 57,655 25,965 18,145 (44,110) 57,655
- --------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $180,119 $26,890 $25,865 $ (47,636) $185,238
==============================================================================================================
</TABLE>
7
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 29, 1997
(Continued)
(Dollars in thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Condensed Consolidating Balance Sheet
March 29, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 7,660 $ 0 $ 2,777 $ - $ 10,437
Receivables 26,192 227 6,353 (3,392) 29,380
Inventories 42,765 21,916 11,550 - 76,231
Prepaid expenses and
other current assets 8,135 914 1,315 - 10,364
- ------------------------------------------------------------------------------------------------------------
Total current assets 84,752 23,057 21,995 (3,392) 126,412
Net property, plant and
equipment 16,947 3,837 2,674 - 23,458
Other assets 27,505 1,314 467 (1,530) 27,756
Investments in subsidiaries 42,239 - 0 (42,239) 0
- ------------------------------------------------------------------------------------------------------------
Total assets $171,443 $28,208 $ 25,136 $ (47,161) $177,626
============================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Note payable - - - - -
Accounts payable 8,631 1,618 3,753 (3,392) 10,610
Accrued expenses
and other current
liabilities 9,553 1,109 3,095 - 13,757
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 18,184 2,727 6,848 (3,392) 24,367
Long-term debt, less
current maturities 69,450 - - - 69,450
Other long-term liabilities 22,918 - 1,530 (1,530) 22,918
Shareholders' equity 60,891 25,481 16,758 (42,239) 60,891
- ------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $171,443 $28,208 $ 25,136 $ (47,161) $177,626
============================================================================================================
</TABLE>
8
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 29, 1997
(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)
====================================================================================================
</TABLE>
For three months ended March 29, 1997
================================================================================
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $45,526 $11,129 $10,924 $ (8,396) $59,183
Cost of sales 25,651 6,025 6,163 (8,396) 29,443
- ----------------------------------------------------------------------------------------------------
Gross profit 19,875 5,104 4,761 - 29,740
Selling, general and
administrative expenses 16,880 5,522 4,090 - 26,492
Non-recurring selling, general and
administrative expenses (4,670) - - - (4,670)
- ----------------------------------------------------------------------------------------------------
Earnings from operations 7,665 (418) 671 - 7,918
Interest expense 2,502 - - - 2,502
Equity in earnings of subsidiaries,
net of tax 180 - - (180) -
Other income (expense), net (1) - (18) - (19)
- ----------------------------------------------------------------------------------------------------
Earnings (loss) before income
tax expense 5,342 (418) 653 (180) 5,397
Income tax expense (benefit) 1,878 (146) 200 1,932
- ----------------------------------------------------------------------------------------------------
Net earnings (loss) $ 3,464 $ (272) $ 453 $ (180) $ 3,465
====================================================================================================
</TABLE>
9
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 29, 1997
(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>
10
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 29, 1997
(Continued)
(Dollars in thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Condensed Consolidating Statements of Cash Flows
For three months ended March 29, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (15,641) $ (978) $(1,209) $1,691 $(16,137)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from the sale of assets of
130 S. Canal, net of transaction costs 6,277 - - - 6,277
Proceeds from the
disposal of assets 5 - - - 5
Additions to property,
plant and equipment (1,179) (175) (45) - (1,399)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing
activities 5,103 (175) (45) - 4,883
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Net capital contribution
from (to) Parent (229) 756 1,164 (1,691) -
Payment of long-term debt - - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (229) 756 1,164 (1,691) -
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash
equivalents (10,767) (397) (90) - (11,254)
Cash and cash equivalents
at beginning of period 18,427 397 2,867 - 21,691
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 7,660 $ - $ 2,777 $ - $10,437
============================================================================================================================
</TABLE>
11
<PAGE> 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands)
OVERVIEW
Florsheim Group Inc. (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 351 company-operated specialty stores and
outlet stores as of March 29, 1997.
Effective November 17, 1994, Florsheim became an independent public company
when Furniture Brands International, Inc., formerly known as INTERCO
INCORPORATED, ("INTERCO"), 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 31, 1997, the Company commenced a cash tender offer to purchase all of
its outstanding Senior Notes ($69,450) and a related consent solicitation to
eliminate certain restrictive covenants and other provisions in the indenture
pursuant to what the Senior Notes were issued. The tender offer price is
110.75% of the principal amount of the Senior Notes tendered, and an additional
0.5% is payable to holders who consented to the proposed amendments to the
indenture by April 18, 1997. As of April 25, 1997, holders of approximately
$50,750 principal amount had tendered Senior Notes. The tender offer expires
on May 9, 1997, unless extended.
12
<PAGE> 14
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 1997 COMPARED TO THREE MONTHS ENDED MARCH 30,
1996.
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) March 30, 1996 March 29, 1997
- --------------------------------------------------------------------------
Amount % Amount %
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
U.S. Wholesale $17,001 27.5 % $18,706 31.6 %
U.S. Retail 27,304 44.1 28,685 48.5
International (including
exports from U.S.) 10,679 17.2 11,792 20.0
- --------------------------------------------------------------------------
Subtotal 54,984 88.8 59,183 100.0
Hy-Test (1) 6,943 11.2 - 0.0
- --------------------------------------------------------------------------
Total net sales $61,927 100.0 % $59,183 100.0 %
- --------------------------------------------------------------------------
Percent change in same store
sales (2) (3.1)% 9.7 %
EBITDA (3) $ 2,200 3.6 % $ 4,563 7.7 %
- --------------------------------------------------------------------------
Number of retail stores:
U.S. specialty 211 202
U.S. outlets 91 95
International 53 54
------- ------
Total 355 351
======= ======
- --------------------------------------------------------------------------
</TABLE>
(1) Represents 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 prior year period of comparable length.
(3) Earnings before interest expense, income taxes, depreciation and
amortization, other income (expense), net, and the non-recurring
selling, general, and administrative expense recorded in 1997.
13
<PAGE> 15
<TABLE>
<CAPTION>
======================================================================================
Three months ended
------------------------------
March 30, March 29,
Operations data (as a percent of net sales) 1996 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 45.0% 50.3%
Selling, general and administrative expenses, excluding
non-recurring selling, general and administrative expenses 43.4% 44.8%
Earnings from operations, excluding non-recurring
selling, general and administrative expenses 1.6% 5.5%
Interest expense 4.5% 4.2%
Net earnings (loss) -0.3% 5.9%
======================================================================================
</TABLE>
Net sales for the three months ended March 29, 1997 (First Quarter 1997) were
$59,183, down $2,744, or 4.4%, as compared to the three months ended March 30,
1996 (First Quarter 1996). Excluding sales in First Quarter 1996 related to
Hy-Test, which was sold in March 1996 and were $6,943, net sales increased
$4,199 or 6.8%. U.S. wholesale net sales increased $1,705, or 10.0%, due to
gains from increased unit volume combined with an increase in average selling
price per unit attributable primarily to the new product introductions. U.S.
retail net sales increased $1,381, or 5.1%, as a result of sales gains from net
new store openings and First Quarter 1997 same store sales increase of 9.7% at
U.S. specialty stores. International sales increased $1,113, or 10.4%,
primarily due to increased sales at Company-operated stores and expanded
wholesale distribution.
Gross profit margin for First Quarter 1997 was 50.3% of net sales, as compared
to 45.0% of net sales for First Quarter 1996. The increase was due to a mix
change (reflecting the sale of Hy-Test) to a higher percentage of retail sales
and cost decreases due to the Company's expense reduction programs, partially
offset by price promotion activity.
Selling, general and administrative expenses excluding the non-recurring
expenses for First Quarter 1997 were $26,492, a decrease of $391 or 1.5%, from
First Quarter 1996. Selling, general and administrative expenses for First
Quarter 1997 were 44.8% of net sales, an increase from 43.4% of net sales for
First Quarter 1996. Expense increases were primarily due to expenses related
to new product introductions partially offset by expense reduction programs and
expenses related to Hy-Test. Non-recurring selling, general, and
administrative expenses for First Quarter 1997 related to the gain on the sale
of corporate headquarters building located in downtown Chicago were $4,670.
Earnings from operations for First Quarter 1997, excluding the non-recurring
selling, general, and administrative expenses in 1997, were $3,248, an increase
of $2,247 or 224.0%, from First Quarter 1996, and EBITDA for First Quarter 1997
was $4,563, an increase of $2,363 or 107.4%, from First Quarter 1996. As a
result, earnings from operations for First Quarter 1997 were 5.5% of net sales,
as compared to 1.6% of net sales for First Quarter 1996, and EBITDA for First
Quarter 1997 was 7.7% of net sales, as compared to 3.6% of net sales for First
Quarter 1996. EBITDA is presented as a supplemental disclosure; EBITDA is
frequently used to analyze companies on the basis of operating performance,
leverage, and liquidity. Earnings from operations and EBITDA in First Quarter
1997 are improved from First Quarter 1996 primarily due to the expense
reduction programs. A gain of $4,670 in non-recurring selling, general, and
administrative expense First Quarter 1997 related to the sale of corporate
headquarters building located in downtown Chicago was recorded in First
Quarter 1997.
Interest expense for First Quarter 1997 was $2,502 as compared to the First
Quarter 1996 amount of $2,794. This decrease is due to the lower average
outstanding borrowings under the credit facility during the First Quarter 1997
as compared to the average outstanding borrowings during the First Quarter
1996.
The net earnings per share for First Quarter 1997 were $0.41 per share, an
improvement from a loss per share of $0.02 in First Quarter 1996. The
improvement is primarily due to the expense reduction programs and the gain on
sale of the corporate headquarters located in downtown Chicago.
14
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital at March 29, 1997 was $102,045, as compared to $95,116 at
December 28, 1996. The increase during the First Quarter 1997 is primarily due
to the timing of cash payments related to the capital expenditures made on the
leased property in downtown Chicago to prepare for the occupancy as the new
corporate headquarters and increases in working capital related to the new
product shipments and inventory purchases made during the quarter. Cash
interest payments totaled $4,441 during First Quarter 1997, and cash income tax
payments were $99 during First Quarter 1997.
FINANCING ARRANGEMENTS
Credit facility borrowings will be made from time to time to finance future
liquidity requirements, including seasonal working capital requirements. The
credit facility provides for borrowings of up to $75,000 based on a borrowing
base formula reflecting eligible accounts receivable and inventory 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. The cash borrowings under the credit facility bear interest at
prime rate plus 1.25% or at an adjusted LIBOR rate plus 2.5% depending on the
type of loan the Company executes. As of March 29, 1997, the Company's
borrowing base was approximately $33,830, outstanding letters of credit were
$8,983, and there were no outstanding borrowings under the credit facility.
There were no outstanding borrowings under a line of credit for a foreign
subsidiary as of March 29, 1997.
As described above, on March 31, 1997, the Company commenced a cash tender
offer to purchase all of its outstanding Senior Notes and a related consent
solicitation to eliminate certain restrictive covenants and other provisions in
the indenture pursuant to what the Senior Notes were issued. The company
anticipates financing the purchase of Senior Notes tendered in the offer
pursuant to a new $110 million, five year credit facility that will replace the
credit facility described above.
SEASONALITY OF BUSINESS
In total, the Company's net sales are primarily not seasonal; however earnings
from operations and EBITDA tend to be higher in the fourth quarter due to the
proportionately higher retail sales which include both a wholesale and a retail
margin.
15
<PAGE> 17
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
4.1 First Supplemental Indenture, dated as of April 19,
1997, amending and supplementing the Indenture dated
as of November 17, 1994, among the Company,
certain of its subsidiaries and First Union National
Bank, as Trustee.
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 29, 1997.
16
<PAGE> 18
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.
FLORSHEIM GROUP INC.
(Registrant)
By Karen Nyman Latham
-------------------------
Karen Nyman Latham
Vice-President, Chief Financial Officer
Date: May 8, 1997
17
<PAGE> 1
Exhibit 4.1
============================================================================
FLORSHEIM GROUP INC.
(formerly named The Florsheim Shoe Company),
AS ISSUER
THE FLORSHEIM SHOE STORE COMPANY - NORTHEAST
THE FLORSHEIM SHOE STORE COMPANY - WEST
FLORSHEIM OCCUPATIONAL FOOTWEAR, INC.
(formerly named Hy-Test, Inc.)
L.J. O'NEILL SHOE COMPANY,
AS GUARANTORS
_________________________________________________
$85,000,000
12-3/4 % SENIOR NOTES DUE 2002
_________________________________________________
FIRST SUPPLEMENTAL INDENTURE
Dated as of April 19, 1997
amending and supplementing the
Indenture dated as of November 17, 1994
________________________________________
FIRST UNION NATIONAL BANK
(formerly named First Fidelity Bank, National Association)
________________________________________
as Trustee
============================================================================
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
April 19, 1997, among FLORSHEIM GROUP INC. (formerly named The Florsheim Shoe
Company), a Delaware corporation, each of THE FLORSHEIM SHOE STORE COMPANY -
NORTHEAST, a Delaware corporation, THE FLORSHEIM SHOE STORE COMPANY - WEST, a
Delaware corporation, FLORSHEIM OCCUPATIONAL FOOTWEAR, INC. (formerly named
Hy-Test, Inc.), a Missouri corporation, and L.J. O'NEILL SHOE COMPANY, a
Missouri corporation (collectively, the "Guarantors") and FIRST UNION NATIONAL
BANK (formerly named First Fidelity Bank, National Association), as trustee.
WHEREAS, there has heretofore been executed and delivered to the Trustee
an Indenture dated as of November 17, 1994 (the "Original Indenture") regarding
Florsheim's 12-3/4% Senior Notes due 2002;
WHEREAS, Florsheim has commenced a tender offer (the "Tender Offer") for
the Securities and, in connection therewith, a solicitation of consents (the
"Solicitation") from the Holders to certain amendments to the Original
Indenture as set forth in the Offer to Purchase and Consent Solicitation
Statement of Florsheim dated March 31, 1997; and
WHEREAS, pursuant to the Solicitation, the Holders of at least a majority
in aggregate principal amount of the Securities outstanding (excluding for this
purpose any Securities held by Florsheim, any Guarantor or any Affiliate of
Florsheim or any Guarantor) have consented to the amendments effected by this
Supplemental Indenture in accordance with the provisions of the Original
Indenture.
NOW THEREFORE, in consideration of the foregoing and the mutual premises
and covenants contained herein and for other good and valuable consideration,
the parties hereto agree as follows.
ARTICLE 1
DEFINITIONS; AMENDMENTS TO ORIGINAL INDENTURE; WAIVER
SECTION 1.01. DEFINITIONS.
Capitalized terms used but not defined in this Supplemental Indenture
shall have the specified meanings therefor set forth in the Original Indenture.
SECTION 1.02. AMENDMENTS TO ORIGINAL INDENTURE.
(a) The amendments set forth in this Supplemental Indenture shall become
operative on the date that Florsheim notifies First Union National Bank of
North Carolina, in its capacity as Depository in connection with the Tender
Offer, that the Securities tendered are accepted for purchase and payment
pursuant to the Tender Offer. If the Securities are not accepted for
<PAGE> 3
payment by Florsheim for any reason, the amendments set forth herein
will not become operative.
(b) Section 4.03 of the Original Indenture shall be amended and restated
so as to read in its entirety as follows:
SECTION 4.03. REPORTS.
Florsheim and the Guarantors shall file with Trustee, the
Commission and the Holders, as applicable, the reports,
information and documents required by TIA Section 314(a).
(c) Section 4.04 of the Original Indenture shall be amended and restated
so as to read in its entirety as follows:
SECTION 4.04. COMPLIANCE CERTIFICATE.
Florsheim and the Guarantors shall deliver to Trustee, within
120 days after the end of each fiscal year of Florsheim, a
certificate as required by TIA Section 314(a)(4).
(d) Sections 4.05, 4.06, 4.07, 4.08, 4.09, 4.11, 4.12, 4.13, 4.15, 4.16
and 5.01 and subsection 11.03(b) of the Original Indenture shall be deleted.
(e) Section 4.10 of the Original Indenture shall be amended and restated
so as to read in its entirety as follows:
SECTION 4.10. ASSET SALES.
Within 360 days after consummation of any Asset Sale,
Florsheim may elect to apply 100% of the Net Cash Proceeds thereof
to (A) repay Indebtedness outstanding pursuant to the Credit
Facility (and to permanently reduce the commitments thereunder by
a corresponding amount) or (B) make an Investment in either (i)
another business or (ii) capital expenditures or other non-current
tangible assets, in each case, which is engaged or used in a
Permitted Business. Any Net Cash Proceeds from an Asset Sale that
are not applied or invested as provided in the preceding sentence
shall constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $5 million, Florsheim shall make an offer
to all Holders of Securities (an "Asset Sale Offer") to purchase
the maximum principal amount of Securities that may be purchased
out of the Excess Proceeds, at an offer price in cash equal to
100% of the outstanding principal amount thereof plus accrued and
unpaid interest, if any, to the date fixed for the closing of such
offer, in accordance with the procedures set forth in Section 3.09
<PAGE> 4
hereof. If the aggregate principal amount of Securities
surrendered by Holders exceeds the amount of Excess Proceeds, the
Trustee will select the Securities to be purchased on a pro rata
basis. To the extent the aggregate principal amount of Securities
tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, Florsheim may use such deficiency for general corporate
purposes and such deficiency shall no longer be deemed "Excess
Proceeds."
The Asset Sale Offer shall be made by Florsheim in compliance
with all applicable laws, including, without limitation,
Regulation 14E of the Exchange Act, to the extent applicable, and
all applicable federal and state securities laws and the rules
thereunder.
(f) Each of Section 6.01 of the Original Indenture and Section 12 of the
Securities shall be amended by deleting clauses (vi) and (vii) thereof.
(g) All references in the Original Indenture and the Securities to the
sections, subsections and clauses of the Original Indenture and the Securities
deleted by the foregoing paragraphs (d) and (f) shall be void and of no further
force and effect.
(h) All defined terms used in Section 1.01 of the Original Indenture that
are used solely in the sections, subsections and clauses deleted by the
foregoing paragraphs (d) and (f) shall be void and of no further force and
effect.
SECTION 1.03. WAIVER.
If and to the extent that any provision of the covenants set forth in the
sections and subsections of the Original Indenture deleted by Section 1.02(d)
of this Supplemental Indenture would impair Florsheim's ability to effect the
Tender Offer and the Solicitation, compliance with such provision is hereby
waived by the Trustee.
ARTICLE 2
MISCELLANEOUS
SECTION 2.01. INSTRUMENTS TO BE READ TOGETHER.
This Supplemental Indenture is an indenture supplemental to the Original
Indenture, and the Original Indenture and this Supplemental Indenture shall
henceforth be read together.
SECTION 2.02. CONFIRMATION.
The Original Indenture as amended and supplemented by this Supplemental
Indenture is in all respects confirmed and preserved.
<PAGE> 5
SECTION 2.03. HEADINGS.
The headings of the Articles and Sections of this Supplemental Indenture
have been inserted for convenience of reference only, and are not to be
considered a part hereof and shall in no way modify or restrict any of the
terms and provisions hereof.
SECTION 2.04. GOVERNING LAW.
The internal law of the State of New York shall govern and be used to
construe this Supplemental Indenture.
SECTION 2.05. COUNTERPARTS.
This Supplemental Indenture may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 2.06. EFFECTIVENESS.
The provisions of this Supplemental Indenture will take effect immediately
upon its execution and delivery by the Trustee.
SECTION 2.07. ACCEPTANCE BY TRUSTEE.
The Trustee accepts the amendments to the Original Indenture effected by
this Supplemental Indenture and agrees to execute the trusts created by the
Indenture as hereby amended, but only upon the terms and conditions set forth
in the Indenture. Without limiting the generality of the foregoing, the
Trustee assumes no responsibility for the correctness of the recitals contained
herein, which shall be taken as the statements of Florsheim and the Guarantors
and except as provided in the Original Indenture the Trustee shall not be
responsible or accountable in any manner whatsoever for or with respect to the
validity or execution or sufficiency of this Supplemental Indenture, and the
Trustee makes no representation with respect thereto.
SECTION 2.08. TIA CONTROLS.
If any provision of this Supplemental Indenture limits, qualifies or
conflicts with another provision that is required to be included in this
Supplemental Indenture by the TIA, the required provision of the TIA shall
control.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
FLORSHEIM GROUP INC.
(formerly named The Florsheim Shoe Company)
By /s/ Karen Nyman Latham
-----------------------------------------------
Name: Karen Nyman Latham
Title: Vice President and Chief Financial
Officer
THE FLORSHEIM SHOE STORE COMPANY - NORTHEAST
By /s/ Karen Nyman Latham
-----------------------------------------------
Name: Karen Nyman Latham
Title: Vice President and Chief Financial
Officer
THE FLORSHEIM SHOE STORE COMPANY - WEST
By /s/ Karen Nyman Latham
-----------------------------------------------
Name: Karen Nyman Latham
Title: Vice President and Chief Financial
Officer
FLORSHEIM OCCUPATIONAL FOOTWEAR, INC.
(formerly named Hy-Test, Inc.)
By /s/ Karen Nyman Latham
-----------------------------------------------
Name: Karen Nyman Latham
Title: Vice President and Chief Financial
Officer
L.J. O'NEILL SHOE COMPANY
By /s/ Karen Nyman Latham
-----------------------------------------------
Name: Karen Nyman Latham
Title: Vice President and Chief Financial
Officer
FIRST UNION NATIONAL BANK, as Trustee
(formerly named First Fidelity Bank, National
Association)
By /s/ John H. Clapham
-----------------------------------------------
Name: John H. Clapham
Title: Vice President
<PAGE> 1
EXHIBIT 11
FLORSHEIM GROUP INC.
STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 30, 1996 March 29, 1997
-------------- --------------
<S> <C> <C>
Weighted average common shares during the period 8,346,051(2) 8,346,051
Common shares issuable on exercise of stock options (1) - 135,489
-------------- --------------
Weighted average common and common equivalent shares
outstanding 8,346,051 8,481,540
============== ==============
</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
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1996
<EXCHANGE-RATE> 1
<CASH> 10,437
<SECURITIES> 0
<RECEIVABLES> 29,380
<ALLOWANCES> 1,886
<INVENTORY> 76,231
<CURRENT-ASSETS> 126,412
<PP&E> 40,743
<DEPRECIATION> 17,285
<TOTAL-ASSETS> 177,626
<CURRENT-LIABILITIES> 24,367
<BONDS> 69,450
0
0
<COMMON> 8,346
<OTHER-SE> 52,545
<TOTAL-LIABILITY-AND-EQUITY> 177,626
<SALES> 59,183
<TOTAL-REVENUES> 59,183
<CGS> 29,443
<TOTAL-COSTS> 21,822
<OTHER-EXPENSES> 19
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,502
<INCOME-PRETAX> 5,397
<INCOME-TAX> 1,932
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,465
<EPS-PRIMARY> .41
<EPS-DILUTED> 0
</TABLE>
