<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
September 27, 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 CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
8,374,751 Shares as of October 20, 1997
===============================================================================
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended September 27, 1997.
Consolidated Balance Sheet:
September 27, 1997
December 28, 1996
Consolidated Statement of Operations:
Three Months Ended September 27, 1997
Three Months Ended September 28, 1996
Nine Months Ended September 27, 1997
Nine Months Ended September 28, 1996
Consolidated Statement of Cash Flows:
Nine Months Ended September 27, 1997
Nine Months Ended September 28, 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 and the nine months ended September 27,
1997 are not necessarily indicative of the results to be expected for
the full year.
2
<PAGE> 3
FLORSHEIM GROUP INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Unaudited
---------
December 28, September 27,
ASSETS 1996 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,691 $ 5,252
Receivables, less allowances of $1,705 at
December 28, 1996 and $1,590 at
September 27, 1997 26,431 29,850
Inventories 73,824 82,255
Deferred tax assets, net 4,552 4,662
Prepaid expenses and other current assets 4,221 5,051
- -------------------------------------------------------------------------------
Total current assets 130,719 127,070
Property, plant and equipment 41,920 45,683
Less accumulated depreciation 16,946 20,112
- -------------------------------------------------------------------------------
Net property, plant and equipment 24,974 25,571
Deferred tax assets, net 11,475 12,607
Other assets 18,070 19,388
- -------------------------------------------------------------------------------
$ 185,238 $ 184,636
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Current liabilities:
Revolving credit facility - short term $ - $ 6,800
Notes payable - 142
Accounts payable 17,900 9,091
Accrued expenses 14,367 10,686
Accrued interest expense 2,858 499
Accrued income taxes payable 478 551
- -------------------------------------------------------------------------------
Total current liabilities 35,603 27,769
Long-term debt 69,450 18,412
Revolving credit facility - long term - 58,500
Other long-term liabilities 22,530 24,418
- -------------------------------------------------------------------------------
127,583 129,099
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 at
December 28, 1996 and 8,374,751
shares issued and outstanding at
September 27,1997 8,346 8,375
Paid-in capital 50,295 50,386
Accumulated translation adjustment 372 (502)
Accumulated deficit (1,358) (2,722)
- -------------------------------------------------------------------------------
Total shareholders' equity 57,655 55,537
- -------------------------------------------------------------------------------
$ 185,238 $ 184,636
===============================================================================
</TABLE>
3
<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
September 28, September 27,
1996 1997
===============================================================================
<S> <C> <C>
Net sales $ 60,107 $ 60,177
Cost of sales 31,965 31,941
- -------------------------------------------------------------------------------
Gross profit 28,142 28,236
Selling, general
and administrative expenses 25,650 25,778
Non-recurring selling, general
and administrative expenses - 537
- -------------------------------------------------------------------------------
Earnings from operations 2,492 1,921
Interest expense, net 2,361 2,116
Other income (expense), net 13 (123)
- -------------------------------------------------------------------------------
Earnings (loss) before income tax 144 (318)
Income tax expense (benefit) 52 (107)
- -------------------------------------------------------------------------------
Net earnings (loss) $ 92 $ (211)
- -------------------------------------------------------------------------------
Net earnings (loss) per common share $ 0.01 $ (0.03)
- -------------------------------------------------------------------------------
Weighted average common shares outstanding 8,390,211 8,374,751
- -------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
===============================================================================
Nine months Nine months
ended ended
September 28, September 27,
1996 1997
===============================================================================
<S> <C> <C>
Net sales $ 180,992 $ 183,575
Cost of sales 97,067 95,289
- -------------------------------------------------------------------------------
Gross profit 83,925 88,286
Selling, general
and administrative expenses 78,538 79,710
Non-recurring selling, general
and administrative expenses - (4,133)
- -------------------------------------------------------------------------------
Earnings from operations 5,387 12,709
Interest expense, net 7,552 6,844
Other income (expense), net 1,617 (125)
- -------------------------------------------------------------------------------
Earnings (loss) before income tax and
extraordinary item (548) 5,740
Income tax expense (benefit) (196) 2,062
- -------------------------------------------------------------------------------
Earnings (loss) before extraordinary item (352) 3,678
Extraordinary item (less applicable
income taxes of $2,812) - (5,042)
- -------------------------------------------------------------------------------
Net (loss) $ (352) $ (1,364)
- -------------------------------------------------------------------------------
Earnings (loss) per share before
extraordinary item (0.04) 0.44
Extraordinary (loss) per share - (0.60)
- -------------------------------------------------------------------------------
Net (loss) per share $ (0.04) $ (0.16)
- -------------------------------------------------------------------------------
Weighted average common shares outstanding 8,346,051 8,374,751
- -------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
===============================================================================
Nine months Nine months
ended ended
September 28, September 27,
1996 1997
===============================================================================
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (352) $ (1,364)
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):
Gain on disposal of assets (2,144) (4,796)
Depreciation and amortization 3,467 3,708
Deferred taxes (375) (1,242)
Extraordinary item - 5,042
Noncash interest expense 664 439
Increase in receivables (6,157) (3,419)
Decrease (increase) in inventories 5,629 (8,431)
Increase in prepaid expenses and
other assets (443) (2,957)
Decrease in accounts payable, accrued
interest expense and other
accrued expenses (1,718) (14,634)
Increase in other long-term liabilities 393 1,888
- -------------------------------------------------------------------------------
Net cash used in operating activities (1,036) (25,766)
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of assets of Hy-Test
in 3/96, 130 S. Canal in 3/97, net of
transaction costs 22,600 6,277
Proceeds from the disposal of assets 420 37
Additions to property, plant and equipment (2,578) (6,349)
- -------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 20,442 (35)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in notes and loans payable 72 142
Net borrowings under revolving credit facility - 65,300
Repurchase of 12-3/4% Senior Notes, including
tender premium and refinancing costs,
net of tax - (56,080)
Payments of long-term debt (10,676) -
- -------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (10,604) 9,362
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 8,802 (16,439)
Cash and cash equivalents at beginning of period 5,249 21,691
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 14,051 $ 5,252
- -------------------------------------------------------------------------------
Supplemental disclosure:
Cash payments for income taxes, net $ 1,058 $ 860
Cash payments for interest $ 9,296 $ 8,081
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 27, 1997
(Dollars in thousands)
(Unaudited)
(1) DISTRIBUTION
Effective November 17, 1994, Florsheim Group Inc. (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 (old credit
facility). Florsheim used the proceeds from the Senior Notes
and $25,000 borrowed under the old 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 $4,300 is included in non-recurring
selling, general, and administrative expenses.
(3) TENDER OFFER FOR SENIOR NOTES
On May 9, 1997, the Company completed its cash tender offer and
consent solicitation relating to the Senior Notes. Approximately $51
million aggregate principal amount of Senior Notes were tendered,
representing approximately 73% of the $69.45 million aggregate
principal amount of outstanding Senior Notes. The Company also has
executed a new $110 million, five-year secured revolving credit
facility (credit facility) that replaces the $75 million old credit
facility described above. An extraordinary loss of approximately $5.0
million, net of tax, is associated with the tender premium and expenses
related to the repurchase of the Senior Notes and the execution of the
new revolving credit facility.
(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.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 27, 1997
(Dollars in thousands)
(Unaudited)
(5) NET LOSS PER COMMON SHARE
For the three months and the nine months ended September 27,
1997, and for the nine months ended September 28, 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, September 27,
1996 1997
- -------------------------------------------------------------------------------
<S> <S> <S>
Retail merchandise $ 44,474 $ 41,927
Finished products 19,588 28,909
Work-in-process 1,363 845
Raw materials 8,399 10,574
--------- ---------
$ 73,824 $ 82,255
========= =========
===============================================================================
</TABLE>
(7) SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In connection with the Distribution, Florsheim issued $85,000,
of which $18,412 are outstanding at September 27, 1997, 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
December 28, 1996 and September 27, 1997, condensed
consolidating statements of operations for the three
months ended September 28, 1996 and the three months ended
September 27, 1997, condensed consolidating statements of
operations and statements of cash flows for the nine
months ended September 28, 1996 and the nine months ended
September 27, 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.
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For nine months ended September 27, 1997
(Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
================================================================================================================
Condensed Consolidating Balance Sheet
December 28, 1996
================================================================================================================
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:
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>
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For nine months ended September 27, 1997
(Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
================================================================================================================
Condensed Consolidating Balance Sheet
September 27, 1997
================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 3,161 $ (294) $ 2,385 $ - $ 5,252
Receivables 28,093 81 6,276 (4,600) 29,850
Inventories 51,585 18,310 12,360 - 82,255
Prepaid expenses and
other current assets 7,437 1,030 1,246 - 9,713
- ----------------------------------------------------------------------------------------------------------------
Total current assets 90,276 19,127 22,267 (4,600) 127,070
Net property, plant and
equipment 18,901 4,194 2,476 - 25,571
Other assets 26,731 6,371 423 (1,530) 31,995
Investments in subsidiaries 41,143 - - (41,143) -
- ----------------------------------------------------------------------------------------------------------------
Total assets $177,051 $29,692 $ 25,166 $ (47,273) $184,636
================================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Revolving credit facitity 6,800 - - - 6,800
Accounts payable 7,009 2,088 4,736 (4,600) 9,233
Accrued expenses
and other current
liabilities 6,375 2,347 3,014 - 11,736
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 20,184 4,435 7,750 (4,600) 27,769
Long-term debt, less
current maturities 76,912 - - - 76,912
Other long-term liabilities 24,418 - 1,530 (1,530) 24,418
Shareholders' equity 55,537 25,257 15,886 (41,143) 55,537
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $177,051 $29,692 $ 25,166 $ (47,273) $184,636
================================================================================================================
</TABLE>
10
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For nine months ended September 27, 1997
(Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
================================================================================================================
Condensed Consolidating Statements of Operations
For three months ended September 28, 1996
================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 41,625 $11,493 $ 11,675 $ (4,686) $ 60,107
Cost of sales 24,193 5,944 6,514 (4,686) 31,965
- ----------------------------------------------------------------------------------------------------------------
Gross profit 17,432 5,549 5,161 - 28,142
Selling, general and
administrative expenses 16,168 5,270 4,212 - 25,650
- ----------------------------------------------------------------------------------------------------------------
Earnings from operations 1,264 279 949 - 2,492
Interest expense 2,361 - - - 2,361
Equity in earnings of subsidiaries,
net of tax 1,411 - - (1,411) -
Other income (expense), net 3 - 10 - 13
- ----------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes 317 279 959 (1,411) 144
Income tax expense (benefit) 225 (408) 235 - 52
- ----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 92 $ 687 $ 724 $ (1,411) $ 92
================================================================================================================
For three months ended September 27, 1997
================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 43,009 $11,845 $ 11,780 $ (6,457) $ 60,177
Cost of sales 24,971 6,501 6,926 (6,457) 31,941
- ----------------------------------------------------------------------------------------------------------------
Gross profit 18,038 5,344 4,854 - 28,236
Selling, general and
administrative expenses 16,182 5,610 3,986 - 25,778
Non-recurring selling, general,
and administrative expenses 537 - - - 537
- ----------------------------------------------------------------------------------------------------------------
Earnings from operations 1,319 (266) 868 - 1,921
Interest expense 2,116 - - - 2,116
Equity in earnings of subsidiaries,
net of tax 406 - - (406) -
Other (expense), net (56) - (67) - (123)
- ----------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes (447) (266) 801 (406) (318)
Income tax expense (benefit) (236) (88) 217 - (107)
- ----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (211) $ (178) $ 584 $ (181) $ (211)
================================================================================================================
</TABLE>
11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For nine months ended September 27, 1997
(Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
================================================================================================================
Condensed Consolidating Statements of Operations
For nine months ended September 28, 1996
================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $125,826 $40,612 $ 31,456 $ (16,902) $180,992
Cost of sales 73,697 22,280 17,992 (16,902) 97,067
- ----------------------------------------------------------------------------------------------------------------
Gross profit 52,129 18,332 13,464 - 83,925
Selling, general and
administrative expenses 48,469 17,827 12,242 - 78,538
- ----------------------------------------------------------------------------------------------------------------
Earnings from operations 3,660 505 1,222 - 5,387
Interest expense 7,552 - - - 7,552
Equity in earnings of subsidiaries,
net of tax 1,076 - - (1,076) -
Other income (expense), net 1,596 (12) 33 - 1,617
- ----------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes (1,220) 493 1,255 (1,076) (548)
Income tax expense (benefit) (868) 237 435 - (196)
- ----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (352) $ 256 $ 820 $ (1,076) $ (352)
================================================================================================================
For nine months ended September 27, 1997
================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $135,135 $35,324 $ 33,689 $ (20,573) $183,575
Cost of sales 77,171 19,203 19,488 (20,573) 95,289
- ----------------------------------------------------------------------------------------------------------------
Gross profit 57,964 16,121 14,201 - 88,286
Selling, general and
administrative expenses 50,755 16,749 12,206 - 79,710
Non-recurring selling, general,
administrative expenses (4,133) (4,133)
- ----------------------------------------------------------------------------------------------------------------
Earnings from operations 11,342 (628) 1,995 - 12,709
Interest expense 6,844 - - - 6,844
Equity in earnings of subsidiaries,
net of tax 960 - - (960) -
Other (expense), net (39) - (86) - (125)
- ----------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes and extraordinary item 5,419 (628) 1,909 (960) 5,740
Income tax expense 1,741 (211) 532 - 2,062
- ----------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item 3,678 (417) 1,377 (960)
Extraordinary item (less applicable
income taxes of $2,812) (5,042) (5,042)
- ----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (1,364) $ (417) $ 1,377 $ (735) $ (1,364)
================================================================================================================
</TABLE>
12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For nine months ended September 27,1997
(Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
================================================================================================================
Condensed Consolidating Statements of Cash Flows
For nine months ended September 28, 1996
================================================================================================================
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) $ (3,152) $(1,388) $ 4,721 $ (1,216) $ (1,035)
- ----------------------------------------------------------------------------------------------------------------
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 420 - - - 420
Additions to property,
plant and equipment (1,148) (586) (844) - (2,578)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) -
investing activities 21,872 (586) (844) - 20,442
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Net increase in notes and loans payable - - 72 - 72
Net capital contribution
from (to) Parent 467 1,654 (3,337) 1,216 -
Payment of long-term debt (10,676) - - - (10,676)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (10,209) 1,654 (3,265) 1,216 (10,604)
- ----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash
equivalents 8,511 (320) 612 - 8,803
Cash and cash equivalents
at beginning of period 2,658 1,131 1,460 - 5,249
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 11,169 $ 811 $ 2,072 $ - $ 14,052
================================================================================================================
</TABLE>
13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For nine months ended September 27, 1997
(Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
================================================================================================================
Condensed Consolidating Statements of Cash Flows
For nine months ended September 27, 1997
================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(25,246) $ 440 $ 2,742 $ (3,702) $ (25,766)
- ----------------------------------------------------------------------------------------------------------------
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 37 - - - 37
Additions to property,
plant and equipment (4,941) (1,065) (343) - (6,349)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing
activities 1,373 (1,065) (343) - (35)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Net increase in notes and loans payable 142 - - - 142
Net capital contribution
from (to) Parent (755) (66) (2,881) 3,702 -
Receipts from new revolving
credit facility 65,300 - - - 65,300
Repurchase of 12-3/4% Senior Notes
including, tender premium and
refinancing costs, net of tax (56,080) - - - (56,080)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 8,607 (66) (2,881) 3,702 9,362
- ----------------------------------------------------------------------------------------------------------------
Net (decrease) in cash
and cash equivalents (15,266) (691) (482) - (16,439)
Cash and cash equivalents
at beginning of period 18,427 397 2,867 - 21,691
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 3,161 $ (294) $ 2,385 $ - $ 5,252
================================================================================================================
</TABLE>
14
<PAGE> 15
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 348 Company-operated specialty stores and
outlet stores as of September 27, 1997.
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 (old credit facility). Florsheim used the
proceeds from the Senior Notes and $25,000 borrowed under the old 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 May 9, 1997, the Company completed a cash tender offer and consent
solicitation relating to the Senior Notes. Approximately $51 million aggregate
principal amount of Senior Notes were tendered, representing approximately 73%
of the $69.45 million aggregate principal amount of outstanding Senior Notes.
The Company also executed a new $110 million, five-year secured revolving
credit facility (credit facility) that replaces the $75 million old credit
facility described above.
15
<PAGE> 16
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 27, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
28, 1996.
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) September 28, 1996 September 27, 1997
- -------------------------------------------------------------------------------
Amount % Amount %
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
U.S. Wholesale $ 19,854 33.0% $ 19,990 33.2%
U.S. Retail 27,906 46.4 27,082 45.0
International (including
exports from U.S.) 12,347 20.5 13,105 21.8
- -------------------------------------------------------------------------------
Total net sales $ 60,107 100.0% $ 60,177 100.0%
- -------------------------------------------------------------------------------
Percent change in same store
sales(1) (2.9)% 3.1%
EBITDA(2) $ 3,630 6.0% $ 3,578 5.9%
- -------------------------------------------------------------------------------
Number of retail stores:
U.S. specialty 205 199
U.S. outlets 90 95
International 53 54
--------- ---------
Total 348 348
========= =========
===============================================================================
</TABLE>
(1) 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.
(2) Earnings before interest expense, income taxes, depreciation
and amortization, and other income (expense), net and
extraordinary items.
16
<PAGE> 17
<TABLE>
<CAPTION>
===============================================================================
Three months ended
------------------------------
September 28, September 27,
Operations data (as a percent of net sales) 1996 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Sales 100.0% 100.0%
Gross profit 46.8 46.9
Selling, general, and administrative expenses,
excluding non-recurring selling, general
and adminstrative expenses 42.7 42.8
Earnings from operations, excluding
non-recurring selling, general and
administrative expenses 4.1 4.1
Interest expense 3.9 3.5
Net earnings (loss) 0.2 (0.4)
===============================================================================
</TABLE>
Net sales for the three months ended September 27, 1997 (Third Quarter 1997)
were $60,177 and were approximately even compared to the three months ended
September 28, 1996 (Third Quarter 1996). U.S. wholesale net sales were even
with Third Quarter 1996 primarily due to the incremental sales from the new
product introductions which were partially offset by a decrease in U.S. dealer
shipments of existing products. U.S. retail net sales decreased $824, or 3.0%,
as the same store sales increase and additional sales from stores opened during
or after the Third Quarter 1996 were more than offset by store closings.
International sales increased $758, or 6.1%, primarily due to expanded
wholesale distribution and increased sales at Company-operated stores.
Gross profit margin for Third Quarter 1997 was 46.9% of net sales, as compared
to 46.8% of net sales for Third Quarter 1996. The gross profit margin remained
essentially unchanged due to the benefit of costs reductions and sourcing
efficiencies offset by a promotional retail environment and a mix shift to a
higher percentage of wholesale sales.
Selling, general and administrative expenses excluding the non-recurring item
discussed below for Third Quarter 1997 were $25,778, an increase of $128, or
0.5%, from Third Quarter 1996. Selling, general and administrative expenses
for Third Quarter 1997 were 42.8% of net sales, as compared to 42.7% of net
sales for Third Quarter 1996 due to comparable sales and expenses during the
two periods. Higher expenses related to the rollout of the Company's new
products (golf shoes, John Deere work shoes and Joseph Abboud shoes) were
partially offset by expense reduction programs and timing of expenses.
Earnings from operations for Third Quarter 1997 excluding the non-recurring
selling, general, and administrative expense were $2,458, a decrease of $34, or
1.4%, from Third Quarter 1996, and EBITDA for Third Quarter 1997 was $3,578, a
decrease of $52, or 1.4%, from Third Quarter 1996. As a result, earnings from
operations for Third Quarter 1997 were 4.1% of net sales, equivalent to 4.1% of
net sales from Third Quarter 1996, and EBITDA from Third Quarter 1997 was 5.9%
of net sales, as compared to 6.0% of net sales from Third Quarter 1996. EBITDA
is presented as a supplemental disclosure and not as an alternative to earnings
from operations or cash flows from operating activities computed in accordance
with generally accepted accounting principles as an indicator of operating
performance. EBITDA is frequently used to analyze companies on the basis of
operating performance, leverage, and liquidity. Earnings from operations and
EBITDA in Third Quarter 1997 were even with Third Quarter 1996 due to the
effect of the expense reduction program being offset by the costs associated
with the new products. Non-recurring selling, general, and administrative
expenses of $537 in the Third Quarter 1997 were related to the sale of the
corporate headquarters building located in downtown Chicago.
Interest expense for Third Quarter 1997 was $2,116 as compared to the Third
Quarter 1996 amount of $2,361. This decrease is due to the lower average cost
of outstanding debt during the Third Quarter 1997 as compared to the average
cost of outstanding debt during the Third Quarter 1996 as a result of the
repurchase of the Senior Notes from borrowings under the Company's new credit
facility.
The earnings per share, excluding the non-recurring item mentioned above for
Third Quarter 1997, were $0.02 per share, an improvement from a net gain per
share of $0.01 in Third Quarter 1996 primarily due to the items mentioned
above.
17
<PAGE> 18
NINE MONTHS ENDED SEPTEMBER 27, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
28, 1996.
The following tables set forth, for the periods indicated, certain historical
data, expressed in thousands of dollars and as a certain percentage of net
sales, and retail stores information.
<TABLE>
<CAPTION>
===============================================================================
Nine months ended
------------------------------------------
(Dollars in thousands) September 28, 1996 September 27, 1997
- -------------------------------------------------------------------------------
Amount % Amount %
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
U.S. Wholesale $ 55,750 30.8% $ 61,804 33.7%
U.S. Retail 84,901 46.9 84,777 46.2
International (including
exports from U.S.) 33,398 18.5 36,994 20.2
- -------------------------------------------------------------------------------
Subtotal 174,049 96.2 183,575 100.0
Hy-Test(1) 6,943 3.8 - -
- -------------------------------------------------------------------------------
Total net sales $ 180,992 100.0% $ 183,575 100.0%
- -------------------------------------------------------------------------------
Percent change in same store
sales(2) (2.7)% 5.1%
EBITDA(3) $ 8,853 4.9% $ 12,356 6.7%
===============================================================================
</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, and other income (expense),
net, and the non-recurring selling, general, and
administrative expense and extraordinary item recorded in
1997.
<TABLE>
<CAPTION>
===============================================================================
Nine months ended
------------------------------
September 28, September 27,
Operations data (as a percent of net sales) 1996 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Sales 100.0% 100.0%
Gross profit 46.4 48.1
Selling, general, and administrative expenses,
excluding non-recurring selling, general
and adminstrative expenses 43.4 43.4
Earnings from operations, excluding
non-recurring selling, general and
administrative expenses 3.0 4.7
Interest expense 4.2 3.7
Extraordinary items, net of tax - (2.7)
Net loss (0.2) (0.7)
Earings (loss) before extraordinary
item - pro forma (0.7)(1) 0.6 (2)
===============================================================================
</TABLE>
(1) Pro forma excludes Hy-Test and operating profit contribution
and gain on sale of Hy- Test.
(2) Pro forma excludes gain on sale of 130 S. Canal corporate
headquarters building.
18
<PAGE> 19
Net sales for the nine months ended September 27, 1997 (Nine Months 1997)
were $183,575, up $2,583, or 1.4%, as compared to the Nine Months ended
September 28, 1996 (Nine Months 1996). Excluding sales in Nine Months 1996 of
$6,943 related to Hy-Test, which was sold in March 1996, net sales increased
$9,526 or 5.5%. U.S. wholesale net sales increased $6,054, or 10.9%, due to
gains from increased unit volume combined with an increase in average selling
price per unit attributable primarily to the new product introduction. U.S.
retail net sales decreased $124, as the same store sales increase and
additional sales from stores opened during or after the Third Quarter 1996 were
more than offset by store closings. International sales increased $3,596, or
10.8%, with the increase due to expanded wholesale distribution and improved
sales at Company-operated stores.
Gross profit margin for Nine Months 1997 was 48.1% of net sales, as compared to
46.4% of net sales for Nine Months 1996. The increase was due to an improved
U.S. wholesale margin and cost decreases due to the Company's expense reduction
program and increased price promotion activity.
Selling, general and administrative expenses excluding the non-recurring item
discussed below for Nine Months 1997 were $79,710, an increase of $1,172, or
1.5%, from Nine Months 1996. Selling, general and administrative expenses for
Nine Months 1997 were 43.4% of net sales, equal to 43.4% of net sales for Nine
Months 1996 due to higher sales volume and a mix change reflecting the sale of
Hy-Test. Expense increases were primarily related to new product introductions
and other business development opportunities partially offset by expense
reduction programs and expenses related to Hy-Test.
Earnings from operations for Nine Months 1997, excluding the non-recurring
selling, general, and administrative expenses in 1997, were $8,576, an increase
of $3,189, or 59.2%, from Nine Months 1996, and EBITDA for Nine Months 1997 was
$12,356, an increase of $3,503, or 39.6%, from Nine Months 1996. Earnings from
operations for Nine Months 1997 was 4.7% of net sales, as compared to 3.0% of
net sales for Nine Months 1996, and EBITDA for Nine Months 1997 was 6.7% of net
sales, as compared to 4.9% of net sales for Nine Months 1996. Earnings from
operations and EBITDA in Nine Months 1997 have improved from Nine Months 1996
primarily due to expense reduction programs and improved wholesale margins. A
gain of $4,133 in non-recurring selling, general, and administrative expense
for Nine Months 1997 related to the sale of corporate headquarters building
located in downtown Chicago that was recorded in Nine Months 1997.
Interest expense for Nine Months 1997 was $6,844, as compared to the Nine
Months 1996 amount of $7,552. This decrease is due to the lower amount of
Senior Notes outstanding and lower cost of average outstanding borrowings under
the credit facility during the Nine Months 1997 as compared to the average cost
of outstanding borrowings during Nine Months 1996.
An extraordinary loss associated with the tender premium and expenses related
to the repurchase of the Senior Notes and the execution of the new revolving
credit facility was $5,042, net of tax, for Nine Months 1997.
The earnings per share before extraordinary item for Nine Months 1997, were
$0.44 per share, an improvement from a net loss per share of $ 0.04 in Nine
Months 1996. Included in the Nine Months 1997 amount was the non-recurring
pre-tax gain of $4,133 generated by the sale of the Company's former corporate
headquarters building. The Nine Months 1996 includes a gain of $1.2 million,
net of tax, from the sale of the Hy-Test safety shoe business, which was sold
by the Company in late March 1996.
19
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital at September 27, 1997 was $99,301, as compared to $95,116 at
December 28, 1996. The increase during the Nine Months 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 of the new
corporate headquarters. Increases in working capital also related to the new
product shipments and inventory purchases made during the nine month period,
partially offset by the incremental borrowings under the credit facility. Cash
interest payments totaled $8,081 during Nine Months 1997, and cash income tax
payments were $860 during Nine Months 1997.
FINANCING ARRANGEMENTS
On May 9, 1997, the Company completed its cash tender offer and consent
solicitation relating to its Senior Notes. Approximately $51 million aggregate
principal amount of Senior Notes were tendered, representing approximately 73%
of the $69.45 million aggregate principal amount of outstanding Senior Notes.
Approximately $18.4 million of Senior Notes remain outstanding. The Company
also has executed a new $110 million, five-year secured revolving credit
facility that replaces the $75 million old credit facility described in
"Overview". Borrowings under the new credit facility were used to finance the
tender offer for the Senior Notes. At September 27, 1997, outstanding
borrowings under the credit facility totaled $6,800 which were classified as
short term and $58,500 which were classified as long term.
Further credit facility borrowings will be made from time to time to finance
future liquidity requirements, including the month-to-month working capital
requirements. The revolving credit facility provides for borrowings of up to
$110,000 and other extensions of credit based on a debt-to-EBITDA ratio and
other covenants. The cash borrowings under the credit facility bear interest
at the prime rate plus a factor, currently 1.25 % or at an adjusted LIBOR rate
plus a factor, currently 2.25 % depending on the type of loan the Company
executes and various covenant ratios.
SEASONALITY OF BUSINESS
In total, the Company's net sales are generally 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.
20
<PAGE> 21
PART II OTHER INFORMATION
Item 5. Other Information
Adam M. Aron was appointed to the Board of Directors in August 1997.
Mr. Aron is Chairman of the Board and Chief Executive Officer of Vail
Resorts, Inc..
Richard B. Loynd resigned from the Board of Directors in September 1997.
Karen N. Latham resigned as Vice-President, Chief Financial Officer in
October 1997.
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
27 Financial Data Schedule
(b) A Form 8-K was not required to be filed during the quarter ended
September 27, 1997.
21
<PAGE> 22
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 /s/ Thomas E. Poggensee
--------------------------------
Thomas E. Poggensee
Treasurer, Secretary, Controller
and Chief Accounting Officer
Date: November 6, 1997
22
<PAGE> 1
FLORSHEIM GROUP INC. EXHIBIT 11
STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 28, 1996 September 27, 1997
------------------ ------------------
<S> <C> <C>
Weighted average common shares during
the period 8,346,051 8,374,751
Common shares issuable on exercise of
stock options 44,160 (2) (1)
--------- ---------
Weighted average common and common
equivalent shares outstanding 8,390,211 8,374,751
========= =========
</TABLE>
(1) Common stock options were not included since the exercise of which would
have had an antidilutive effect on the net loss per share.
(2) Includes 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.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 28, 1996 September 27, 1997
------------------ ------------------
<S> <C> <C>
Weighted average common shares during
the period 8,346,051 8,374,751
Common shares issuable on exercise of
stock options - (1) - (1)
--------- ---------
Weighted average common and common
equivalent shares outstanding 8,346,051 8,374,751
========= =========
</TABLE>
(1) Common stock options were not included since the exercise of which
would have had an antidilutive effect on the net loss per share.
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<EXCHANGE-RATE> 1
<CASH> 5,252
<SECURITIES> 0
<RECEIVABLES> 29,850
<ALLOWANCES> 1,590
<INVENTORY> 82,255
<CURRENT-ASSETS> 127,070
<PP&E> 45,683
<DEPRECIATION> 20,112
<TOTAL-ASSETS> 184,636
<CURRENT-LIABILITIES> 27,769
<BONDS> 76,912
0
0
<COMMON> 8,375
<OTHER-SE> 47,162
<TOTAL-LIABILITY-AND-EQUITY> 184,636
<SALES> 60,177
<TOTAL-REVENUES> 60,177
<CGS> 31,941
<TOTAL-COSTS> 26,315
<OTHER-EXPENSES> (123)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,116
<INCOME-PRETAX> (318)
<INCOME-TAX> (107)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
