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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-13474
FLORSHEIM GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3520923
(State or other jurisdiction of (I.R.S. Employer
incorporation or 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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12 3/4% Senior Notes due 2002 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 7, 1997, was approximately $20,830,560 based on the
closing price of the registrant's common stock as reported on The NASDAQ Stock
Market on March 7, 1997.
APPLICABLE ONLY TO REGISTRANTS 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 Section 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 [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
8,346,051 shares as of March 7, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on May 15, 1997, are incorporated by reference into
Part III of this report.
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PART I
Item 1. Business
This report contains forward-looking statements that address, among other
things, distribution efforts, sourcing arrangements, projected capital
expenditures, future cost of compliance with environmental laws and the
adequacy of financing arrangements to meet debt service, capital expenditures,
and other liquidity requirements. These statements may be found under Item 1.
"Business" and Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as in other portions of this
report generally. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including without limitation those discussed under the caption "Risk Factors"
included in Item 1. and other matters included in this report.
GENERAL
Florsheim Group Inc., formerly known as The Florsheim Shoe Company,
founded in 1892, markets, designs, 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 Group Inc. (Florsheim or the Company)
became a publicly held and publicly traded corporation on November 17, 1994
when Furniture Brands International, Inc., formerly known as INTERCO
INCORPORATED, distributed the common stock of Florsheim to its stockholders.
References herein to Florsheim or the Company include the consolidated
subsidiaries of Florsheim unless the context indicates otherwise.
Florsheim markets products to more than 6,000 specialty and department
store locations worldwide and through 351 Company-operated specialty stores and
outlet stores as of December 28, 1996. The Company believes that the Florsheim
brand name is widely recognized both in the U.S. and in international markets
for quality and value and that consumers' unaided brand awareness of
Florsheim's products in the U.S. in the men's dress shoe category is over four
times greater than that of its nearest competitor (according to Footwear Market
Insights [FMI]).
Florsheim primarily competes in the $60 and above retail price point
segment of the men's non-athletic footwear market. The below $60 price point
segment is dominated by private label offerings. According to FMI, the Company
is the leading provider of men's dress shoes in the $60 and above U.S. market,
with approximately a 17% market share, nearly twice the market share of the
Company's nearest competitor.
The Company's worldwide wholesale distribution accounted for approximately
41% of fiscal 1996 sales. The Company has a global wholesale customer base
which includes department stores and national accounts, such as Sears and
Nordstrom, Inc., independent dealers located worldwide and licensee locations
in Mexico, India, the Pacific Rim and the Middle East. In addition, as of
December 28, 1996, Florsheim has a retail network of 205 Company-operated
specialty stores and 93 Company-operated outlet stores in the U.S. As of
December 28, 1996, the Company also operated 45 specialty retail stores and
eight outlet stores in Australia, Canada, England and Italy. The Company's
retail operations allow the Company to: achieve broader distribution of its
products; provide a showcase for a variety of Florsheim branded products
marketed by the Company; test market acceptance of newly introduced products;
further develop consumer recognition of the Florsheim brand; and maintain
direct contact with changes in consumer preferences and buying practices. The
Company continues to develop store formats which provide updated, contemporary
looks to its specialty stores.
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 a cash sale price settled at $23.2 million.
Annual net sales of Hy-Test were approximately $6.9 million in fiscal 1996,
$38.7 million in fiscal 1995 and $36.1 million in fiscal 1994.
INDUSTRY OVERVIEW
The U.S. footwear industry has undergone substantial change since the
early 1980s, which has resulted in significant challenges for U.S.-based
footwear manufacturers and retailers. Two major influences of this change have
been the increase in footwear imports into the U.S. and the growth of consumer
demand for athletic and casual
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footwear. Management believes these influences have contributed to the
following trends: (i) the reduction in the domestic manufacturing base and an
increase in foreign sourcing of footwear products, (ii) the decline in annual
sales (in units) for the traditional dress shoe market, (iii) the increase in
sales of athletic and casual footwear and footwear products targeted for
specific athletic and leisure activities, and (iv) the shift in the primary
channels of distribution for footwear from independent dealers to department
stores, regional retailers and mass merchandisers. In response, the Company
has developed reliable, cost-effective foreign sourcing capabilities, developed
new product lines, developed lines of dress casual and casual shoes and
expanded its wholesale distribution capabilities.
According to FMI, 1996 U.S. retail sales of men's footwear (excluding
athletic footwear and work boots) were approximately $7.6 billion, or 133
million pairs. Within this market, recent declines in the traditional dress
shoe segment have been primarily driven by the lifestyle trend toward more
casual clothing and emphasis on leisure time and the increased popularity of
casual dress or "dress down" days within the business community. The men's
footwear industry merchandise mix has mirrored these changes, as consumer
preferences have shifted from dress toward casual. A dress casual category
within the men's footwear segment, which combines features of dress shoes with
the comfort enhancing aspects of casual footwear, has also developed in
response to this lifestyle and fashion shift. Over this period, consumers'
perceptions of the distinctions between product offerings within the dress,
dress casual and casual categories have diminished as a result of "crossover"
products that are not limited to a particular use or occasion but are suitable
for a variety of styles, fashions and end uses. Florsheim has embarked upon a
program to enhance its marketing efforts in order to respond to these market
developments and capture a larger percentage of the footwear market consisting
of younger and more casual-dress oriented consumers. Florsheim also has begun
remodeling Company-operated specialty store locations to provide an updated,
contemporary look to its stores.
The primary channels of distribution for footwear have shifted during the
past ten to fifteen years. Department stores, regional retailers and mass
merchandisers continue to play a larger role in the retailing of footwear, and
the significance of small independent footwear dealers, which once dominated
retail distribution, continue to decline dramatically. To compensate for these
shifts in channels of distribution, the Company has expanded its distribution
to department stores and regional and national retail stores and through
Company-operated outlet stores in response to the shifts in consumer shopping
patterns. In recent years, the Company has also developed a closer working
relationship with its key independent dealers in order to assist them with the
expansion of their Florsheim business.
MARKETING AND DISTRIBUTION GROWTH STRATEGY
Management of the Company emphasizes two principal growth objectives: to
strengthen the Company's position as the leading manufacturer and distributor
of men's dress shoes at retail prices of $60 and above and to improve its
market share in the growing dress casual and casual footwear categories. To
further these objectives, the Company has adopted growth strategies to: (i)
strengthen its leading position in the traditional dress shoe market, (ii)
extend its dress and dress casual product lines and enhance marketing
initiatives to improve its appeal to younger and casual-dress target audiences,
(iii) broaden wholesale distribution, (iv) increase sales at the
Company-operated retail stores through the remodeling of stores in a
contemporary format and selectively opening new specialty and outlet stores,
(v) offer additional products in its retail stores, using a multi-brand
approach, (vi) expand international sales and (vii) increase sales through new
product introductions.
In order to execute the growth plans, the Company, in early 1996,
organized strategic business units (SBUs) within the Company: wholesale,
retail, international and new products. The SBUs will be able to focus
specifically on achieving the growth objectives of the individual units and
provide the accountability necessary to allow management to control the units
in a manner consistent with the Company's overall goals.
Strengthen Leading Position in the Traditional Dress Shoe Market: FMI
estimates that the $60 and above dress shoe segment of the men's footwear
market, Florsheim's strongest historical product segment, accounted for $2.3
billion in annual retail sales in 1996. To expand market share in dress shoes,
the Company has positioned the Florsheim brand at retail price points above $80
and created a sub-label, FLS, to represent product under $80 at retail. This
strategy will allow Florsheim to market its products to broader channels of
distribution and appeal to a larger consumer base.
Extension of Dress Casual and Casual Product Offerings: The Company
intends to increase its market share in the growing dress casual and casual
categories through new product introductions, enhanced marketing initiatives
that are intended to appeal to younger and casual dress target audiences and
the promotion of product at Company-operated stores through a more contemporary
format. The Company originally developed Comfortech technology to improve
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the comfort and durability features of its products without sacrificing style
or quality. Florsheim has continued to enhance the Comfortech design each year
and has added new products and features to encourage the acceptance of
Comfortech line extensions. To capitalize on the success of Comfortech
Maintenance Free dress shoes, the Company is extending the Maintenance Free
concept into a line of dress casual and casual footwear. According to FMI
data, the Company maintains the sixth largest market share, approximately 4%,
in the casual segment of the $60 and above men's footwear market. With
approximately 39% of this market comprised of manufacturers that account for
less than a 1% market share according to FMI data, management believes the
casual market represents a key area of opportunity for the Company and intends
to concentrate on growth in this category.
Broaden Wholesale Distribution: The Company is aggressively seeking to
expand its sales to wholesale accounts by adding new customers, such as
national and regional retailers, including expansion of department store
distribution, as well as increasing penetration of existing accounts with its
extended product line and aggressive merchandising and advertising programs.
The Company's success in distributing its branded merchandise through Sears
locations is being used as a model in marketing similar arrangements to other
department stores and national and regional retailers. An important component
of the Sears/Florsheim success is the use of an interactive video kiosk that
allows the consumer to electronically seek product information, learn about
store promotions, and special order footwear directly from the Florsheim
distribution center. The video kiosk concept is adaptable to most retailers'
needs and will be expanded beyond Sears.
Remodeling of Company-Operated Stores: The Company is currently
remodeling its chain of Company-operated specialty stores with a new
contemporary and more casual format which includes new interiors with better
utilization of selling space. The Company intends to continue and further
enhance this remodeling effort with a more dramatic overhaul of store design
during 1997. The Company anticipates that the remodeled stores' contemporary
look combined with expanded product offerings will increase shopper traffic,
attract a younger consumer, and improve sales and productivity, and potentially
have the further beneficial effect of enhancing the Company's relationships
with mall developers and providing increased access to prime retail locations.
Through its Company-operated outlet stores Florsheim has been able to
participate in the growing U.S. outlet mall segment of the retailing industry.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Capital Expenditures".
Multi-Brand Concept: In order to meet consumers' needs for a complete
range of men's footwear in its retail stores, the Company has added additional
branded products that do not conflict with the current Florsheim line. By
selling additional brands in its store, the Company expects, based on
successful results to date, that this strategy will introduce the Florsheim
brand to additional consumers by attracting new customers into the stores.
Based on these results, the multi-brand concept results in improved Florsheim
product sales and higher overall sales per square foot for the store.
Expanding International Distribution: The Florsheim name is recognized in
many international markets around the world, especially Australia, Canada and
Mexico. The Company has initiated efforts to establish a stronger presence in
Europe, Central and South America and the Pacific Rim. In addition, the Company
has launched an international strategy, through licensing of stores, selective
openings of Company-operated specialty stores, specifically, Milan, Italy, and,
London, England, and increased sales to wholesale accounts, to increase its
penetration of established markets and to introduce the Florsheim brand in
selected new markets.
New Product Introductions: The Company, in early 1996, established a new
products division. Through this division, the Company will review and develop
opportunities to expand sales beyond the product areas in which Florsheim
currently focuses its efforts. The New Products Division will pursue business
building opportunities that take advantage of the Company's expertise in
footwear. In 1996, four opportunities were identified; these will be in the
market in 1997. The new products are: Florsheim Golf Shoes, John Deere
Footwear, @ease and Joseph Abboud Footwear.
ADVERTISING
The Company's advertising objective is to build upon the strength of the
Florsheim brand name and expand its market share and sales in the growing dress
casual and casual categories with particular attention on targeting a younger,
more affluent customer. According to a FMI survey, unaided brand awareness of
the Florsheim name is approximately 50% in the United States in the men's dress
shoe category. Management believes this unaided brand awareness is over four
times greater than that of its nearest competitor in the dress category of the
footwear industry and
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is third overall, behind Nike and Reebok, in the entire footwear industry. The
consumer's image of Florsheim is typically associated with a high quality
product that offers good value. Management has implemented advertising and
marketing programs to successfully carry that well-established quality image
through to offerings in the dress casual and casual categories. The Company is
also using advertising to reach a younger market segment. In Fall 1996, the
Company began its ""SOLE OF SUCCESS" campaign using celebrities from various
walks of life. Celebrities are seen wearing Florsheim product in leading
magazines and in point of sale materials at retail. A new group of celebrities
will be rotated in each season to keep the campaign fresh. The campaign has
thus far included Pat O'Brien, Jim Harbaugh, Corbin Bernsen, Luke and Murphy
Jensen, Oscar De La Hoya, Nick Faldo and Derek Jeter.
The total domestic advertising expenditures for fiscal 1996 were
approximately 1.3% of Florsheim's total domestic sales (excluding Hy-Test),
versus 2.2% in fiscal 1995 and 2.7% in fiscal 1994. These expenditures were
divided among television, national print ads and print advertising placed on
behalf of the Company-operated specialty stores and independent dealers.
WHOLESALE OPERATIONS
The Company distributes its product at wholesale to more than 6,000 retail
locations worldwide ranging from independent shoe stores to large national
retailers and department stores to Company-operated specialty and outlet
stores. The Company is continually developing new distribution programs to add
new distribution, strengthen its position with its existing customers and
capitalize on new distribution opportunities in response to the shifts in
consumer shopping patterns. The Company's broadened product line has helped
strengthen its position with dealers because each dealer can select the items
from the product line which will appeal to its particular customer base.
Management believes that new product introductions such as Florsheim golf
shoes, John Deere work boots and Joseph Abboud dress and casual shoes
strengthen the Company's position with its distribution by providing innovative
merchandise.
Due to the changing profile of the retailing shoe industry with the
reduced importance of the traditional shoe store, Florsheim has expanded its
distribution strategy to include a broader range of retailers. While remaining
selective in its choice of dealers and focusing on those that will best serve
the Company for the long-term, the Company believes that a broader distribution
base that includes department stores, national and regional retailers and mass
merchandisers is essential for continued success.
RETAIL OPERATIONS
As of December 28, 1996, Florsheim had 351 Company-operated stores
worldwide, represented by 250 traditional Florsheim specialty shoe shops and
101 outlet stores. According to industry data, management believes that
Florsheim's Company-operated chain of stores is the largest U.S. specialty
retailer of men's quality dress footwear. As of December 28, 1996, the Company
operated a core of 205 U.S. specialty retail locations. The Company evaluates
each of these locations as leases expire and makes the decision to renew,
relocate, or close. In addition, the Company intends to continue the selective
opening of new stores.
The Company-operated stores provide a strategic distribution channel which
gives the Company a key competitive advantage. Management believes that as the
footwear retailing industry continues to consolidate, it is critical that the
Company maintain its own controlled distribution channel. Company-operated
stores are the largest distributor of company products and, in the U.S.,
represented approximately 39% of the wholesale sales value of total domestic
wholesale shipments during fiscal 1996. The Company realizes both a wholesale
profit margin and a retail profit margin on product distributed through its
Company-operated stores. The combined operating profit margin on such sales is
larger than the operating profit margin earned on product distributed
exclusively through wholesale channels. Florsheim maintains a consistent
pricing policy for the wholesale division such that prices for shoes purchased
by Company-operated retail stores are typically the same as those paid by
independent dealers.
During 1996, the number of specialty stores began to offer a limited
selection of non-Florsheim products in order to attract new consumers into the
stores. Management believes that this strategy will improve overall sales per
square foot and will enable the Company to introduce the Florsheim brand to a
new group of younger consumers. Company-operated stores will continue to carry
predominantly Florsheim product which will help reinforce the Company's
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quality footwear image by displaying the complete Florsheim product line in an
attractive, Company-controlled display format.
The traditional Florsheim specialty shoe stores carry a full selection of
the Company's brands, while the outlet stores carry discontinued merchandise,
close out inventory and specially manufactured products. The Company does not
concurrently offer any identical products through these separate and distinct
distribution channels. Both the traditional specialty shoe stores and the
outlet stores have been, and will continue to be, a focal point of the
Company's distribution efforts.
INTERNATIONAL
Florsheim has been a participant in international markets since the 1960s
and has a strong, established presence in Australia and Canada through
Company-operated businesses, and Mexico, a licensee operation. The Company has
recently initiated efforts to establish a stronger presence in selected regions
of Europe, Central, and South America, the Middle East and the Pacific Rim. The
international division markets the Company's products through a global network
of wholesale dealers, licensees and Company-operated stores. At December 28,
1996, the Company operated 53 specialty and outlet stores in international
markets and licensed an additional 30 specialty shops to selected partners.
International sales, including exports, were $45.8 million in fiscal 1996, and
were distributed as shown below:
International Distribution
Percentage of Total Fiscal 1996 International Sales
Australia ...... 49 %
Canada ......... 24
Pacific Rim .... 14
Europe ......... 7
Other Exports .. 6
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100 %
===
Management believes American brand names, in general, have well recognized
marketing appeal in many countries throughout the world and anticipates that
the Company's classic, high quality products will be especially well received
in the European, Central and South American and Pacific Rim markets. The
Company believes that the Florsheim brand name is recognized throughout the
world and that the trend toward the growth of international brand names offers
tremendous opportunity for Florsheim.
Australia and Canada are important and well established markets for
Florsheim. The Australian and Canadian operations both include wholesale
distribution and a chain of Company-operated specialty and outlet stores. As of
December 28, 1996, the Company operated 34 stores in Australia and 16 stores in
Canada. Management believes that its Australian stores are the only chain of
dedicated quality men's dress shoes in Australia and provide a key competitive
advantage in this market. Both the Australian and Canadian retailing industries
are dominated by large department stores; therefore, the Company is
concentrating on building wholesale sales to these key department store
accounts while maintaining its commitment to a profitable network of
Company-operated stores and independent dealers. Currently, there is one
Company-operated manufacturing facility in Australia and none in Canada.
Management believes that the Pacific Rim, and Japan in particular, offers
opportunities for Florsheim and has targeted this region as part of the
Company's international growth strategy. Distribution to this market is
primarily effected by its Hong Kong sales subsidiary through wholesale sales to
independent retailers in the Pacific Rim and licensees and distributors in Hong
Kong, Indonesia, Taiwan and the Philippines. The Company's primary strategy for
increasing its presence in this area is to increase the number of independent
dealers and licensees while establishing Company-operated specialty stores in a
few select locations. In addition, the Company will explore other formats for
distribution opportunities, such as licensing, in markets such as Japan.
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Management believes there is a significant opportunity to increase sales
in Europe by capitalizing on the appeal of American brand name products. While
it is expected that the Company will encounter greater competition in Europe
than in the Pacific Rim, the Company intends to draw upon its long-standing
relationships with Italian and Spanish suppliers to establish a presence and
generate demand for its products in Europe. The Company has developed a sales
presence in several European countries, opened its first Company-operated store
in Europe, located in Milan, Italy, in 1994, and opened another
Company-operated store, located in London, England, in 1996.
The network of Company-operated stores in Mexico was sold in fiscal 1991
to a company located in Mexico which management believed was better positioned
to expand distribution in the Mexican market. This sale included an ongoing
royalty and licensing agreement.
Note 16 to the Company's consolidated financial statements included under
item 8 of this Report contains certain foreign, geographical segment
information regarding the Company's domestic and international revenue,
operating income and assets.
PRODUCT
Management's primary product strategy is to strengthen its leading
position in the dress category while further penetrating the growing dress
casual and casual categories. Florsheim offers a diverse line of men's quality
dress, dress-casual and casual shoes in the $60 and above price range. All
products, (except those that are sold under license), are currently sold under
the Florsheim brand, but segmented with the following sub-labels to
differentiate product by lifestyle or construction. In addition, the Company
has entered into licensing agreements to manufacture and sell John Deere work
boots and Joseph Abboud footwear.
<TABLE>
<CAPTION>
DRESS DRESS CASUAL CASUAL OTHER
- ----- ------------ ------ -----
<S> <C> <C> <C>
Florsheim Florsheim Florsheim John Deere**
Florsheim Comfortech Florsheim Comfortech Florsheim Comfortech Florsheim Frogs
Florsheim Imperial Florsheim @ease Florsheim @ease
Florsheim FLS Florsheim FLS
Joseph Abboud* Joseph Abboud*
</TABLE>
* This is the registered trademark of Joseph Abboud
** This is the registered trademark of John Deere
Florsheim: Florsheim is the signature of quality and value. This is the
foundation of Florsheim heritage - dress and casual styles you can wear with
confidence. Tradition woven with fashion - the intrinsic marriage of style,
quality and value. Retail price points for this line range from $80 to $120.
Florsheim Comfortech: Florsheim Comfortech is the signature of comfort.
Using the most advanced comfort technology and most sophisticated comfort
construction methods, Florsheim Comfortech provides a comfortable alternative
to ordinary dress and casual shoes. Retail price points range from $90 to
$120.
Florsheim Imperial: Florsheim Imperial is the definition of American
style. The glamour of our past with the function and versatility of the
present and the comfort and streamlined shapes of the future. Superior quality
paired with comfort. A classic look laced with style. A shoe built with the
exacting standards worth of the Imperial name. These fashionable styles range
from dress to dress/casual styles. Retail price points range from $120 to
$170.
Joseph Abboud Footwear: Complete line of high-end fashion footwear
designed and manufactured to the specifications of men's fashion designer
Joseph Abboud. Abboud fashions are available only at high-end retail outlets
and appeal to the needs and desires of an upscale clientele. Retail price
points range from $125 to $300.
Florsheim FLS: To maintain the equity position of the Florsheim name
but still offer product at entry price-points, this new line of value priced
product has been developed. Florsheim FLS offers quality product at $50 to
$70.
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John Deere: A complete line of authentic work boots designed
specifically to the needs of industrial, agricultural and other blue collar
workers. The line is marketed under the John Deere name through a licensing
agreement with one of the world's best known industrial/agricultural equipment
manufacturer. The boots are specifically designed to be the most comfortable
and durable product in the market. Retail price points range from $110 to
$175.
Florsheim Frogs: Florsheim has entered the golf shoe arena with product
designed to be technologically superior. This is achieved by combining the
Florsheim Comfortech advantages into a well-built, waterproof, leather shoe.
Florsheim Frogs also offers some high-end styles in sturdy leather soled golf
shoes. Retail price points range from $100 to $200.
Florsheim @ease: Out of the strategy to appeal to a younger consumer in
the wardrobe building phase of his life, Florsheim has developed a line of
young contemporary, dress casual and casual styles. Retail price points range
from $100 to $200.
SOURCING AND MANUFACTURING; TRADE REGULATIONS
Florsheim's sourcing strategy is to manufacture products where they can be
produced most efficiently while still meeting management's quality and service
specifications. Toward this goal, Florsheim shoes are manufactured both
domestically and overseas. The Company owns a manufacturing plant in Cape
Girardeau, Missouri as well as a warehouse distribution center in Jefferson
City, Missouri. Based on 1996 results, the production at Cape Girardeau, is
approximately 20% of the total worldwide production and is primarily involved
in finishing imported uppers which is approximately two-thirds of its total
production. The remaining one-third is the complete cut-through pack.
Florsheim has consolidated its domestic manufacturing in recent years to
improve production capabilities and concentrate on products which can be
produced domestically more cost efficiently. By using a mix of domestic and
overseas production, Florsheim is able to benefit from lower costs for certain
labor-intensive operations while maintaining a limited manufacturing base close
to its end-market. During 1996, approximately three-quarters of Florsheim's
finished shoe sourcing requirements were fulfilled outside of the United
States. Approximately two-thirds of Florsheim's non-domestic products are
manufactured in India, where Florsheim is the minority partner (26% ownership)
in a joint venture arrangement with a local operator. Under this arrangement,
the venture manufactures exclusively for Florsheim and without minimum quantity
restrictions for the production output. Also under this arrangement, the
Company is actively involved in training and production techniques, and
management believes that production quality is comparable to what could
otherwise be produced using domestic production facilities. The remainder of
the Company's non-domestic products are sourced from a variety of suppliers in
a number of other countries, including Portugal, Spain, Italy, Dominican
Republic, China and Mexico.
Florsheim's major raw materials include leather uppers, linings and
outsoles. Florsheim obtains raw materials and components from a wide variety of
sources located throughout the world and has alternate sources for leathers,
components and other materials. Leather pricing and availability are subject to
fluctuating supply and demand cycles; however, Florsheim management believes it
has adequate sourcing arrangements to ensure an uninterrupted supply of raw
materials.
The Company's operations are subject to the customary risks of doing
business abroad, including currency fluctuations, labor unrest, political
instability, restrictions on transfer of funds, export duties and quotas and
U.S. customs and tariffs. The Omnibus Trade and Competitiveness Act of 1988
added a new provision to the Trade Act of 1974 dealing with intellectual
property rights. This provision, which is commonly referred to as "Special
301," directed the United States Trade Representative (USTR) to designate those
countries with poor records for protecting intellectual property rights as
"priority foreign countries" and to initiate investigations with respect to the
allegedly unfair practices in such countries. Where such an investigation does
not lead to a satisfactory resolution of such practices, through consultations
or otherwise, USTR is authorized to take retaliatory action, including the
imposition of restrictions on imports from the particular country into the
United States.
In the past, the USTR has reviewed the trade practices of various
countries, including India, Taiwan and China under Special 301, but such
reviews have not had any material affect on the Company's sourcing
arrangements. No assurance can be given, however, that the USTR's efforts will
not, in the future, have an adverse effect on the Company's sourcing
arrangements.
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The Company's imported finished footwear products are subject to U.S.
customs duties of 8.5%. The Company's imported leather uppers may be imported
from India duty-free under the Generalized System of Preferences. The Company's
imports of leather are subject to a range of duty rates from 0-5.0%. The
Company is unable to predict whether additional U.S. customs duties, quotas or
other restrictions may be imposed upon the importation of its products in the
future or whether duty-free privileges may be suspended or terminated in the
future.
MANAGEMENT INFORMATION SYSTEMS
The Company maintains sophisticated information systems to process
information from its Company-operated retail stores and to track its
inventories. At the retail stores, electronic point of sale cash registers
capture sales transactions and transmit daily activity each night to a central
computer system in Chicago. An automated reordering system is used to track
retail store inventories and automatically generate warehouse orders to keep
the stores supplied with model stock inventories. The Express Shops,
interactive video kiosks, are utilized at many of the Company-operated and
dealer stores to view an electronic catalog and accept customers' orders for
items that are not in stock at the store.
For the U.S. wholesale division, a sophisticated forecasting and material
requirements planning system is utilized to order and track finished shoes,
leather, and components. A perpetual inventory system is used to track finished
shoes on order and at the warehouse and to provide customer service information
regarding delivery dates. Electronic Data Interchange (EDI) is used with a
number of large customers to process orders, invoices, and payments.
During 1997, the Company is reviewing its information systems in order to
assess how to improve the systems based on new technology. An investment will
be made, over the next two to three years, in updated management information
systems.
COMPETITION
Florsheim competes with a number of domestic marketers of men's dress,
dress casual and casual footwear, including Rockport, Cole Haan, Johnston &
Murphy, Dexter, Bostonian and Bass, with respect to fashion, quality and price.
In addition to direct competition with the dress, dress casual and casual
footwear product markets, Florsheim indirectly competes against manufacturers
and retailers of athletic footwear. Florsheim's retail stores also compete with
a variety of retailers, including regional specialty retailers, department
stores, national retailers and mass merchandisers, with respect to men's dress,
dress casual and casual footwear. The additions of John Deere work boots,
Joseph Abboud footwear and Florsheim golf shoes will increase the number and
types of marketers with which the Company competes. Florsheim also experiences
significant competition from imports.
SEASONALITY OF BUSINESS
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Seasonality of Business."
BACKLOG
At December 28, 1996 the Company's U.S. wholesale operations had a backlog
of customer orders amounting to approximately $14.5 million, compared to
approximately $11.0 million, at December 30, 1995, excluding Hy-Test, an
increase of 31.7%. The increase was primarily due to strong orders for future
delivery of both the Company's new products and its traditional line and
partially due to temporary delivery delays of certain categories of product.
The majority of incoming orders are for "at once" shipments; therefore, the
backlog is not necessarily indicative of a corresponding change in annual
sales.
8
<PAGE> 10
EMPLOYEES
As of December 28, 1996, Florsheim had 2,129 employees in the United
States and overseas. Approximately 20% of Florsheim's work force is represented
by unions. Management believes Florsheim has maintained satisfactory overall
relations with its unionized and non-unionized workforce.
INTELLECTUAL PROPERTY
The major trademarks and trade names under which Florsheim's men's
footwear are sold are: Florsheim, Florsheim Comfortech, Florsheim Imperial,
Florsheim Comfortech Maintenance Free, Florsheim Frogs, Florsheim FLS and
Florsheim @ease. Other footwear is sold through licensing agreements as:
Joseph Abboud footwear and John Deere boots. The Company considers Florsheim
and the names and marks traditionally used with it to be material to its
business. The Company also owns several patents which relate to footwear
construction and are material to the operations of the business and expire over
the next 13 years.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws,
regulations and ordinances relating to the operation and removal of underground
storage tanks and the storage, handling, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes
pursuant to which the Company has in the past been required to incur compliance
and clean-up costs. The nature of the Company's operations expose it to the
risk of claims with respect to environmental matters, and there can be no
assurance that material costs or liabilities will not be incurred in connection
with such claims.
Based on the Company's experience to date, the Company believes that its
future cost of compliance with environmental laws, regulations and ordinances,
or exposure to liability for environmental claims, will not have a material
adverse effect on the Company's business or financial position. However, future
events, such as changes in existing laws and regulations, or unknown
contamination of sites owned or operated by the Company (including
contamination caused by prior owners and operators of such sites) may give rise
to additional compliance costs which could have a material adverse effect on
the Company's financial position.
RISK FACTORS
Impact of General Economic Conditions on Footwear Industry and the Company's
Operations
Florsheim and the footwear industry in general are dependent on the
economic environment and levels of consumer spending which affect not only the
ultimate consumer, but also retailers, Florsheim's primary direct customers.
As a result, Florsheim's results may be adversely affected by downward trends
in the economy or the occurrence of events that adversely affect the economy in
general. There can be no assurance that any prolonged economic downturn would
not have a material adverse effect on Florsheim.
Competition
Florsheim directly competes, with respect to fashion, quality and price,
with a number of domestic manufacturers and retailers of men's dress, dress
casual and casual footwear. In addition, Florsheim indirectly competes with
manufacturers and retailers of athletic footwear. Florsheim's retail stores
also compete with a variety of retailers, including regional specialty
retailers, department stores, national; retailers and mass merchandisers, with
respect to men's dress, dress casual and casual footwear. The additions of
John Deere work boots, Joseph Abboud footwear and Florsheim golf shoes increase
the number and types of marketers with which Florsheim competes. Florsheim
also experiences significant competition from imports. Highly competitive
conditions existing within both the wholesale and retail segments of the men's
footwear market may result in increased price promotions and promotional
expenses that limit the Company's ability to grow its sales and enhance its
gross profit margins.
9
<PAGE> 11
Reliance on Foreign Production
During 1996, approximately three-quarters of Florsheim's finished shoe
sourcing requirements were fulfilled outside of the United States, with
approximately two-thirds of such non-domestic product manufactured in India,
where Florsheim is a participant in a joint venture arrangement with a local
operation, and the remainder of such non-domestic product sourced from a
variety of suppliers in a number of other countries, including Portugal, Spain,
Italy, Dominican Republic, China and Mexico. The Company's operations are
subject to the customary risks of doing business abroad, including currency
fluctuations, labor unrest, political instability, restrictions on transfer of
funds, import and export duties and trade barriers (including quotas) and U.S.
customs and tariffs. In addition, trade regulations and potential U.S.
government sanctions could be imposed against some of the countries from which
the Company sources product and result in restrictions on imports from such
countries. To date, these factors have not had an adverse impact on the
Company's operations.
Control of Florsheim
Apollo Investment Fund, L.P. ("Apollo") and its affiliate Lion Advisors,
L.P., on behalf of an investment account under management ("Lion"; Apollo and
Lion together being referred to herein as the "Apollo Stockholders"), together
beneficially own approximately 67.3% of the outstanding shares of Florsheim
Common Stock. By reason of their ownership of shares of Florsheim Common
Stock, the Apollo Stockholders have the power effectively to control or
influence control of the Company, including in elections of the Board of
Directors and other matters submitted to a vote of the Company's stockholders,
including extraordinary corporate transactions such as mergers. The Apollo
Stockholders may exercise such control from time to time. A majority of the
Board of Directors consists of individuals associated with affiliates of Apollo
and Lion.
Shares Eligible for Future Sale
The Apollo Stockholders beneficially own approximately 5,615,160 shares of
Florsheim Common Stock. The Apollo Stockholders have advised Florsheim that at
this time they do not have any present plan or intention to dispose of any such
shares of Florsheim Common Stock. However, the Apollo Stockholders continually
review decisions to buy, sell or hold investments and based on market
conditions or other considerations, their intentions may change. Sales of
shares of Florsheim Common Stock by the Apollo Stockholders would be subject to
restrictions imposed by the Securities Act of 1933, as amended (the "Securities
Act"), including Rule 144 promulgated thereunder, unless the Apollo
Stockholders exercise certain rights for the registration of their shares of
Florsheim Common Stock under the Securities Act. The sale of a substantial
number of shares of Florsheim Common Stock by the Apollo Stockholders could
adversely affect the market price of the Florsheim Common Stock.
10
<PAGE> 12
Item 2. Properties
Florsheim owns or leases the following principal plants, offices and
warehouses:
<TABLE>
Floor Owned
Space or
Location Type of Facility (Sq. Ft. ) Leased
- -------- ---------------- ---------- ------
<S> <C> <C> <C>
Chicago, IL.......................... Headquarters 129,000 Leased
Jefferson City, MO............... Warehouse 562,000 Owned
Cape Girardeau, MO............ Plant 90,000 Owned
Preston, Australia................. Plant/Warehouse 59,000 Leased
Hong Kong........................... Office/Warehouse 12,000 Leased
Florence, Italy....................... Office/Warehouse 5,000 Leased
New York, NY...................... Office/Showroom 3,000 Leased
</TABLE>
The owned properties listed above are encumbered by a first priority lien
and mortgage pursuant to the Credit Agreement, dated November 17, 1994, among
the Company and certain of its subsidiaries, certain financial institutions and
BT Commercial Corporation, as Agent.
On March 20, 1997, the Company completed the sale of its former
headquarters located in Chicago, Illinois.
The Company's properties listed above are generally well maintained,
suitable for present operations and adequate for current production
requirements. Production and sourcing of Florsheim dress and dress casual
product formerly accomplished at the Kirksville, Missouri facility sold in
connection with the sale of Hy-Test, has been directed towards Cape Girardeau
and other locations. Productive capacity and extent of utilization of
Florsheim's manufacturing facilities are difficult to quantify with certainty
because maximum capacity and utilization in a facility varies periodically
depending upon the product that is being manufactured, the degree of automation
and the utilization of the labor force in the facility. In this context,
Florsheim estimates that overall its production facilities were effectively
utilized during fiscal 1996 at moderate to high levels of productive capacity
and believes that its facilities in combination with other facilities available
through the Company's sourcing network have the capacity, if necessary, to
expand production to meet anticipated product requirements.
Item 3. Legal Proceedings
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. In the
opinion of management, the ultimate liability, if any, of the Company from all
such proceedings will not have a material adverse effect upon the consolidated
financial position or results of operations of the Company and its
subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
11
<PAGE> 13
PART II
Item 5. Market for The Registrant's Common Equity and Related Stockholder
Matters
As of February 20, 1997, there were approximately 1,900 holders of record
of Common Stock.
Shares of the Company's Common Stock trade on The NASDAQ Stock Market
under the symbol: FLSC. The reported high and low sale prices for Florsheim's
Common Stock on The NASDAQ Stock Market for each quarterly period within the
two most recent fiscal years are included in Note 17 to the consolidated
financial statements of the Company included under Item 8 of this Report.
The Company did not pay dividends on its Common Stock during the fiscal
years ended December 30, 1995 and December 28, 1996.
A discussion of restrictions on the Company's ability to pay cash
dividends is included in Note 7 to the consolidated financial statements of the
Company included under Item 8 of this Report.
12
<PAGE> 14
Item 6. Selected Consolidated Financial and Operating Data
(Dollars in thousands other than per share data)
The following financial data should be read in conjunction with the consolidated
financial statements and notes thereto included.
<TABLE>
<CAPTION>
===================================================================================================================================
Fiscal year Fiscal year Fiscal year Fiscal year
Five months ended(1)(2) ended(1)(2) ended(1)(2) ended(1)(2) ended(1)(2)
------------------------ -------------------------- --------------------------
Aug 2, 1992 Jan 2, 1993 Jan 1, 1994 Dec 31, 1994 Dec 30, 1995 Dec 28, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS:
Net sales:
U.S. wholesale $ 29,521 $ 40,757 $ 89,863 $92,447 $ 79,924 $ 73,637
U.S. retail 56,296 59,056 132,163 130,960 122,588 118,507
International
(including exports from the U.S.) 15,741 19,306 41,408 42,493 44,136 45,768
- -----------------------------------------------------------------------------------------------------------------------------------
Subtotal 101,558 119,119 263,434 265,900 246,648 237,912
Hy-Test (3) 13,607 14,793 36,191 36,101 38,659 6,943
===================================================================================================================================
Total net sales 115,165 133,912 299,625 302,001 285,307 244,855
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit 51,235 65,157 140,892 134,898 124,376 116,773
Selling, general, and administrative expenses 46,808 48,897 110,974 114,766 117,456 105,365
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings from operations 4,427 16,260 29,918 20,132 6,920 11,408
Other income (expense), net 161 1,603 63 (194) 67 1,366
Interest expense 4,454 4,457 10,350 10,408 13,274 9,989
Reorganization items (11,445) - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income tax
expense, and cumulative effect of
a change in accounting principle (11,311) 13,406 19,631 9,530 (6,287) 2,785
Income tax expense (benefit) (151) 4,173 7,351 3,048 (1,441) 821
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before cumulative effect
of a change in accounting principle (11,160) 9,233 12,280 6,482 (4,846) 1,964
Cumulative effect of a change in accounting
principle (17,059) - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $(28,219) $ 9,233 $ 12,280 $6,482 $ (4,846) $ 1,964
Earnings (loss) per share (4) - - - - $ (0.58) $ 0.23
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION:
Ratio of earnings to fixed charges (8) - 2.83x 2.15x 1.54x - 1.16x
Pro forma ratio of earnings to fixed charges (5) 1.54x 1.07x
EBITDA (6) $ 6,849 $17,292 $ 33,138 $23,974 $ 11,459 $16,283
Pro Forma EBITDA (5)(6) - - 29,465 20,538 - -
Depreciation and amortization 2,422 1,032 3,220 3,842 4,539 4,875
Capital expenditures 1,476 1,870 8,142 9,498 5,479 9,424
BALANCE SHEET DATA AT PERIOD END:
Working capital 138,427 133,363 152,035 141,300 111,922 95,116
Property, plant, and equipment, net 14,865 14,189 17,817 21,687 21,742 24,974
Total assets 198,550 197,151 221,404 215,270 186,321 185,238
Long-term debt, less current maturities 116,970 107,770 104,287 105,533 80,126 69,450
Stockholder's investment 31,134 36,289 65,587 - - -
Shareholders' equity - - - 60,148 55,068 57,655
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF RETAIL STORES: (7)
U.S. specialty 278 267 248 233 220 205
U.S. outlet 19 37 58 78 90 93
International 61 60 51 57 53 53
- -----------------------------------------------------------------------------------------------------------------------------------
Total stores 358 364 357 368 363 351
===================================================================================================================================
</TABLE>
13
<PAGE> 15
(1) Effective January 2, 1993, Florsheim changed its fiscal year end from the
last Saturday in February to the Saturday closest to December 31. This
change, coupled with "fresh start" reporting, results in reporting fiscal
1992 in two 22-week periods.
(2) As of November 17, 1994, Florsheim became an independent public company.
Prior to that date, Florsheim operated as a division and/or subsidiary of
Furniture Brands International, Inc., formerly known as INTERCO
INCORPORATED (see note 1 to consolidated financial statements).
(3) Represents sales of the Company's Hy-Test safety shoe business, which was
sold in March, 1996.
(4) Earnings (loss) per share data are presented for the full years that the
Company operated during the period as an independent public company.
(5) Calculated on a pro forma basis. See note 18 to consolidated financial
statements for discussion of pro forma financial data.
(6) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, and other income and expense. See the
Company's consolidated statements of cash flows in the Company's
consolidated financial statements contained elsewhere in this report.
EBITDA is presented solely as supplemental disclosure because (i) the
Company's gross profit and earnings from operations after August 2, 1992
are not comparable to its gross profit and earnings from operations before
August 2, 1992; (ii) the Company believes EBITDA is comparable for periods
before and after August 2, 1992: and (iii) EBITDA is frequently used to
analyze companies on the basis of operating performance, leverage, and
liquidity. EBITDA is not intended to provide a measure of profitability
and is being presented solely for informational purposes as one of several
measures of financial performance.
(7) Figures include only Company-operated stores at period end.
(8) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) before income taxes, plus fixed
charges. Fixed charges consist of interest expense on all indebtedness
(including amortization of deferred debt issuance costs) and the portion
of operating lease rental expenses that is representative of the interest
factor. For the five months ended August 2, 1992, and for the twelve
months ended December 30, 1995, earnings were inadequate to cover fixed
charges by $11.3 million and $6.3 million, respectively.
14
<PAGE> 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands)
The following commentary should be read in conjunction with the consolidated
financial statements and notes thereto included under Item 8 of this report.
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 to more than 6,000 specialty and department
store locations worldwide and through 351 Company-operated specialty stores and
outlet stores as of December 28, 1996.
On December 26, 1996, Florsheim Group Inc. changed to its present corporate
name from The Florsheim Shoe Company.
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 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 $23.2
million. Annual net sales of the sold business were $38,659 for the twelve
months ended December 30, 1995 and $6,943 for the period through the March 22,
1996 sale date.
15
<PAGE> 17
RESULTS OF OPERATIONS
The Company's fiscal year end is the Saturday closest to December 31.
Throughout this analysis, fiscal 1994 refers to the twelve-month period ended
December 31, 1994, fiscal 1995 refers to the twelve-month period ended December
30, 1995, and fiscal 1996 refers to the twelve-month period ended December 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>
==============================================================================================================
Twelve months ended
-----------------------------------------------------------------------
(Dollars in thousands) December 31, 1994 December 30, 1995 December 28, 1996
- --------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount %
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales:
U.S. Wholesale $ 92,447 30.6 % $ 79,924 28.0% $ 73,637 30.1%
U.S. Retail 130,960 43.3 122,588 43.0 118,507 48.4
International (including
exports from U.S.) 42,493 14.1 44,136 15.5 45,768 18.7
- ---------------------------------------------------------------------------------------------------------------
Subtotal 265,900 88.0 246,648 86.5 237,912 97.2
Hy- Test (1) 36,101 12.0 38,659 13.5 6,943 2.8
- ---------------------------------------------------------------------------------------------------------------
Total net sales $302,001 100.0 % $285,307 100.0 % $244,855 100.0 %
===============================================================================================================
Percent change in same store
sales (2) (1.0)% (6.3)% (0.3)%
EBITDA (3) $ 23,974 7.9% $ 11,459 4.0 % $ 16,283 6.7 %
===============================================================================================================
</TABLE>
(1) The Hy-Test safety shoe business was sold on March 22, 1996.
(2) Includes only those sales figures for U.S. specialty stores that have
been in operation for at least twelve full months. Percentage change
reflects figures for period depicted as compared to the figures from the
preceding period of comparable length.
(3) Earnings before interest expense, income taxes, depreciation and
amortization, and other income (expense), net. EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to earnings from operations as an indicator of operating
performance and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with GAAP.
<TABLE>
<CAPTION>
========================================================================================================================
Twelve months ended
------------------------------------------------------------
Dec. 31, Dec. 30, Dec. 28,
Operations data (as a percent of net sales) 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 %
Gross profit 44.7 43.6 47.7
Selling, general, and administrative expense 38.0 41.2 43.0
Earnings from operations 6.7 2.4 4.7
Interest expense 3.5 4.7 4.1
Net earnings (loss) 2.1 (1.7) 0.8
=====================================================================================================================
</TABLE>
16
<PAGE> 18
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 were $244,855, a decrease of $40,452, or 14.2%, as
compared to fiscal 1995. Of the decrease, $31,716, or 11.1% is attributed to
the Hy-Test division, which was sold on March 22, 1996. U.S. wholesale net
sales decreased $6,287, or 7.9%, due to decreases in unit volume reflecting
difficult market conditions and product availability. U.S. retail net sales
decreased $4,081, or 3.3%, as additional sales from stores opened during or
after fiscal 1995 were more than offset by store closings, a net store
reduction during fiscal 1996 of twelve stores, and fiscal 1996 same store sales
decreases at U.S. specialty stores of 0.3%. International sales increased
$1,632, or 3.7%, with the increase due to increased sales at Company-operated
stores and expanded wholesale distribution.
Gross profit margin for fiscal 1996 was 47.7% of net sales, as compared to
43.6% of net sales for fiscal 1995. The increase was due to a mix change
(reflecting the sale of Hy-Test) to a higher percentage of retail sales and
costs decreases due to the Company's expense reduction programs and was
partially offset by increased price promotion activity.
Selling, general and administrative expenses for fiscal 1996 were $105,365, a
decrease of $12,091, or 10.3%, from fiscal 1995. Selling, general and
administrative expenses for fiscal 1996 were 43.0% of net sales, an increase
from 41.2% of net sales for fiscal 1995 due to lower sales volume and a mix
change reflecting the sale of Hy-Test. Expense decreases due to the Company's
expense reduction programs were partially offset by increased selling costs and
spending on sales growth opportunities.
Earnings from operations for fiscal 1996 were $11,408, an increase of $4,488,
or 64.9%, from fiscal 1995, and EBITDA for fiscal 1996 was $16,283, an
increase of $4,824, or 42.1% from fiscal 1995. Earnings from operations for
fiscal 1996 were 4.7% of net sales, as compared to 2.4% of net sales for fiscal
1995, and EBITDA for fiscal 1996 was 6.7% of net sales, as compared to 4.0% of
net sales for fiscal 1995. 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
fiscal 1996 are improved from fiscal 1995 primarily due to the expense
reduction programs, partially offset by the reduction in earnings from
operations due to sales volume decreases.
Interest expense for fiscal 1996 was $9,989 as compared to fiscal 1995 amount
of $13,274. This decrease is due to the lower average amount of Senior Notes
outstanding and lower average outstanding borrowings under the credit facility,
primarily due to the use of the proceeds from the sale of the assets of Hy-Test
during fiscal 1996 as compared to the average outstanding during fiscal 1995.
The net earnings per share for fiscal 1996 were $0.23 per share, an improvement
from a loss per share of $0.58 in fiscal 1995. The improvement is primarily
due to the reduction in interest expense, expense reduction program, and the
gain on sale of Hy-Test, partially offset by the reduction in earnings from
operations due to sales volume decreases.
Pro forma Comparisons
The following pro forma financial data reflects the sale of the assets of
Hy-Test as if the sale had occurred as of January 1, 1995 for pro forma
statement of operations purposes and as of December 30, 1995 for pro forma
balance sheet purposes. The pro forma data excludes the net sales and direct
costs of the Hy-Test division and the Hy-Test operating profit contribution to
central overhead costs. Management believes that the assumptions used provide a
reasonable basis on which to present the pro forma condensed financial data.
The pro forma data are presented for informational purposes only and are not
necessarily indicative of the results that would have been achieved had the
transaction actually been consummated as of such dates.
17
<PAGE> 19
<TABLE>
<CAPTION>
Twelve months ended
-----------------------------------------------------------------------
Pro forma (Unaudited)
-----------------------------------------------------------------------
December 30, December 28,
1995 1996
- ---------------------------------------------------------------------------------------------------------------------
Amount % Amount %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 246,648 100% $ 237,912 100%
Gross profit 113,920 46.2 115,173 48.4
Selling, general, and
administrative expense 109,442 44.4 103,265 43.4
Earnings from operations 4,478 1.8 11,908 5.0
EBITDA 8,877 3.6 16,783 7.1
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Pro forma net sales for fiscal 1996 were $237,912 (3.5%) lower than fiscal
1995 pro forma net sales. As noted above, the reductions were primarily due to
decreases in U.S. wholesale unit volume and closed store sale decreases at
Company-operated stores.
Pro forma earnings from operations and pro forma EBITDA for 1996 were $7,430
and $7,906, respectively, higher than fiscal 1995. As noted above, the effect
of the expense reduction programs were partially offset by the lower sales
volume.
The pro forma balance sheet date reflects the sale of Hy-Test receivables and
inventory, the sale of the Kirksville, Missouri factory, the transfer of
certain liabilities to the buyer, the use of cash proceeds from the sale to
eliminate outstanding borrowings under the credit facility, and the unapplied
balance of the cash proceeds from the sale, net of transaction costs and taxes
as a result of the transaction, as if the transaction occurred as of December
30,1995.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Balance Sheet Data Pro forma
------------------
December 30, December 28,
ASSETS 1995 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 16,227 $ 21,691
Receivables, net 25,810 26,431
Inventories 74,826 73,824
Other current assets 14,111 8,773
- -----------------------------------------------------------------------------------------------------------
Total current assets 130,974 130,719
Property, plant and equipment, net 20,686 24,974
Other assets 23,898 29,545
- -----------------------------------------------------------------------------------------------------------
Total assets $ 175,558 $ 185,238
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 27,242 $ 35,603
- -----------------------------------------------------------------------------------------------------------
Long-term debt 69,450 69,450
Other long-term liabilities 22,885 22,530
- -----------------------------------------------------------------------------------------------------------
Total liabilities 119,577 127,583
- -----------------------------------------------------------------------------------------------------------
Shareholders' equity 55,981 57,655
Total liabilities & shareholders' equity $ 175,558 $ 185,238
- -----------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 20
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for fiscal 1995 were $285,307, a decrease of $16,694, or 5.5%, as
compared to fiscal 1994. U.S. wholesale net sales decreased $12,523, or 13.5%,
due to unit volume decreases primarily reflecting adjustments in dealer
inventories and difficult market conditions. U.S. retail net sales decreased
$8,372, or 6.4%, as a result of an above normal level of promotional pricing
throughout 1995 due to competitive retail market conditions, which led to same
store sales decreases of 6.3% at U.S. specialty stores, and a net reduction of
thirteen retail specialty stores. For the fourth quarter ended December 30,
1995, same store sales were down 6.1% at U.S. specialty stores. International
sales increased $1,643, or 3.9%, primarily due to wholesale sales increases.
Gross profit margin for fiscal 1995 was 43.6% of net sales, as compared to
44.7% of net sales for fiscal 1994. The decrease in gross profit was due to
continued promotional pricing above historical levels at both the wholesale and
retail levels and reduced overall sales volume.
Selling, general, and administrative expenses for fiscal 1995 were $117,456, an
increase of $2,690 or 2.3%, from fiscal 1994. Selling, general, and
administrative expenses for fiscal 1995 were 41.2% of net sales, as compared to
38.0% of net sales for fiscal 1994. The increases were primarily due to
increased pension costs associated with the Distribution, the impact of fourth
quarter 1995 workforce reductions, additional merchandising costs required to
support the brand, and higher selling expenses partially offset by cost
reduction programs initiated by management during fiscal 1995. The decline in
sales also caused operating expenses as a percentage of net sales to increase.
As a result of the foregoing factors, earnings from operations for fiscal 1995
were $6,920, a decrease of $13,212, or 65.6%, from fiscal 1994, and EBITDA for
fiscal 1995 was $11,459, a decrease of $12,515, or 52.2%, from fiscal 1994.
Earnings from operations for fiscal 1995 were 2.4% of net sales, as compared to
6.7% of net sales for fiscal 1994, and EBITDA for fiscal 1995 was 4.0% of net
sales, as compared to 7.9% of net sales for fiscal 1994. Declines in earnings
from operations and EBITDA during fiscal 1995 occurred primarily as a result of
decreases in unit sales volume, margin declines and increases in pension and
other expenses.
Interest expense for fiscal 1995 was $13,274, as compared to the fiscal 1994
amounts of $10,408. This increase is due to INTERCO's lower effective
borrowing costs (pre-Distribution) compared to Florsheim's higher effective
borrowing costs (post-Distribution).
SUBSEQUENT EVENT
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 $8,050. Net cash proceeds were approximately $6,000 before
income taxes.
ACCOUNTING POLICIES ADOPTIONS
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flow expected
to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of this Statement, resulted in a $500 charge to the
Selling, General and Administrative Expenses within the Consolidated Statements
of Operations during fiscal 1996.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", a fair value based method, is effective for
transactions entered into in fiscal years that begin after December 15, 1995.
Management has reviewed the Statement and continues to use the Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", an
intrinsic value base method, for stock option grants outstanding as of December
30, 1995.
19
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital at December 28, 1996, was $95,116, a decrease of $16,806, as
compared to $111,922 at December 30, 1995. The decrease is primarily due to
the sale of assets of the Hy-Test division, the use of a portion of the cash
proceeds to reduce to zero the $17.6 million of outstanding borrowings under
the Company's credit facility as of the sale date and an increase in accounts
payable due to the timing of payments related to the capital expenditures made
on the leased property in downtown Chicago to prepare for the occupancy as the
new corporate headquarters. Cash interest payments totaled $9,328 during the
fiscal 1996, and $10,820 during fiscal 1995, and cash income tax payments were
$693 during the fiscal 1996 and $1,635 during fiscal 1995.
CAPITAL EXPENDITURES
During fiscal 1995 and fiscal 1996, capital expenditures totaled $5,479 and
$9,424, respectively. Approximately 70% of these expenditures in 1995 were
used to open or remodel retail specialty stores or outlet stores; during 1996,
approximately 60% of the capital expenditures were used to prepare the leased
property in downtown Chicago for the occupancy as the new corporate
headquarters. Management estimates that capital expenditures in 1997 will be
between the total fiscal 1995 and total fiscal 1996 amounts.
FINANCING ARRANGEMENTS
Credit facility borrowings may 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
sub-facility 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 2.50% depending on the
type of loan the Company executes. As of December 28, 1996, the Company's
borrowing base was approximately $31,185 outstanding domestic letters of credit
were $8,817, 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 December 28, 1996.
On March 22, 1996, the Company received an amendment to its credit facility
agreement allowing it to purchase on the open market (and retire) Senior Notes
using up to $15,000 of proceeds from the credit facility. Such repurchases, if
executed, will enable the Company to reduce its interest expense by replacing a
portion of the Senior Notes with lower cost debt from the credit facility.
However, the amount of availability under the credit facility to meet working
capital and other borrowing needs is reduced by the amount borrowed for the
purpose of purchasing Senior Notes, and the term of the credit facility is less
than the maturity date of the Senior Notes. As of December 28, 1996, the
Company had made no purchases of Senior Notes under the amendment. Florsheim
believes that, if repurchases of Senior Notes are made, available borrowings
under the credit facility, together with cash generated from operations, will
be adequate to meet debt service, capital expenditures, and other liquidity
requirements for the foreseeable future.
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.
20
<PAGE> 22
FOREIGN CURRENCY
The Company does not believe that foreign currency risk is material to its
operations. The Company's export sales are denominated in United States
dollars, and its international sales other than export sales are denominated
in the local currency of each jurisdiction in which Florsheim's foreign
operations are located. In view of these factors and the historically
immaterial currency translation adjustments for international sales, Florsheim
has not hedged, and does not presently anticipate the future need to hedge in
any material respect, foreign currency risk related to international and export
sales. The majority of purchases by the Company from foreign sources are
denominated in United States dollars. To the extent that import transactions
are denominated in other currencies, it is the Company's practice, based on a
review of market conditions, to hedge its risks, where appropriate, through the
purchase of forward exchange contracts to cover firm purchase orders. Any
gains or losses from such transactions are reported in income and have not been
material to the Company's operating results.
INFLATION
The Company does not believe that inflation has had a material impact on sales
or operating results during the periods covered in this discussion.
Item 8. Financial Data and Supplementary Data
The following pages contain the Financial Statements and Supplementary Data as
specified by Item 8 of Part II of Form 10-K.
21
<PAGE> 23
FLORSHEIM GROUP INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
December 30, 1995 and December 28, 1996
<TABLE>
<CAPTION>
=============================================================================================================
December 30, December 28,
ASSETS 1995 1996
=============================================================================================================
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,249 $ 21,691
Receivables, less allowances of $2,284 at December 30, 1995
and $1,705 at December 28, 1996 36,113 26,431
Inventories 84,684 73,824
Deferred tax assets, net 10,027 4,552
Prepaid expenses and other current assets 4,091 4,221
- -------------------------------------------------------------------------------------------------------------
Total current assets 140,164 130,719
Property, plant and equipment
Buildings and improvements 18,567 22,539
Machinery and equipment 15,821 19,381
- -------------------------------------------------------------------------------------------------------------
34,388 41,920
Less: accumulated depreciation (12,646) (16,946)
- -------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 21,742 24,974
Deferred tax assets, net 6,144 11,475
Other assets 18,271 18,070
=============================================================================================================
$ 186,321 $ 185,238
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
=============================================================================================================
Current liabilities:
Notes payable $ 94 $ -
Accounts payable 11,492 17,900
Accrued employee compensation 4,098 4,160
Accrued interest expense 3,082 2,858
Other accrued expenses 8,990 10,207
Income taxes payable 486 478
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 28,242 35,603
Long-term debt 80,126 69,450
Deferred postretirement benefits other than pensions 20,462 20,614
Other long-term liabilities 2,423 1,916
- -------------------------------------------------------------------------------------------------------------
131,253 127,583
Shareholders' equity:
Preferred stock, without par value, 2,000,000 shares authorized and no
shares issued and outstanding - -
Common stock, 20,000,000 shares authorized, without par value,
$1.00 stated value, 8,346,051 shares issued and outstanding 8,346 8,346
Paid-in capital 50,295 50,295
Accumulated translation adjustment (251) 372
Accumulated deficit (3,322) (1,358)
=============================================================================================================
Total shareholders' equity 55,068 57,655
=============================================================================================================
$ 186,321 $ 185,238
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 24
FLORSHEIM GROUP INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Fiscal years ended December 31, 1994, December 30, 1995 and December 28, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
December 31, December 30, December 28,
1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 302,001 $ 285,307 $ 244,855
Cost of sales 167,103 160,931 128,082
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 134,898 124,376 116,773
Selling, general and
administrative expenses 114,766 117,456 105,365
- ----------------------------------------------------------------------------------------------------------------------
Earnings from operations 20,132 6,920 11,408
Interest expense, net 10,408 13,274 9,989
Other income (expense), net (194) 67 1,366
- ----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 9,530 (6,287) 2,785
Income tax expense (benefit) 3,048 (1,441) 821
- ----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 6,482 $ (4,846) $ 1,964
- ----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share N.A. $ (0.58) $ 0.23
- ----------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding N.A. 8,346,051 -
Weighted average common shares/equivalents outstanding - - 8,379,287
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
N. A. - Not Applicable (See Note 2)
23
<PAGE> 25
FLORSHEIM GROUP INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Fiscal years ended December 31, 1994, December 30, 1995, and December 28, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
December 31, December 30, December 28,
1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 6,482 $ (4,846) $ 1,964
Adjustments to reconcile net earnings (loss) 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 158 55 (2,112)
Depreciation and amortization 3,841 4,539 4,875
Deferred taxes (907) (2,622) 144
Noncash interest and other expense 202 914 885
Decrease (increase) in receivables 924 3,880 (284)
Decrease in inventories 12,239 27,357 348
Decrease (increase) in prepaid expenses and other assets (2,851) 289 (308)
Increase in accounts payable, accrued interest
expense and other accrued expenses 82 1,177 8,072
Increase (decrease) in income taxes payable 1,157 (671) (8)
Increase (decrease) in other long-term
liabilities 335 938 (355)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,662 31,010 13,221
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of assets of Hy-Test,
net of transaction costs - - 23,025
Proceeds from the disposal of assets 767 159 390
Additions to property, plant and equipment (9,498) (5,479) (9,424)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (8,731) (5,320) 13,991
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net capital contribution to INTERCO (12,916) - -
Net change in notes and loans payable - 94 (94)
Receipts from long-term debt 110,000 - -
Payments of allocated long-term debt (107,802) - -
Repurchase of Senior Notes - (15,550) -
Net reduction in bank credit facility (4,467) (9,857) (10,676)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (15,185) (25,313) (10,770)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,254) 377 16,442
Cash and cash equivalents at beginning of period 7,126 4,872 5,249
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,872 $ 5,249 $ 21,691
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure:
Cash payments for income taxes, net $ 1,785 $ 1,635 $ 693
Cash payments for interest $ 9,491 $ 10,820 $ 9,328
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 26
FLORSHEIM GROUP INC.
Consolidated Statements of Shareholders' Equity
Fiscal years ended December 31, 1994, December 30, 1995, and December 28, 1996
(Dollars and number of shares in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred stock Common stock Retained
Stock- --------------- ---------------- Paid Accumulated earnings/ Share-
holder's Number of Number of in translation (accumulated holders'
investment shares Amount shares Amount capital adjustment deficit) equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 65,587 - - - - - - - 65,587
Net earnings 4,958 - - - - - - 1,524 6,482
Foreign currency
translations 1,012 - - - - - (17) - 995
Net capital change (12,916) - - - - - - - (12,916)
Distribution of
common stock (58,641) - - 8,346 8,346 50,295 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 - - - 8,346 8,346 50,295 (17) 1,524 60,148
Net loss - - - - - - - (4,846) (4,846)
Foreign currency
translations - - - - - - (234) - (234)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 30, 1995 $ - - $ - 8,346 $ 8,346 $ 50,295 $ (251) $ (3,322) $ 55,068
Net earnings - - - - - - - 1,964 1,964
Foreign currency
translations - - - - - - 623 - 623
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 28, 1996 $ - - $ - 8,346 $ 8,346 $ 50,295 $ 372 $ (1,358) $ 57,655
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 27
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
DECEMBER 30, 1995 AND DECEMBER 28, 1996
(1) BASIS OF PRESENTATION
NATURE OF BUSINESS
Florsheim Group Inc. and its subsidiaries (Florsheim or the Company) design,
market, manufacture and source a diverse and extensive range of products in
the middle to upper price range of the men's quality footwear market. The
majority of revenues are derived from operations in the United States. On
December 26, 1996, Florsheim changed to its present corporate name from The
Florsheim Shoe Company.
THE DISTRIBUTION
Effective November 17, 1994 (the effective date) Florsheim 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
(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.
Financial information prior to the Distribution reflects the financial
position and results of operations of the Company as a division and/or
subsidiary of INTERCO and is not necessarily indicative of the financial
position or results of operations had the Company operated as a separate,
stand-alone entity during the periods covered.
Prior to November 17, 1994, Florsheim operations were conducted through a
division and/or certain wholly owned subsidiaries of INTERCO.
REORGANIZATION AND EMERGENCE FROM CHAPTER 11
On January 24, 1991, INTERCO and its domestic subsidiaries filed petitions
for reorganization under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Eastern District of Missouri (the
Court). INTERCO emerged from Chapter 11 effective with the beginning of
business on August 3, 1992.
(2) SIGNIFICANT ACCOUNTING POLICIES
Florsheim follows generally accepted accounting principles to present fairly
its consolidated financial position, results of operations, cash flows and
shareholders' equity. The major accounting policies of Florsheim are set as
follows:
(continued)
26
<PAGE> 28
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
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 $23.2 million. A portion of this cash was used to reduce to
zero the $17.6 million of outstanding borrowings under the Company's bank
credit facility as of the sale date. The balance of the proceeds are
available for investment in the business and for further debt reduction.
Annual net sales of the sold business were $38,659 for the twelve months
ended December 30, 1995. The net gain on sale of $1,850 is included in
other income (expense), net.
PRINCIPLES OF CONSOLIDATION
Commencing with the effective date of the Distribution, the financial
statements include the accounts of the Company and its subsidiaries on a
consolidated basis. Prior to the effective date, the financial statements
include the accounts of the Company on a combined basis as described in the
Distribution. All significant intercompany transactions and balances have
been eliminated. The results of Hy-Test are included through the sale
date, March 22, 1996.
FRESH START REPORTING
As of August 2, 1992, in accordance with the AICPA Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" (SOP 90-7), INTERCO and its domestic subsidiaries were
required to adopt "fresh start" reporting. The ongoing impact of the
adoption of "fresh start" reporting is reflected in Florsheim's financial
statements for the fiscal years ended December 31, 1994, December 30, 1995,
and December 28, 1996.
FISCAL YEAR
Florsheim's fiscal year end is the Saturday closest to December 31.
Therefore, the results of operations will periodically include a 53 week
fiscal year. Fiscal 1994, 1995 and 1996 each represented a 52 week fiscal
year. For purposes of these financial statements, fiscal 1994 refers to the
12 month period ended December 31, 1994, fiscal 1995 refers to the 12 month
period ended December 30, 1995, and fiscal 1996 refers to the 12 month
period ended December 28, 1996.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash and short term, liquid investments
with an original maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
(continued)
27
<PAGE> 29
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost when acquired.
Expenditures for improvements are capitalized while normal repairs and
maintenance are expensed as incurred. When properties are disposed of, the
related cost and accumulated depreciation or amortization are removed from
the accounts, and gains or losses on the dispositions are reflected in
results of operations. For financial reporting purposes, Florsheim utilizes
both accelerated and straight-line methods of computing depreciation and
amortization. Such expense is computed based on the estimated useful lives
of the respective assets, which generally range from 3 to 45 years for
buildings and improvements and from 3 to 11 years for machinery and
equipment.
TRADEMARKS
Trademarks are recorded at fair value and are amortized on a straight-line
basis over a forty year period.
ADVERTISING
All advertising costs are expensed as incurred.
INCOME TAX EXPENSE
The results of Florsheim are included in the consolidated tax returns filed
by Florsheim for the year ended December 28, 1996, December 30, 1995, the
period November 18, 1994 to December 31, 1994, and in the consolidated tax
returns filed by INTERCO for the period January 2, 1994 to November 17,
1994. The Federal income tax expense in the consolidated financial
statements for period prior to the Distribution is allocated in accordance
with U. S. Treasury Regulations, and approximates the expenses as if
Florsheim had filed a separate return.
As of the Distribution date (as defined in Note 1), Florsheim and INTERCO
entered into a formal tax agreement to provide for the payment of taxes, and
the entitlement to tax refunds, for periods ended on and prior to the
November 17, 1994 distribution date, and to provide for various related
matters. The tax agreement generally provides that any Federal and state
tax, interest, or penalty attributable to Florsheim for periods ending on or
prior to the date of distribution will be indemnified by INTERCO, subject to
any tax liabilities which have been transferred to Florsheim.
The tax agreement also provides that INTERCO will pay Florsheim a portion of
the tax benefits received by INTERCO from any tax operating losses
generated by Florsheim (which Florsheim elects to carryback) for periods
after the distribution that are eligible for carryback to periods when
Florsheim was owned by INTERCO.
Florsheim complies with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109, which was
adopted by the Company as of August 2, 1992, requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases
of other assets and liabilities. Deferred tax assets
(continued)
28
<PAGE> 30
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
and liabilities are measured using enacted tax rates in effect for the year
in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes the
enactment date.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On December 31, 1995, the Company adopted SFAS
No. 123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years
as if the fair-valued-based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Florsheim complies with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions"
(SFAS No. 106). SFAS No. 106, which was adopted by the Company as of August
2, 1992, requires the cost of these benefits to be recognized in the
financial statements over an employee's service period with the company.
FOREIGN CURRENCY TRANSLATION
The accounts of the foreign subsidiaries have been translated from their
functional currency to the U.S. dollar. Such translation adjustments are
not included in income, but are accumulated directly in a separate component
of shareholders' equity subsequent to the Distribution and as a part of
stockholder's investment prior to the Distribution.
EARNINGS PER SHARE
Net earnings (loss) per common share is computed based on the weighted
average number of common shares outstanding and common stock equivalents
when the results are not antidulutive.
The historical capital structure of the Company during most of fiscal 1994
is not comparable to the ongoing capital structure of the Company since the
Distribution date; historical per share data would not be meaningful and,
accordingly, has not been presented for periods prior to fiscal 1995.
(continued)
29
<PAGE> 31
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
AMORTIZATION OF PREPAID EXPENSES
Certain expenses related to obtaining financing have been capitalized and
are being amortized over the life of the financing to which they relate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of this
statement resulted in a $500 write-down of assets, which is included in
selling, general and administrative expense on the income statement.
(3) INVENTORIES
Inventories are categorized as follows:
- --------------------------------------------------------------------------------
December 30, December 28,
1995 1996
- --------------------------------------------------------------------------------
Retail merchandise $45,543 $44,474
Finished products 29,186 19,588
Work-in-process 1,418 1,363
Raw materials 8,537 8,399
- --------------------------------------------------------------------------------
$84,684 $73,824
- --------------------------------------------------------------------------------
(continued)
30
<PAGE> 32
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
(4) LONG-LIVED ASSETS
Management determined that the assets of the U.S. and Canada Retail
divisions might have been impaired because of operating losses sustained by
these divisions over the last two years. Accordingly, management estimated
the undiscounted future cash flows to be generated by the U.S. and Canada
Retail divisions, which was less than the carrying amount of the divisions'
long-lived assets. Management then estimated the fair value of those
assets using discounted future cash flows as a measure of fair value. As
stated above, this resulted in a $500 write-down of the assets which is
included in selling, general and administrative expense on the income
statement.
(5) LONG-TERM DEBT
Long-term debt consisted of the following:
- --------------------------------------------------------------------------------
December 30, December 28,
1995 1996
- --------------------------------------------------------------------------------
12-3/4% Senior Notes due 2002 $69,450 $69,450
Credit facility 10,676 -
- --------------------------------------------------------------------------------
$80,126 $69,450
- --------------------------------------------------------------------------------
The common stock of Florsheim's principal subsidiaries and substantially
all of Florsheim's cash, working capital and property, plant and equipment
have been pledged as security for the credit facility. The debt
instruments pursuant to which the Senior Notes and credit facility were
issued contain a number of restrictive covenants and events of default,
including covenants limiting capital expenditures and incurrence of debt
and require Florsheim to achieve certain financial ratios. The Company was
in compliance with the financial covenants of its debt instruments, as of
December 28, 1996.
12-3/4% SENIOR NOTES DUE 2002
The Senior Notes are senior unsecured obligations of Florsheim. The Senior
Notes are jointly and severally guaranteed on a senior unsecured basis by
all existing domestic subsidiaries of Florsheim and may be guaranteed by
future domestic subsidiaries.
Interest on the Senior Notes is payable semiannually on March 1 and
September 1. The Senior Notes mature on September 1, 2002 and will not be
redeemable, in whole or part, prior to September 1, 1998, except that, at
any time prior to September 1, 1997, Florsheim, at its option, may redeem
up to $28,050 principal amount of Senior Notes, at a price equal to 112.75%
of the principal amount thereof plus accrued and unpaid interest, if any,
to the redemption date, with the net cash proceeds of any equity offering;
provided, however, that at least $56,950 principal amount of Senior Notes
remains outstanding immediately following each such redemption. On or
after September 1, 1998, the Senior Notes are redeemable, at Florsheim's
option, in whole or in part, at various prices plus accrued and unpaid
interest, if any, to the redemption date. In the event of a change of
control,
(continued)
31
<PAGE> 33
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
Florsheim is required to offer to repurchase all of the Senior Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the purchase date.
The financing fees of $2,550 have been capitalized and are being amortized
over an eight year period to the maturity of the notes. When Senior Notes
were purchased and retired in fiscal 1995, the capitalized financing fees
were adjusted proportionately to the remaining outstanding balance of the
Senior Notes.
CREDIT FACILITY
The Company maintains a $75,000 revolving credit facility which matures
November 17, 1997. Florsheim can elect to extend the term of the credit
facility for an additional two years provided that the Company is in
compliance with the restrictive covenants of its debt agreements at the time
the term is extended. At December 28, 1996, the outstanding borrowings
under the revolving credit loan facility was zero, as compared to $10,676 at
December 30, 1995, none of which, in the prior fiscal year, the Company
considered to be for seasonal borrowings. The weighted average outstanding
balance of the credit facility during the twelve months of 1996 was
approximately $2,200.
The credit facility allows for issuance of letters of credit and foreign
currency hedging obligations and cash borrowing. Letters of credit
issuances and hedging obligations are limited to no more than $60,000; cash
borrowings are limited only by the facility's maximum availability less
letters of credit and hedging obligations outstanding. Maximum
availability under the facility is determined by the amount of eligible
accounts receivable and inventory at each month end (referred to in
aggregate as a "borrowing base"). As of December 28, 1996, the Company's
borrowing base totaled $31,185 as compared to $49,282 at December 30, 1995.
The credit facility is secured by a first priority lien on and security
interest in substantially all property of the Company. In 1994, the Company
paid an origination fee of 2.5% of the commitment of $75,000 to the banks.
The Company is required to pay an annual unused line (commitment) fee of
one-half of one percent on the average daily unused portion of the
commitment, payable monthly in arrears, until such commitments are
terminated. The Company also pays an annual collateral management fee of
$100. The outstanding cash borrowings under the revolving credit loan
facility bear interest at prime rate plus 1.25% or at an adjusted LIBOR rate
plus 2.50% depending upon which type of loan the Company executes.
Under the letter of credit facility a fee of 1.25% per annum in the case of
commercial (trade) letters of credit and 1.75% per annum in the case of
stand-by letters of credit is assessed for the account of the lenders
ratably. A further fee of one-half of one percent is assessed on stand-by
letters of credit representing a facing fee. A customary administrative
charge for issuance of letters of credit is also payable to the relevant
issuing banks. Letters of credit fees are payable monthly in arrears. At
December 28, 1996, there were $8,817 in letters of credit outstanding under
the working capital facility.
(continued)
32
<PAGE> 34
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
The commitment fee of $1,875 has been capitalized and is being amortized
over a three year period to November 1997.
The Australian operations utilized a credit facility for revolver balances
and issuance of letters of credit. The outstanding letters of credit, as of
the end of December 1996, was $231. This facility is subject to annual
review and secured by a debenture mortgage over the company's inventory to a
limit of approximately $1,400. As of December 30, 1995, Florsheim
Australia's borrowing totaled $94, as compared to zero at December 28, 1996.
(6) PREFERRED STOCK
The Company's restated certificate of incorporation includes authorization
to issue up to 2.0 million shares of no par value, preferred stock. As of
December 30, 1995 and December 28, 1996, no preferred stock had been issued.
(7) COMMON STOCK
The Company's restated certificate of incorporation includes authorization
to issue up to 20 million shares of common stock. As of December 30, 1995,
and December 28, 1996, 8,346,051 shares of common stock had been issued and
were outstanding.
The holders of the common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Subject to
preferential rights that may be applicable to any preferred stock (none of
which had been issued as of December 28, 1996), holders of common stock are
entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefore. However, it is not
presently anticipated that dividends will be paid on common stock in the
foreseeable future and certain of the debt instruments to which the Company
is a party restrict the payment of dividends. All of the outstanding
shares of common stock are fully paid and nonassessable.
(8) STOCK OPTION PLANS
THE FLORSHEIM SHOE COMPANY 1994 STOCK OPTION PLAN
In 1994, prior to the Distribution, the Company adopted The Florsheim Shoe
Company 1994 Stock Option Plan (the "Option Plan") pursuant to which the
Executive Committee of the Board and the Executive Compensation and Stock
Option Committee (the "Compensation Committee") of the Board may grant stock
options to officers and key employees. The Option Plan was amended and
approved by the stockholders during the Company's annual 1996 Stockholder
Meeting.
The Option Plan authorizes grants of options to purchase up to 800,000
shares of authorized and not issued common stock. The Option Plan consists
of five individual grants that are non-qualified. Stock options may be
granted with an exercise price below the stock's fair market at the grant
date. All stock options have ten year terms, vest, and become fully
exercisable after five to six years from the date of grant.
(continued)
33
<PAGE> 35
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the Option Plan as options issued to date were
at prices equal to or in excess of the stock's fair market value at the date
of grant. Had compensation cost for the company's Option Plan been
determined based on the fair value at the grant date for awards in 1995 and
1996 consistent with the provisions of SFAS No. 123, the resulting
reduction in the company's net income and earnings per share for the years
ended December 30, 1995 and December 28, 1996 would not have been
significant.
At December 28, 1996, options to purchase 471,000 shares of common stock
were outstanding and 52,250 shares were exercisable. The per share
weighted-average fair value of stock options granted during 1996, 272,000
shares, was $2.13 (no options were granted during 1995 under the Option
Plan) on the date of grant using the Black Scholes option pricing model with
the following weighted-average assumptions: dividend yield rate of 0.0%,
risk free interest rate of 6.1%, stock volatility rate of 50.0%, expected
turnover rate of 25.0% and an expected life of five years.
THE CHARLES J. CAMPBELL STOCK OPTION PLAN
In 1995, the Company adopted the second stock option plan, the Charles J.
Campbell Stock Option Plan (the "Campbell Plan"). The Campbell Plan was
adopted as a means to encourage and provide opportunities for ownership of
Florsheim Common Stock by the Chairman of the Board, Charles J. Campbell.
The Campbell Plan was also approved by the public stockholders during the
Company's annual 1996 Stockholder Meeting.
The Campbell Plan authorizes grants of options to purchase up to a total of
250,000 shares of authorized but unissued common stock. The Campbell Plan
consists of three separate grants of non-qualified stock options as follows:
(i) options to purchase 83,333 shares of Common Stock with an option price
per share of $5.00; (ii) options to purchase 83,333 shares of Common
Stock with an option price per share of $7.50; (iii) option to purchase
83,334 shares of Common Stock with an option price per share of $10.00. All
stock options have ten year terms, vest, and 20% become fully exercisable on
the first five anniversaries of the date of grant.
The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the Campbell Plan as options issued to date
were at prices equal to or in excess of the stock's fair market value at the
date of grant. Had compensation cost for the Company's Campbell Plan been
determined based on the fair value at the grant date for awards in 1995 and
1996 consistent with the provisions of SFAS No. 123, the resulting reduction
in the company's net income and earnings per share for the years ended
December 30, 1995 and December 28, 1996 would not have been significant.
At December 28, 1996, options to purchase 250,000 shares of common stock
were outstanding and 50,000 shares exercisable. The per share
weighted-average fair value of stock options granted during 1995, 250,000
shares, was $1.80 (no options were granted during 1996 under the Campbell
Plan). The Black Scholes option pricing model was utilized on the date of
grant with the following weighted-average assumptions used for grants in
1995: dividend yield rate of 0.0%, risk free interest rate of 6.1%, stock
volatility rate of 50.0%, turnover rate of 0.0%, and an expected life of
five years.
(continued)
34
<PAGE> 36
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
Stock option activity during the following periods indicated as follows:
Number of Weighted-Average
Shares Exercise Price
- --------------------------------------------------------------------------------
Balance at January 1, 1994 ---- ----
Granted 454,500 $3.63
Exercised ----- -----
Forfeited ----- -----
Expired ----- -----
- --------------------------------------------------------------------------------
Balance at December 31, 1994 454,500 $3.63
Granted ---- ----
Exercised ---- ----
Forfeited (19,000) $3.76
Expired ---- ----
- --------------------------------------------------------------------------------
Balance at December 30, 1995 435,500 $3.62
Granted 552,000 $6.13
Exercised ---- ----
Forfeited (266,500) $3.78
Expired ---- ----
- --------------------------------------------------------------------------------
Balance at December 28, 1996 721,000 $5.49
- --------------------------------------------------------------------------------
(continued)
35
<PAGE> 37
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
The following tables summarize information about fixed price stock options
outstanding and exercisable at December 28, 1996:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
Range of Number Weighted- Weighted-
Exercise Outstanding at Average Remaining Average Exercise
Prices December 28, 1996 Contractual Life (in years) Price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
$3.01-$4.00 168,000 5.7 $3.23
$4.01-$5.00 355,333 9.2 $5.00
$5.01-$6.00 31,000 7.3 $5.76
$6.01-$8.00 83,333 8.8 $7.50
$8.01-$10.00 83,334 8.8 $10.00
- ----------------------------------------------------------------------------------
TOTAL 721,000 8.2 $5.49
</TABLE>
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
Range of Number Weighted-
Exercise Exercisable at Average Exercise
Prices December 28, 1996 Price
- ----------------------------------------------------------------------------------
<S> <C> <C>
$3.01-$4.00 36,750 $3.23
$4.01-$5.00 16,666 $5.00
$5.01-$6.00 15,500 $5.76
$6.01-$8.00 16,667 $7.50
$8.01-$10.00 16,667 $10.00
- ----------------------------------------------------------------------------------
TOTAL 102,250 $5.70
</TABLE>
(continued)
36
<PAGE> 38
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(9) INCOME TAXES
Income tax expense (benefit) was comprised of the following:
- -----------------------------------------------------------------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
December 31, December 30, December 28,
1994 1995 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 3,046 $ - $ (659)
State and local 450 163 111
Foreign 459 1,018 1,225
- -----------------------------------------------------------------------------------------------------
3,955 1,181 677
Deferred (907) (2,622) 144
- -----------------------------------------------------------------------------------------------------
$ 3,048 $ (1,441) $ 821
- -----------------------------------------------------------------------------------------------------
</TABLE>
The following table reconciles the differences between the Federal
corporate statutory rate and Florsheim's effective income tax rate:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
December 31, December 30, December 28,
1994 1995 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal corporate statutory rate 35.0 % 35.0 % 35.0 %
State and local income taxes, net of
Federal tax benefit 1.6 (1.7) 2.6 %
Foreign taxes, including foreign
currency translation effects 3.1 (3.6) (11.8) %
Prior year adjustments-foreign tax credit
and foreign dividend income - - (14.2) %
Foreign dividend income - (5.3) 17.2 %
Nontaxable foreign income (7.9) - -
Other 0.2 (1.5) 0.7 %
- --------------------------------------------------------------------------------------------------------------
Effective income tax rate 32.0 % 22.9 % 29.5 %
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The operating result for fiscal 1995 is a loss before tax. For this
reason, 1995 shows a net tax benefit rather than a tax charge. This is in
contrast to fiscal 1994 and fiscal 1996 which show a profit before tax and a
tax charge.
(continued)
37
<PAGE> 39
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
The sources of the tax effects for temporary differences that give rise
to the deferred tax assets and liabilities were as follows:
- ----------------------------------------------------------------------------------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Fair value adjustments $ 4,891 $ 4,355 $ 3,798
Employee postretirement benefits
other than pensions 7,892 7,739 7,617
Expense accruals 1,821 2,363 3,291
Valuation reserves 4,129 2,976 425
Depreciation 559 873 1,319
Inventory costs capitalized 975 719 561
Carry forward - loss - 3,273 4,179
Foreign tax credit & withholding taxes - 259 1,648
- ----------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 20,267 22,557 22,838
- ----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Employee pension plans (6,562) (6,340) (6,811)
Other (156) (46) -
- ----------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (6,718) (6,386) (6,811)
- ----------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 13,549 $ 16,171 $ 16,027
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management
believes sufficient taxable income will be generated to realize the
benefits of the deferred tax assets.
(10) EMPLOYEE BENEFITS
Florsheim sponsors or contributes to retirement plans covering
substantially all employees. The total cost (benefit) of all plans for
fiscal 1994, 1995 and 1996, (excluding "fresh start" adjustment) were
$(1,610), $1,432, and $(222) respectively.
COMPANY-SPONSORED DEFINED BENEFIT PLANS
Annual cost for company-sponsored defined benefit plans is determined using
the projected unit credit actuarial method. Prior service cost is
amortized on a straight-line basis over the average remaining service
period of employees expected to receive benefits.
(continued)
38
<PAGE> 40
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
It is Florsheim's practice to fund pension costs to the extent that such costs
are tax deductible and in accordance with ERISA. Funding decisions made in
fiscal 1996 and 1995 contributed towards the deferred or prepaid pension cost.
The assets of the various plans include corporate equities, government
securities, corporate debt securities and insurance contracts. The table below
summarizes the funded status of Florsheim-sponsored defined benefit plans.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
December 30, December 28,
1995 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 75,274 $ 71,090
- -----------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 76,370 73,201
- -----------------------------------------------------------------------------------------------------------
Projected benefit obligation 83,317 79,621
Plan assets at fair value 94,785 98,761
- -----------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 11,468 19,140
Unrecognized net (gain) loss 1,815 (4,698)
Unrecognized prior service cost 5,604 5,239
Additional minimum liability (265) (220)
Fresh start adjustment (11,147) (10,475)
- -----------------------------------------------------------------------------------------------------------
Net prepaid pension assets (included in other assets) $ 7,475 $ 8,986
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Net periodic pension expense for fiscal 1994, 1995 and 1996 include the following components:
- -----------------------------------------------------------------------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
December 31, December 30, December 28,
1994 1995 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 704 $ 1,131 $ 1,305
Interest cost on the projected benefit 6,731 5,948 5,793
Actual return on plan assets (2,889) (19,234) (10,491)
Net amortization and deferral (6,850) 12,830 2,672
Fresh start amortization (1,041) (672) (672)
- -----------------------------------------------------------------------------------------------------------
Net periodic pension expense $ (3,345) $ 3 $ (1,393)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
39
<PAGE> 41
- -----------------------------------------------------------------------------
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
- -----------------------------------------------------------------------------
Employees are covered primarily by noncontributory plans, funded by
Florsheim contributions to trust funds, which are held for the sole benefit
of employees. Monthly retirement benefits generally are based upon service,
pay, or both, with employees generally becoming vested upon completion of
five years of service.
The expected long-term rate of return on plan assets was 8.0%, 9.0%, and
9.0% in fiscal 1994, 1995 and 1996 respectively. Measurement of the
projected benefit obligation was based upon a weighted average discount rate
of 8.25%, 7.25% and 7.75% and a long-term rate of compensation increase of
4.5%, 4.5% and 4.5%, for fiscal 1994 , 1995 and 1996 respectively.
OTHER RETIREMENT PLANS AND BENEFITS
In addition to the Company-sponsored defined benefit plans, Florsheim makes
contributions to various defined contribution, union-negotiated and foreign
plans. The cost of these plans is included in the total cost for all plans
reflected above.
Florsheim also participated in an employee savings plan during fiscal years
1994 through 1996. Florsheim's cost for this plan for fiscal 1994, 1995
and 1996 was $214, $209 and $164 respectively.
In addition to pension and other supplemental benefits, certain retired
employees are currently provided with specified health care and life
insurance benefits. Eligibility requirements for such benefits generally
state that benefits are available to employees who retire after a certain
age with specified years of service if they agree to contribute a portion of
the cost. Florsheim has reserved the right to modify or terminate these
benefits. Health care and life insurance benefits are provided to both
retired and active employees through medical benefit trusts, third-party
administrators and insurance companies.
(continued)
40
<PAGE> 42
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
The following table sets forth the consolidated financial status of
postretirement benefits other than pensions:
- ----------------------------------------------------------------------------------------------------------------
December 30, December 28,
1995 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 11,625 $ 10,563
Fully eligible active plan participants 2,592 2,660
Other active plan participants 3,067 3,018
- ----------------------------------------------------------------------------------------------------------------
Total 17,284 16,241
Plan assets at fair value 4,104 3,926
- ----------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation in
excess of plan assets 13,180 12,315
Unrecognized net gain 7,745 8,366
Unrecognized prior service gain 1,187 1,083
- ----------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation $ 22,112 $ 21,764
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 30, 1995 and December 28, 1996, the Company has
recorded $1,650 and $1,150 respectively, of the accrued
postretirement benefit expense in accrued expenses as shown in Note 15.
Net periodic postretirement benefit expense include the following
components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
December 31, December 30, December 28,
1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 506 $ 267 $ 342
Interest cost on the postretirement benefit obligation 1,554 1,336 1,176
Estimated return on plan assets (304) (305) (309)
Net amortization and deferral (256) (438) (424)
- --------------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit expense $ 1,500 $ 860 $ 785
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, annual rates of increase in the expense of health
care benefits of 12.0%, 11.0% and 10% were assumed for fiscal 1994 , 1995 and
1996 respectively. The rates are assumed to decrease gradually to 6.0% in
fiscal 2000 and remain at those levels thereafter. The health care expense
trend rate assumption has an effect on amounts reported. For example,
increasing the health care expense trend rate by one percentage point in each
year would increase the accumulated postretirement benefit obligation as of
December 28, 1996 by approximately $499 and the net periodic expense by $85 for
the year.
(continued)
41
<PAGE> 43
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
The weighted average discount rate used in determining the accumulated
postretirement obligation was 8.25%, 7.25% and 7.75% for fiscal 1994 , 1995
and 1996 respectively. The expected long-term rate of return on plan
assets was 8.0% for fiscal 1996.
(11) LEASE COMMITMENTS
Substantially all of Florsheim's retail outlets and certain other real
properties and equipment are operated under lease agreements expiring at
various dates through the year 2008. Leases covering retail outlets and
equipment generally require, in addition to stated minimums, contingent
rentals based on retail sales and equipment usage. Certain of the leases
provide for renewal for various periods at stipulated rates.
Rental expenses under operating leases were as follows:
- --------------------------------------------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
December 31, December 30, December 28,
1994 1995 1996
- --------------------------------------------------------------------------------
Basic rentals $14,992 $15,611 $15,852
Contingent rentals 6,532 6,790 6,469
- --------------------------------------------------------------------------------
21,524 22,401 22,321
Less: sublease rentals 181 63 24
- --------------------------------------------------------------------------------
$21,343 $22,338 $22,297
- --------------------------------------------------------------------------------
Amount of minimum future annual rental commitments under non-cancellable
operating leases in each of the five fiscal years 1997 through 2001 are
$14,517, $12,666, $10,956, $9,230 and $7,631 and in aggregate for all
lease agreements, $76,854 through the end of the lease terms. At December
28, 1996, INTERCO guaranteed future base operating lease payments on behalf
of Florsheim of approximately $20 million, exclusive of related operating
expenses.
(continued)
42
<PAGE> 44
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
LONG-TERM DEBT
The fair values of the following long-term debt are based on closing
market prices at year end for the Senior Notes and on the outstanding balance
for the credit facility.
December 30, 1995 December 28, 1996
----------------- -----------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- --------------------------------------------------------------------------------
12-3/4% Senior Notes due 2002 $69,450 $57,296 $69,450 $75,180
Credit facility 10,676 10,676 - -
- --------------------------------------------------------------------------------
(13) TRANSACTIONS WITH AFFILIATES
Prior to the Distribution date, cash collected by Florsheim in excess of
operating needs was transferred to Interco and Florsheim's cash requirements
were funded by INTERCO. The cumulative net impact of the cash transfers and
other intercompany transactions have been included in stockholder's
investment. All capital transactions and equity balances between Florsheim
and INTERCO through the Distribution date were recorded in stockholder's
investment. These transactions and balances include net earnings, capital
contributions, dividends, income taxes, and translation adjustments.
(continued on next page)
(continued)
43
<PAGE> 45
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
Prior to the Distribution date, INTERCO provided services to Florsheim,
including legal, administration of certain benefit and insurance programs,
income tax management and cash management and treasury services. The
financial statements include an administrative fee allocated to Florsheim
totaling $440 for fiscal year 1994. The allocations are not necessarily
representative of general and administrative expenses that would have been
incurred had Florsheim been an unaffiliated entity.
At the effective date of the Distribution, a consulting agreement was
established with Apollo Advisors, L.P., an affiliate of Florsheim's
controlling shareholders. Charges totaled $50, $400, and $400 for fiscal
years 1994, 1995, and 1996 respectively.
Under an employment agreement with Charles J. Campbell, the Company
advanced Mr. Campbell $300 to purchase the Company's common stock. At
December 30, 1995, the advance was repaid in full.
(14) LITIGATION
Florsheim is involved in a number of pending or threatened legal
proceedings in the ordinary course of business. In the opinion of
management, the ultimate liability, if any, of Florsheim from all such
proceedings will not have a material adverse effect upon the consolidated
financial position or results of operations of Florsheim.
(15) OTHER FINANCIAL DATA
Items charged to earnings during fiscal 1994, 1995 and 1996 include the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
December 31, December 30, December 28,
1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising and promotion $9,530 $7,659 $6,293
Repairs and maintenance 1,978 1,718 1,472
- --------------------------------------------------------------------------------
</TABLE>
Items included in other accrued expenses include:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
December 30, December 28,
1995 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Taxes - general $ 1,574 $ 1,189
Postretirement benefits other than pensions 1,650 1,150
Group insurance 1,081 1,706
Legal/other contingencies 1,300 2,626
Miscellaneous 3,385 3,536
- -------------------------------------------------------------------------------------------------------
Total other accrued expenses $ 8,990 $ 10,207
- -------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
44
<PAGE> 46
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Items included in other assets are as follows:
- -----------------------------------------------------------------------------------------------------------
December 30, December 28,
1995 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Prepaid pension $ 8,726 $ 10,244
Investment in unconsolidated subsidiaries 3,997 4,024
Trademarks 1,871 1,820
Unamortized debt 2,082 1,347
Other 1,595 635
- -----------------------------------------------------------------------------------------------------
Total other assets $ 18,271 $ 18,070
=====================================================================================================
</TABLE>
(16) BUSINESS SEGMENT INFORMATION
Florsheim operates in one industry segment - the design, sourcing and
marketing of quality footwear. Florsheim's products are marketed in the
United States and internationally with no one customer or foreign
geographical region accounting for 10% or more of consolidated sales.
Florsheim operates subsidiaries in Australia, Canada, Europe and the Pacific
Rim. Information about Florsheim's operations in the United States and
internationally are presented in the table below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
December 31, December 30, December 28,
1994 1995 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unrelated entities:
United States (includes exports) $ 261,699 $ 243,329 $ 201,829
Other 40,302 41,978 43,026
- --------------------------------------------------------------------------------------------------------------
$ 302,001 $ 285,307 $ 244,855
- --------------------------------------------------------------------------------------------------------------
Operating income:
United States $ 18,233 $ 5,906 $ 8,782
Other 1,899 1,014 2,626
- -------------------------------------------------- ------------------------------------------------------------
$ 20,132 $ 6,920 $ 11,408
- --------------------------------------------------------------------------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
- --------------------------------------------------------------------------------------------------------------
Total assets:
United States $ 191,128 $ 163,660 $ 159,799
Other 24,142 22,661 25,439
- --------------------------------------------------------------------------------------------------------------
$ 215,270 $ 186,321 $ 185,238
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
45
<PAGE> 47
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(17) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Following is a summary of unaudited quarterly information:
- -----------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal year ended December 30, 1995:
Net sales $ 71,131 $ 68,859 $ 67,992 $ 77,325
Gross profit 31,881 30,481 29,461 32,553
Net earnings (loss) $ 292 $ (882) $ (1,302) $ (2,954)
Common stock price
range (high-low) $ 6 - 3 3/4 $ 5 3/8 - 4 $ 5 1/4 - 4 $ 5 1/4 - 3 1/2
Common stock price
at quarter end $ 4 5/8 $ 4 1/4 $ 5 1/8 $ 3 3/4
Net earnings (loss) per
common shares outstanding $ 0.03 $ (0.11) $ (0.15) $ (0.35)
Weighted average common
shares outstanding (1) 8,415,257 8,416,477 8,346,051 8,346,051
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended December 28, 1996:
<S> <C> <C> <C>
Net sales $ 61,927 $ 58,958 $ 60,107 $ 63,863
Gross profit 27,884 27,899 28,142 32,848
Net earnings (loss) $ (160) $ (284) $ 92 $ 2,316
Common stock price
range (high-low) $ 5 - 3 1/2 $5 1/4 - 3 7/8 $ 5 - 4 1/4 $ 6 - 4 1/4
Common stock price
at quarter end $ 4 1/2 $ 5 $ 4 3/8 $ 5 5/8
Net earnings (loss) per
common shares outstanding $ (0.02) $ (0.03) $ 0.01 $ 0.28
Weighted average common
shares outstanding (1) 8,346,051 8,346,051 8,390,211 8,382,594
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Common stock equivalents were not used in the computation of average
shares outstanding in the third and fourth quarters of 1995 and in the first
and second quarters of 1996 due to the antidilutive effect.
(continued)
46
<PAGE> 48
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(18) PRO FORMA FINANCIAL DATA - DISTRIBUTION (UNAUDITED)
Pro forma information reflects the November 1994 spin-off from the
Company's former parent company and the related debt transactions as if they
had occurred as of January 1, 1994. The pro forma information reflects the
annual interest expense of the Senior Notes and the bank credit facility, the
adjustment to pension expense, and a consulting agreement established at the
spin-off date. The pro forma information does not necessarily reflect the
operating data of Florsheim which would have resulted if Florsheim had been
operated as a separate independent company during the fiscal year ended
December 31, 1994.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Pro Forma (Unaudited) Actual
--------------------- ------------------------------------
Fiscal year Fiscal year Fiscal year
ended ended ended
December 31 December 30, December 28,
1994 1995 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings from operations $ 16,275 $ 6,920 $ 11,408
Interest expense 14,500 13,274 9,989
Net earnings (loss) 1,573 (4,846) 1,964
- -------------------------------------------------------------------------------------------------------------------------
Earnings before interest, taxes,
depreciation and amortization, and
other income and expense (EBITDA) $ 20,538 $ 11,459 $ 16,283
- -------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per
common share $ 0.19 $ (0.58) $ 0.23
- -------------------------------------------------------------------------------------------------------------------------
Weighted average common
shares outstanding (See Note 2) 8,346,051 8,379,287
Actual number of shares
outstanding at 12/31/94 8,346,051
=========================================================================================================================
</TABLE>
(continued)
47
<PAGE> 49
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
(19) PRO FORMA FINANCIAL DATA - HY-TEST (UNAUDITED)
The following pro forma financial data reflects the sale of the assets of
Hy-Test as if the sale had occurred as of January 1, 1995 for pro forma
statement of operations purposes and as of December 30, 1995 for pro forma
balance sheet purposes. The pro forma data excludes the net sales and direct
costs of the Hy-Test division and the Hy-Test operating profit contribution to
central overhead costs. Management believes that the assumptions used provide a
reasonable basis on which to present the pro forma condensed financial data.
The pro forma data are presented for informational purposes only and are not
necessarily indicative of the results that would have been achieved had the
transaction actually been consummated as of such dates.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Twelve months ended
--------------------------------------------------------
Pro forma (Unaudited)
--------------------------------------------------------
December 30, December 28,
1995 1996
- --------------------------------------------------------------------------------------------------
Amount % Amount %
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 246,648 100% $ 237,912 100%
Gross profit 113,920 46.2 115,173 48.4
Selling, general, and
administrative expense 109,442 44.4 103,265 43.4
Earnings from operations 4,478 1.8 11,908 5.0
EBITDA 8,877 3.6 16,783 7.1
==================================================================================================
</TABLE>
The pro forma balance sheet date reflects the sale of Hy-Test receivables and
inventory, the sale of the Kirksville, Missouri factory, the transfer of
certain liabilities to Wolverine, the use of cash proceeds from the sale to
eliminate outstanding borrowings under the bank credit facility, and the
unapplied balance of the cash proceeds from the sale, net of transaction costs
and taxes as a result of the transaction, as if the transaction occurred as of
December 30,1995.
(continued on next page)
(continued)
48
<PAGE> 50
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Balance Sheet Data Pro forma
--------------
December 30, December 28,
ASSETS 1995 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 16,227 $ 21,691
Receivables, net 25,810 26,431
Inventories 74,826 73,824
Other current assets 14,111 8,773
- --------------------------------------------------------------------------------------------------------------------
Total current assets 130,974 130,719
Property, plant and equipment, net 20,686 24,974
Other assets 23,898 29,545
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 175,558 $ 185,238
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 27,242 $ 35,603
- --------------------------------------------------------------------------------------------------------------------
Long-term debt 69,450 69,450
Other long-term liabilities 22,885 22,530
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 119,577 127,583
- --------------------------------------------------------------------------------------------------------------------
Shareholders' equity 55,981 57,655
Total liabilities & shareholders' equity $ 175,558 $ 185,238
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
49
<PAGE> 51
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
(20) SUBSEQUENT EVENT
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.
(21) SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In connection with the Distribution, Florsheim issued $85,000 in 12-3/4%
Senior Notes due 2002, of which $69,450 are outstanding, and 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 financial statements as of December 30,
1995 and December 28, 1996 and for the fiscal years ended December 31,
1994, December 30, 1995 and December 28, 1996, 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.
(continued)
50
<PAGE> 52
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
<CAPTION>
=====================================================================================================================
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 30, 1995
=====================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 2,658 $ 1,131 $ 1,460 $ - $ 5,249
Receivables 15,756 10,490 8,906 961 36,113
Inventories 45,250 28,751 10,683 - 84,684
Prepaid expenses and
other current assets 11,032 1,450 1,636 - 14,118
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 74,696 41,822 22,685 961 140,164
Net property, plant and
equipment 14,473 4,640 2,629 - 21,742
Other assets 22,231 1,755 504 (75) 24,415
Investments in subsidiaries 65,006 - - (65,006) -
- ---------------------------------------------------------------------------------------------------------------------
Total assets $176,406 $48,217 $25,818 $(64,120) $186,321
=====================================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Notes payable - - 94 - 94
Accounts payable 5,133 2,469 2,929 961 11,492
Accrued expenses
and other current
liabilities 13,194 874 2,588 - 16,656
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 18,327 3,343 5,611 961 28,242
Long-term debt, less
current maturities 80,126 - - - 80,126
Deferred postretirement
benefits 20,462 - - - 20,462
Other long-term liabilities 2,423 - 75 (75) 2,423
Shareholders' equity 55,068 44,874 20,132 (65,006) 55,068
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $176,406 $48,217 $25,818 $(64,120) $186,321
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 53
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<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
Deferred postretirement
benefits 20,614 - - - 20,614
Other long-term liabilities 1,916 - 1,406 (1,406) 1,916
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>
52
<PAGE> 54
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
<CAPTION>
============================================================================================================================
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
============================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $215,158 $83,234 $40,302 $(36,693) $302,001
Cost of sales 130,781 49,998 23,017 (36,693) 167,103
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 84,377 33,236 17,285 - 134,898
Selling, general and administrative
expenses 72,178 27,203 15,385 - 114,766
- ----------------------------------------------------------------------------------------------------------------------------
Earnings from operations 12,199 6,033 1,900 - 20,132
Interest expense 10,407 1 - - 10,408
Equity earnings of subsidiaries,
net of tax 6,854 - - (6,854) -
Other income (expense), net (1,916) 14 1,708 - (194)
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income
tax expense 6,730 6,046 3,608 (6,854) 9,530
Income tax expense 248 2,353 447 - 3,048
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings $6,482 $ 3,693 $3,161 $(6,854) $6,482
============================================================================================================================
</TABLE>
53
<PAGE> 55
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
<CAPTION>
====================================================================================================================================
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
====================================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $182,042 $86,607 $41,978 $(25,320) $285,307
Cost of sales 109,403 51,961 24,887 (25,320) 160,931
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 72,639 34,646 17,091 - 124,376
Selling, general and administrative
expenses 70,772 30,607 16,077 - 117,456
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings from operations 1,867 4,039 1,014 - 6,920
Interest expense 13,273 1 - - 13,274
Equity earnings of subsidiaries,
net of tax 2,730 - - (2,730) -
Other income (expense), net 385 30 (348) - 67
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income
tax expense (8,291) 4,068 666 (2,730) (6,287)
Income tax expense (benefit) (3,445) 1,548 456 - (1,441)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (4,846) $ 2,520 $ 210 $ (2,730) $ (4,846)
====================================================================================================================================
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
<CAPTION>
====================================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $172,683 $53,414 $43,026 $(24,268) $244,855
Cost of sales 99,291 29,101 23,958 (24,268) 128,082
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 73,392 24,313 19,068 - 116,773
Selling, general and administrative
expenses 65,532 23,391 16,442 - 105,365
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings from operations 7,860 922 2,626 - 11,408
Interest expense 9,989 - - - 9,989
Equity earnings of subsidiaries,
net of tax 2,614 - - (2,614) -
Other income (expense), net 1,307 (29) 88 - 1,366
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income
tax expense 1,792 893 2,714 (2,614) 2,785
Income tax expense (benefit) (172) 371 622 - 821
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 1,964 $ 522 $ 2,092 $ (2,614) $ 1,964
====================================================================================================================================
</TABLE>
54
<PAGE> 56
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
<CAPTION>
==========================================================================================================================
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
==========================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities $ 20,110 $ (8,736) $ 1,598 $ 8,690 $ 21,662
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from the
disposal of assets 453 24 290 - 767
Additions to property,
plant, and equipment (7,538) (811) (1,149) - (9,498)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing
activities: (7,085) (787) (859) - (8,731)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Net capital contribution
from (to) Parent or
INTERCO (11,921) 9,158 (1,463) (8,690) (12,916)
Receipts from long-term
debt 110,000 - - - 110,000
Payments of allocated
long-term debt (107,802) - - - (107,802)
Net reduction in bank
credit facility (4,467) - - - (4,467)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities: (14,190) 9,158 (1,463) (8,690) (15,185)
- --------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash
equivalents (1,165) (365) (724) - (2,254)
Cash and cash equivalents
at beginning of period 3,322 1,426 2,378 - 7,126
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 2,157 $ 1,061 $ 1,654 $ - $ 4,872
==========================================================================================================================
</TABLE>
55
<PAGE> 57
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
<TABLE>
<CAPTION>
================================================================================================================================
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
================================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities $ 29,769 $ (368) $ 1,360 $ 249 $ 31,010
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from the
disposal of assets 159 - - - 159
Additions to property,
plant, and equipment (3,786) (918) (775) - (5,479)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing
activities: (3,627) (918) (775) - (5,320)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash from financing
activities:
Net capital contribution
from (to) Parent (234) 1,356 (873) (249) -
Net change in notes
and loans payable - - 94 - 94
Repurchase of Senior Notes (15,550) - - - (15,550)
Net reduction in bank
credit facility (9,857) - - - (9,857)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities: (25,641) 1,356 (779) (249) (25,313)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash
equivalents 501 70 (194) - 377
Cash and cash equivalents
at beginning of period 2,157 1,061 1,654 - 4,872
================================================================================================================================
Cash and cash equivalents at
end of period $ 2,658 $1,131 $1,460 $ - $ 5,249
================================================================================================================================
</TABLE>
56
<PAGE> 58
FLORSHEIM GROUP INC.
Notes to Consolidated Financial Statements
(Dollars in thousands)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 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) $ 9,993 $ (116) $ 7,143 $(3,799) $ 13,221
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from the sale of assets of
Hy-Test, net of transaction costs 23,025 - - - 23,025
Proceeds from the
disposal of assets 390 - - - 390
Additions to property,
plant, and equipment (7,586) (898) (940) - (9,424)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities: 15,829 (898) (940) - 13,991
- --------------------------------------------------------------------------------------------------------------------
Net cash from financing
activities:
Net capital contribution
from (to) Parent 623 280 (4,702) 3,799 -
Net change in notes
and loans payable - - (94) - (94)
Payment of long-term debt (10,676) - - - (10,676)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities: (10,053) 280 (4,796) 3,799 (10,770)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 15,769 (734) 1,407 - 16,442
Cash and cash equivalents
at beginning of period 2,658 1,131 1,460 - 5,249
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 18,427 $ 397 $ 2,867 $ - $ 21,691
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 9. Changes in and Disagreements with Independent Accountants on
Accounting and Financial Disclosure.
None
57
<PAGE> 59
Part III
Item 10. Directors and Executive Officers of the Registrant
The section entitled "Election of Directors-Nominees" in the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders on May 15,
1997 is incorporated herein by reference.
The names, ages, and positions of the Executive Officers of the Company
are:
NAME AGE POSITION
- ---- --- --------
Charles J. Campbell 52 Chairman of the Board of Directors,
President and Chief Executive Officer
Thomas W. Joseph 46 President, International Division
Karen Nyman Latham 38 Vice President, Chief Financial Officer
L. David Sanguinetti 53 Executive Vice President, Chief
Operating Officer and President,
Retail Division
Gregory J. Van Gasse 46 Vice President, Marketing and Director, New Products
Division
MR. CAMPBELL was elected Chairman of the Board of Directors and was
appointed to the Executive Committee of the Board of Directors in September
1995, and was elected to the additional office of President and Chief Executive
Officer in October 1995. From August 1993 to February 1995, Mr. Campbell was
chairman, president and chief executive officer of Crystal Brands Inc., a
multi-division apparel company. From 1989 to August 1993, Mr. Campbell was
president and chief executive officer of Munsingwear Inc., a manufacturer and
marketer of branded men's sportswear.
MR. JOSEPH was elected President, International Division (January 1996)
and served as Vice President-Retail Shops Division (Florsheim Shoe Shops and
Florsheim Thayer McNeil stores - 1991 to December 1996). Mr. Joseph was
previously Vice President, Marketing of Florsheim Australia Limited (1988-1991)
and Vice President, Florsheim Thayer McNeil Stores (1986-1988). Mr. Joseph also
held positions of General Manager, International Retail Stores (Florsheim Shoe
Shops), Regional Supervisor of Retail Stores and Retail Stores Area Manager.
MS. LATHAM was elected Vice President, Chief Financial Officer, (January
1997). From November 1990 through November 1996, Ms. Latham served as Vice
President and Treasurer of The Vigoro Corporation, a vertically integrated
fertilizer company, which was acquired by IMC Global Inc., of Northbrook,
Illinois. Prior to her employment with The Vigoro Corporation, Ms. Latham was
employed by Harris Trust and Savings Bank from 1981 until November 1990.
MR. SANGUINETTI was appointed Executive Vice President, Chief Operating
Officer (February 1997) and elected President, Retail Division, (April 1996).
From August 1995 through April 1996, Mr. Sanguinetti served as President and
Chief Operating Officer for Chernin's Shoes, a retail family shoe company. From
August 1994 to July 1995, Mr. Sanguinetti served as President of Crystal Brands
Inc., a multi-division apparel company. From May 1987 to July 1994 he was
employed by Younkers Department Store and previously held several senior
officer positions at other department stores in multi-store management and
merchandising.
MR. VAN GASSE was appointed Director, New Products Division (January
1996), and previously has served as Vice President, Marketing since joining
the Company in June 1990. Previously Mr. Van Gasse was employed by Chesebrough
Ponds/Unilever as Director of Marketing for cosmetics and personal care
products (June 1986 to June 1990) and performed in various domestic and
international marketing roles at Colgate Palmolive, also a personal care
company (July 1974 to May 1986).
58
<PAGE> 60
Item 11. Executive Compensation
The sections entitled "Executive Compensation", "Executive Compensation and
Stock Option Committee Report on Executive Compensation", "Compensation
Committee Interlocks", "Stock Options", "Retirement Plans", "Certain
Agreements", "Comparative Stock Performance Graph" and "Compensation and
Organization of Board of Directors" of the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders on May 15, 1997, are
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section entitled "Security Ownership" of the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders on May 15, 1997, is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The sections entitled "Compensation Committee Interlocks" , "Certain
Agreements" and "Certain Transactions" of the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders on May 15, 1997, are
incorporated herein by reference.
59
<PAGE> 61
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 10-K
(a) List of documents filed as part of this report:
1. Consolidated balance sheets, December 30, 1995 and December 28, 1996.
Consolidated statements of operations for the fiscal year ended
December 31, 1994, for the fiscal year ended December 30, 1995, and for
the fiscal year ended December 28, 1996.
Consolidated statements of cash flows for the fiscal year ended December
31, 1994, for the fiscal year ended December 30, 1995, and for the
fiscal year ended December 28, 1996.
Consolidated statements of shareholders' equity for the fiscal year
ended December 31, 1994, for the fiscal year ended December 30, 1995,
and for the fiscal year ended December 28, 1996.
Notes to consolidated financial statements.
Independent Auditors' Report
2. Financial Statement Schedules:
Valuation and qualifying accounts (Schedule II)
All other schedules are omitted as the required information is presented in the
consolidated financial statements or related notes or are not applicable.
3. Exhibits:
Exhibit
Number Description
------- -----------
2.1 Capital Contribution Agreement, dated as of October 2, 1994,
between INTERCO INCORPORATED and the Company (incorporated by
reference to Exhibit 2.1 by The Florsheim Shoe Company
Registration Statement on Form S-1, and all amendments
thereto, File No. 33-83204).
2.2 Distribution and Services Agreement, dated as of November 17,
1994, among INTERCO INCORPORATED, the Company and certain of
its subsidiaries (incorporated by reference to Exhibit 2.2
by The Florsheim Shoe Company Registration Statement on Form
10/A, Amendment No. 3).
3.1 Restated Certificate of Incorporation of the Company.
3.2 Restated by-laws of the Company.
4.1 Indenture, dated as of November 17, 1994, among the Company,
certain of its subsidiaries and First Fidelity Bank, National
Association, as Trustee, including form of Senior Note
(incorporated by reference to Exhibit 4.1 by The Florsheim Shoe
Company Registration Statement on Form 10/A, Amendment No. 3).
4.2 Credit Agreement, dated as of November 17, 1994, among the
Company and its subsidiaries named therein, certain financial
institutions and BT Commercial Corporation, as agent
(incorporated by reference to Exhibit 4.2 by The Florsheim
Shoe Company Registration Statement on Form S-1, and all
amendments thereto, File No. 33-83204).
60
<PAGE> 62
4.3 Waiver #1, dated as of March 17, 1995 (received and became
effective April 3, 1995) to the Credit Agreement, dated
November 17, 1994, among the Company, its subsidiaries named
therein, BT Commercial Corporation, as agent, and certain
lenders named therein (incorporated by reference to Exhibit 4
as filed with the Company's Quarterly Report on Form 10-Q for
the Quarterly Period Ended April 1, 1995).
4.4 Amendment #1, dated as of December 29, 1995, to the Credit
Agreement, dated November 17, 1994, among the Company, its
subsidiaries named therein, BT Commercial Corporation, as
agent, and certain lenders named therein (incorporated by
reference to Exhibit 4.4 as filed with the Company's Report on
Form 10-K, report date - December 30, 1995).
4.5 Amendment #2, dated as of March 22, 1996, to the Credit
Agreement, dated November 17, 1994, among the Company, its
subsidiaries named therein, BT Commercial Corporation, as
agent, and certain lenders named therein (incorporated by
reference to Exhibit 4.5 as filed with the Company's Report on
Form 10-K, report date - December 30, 1995).
10.1 INTERCO/Florsheim Tax Sharing Agreement, dated as of November
17, 1994, among INTERCO INCORPORATED, the Company and certain
of its subsidiaries (incorporated by reference to Exhibit
10.1 by The Florsheim Shoe Company Registration Statement on
Form 10/A, Amendment No. 3).
10.2 Registration Rights Agreement, dated as of November 17, 1994,
between the Company and Apollo Interco Partners, L.P.
(incorporated by reference to Exhibit 10.2 by The Florsheim
Shoe Company Registration Statement on Form 10/A, Amendment
No. 3).
10.3 License and Technical Assistance Agreement, dated February 4,
1994, between Florind Shoes Limited and INTERCO INCORPORATED,
acting by and through its Florsheim Shoe Company Division
(incorporated by reference to Exhibit 10.3 filed by The
Florsheim Shoe Company Registration Statement on Form S-1, and
all amendments thereto, File No. 33-83204).
10.4 License and Technical Assistance Agreement, dated February 4,
1994, between Floram Shoes India, Ltd. and INTERCO
INCORPORATED, acting by and through its Florsheim Shoe
Company Division (incorporated by reference to Exhibit 10.4
filed by The Florsheim Shoe Company Registration Statement on
Form S-1, and all amendments thereto, File No. 33-83204).
10.5 Export Sales Agreement, dated February 4, 1994, between
Floram Shoes India, Ltd. and INTERCO INCORPORATED, acting by
and through its Florsheim Shoe Company Division (incorporated
by reference to Exhibit 10.5 by filed The Florsheim Shoe
Company Registration Statement on Form S-1, and all amendments
thereto, File No. 33-83204).
10.6 Export Sales Agreement, dated as of February 4, 1994, between
Florind Shoes Limited and INTERCO INCORPORATED, acting by and
through its Florsheim Shoe Company Division (incorporated by
reference to Exhibit 10.6 filed by The Florsheim Shoe Company
Registration Statement on Form S-1, and all amendments
thereto, File No. 33-83204).
10.7 Renewed Joint Venture Agreement, dated February 4, 1994,
among Shri K. Ameenur Rahman, Floram Shoes India, Ltd.,
Florind Shoes Limited and INTERCO INCORPORATED, acting by and
through its Florsheim Shoe Company Division (incorporated
by reference to Exhibit 10.7 filed by The Florsheim Shoe
Company Registration Statement on Form S-1, and all amendments
thereto, File No. 33-83204).
10.10 Florsheim Supplemental Employee Retirement Plan
(incorporated by reference to Exhibit 10.10 filed by The
Florsheim Shoe Company Registration Statement on Form S-1,
and all amendments thereto, File No. 33-83204).
61
<PAGE> 63
10.11 Consulting Agreement, dated as of November 17, 1994,
between Apollo Advisors, L.P. and the Company (incorporated
by reference to Exhibit 10.11 by The Florsheim Shoe Company
Registration Statement on Form 10/A, Amendment No. 3).
10.14 Employment Agreement, dated September 15, 1995, between the
Company and Ronald J. Mueller, amending and superseding the
employment agreement dated October 1, 1994, between the
Company and Ronald J. Mueller (incorporated by reference to
Exhibit 10.14 filed with the Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended September 30, 1995).
10.15 Employment Agreement, dated September 7, 1995, between the
Company and Charles J. Campbell (incorporated by reference to
Exhibit 10.15 as filed with the Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended September 30, 1995).
10.16 Amendment #1, dated December 29, 1995, to Employment
Agreement between the Company and Charles J. Campbell
(incorporated by reference to Exhibit 10.16 as filed with the
Company's Report on form 10-K, report date - December 30,
1995).
10.17 Amendment, dated December 29, 1995, to Employment Agreement
between the Company and Ronald J. Mueller (incorporated by
reference to Exhibit 10.17 as filed with the Company's
Report on form 10-K, report date - December 30, 1995).
10.18 Asset Purchase Agreement dated as of February 13, 1996
between Wolverine World Wide, Inc., Hy-Test, Inc. and The
Florsheim Shoe Company (incorporated by reference to
Exhibit 10 as filed with the Company's Report on form 8-K,
report date - March 22, 1996).
10.19 1994 Stock Option Plan, as amended and restated as of March
15, 1996 (incorporated by reference to Exhibit 10.1, as filed
with the Company's Registration Statement on Form S-8 no.
333-6353).
10.20 Charles J. Campbell Stock Option Plan, as amended and
restated as of March 15, 1996 (incorporated by reference to
Exhibit 10.2, as filed with the Company's Registration
Statement on Form S-8 no. 333-6353).
10.21 Lease Agreement dated September 6, 1996 between Teachers
Insurance and Annuity Association of America, a New York
corporation, (the "Landlord") and The Florsheim Shoe Company
(incorporated by reference to Exhibit 10.1 as filed with the
Company's Report on 10-Q, report date - September 28, 1996).
10.22 Real Estate Sale Contract, as amended and restated, for the
sale of property located at 130 South Canal Street, Chicago,
Illinois, dated February 21, 1997, between The Florsheim Shoe
Company and Everest Partners L.L.C.
11 Statement re Computation of Net Earnings Per Common Share.
12.1 Computation of ratio of earnings to fixed charges.
21 Subsidiaries of the Company.
23 Consent of KPMG Peat Marwick LLP.
(b) Reports on Form 8-K.
A Form 8-K was not required to be filed during the last quarter of the
fiscal year ended December 28, 1996.
62
<PAGE> 64
UPON WRITTEN REQUEST TO THE COMPANY'S CHIEF FINANCIAL OFFICER, THE COMPANY
WILL FURNISH SHAREHOLDERS WITH A COPY OF ANY OR ALL SUCH EXHIBITS REQUESTED AT
A CHARGE OF TEN CENTS PER PAGE, WHICH REPRESENTS THE COMPANY'S REASONABLE
EXPENSES IN FURNISHING SUCH EXHIBITS.
(this section is blank)
63
<PAGE> 65
FLORSHEIM GROUP INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
Consolidated Financial Statements:
Consolidated balance sheets, December 30, 1995 and December 28, 1996.
Consolidated statements of operations for the fiscal year ended
December 31, 1994, for the fiscal year ended December 30,
1995, and for the fiscal year ended December 28, 1996.
Consolidated statements of cash flows for the fiscal year ended
December 31, 1994, for the fiscal year ended December 30,
1995, and for the fiscal year ended December 28, 1996.
Consolidated statements of shareholders' equity for the fiscal
year ended December 31, 1994, for the fiscal year ended
December 30, 1995, and for the fiscal year ended December
28, 1996.
Notes to consolidated financial statements.
Independent Auditors' Report
Consolidated Financial Statement Schedules:
Schedule
Valuation and qualifying accounts II
64
<PAGE> 66
FLORSHEIM GROUP INC. Schedule II
-----------
Valuation and Qualifying Accounts
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Charged Charged Other
Balance at to costs to other charges
Fiscal beginning and account add (deduct) Balance at
Year Description of year expenses(1) describe describe(2) end of year
<S> <C> <C> <C> <C> <C> <C>
1994 Allowance for doubtful accounts
and cash discounts $1,630 $6,096 $- $(6,033) $1,693
1995 Allowance for doubtful accounts
and cash discounts 1,693 6,667 - (6,076) 2,284
1996 Allowance for doubtful accounts
and cash discounts 2,284 6,733 - (7,312) 1,705
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes provisions for bad debt expense of $750, $1,309, and $645 and
provisions for cash discount expense of $5,346, $5,358, and $6,088 for
1994,1995, and 1996, respectively.
(2) Includes write-offs for bad debts of $648, $838, and $893 and cash
discounts allowed of $5,385, $5,238, and $6,419 for 1994, 1995, and 1996,
respectively.
65
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Florsheim Group Inc.:
We have audited the consolidated balance sheets of Florsheim Group Inc. and
subsidiaries (the Company) as of December 28, 1996 and December 30, 1995 and
the consolidated statements of operations, cash flows, and shareholders' equity
for the years ended December 28, 1996, December 30, 1995 and December 31, 1994.
These consolidated financial statements are the responsibility of management
of Florsheim Group Inc. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Florsheim Group
Inc. and subsidiaries as of December 28, 1996 and December 30, 1995 and the
results of their operations and their cash flows for the years ended December
28, 1996, December 30, 1995 and December 31, 1994 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 3, 1997
66
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FLORSHEIM GROUP INC.
-----------------------------------
(Registrant)
By Karen Nyman Latham
-----------------------------------
Karen Nyman Latham
Vice President, Chief Financial Officer
Date: March 25 , 1997
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 1997.
Signature Title
- ---------------------- -----------------------------------
Charles J. Campbell Chairman of the Board of Directors,
- ----------------------
(Charles J. Campbell) President, Chief Executive Officer
Bernard Attal Director
- ----------------------
(Bernard Attal)
Robert H. Falk Director
- ----------------------
(Robert H. Falk)
Michael S. Gross Director
- ----------------------
(Michael S. Gross)
John J. Hannan Director
- ----------------------
(John J. Hannan)
Joshua J. Harris Director
- ----------------------
(Joshua J. Harris)
John H. Kissick Director
- ----------------------
(John H. Kissick)
Richard B. Loynd Director
- ----------------------
(Richard B. Loynd)
Ronald J. Mueller Director
- ----------------------
(Ronald J. Mueller)
Michael D. Weiner Director
- ----------------------
(Michael D. Weiner)
Karen Nyman Latham Vice President,
- ----------------------
(Karen Nyman Latham) Chief Financial Officer
Thomas E. Poggensee Treasurer, Secretary, Controller
- ----------------------
(Thomas E. Poggensee) and Chief Accounting Officer
67
<PAGE> 1
EXHIBIT 3.1
COMPOSITE COPY AS OF
DECEMBER 29, 1996
RESTATED CERTIFICATE OF INCORPORATION
OF
FLORSHEIM GROUP INC.
ARTICLE I
The name of the Corporation is Florsheim Group Inc. (hereafter called
the "Corporation").
ARTICLE II
Its registered office in the State of Delaware is located at 32
Lockerman Square, Suite L-100, Dover, Kent County, Delaware 19901. The name
and address of its registered agent is CSC The United States Corporation
Company., 1013 Centre Road Wilmington, Delaware 19805.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporation may be organized under the Delaware General
Corporation Law ("DGCL").
ARTICLE IV
The total number of shares of capital stock of all classes which the
Corporation shall have the authority to issue is twenty-two million
(22,000,000) shares, all of which shares shall be without nominal or par value,
consisting of twenty (20,000,000) shares of Common Stock, and 2,000,000
(2,000,000) shares of Preferred Stock.
Authority is hereby expressly granted to and vested in the Board of
Directors of the Corporation to cause the Preferred Stock to be issued from
time to time in one or more series and in connection therewith to fix by
resolution or resolutions providing for the issue of such series the number of
shares to be included in such series and the designations and such voting
powers, full or limited, or no voting powers, and such of the preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of such series of the
Preferred Stock to the full extent now or hereafter permitted by the
<PAGE> 2
laws of the State of Delaware.
All holders of Common Stock shall be entitled to one vote for each
share of Common Stock standing of record in their respective names.
The holders of Common Stock shall have no pre-emptive right to
purchase or subscribe for any shares of capital stock of the Corporation of any
class whether now or hereafter authorized.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
The following provisions are inserted for the conduct of the affairs
of the Corporation, and it is expressly provided that the same are intended to
be in furtherance and not in limitation or exclusion of the powers conferred by
statute:
(1) The number of directors of the Corporation (exclusive of
directors (the "Preferred Stock Directors") who may be elected by the
holders of any one or more series of Preferred Stock which may at any
time be outstanding, voting separately as a class or classes pursuant to
rights to elect directors under specified circumstances) shall not be
less than three nor more than fifteen, the exact number within said
limits to be fixed from time to time solely by resolution of the Board of
Directors, acting by not less than a majority of the directors then in
office.
(2) Each director shall hold office until the annual meeting of
stockholders next succeeding his election and until his successor is
elected and qualified or until his earlier resignation or removal.
Election of directors need not be by ballot unless the By-Laws so
provide.
(3) Subject to the rights of the holders of any one or more series
of Preferred Stock then outstanding to elect directors under
circumstances specified in any Preferred Stock Designation, newly created
directorships resulting from any increase in the authorized number of
directors, or any vacancies in the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or
other cause, shall be filled solely by the Board of Directors acting by a
majority of the remaining directors then in office, even though less than
a quorum of the Board of Directors. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the
full term of office of the director with respect to which the new
directorship was created or the vacancy occurred and until such
director's successor shall have been elected
2
<PAGE> 3
and qualified. No decrease in the number of directors shall shorten the
term of any incumbent director.
(4) The By-Laws may prescribe the number of directors necessary to
constitute a quorum and such number may be less than a majority of the
total number of directors, but shall not be less than one-third of the
total number of directors.
(5) Except as may be otherwise provided by statute or in this
Restated Certificate of Incorporation, the business and affairs of the
Corporation shall be managed under the direction of the Board of
Directors.
(6) Notwithstanding any other provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote
of the holders of any particular class of stock of the Corporation
entitled to vote generally in the election of directors required by law
or this Restated Certificate of Incorporation, the affirmative vote of
(i) the holders of not less than three-fourths of the combined voting
power of the outstanding shares of stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single
class at a meeting called for such purpose, and (ii) in addition, the
holders of a majority of the combined voting power of such shares
actually voting at such meeting, excluding any shares of Common Stock or
other securities of which a Substantial Stockholder is the Beneficial
Owner, shall be required to alter, amend, adopt any provision
inconsistent with or repeal Paragraph 7 of this Article VI.
(7) For purposes of this Article VI and Articles IX and X, the term
"Substantial Stockholder" shall mean and include (other than the
Corporation or any subsidiary and other than any employee benefit plan of
the Corporation or any subsidiary or any trustee of or fiduciary with
respect to any such plan when acting in such capacity, all of which are
excluded from such definition): (a) any individual, corporation,
partnership or other person or entity which, together with its Affiliates
and Associates, is the Beneficial Owner in the aggregate of more than ten
percent of the combined voting power of the outstanding shares of stock
of the Corporation entitled to vote generally in the election of
directors, and (b) any Affiliate or Associate of any such individual,
corporation, partnership or other person or entity.
For purposes of this Article VI and Articles IX and X, the following
terms shall be defined by reference to the Securities Exchange Act of
1934 and the Rules in effect thereunder on November 7, 1994. "Affiliate"
under Rule 12b-2; "Associate" under Rule 12b-2; and "Beneficial Owner"
under Rule 13d-3.
3
<PAGE> 4
ARTICLE VII
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized
to make and alter the By-Laws of the Corporation subject to the power of the
stockholders, at the time entitled to vote, to alter or repeal By-Laws made by
the Board of Directors.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE IX
Except as otherwise provided in this Restated Certificate of
Incorporation, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by consent in
writing by such stockholders. Special meetings of stockholders of this
Corporation may be called only by the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors, or by the
holders of not less than one-fifth of the combined voting power of the
outstanding shares of stock of the Corporation entitled to vote generally in
the election of directors (by written notice delivered to the Secretary of the
Corporation), upon not less than ten and not more than sixty days written
notice.
This Article IX (and paragraph (7) of Article VI to the extent the
terms being amended are used in this Article IX) may be altered, amended or
repealed or an inconsistent provision adopted only upon the affirmative vote of
(i) the holders of not less than three-fourths of the combined voting power of
the outstanding shares of stock of the Corporation entitled to vote generally
in the election of directors, voting together as a single class at a meeting
called for such purpose, and (ii) in addition, the holders of a majority of the
combined voting power of the shares of Common Stock and any other class of
stock voting on such matter as a single class with the Common Stock actually
voting at such meeting, excluding any shares of Common Stock and other
securities of which a Substantial Stockholder is the Beneficial Owner.
4
<PAGE> 5
ARTICLE X
The Corporation shall not engage in any Affiliate Transaction unless
the same shall have been approved by a majority of the Disinterested Directors
and, if the Affiliate Transaction must be approved by stockholders under
applicable law and no Substantial Stockholder is the record owner of at least
90% of the outstanding shares of Common Stock and any other class of stock
voting on such transaction as a single class with such Common Stock, by the
holders of a majority of the combined voting power of such shares actually
voting on such transaction at a meeting called for such purpose, excluding any
shares of Common Stock and other securities of which the Substantial
Stockholder involved in such transaction is the Beneficial Owner. If, at any
time, there is no Disinterested Director, a Substantial Stockholder will not be
permitted to engage in an Affiliate Transaction except with the affirmative
vote of the holders of at least a majority of the combined voting power of the
shares of Common Stock and any other class of stock voting on such transaction
as a single class with the Common Stock actually voting at a meeting called for
such purpose, excluding any shares of Common Stock and other securities of
which such Substantial Stockholder is the Beneficial Owner.
For purposes of this Article X, the term "Affiliate Transaction"
shall mean:
(1) Any merger or consolidation of the Corporation or any
subsidiary of the Corporation with any Substantial Stockholder,
regardless of which entity survives;
(2) Any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions)
to or with any Substantial Stockholder of any assets of the
Corporation or any subsidiary of the Corporation;
(3) The issuance or transfer by the Corporation or any subsidiary
of the Corporation of any securities of the Corporation or any such
subsidiary to any Substantial Stockholder in exchange for cash,
securities or other property (or a combination thereof);
(4) Any reclassification of securities, or any recapitalization,
of the Corporation or any of its subsidiaries, or any merger or
consolidation of the Corporation with any of its subsidiaries
(whether or not involving a Substantial Stockholder) or any similar
transaction, if the transaction would have the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any subsidiary, of which a Substantial Stockholder is
the Beneficial Owner; or
(5) Any other transaction between the Corporation or any of its
subsidiaries and a Substantial Stockholder, including, without
limitation, payments of compensation
5
<PAGE> 6
and management fees, but excluding customary directors' fees and
other expense reimbursements payable to all directors.
Notwithstanding the foregoing, the following shall be excluded from the
definition of "Affiliate Transaction":
(1) Bona fide loans (excluding loans convertible into equity)
made to the Corporation or any of its subsidiaries by one or more
Substantial Stockholders in an aggregate amount not to exceed
$10,000,000 at any time outstanding;
(2) Issuances to a Substantial Stockholder in bona fide offerings
of equity, convertible or equity-related securities of the
Corporation made for the purpose of raising capital (excluding
offerings primarily intended as management or employee compensation)
on the same terms as are offered to participants who are not
Affiliates, Associates, directors, officers or employees of the
Corporation or any Substantial Stockholder or any subsidiary of any
thereof, but only to the extent such issuance is required to prevent
dilution of such Substantial Stockholder's percentage interest in
the Common Stock of the Corporation on a fully diluted basis;
(3) The repurchase of debt or equity securities from a
Substantial Stockholder on terms identical to those being offered to
all other holders of the same securities or, in the case of debt
securities only, at market;
(4) The preparation and filing of one or more registration
statements with respect to securities of the Corporation received by
any Substantial Stockholder pursuant to or in connection with the
distribution of the Common Stock of the Corporation by INTERCO
INCORPORATED to its stockholders and payment of reasonable expenses
associated therewith, other than underwriting discounts and
commissions, and all actions relating to the foregoing;
(5) Any consulting or management contract with any Substantial
Stockholder in effect at the time of the distribution of the Common
Stock of the Corporation by INTERCO INCORPORATED to its
stockholders;
(6) Immaterial transactions in the ordinary course of business
between the Corporation or any of its subsidiaries and any
Substantial Stockholder.
For purposes of this Article X, the term "Disinterested Director"
shall mean any member of the Board of Directors of the Corporation who, at the
relevant time, is not an employee or officer of the Corporation or any of its
subsidiaries, Affiliates or Associates, and is not a Substantial Stockholder or
a director, officer or employee of a Substantial Stockholder.
6
<PAGE> 7
This Article X (and paragraph (7) of Article VI to the extent the
terms being amended are used in this Article X) may be altered, amended or
repealed or an inconsistent provision adopted only upon the affirmative
vote of (i) the holders of not less than three-fourths of the combined voting
power of the outstanding shares of stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class at a
meeting called for such purpose, and (ii) in addition, the holders of a
majority of the combined voting power of the shares of Common Stock and any
other class of stock voting on such matter as a single class with the Common
Stock actually voting at such meeting, excluding any shares of Common Stock (or
other securities) of which a Substantial Stockholder is the Beneficial Owner.
In accordance with Section 203(b) of the General Corporation Law of
the State of Delaware, the Corporation hereby elects not to be governed by
Section 203 of the General Corporation Law of the State of Delaware which
restricts the consummation of certain business combination transactions in
certain circumstances.
ARTICLE XI
1. In addition to any affirmative vote required or permitted by law
or this Restated Certificate of Incorporation or the By-Laws of the Corporation,
and except as otherwise expressly provided in Paragraphs 1(a) and 1(b) of this
Article XI, the Corporation shall not effect, directly or indirectly, any Stock
Repurchase from an Interested Stockholder unless said Stock Repurchase is
authorized by the affirmative vote of the holders of a majority of the combined
voting power of the outstanding shares of stock of the Corporation entitled to
vote generally in the election of directors ("Voting Stock"), voting together
as a single class, actually voting on such transaction at a meeting called for
such purpose, excluding any shares which are beneficially owned by such
Interested Stockholder.
The preceding provision of this Article XI shall not be applicable
to any Stock Repurchase from an Interested Stockholder if such Stock Repurchase
is effected by the Corporation pursuant to:
(a) a tender offer or exchange offer by the
Corporation for some or all of the outstanding shares of any
or all classes of stock of the Corporation made on the same
terms to all holders of such shares; or
(b) an open market stock purchase program approved by
a majority of those members of the Board of Directors who are
not directors, officers, employees, Affiliates or Associates
of an Interested Stockholder or any Affiliate or Associate of
an Interested Stockholder.
2. For purposes of this Article XI:
7
<PAGE> 8
(a) The following terms shall be defined by reference
to the Securities Exchange Act of 1934 and the Rules in effect
thereunder on November 7, 1994: "Affiliate", "Associate" and
"Subsidiary" under Rule 12b-2; and "Beneficial Owner" under
Rule 13d-3.
(b) An "Interested Stockholder" shall mean a Person
(other than any Subsidiary of the Corporation, any
profit-sharing, employee stock ownership or other employee
benefit plan of the Corporation or any Subsidiary of the
Corporation, or any trustee of or fiduciary with respect to
any such plan when acting in such capacity, all of which shall
be excluded from such definition) who: (i) has been a
Beneficial Owner for a period of less than two years
immediately prior to the Determination Date of five percent or
more of the issued and outstanding shares of Voting Stock
(including any Voting Stock which such Person or any of its
Affiliates or Associates has (a) the right to acquire (whether
such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (b) the
right to vote pursuant to any agreement, arrangement or
understanding); or (ii) is an Affiliate of the Corporation who
was the Beneficial Owner of five percent or more of the issued
and outstanding shares of Voting Stock at any time within the
two-year period immediately prior to the Determination Date;
or (iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were beneficially owned by any
Interested Stockholder at any time within the two-year period
immediately prior to the Determination Date, if such
assignment or succession shall have occurred in the course of
a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(c) The term "Stock Repurchase" shall mean any direct
or indirect purchase by the Corporation or any Subsidiary of
the Corporation of any shares of the Voting Stock at a price
greater than the Market Price of such shares, or any direct or
indirect purchase of such shares for any consideration other
than cash.
(d) "Market Price" shall mean the closing sale price
on the last trading day immediately preceding the
Determination Date of a share of the Corporation's Voting
Stock on the Composite Tape for New York Stock Exchange-Listed
Stocks, or, if such Voting Stock is not listed on such
Exchange, on the principal United States securities exchange
on which such Voting Stock is listed, or, if such Voting Stock
is not listed on any
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such exchange, the closing bid quotation with respect to a
share of such Voting Stock on the last trading day
immediately preceding the Determination Date on the National
Association of Securities Dealers, Inc. Automated Quotations
System or any similar system then in use, or if no such
quotations are available, the fair market value on the
Determination Date of a share of such Voting Stock as
determined in good faith by a majority of the Board of
Directors.
(e) "Determination Date" shall mean the date upon
which the determination of Market Price is made by the Board
of Directors.
(f) The term "Person" shall mean any individual,
firm, corporation or other entity and shall include any group
comprising any person and any other person with whom such
person or any Affiliate or Associate of such person has any
agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or
disposing of stock.
3. The Board of Directors shall have the power and duty to
determine for the purposes of this Article XI on the basis of information known
to its members after reasonable inquiry, (1) whether a Person is, and if so,
when such Person became, an Interested Stockholder, (2) the number of shares of
Voting Stock of the Corporation or other securities of which any Person is a
Beneficial Owner and the number of votes entitled to be cast by such Person,
(3) whether a Person is an Affiliate or Associate of another, and (4) whether
the price proposed to be paid for any shares of stock of the Corporation is in
excess of the Market Price of such shares. Any such determination made in good
faith shall be binding on and conclusive for all parties.
For the purposes of determining whether a Person is an Interested Stockholder
pursuant to Paragraph 2(b) of this Article XI, the shares of Voting Stock
deemed to be outstanding shall include shares deemed beneficially owned by such
Person through application of Paragraph 2(a) of this Article XI, but shall not
include any other shares of Voting Stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
ARTICLE XII
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such director as a director, except (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the DGCL, or (iv)
for any
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transaction from which the director derived an improper personal
benefit. The Corporation shall indemnify its directors and officers to the
fullest extent permitted by Section 145 of the DGCL. No amendment to or repeal
of this Article XII shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
If the DGCL is amended hereafter to expand or limit the liability of a
director, then the liability of a director of the Corporation shall be expanded
to the fullest extent required or limited to the fullest extent permitted by
the DGCL, as so amended.
ARTICLE XIII
No director or Substantial Stockholder (as that term is defined in
Article VI hereof) shall have any obligation to bring to the attention of the
Corporation any business or other corporate opportunity which has come to his
or its attention solely by virtue of his or its involvement, as the case may
be, in any business enterprise (other than the Corporation or its subsidiaries)
in which such director or Substantial Stockholder has an interest.
ARTICLE XIV
Except as provided in Articles XII and XIII hereof, nothing contained
in this Restated Certificate of Incorporation shall be construed to relieve any
person or entity from any fiduciary obligation imposed by law.
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<PAGE> 1
EXHIBIT 3.2
COMPOSITE COPY AS OF
DECEMBER 29, 1996
BY-LAWS
OF
FLORSHEIM GROUP INC.
<PAGE> 2
BY-LAWS OF
FLORSHEIM GROUP INC.
ARTICLE I
Offices
Section 1. The principal office of Florsheim Group Inc. (the
"Corporation") shall be in the State of Delaware at such location and with such
registered agent in charge thereof as may be established by the Board of
Directors from time to time.
Section 2. The Corporation may also have offices at such other places as
the Board of Directors may from time to time appoint, or the business of the
Corporation may require.
ARTICLE II
Seal
Section 1. The corporate seal shall have inscribed thereon the name of
the Corporation, the state and the year of its incorporation and the words
"CORPORATE SEAL".
ARTICLE III
Stockholders' Meetings
Section 1. Meetings of the stockholders shall be held in the city of
Chicago, Illinois, or at such other place within or without the State of
Illinois as the Board of Directors may designate.
Annual Meetings
Section 2. Unless otherwise provided by resolution of the Board of
Directors, an annual meeting of stockholders shall be held on second Wednesday
of June in each year, if not a legal holiday, and if a legal holiday, then on
the next business day following, at 10 a.m. At each such annual meeting, the
stockholders shall elect, by ballot, directors to succeed those directors whose
terms expire at such meeting, and shall transact such other business as may
properly be brought before the meeting. The number of directors to be elected
at each annual meeting of stockholders shall be determined by the Board of
Directors of the Corporation at least thirty days before such annual meeting.
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Quorum
Section 3. A majority of the issued and outstanding Common Stock, present
in person or represented by proxy, shall be requisite and shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute, by the Restated Certificate of
Incorporation, or by these By-Laws. If, however, such majority shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time without notice other than announcement at
the meeting, until the record holders of the requisite amount of stock shall be
present or represented. At such adjourned meeting at which the requisite
amount of stock shall be represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
How And Who May Vote
Section 4. At each meeting of the stockholders, every holder of Common
Stock having the right to vote shall be entitled to vote in person, or by proxy
appointed by an instrument in writing subscribed by such stockholder and
bearing a date not more than three years prior to said meeting, unless said
instrument provides for a longer period. In all matters each holder of Common
Stock shall have one vote for each share of Common Stock registered in his name
on the books of the Corporation at the close of business on the record date.
The vote for directors, and, upon demand of any stockholder entitled to vote,
the vote upon any question before the meeting, shall be by ballot. All
elections shall be had, and (except as otherwise required by statute or the
Restated Certificate of Incorporation) all questions decided, by a plurality
vote.
Notice of Annual Meeting
Section 5. Written notice of the annual meeting, stating the time and
place where it will be held, shall be mailed at least ten days prior to the
meeting to each stockholder at such address as appears on the stock ledger of
the Corporation.
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Stockholders List - Entitled to Vote
Section 6. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder
during ordinary business hours for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held and
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where said meeting is to be held, and the list shall be
produced and kept at
the time and place of meeting during the whole time thereof, and subject to
inspection of any stockholder who may be present.
Special Meetings
Section 7. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise provided by statute, may be called only by the Board
of Directors, pursuant to a resolution approved by a majority of the entire
Board of Directors, or by the holders of not less than one-fifth of the
combined voting power of the outstanding shares of the Corporation entitled to
vote generally in the election of directors (by written notice delivered to the
Secretary of the Corporation), upon not less than ten and not more than sixty
days' written notice.
Business at Special Meetings
Section 8. Business transacted at all special meetings shall be confined
to the objects stated in the call.
Notice of Special Meetings
Section 9. Written notice of a special meeting of stockholders, stating
the time and place and object thereof, shall be mailed, postage prepaid, at
least ten days before such meeting, to each stockholder entitled to vote
thereat at such address as appears on the books of the Corporation.
ARTICLE IV
Board of Directors
Number - Election of - Term of Office
Section 1. The business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. From time to time, the number
of directors constituting the Board of Directors shall be determined by
resolution of the Board of Directors, and the number
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of directors may be increased by the affirmative vote of a majority of the
directors then in office, although less than a quorum; provided, however, that
the number of directors shall not be less than three nor more than fifteen.
Each director shall hold office until the annual meeting of stockholders
next succeeding his election and until his successor is elected and qualified
or until his earlier resignation or removal.
Place of Meetings - Offices
Section 2. The directors may hold their meetings and have one or more
offices outside of Delaware, at the offices of the Corporation in the city of
Chicago, Illinois, or at such other places as they may from time to time
determine. The directors may participate in meetings of the Board and
committees of the Board by conference telephone and participation in this
manner shall constitute presence in person at such meeting.
Powers
Section 3. In addition to the powers and authorities by these By-Laws
expressly conferred upon them, the Board may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Restated Certificate of Incorporation or by these By-Laws directed or
required to be exercised or done by the stockholders.
Meeting and Organization
Section 4. The newly elected Board may meet on the day of the annual
stockholders' meeting after such meeting shall have adjourned, or at such place
and time as shall be fixed by the vote of the stockholders at the annual
meeting, for the purpose of organization or otherwise, and no notice of such
meeting shall be necessary to the newly elected directors in order legally to
constitute the meeting; PROVIDED, a majority of the whole Board shall be
present; or they may meet at such place and time as shall be fixed by the
consent in writing of all the directors.
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Regular Meetings
Section 5. Regular meetings of the Board may be held without notice at
such time and place as shall from time to time be determined by the Board.
Special Meetings
Section 6. Special meetings of the Board may be called by the Chairman of
the Board, or the Vice-Chairman of the Board or the President on one day's
notice to each director, either personally or by mail or by telegram; special
meetings shall be called by the Chairman of the Board or the Vice-Chairman of
the Board or the President or the Secretary in like manner and on like notice
on the written request of one-third of the directors in office at the time.
Quorum
Section 7. At all meetings of the Board a majority of the directors shall
be necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum, shall be the act of the Board of Directors except as
may be otherwise specifically provided by statute or by the Restated
Certificate of Incorporation or by these By-Laws.
Committees
Section 8. There may be an Executive Committee of the Board of Directors
consisting of two or more directors designated by resolution adopted by a
majority of the whole Board. Said Committee may meet at stated times, or on
any notice to all by the Chairman of the Committee, or by any two of their own
number. A majority of the members of the Executive Committee shall be
necessary and sufficient to constitute a quorum for the transaction of business
by said Committee. During the intervals between meetings of the Board such
Committee shall advise with and aid the officers of the Corporation in all
matters concerning its interests and the management of its business, and
generally perform such duties and exercise such powers as may be directed or
delegated by the Board of Directors from time to time. The Board may delegate
to such Committee the authority to exercise all of the powers of the Board
while the Board is not in session except the powers and authority specifically
reserved unto the Board by the General Corporation Law of the State of Delaware
as from time to time amended, and except as otherwise provided in these
By-Laws. Vacancies in the membership of such Committee shall be filled by the
Board of Directors at a regular meeting or at a special meeting called for that
purpose.
Section 9. The Board of Directors may, by resolution passed by a majority
of the whole Board, designate one or more other committees, each committee to
consist of one or more
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of the directors of the Corporation. The Board may designate one or more
directors as alternate members of any such committee, who may replace any
absent or disqualified member at any meeting of such committee. In the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
to act at the meeting in place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee (including the Executive Committee) shall have power or
authority in reference to amending the Restated Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of dissolution, removing,
replacing or indemnifying directors or amending these By-Laws; and, unless the
resolution expressly so provided, no such committee (including the Executive
Committee) shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 10. Unless the Board of Directors or these By-Laws otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in these By-Laws or the rules of such committee to the
contrary, a majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of business, the vote
of a majority of the members present at a meeting at the time of such vote if a
quorum is then present shall be the act of such committee, and in other
respects each committee shall conduct its business in the same manner as the
Board conducts its business pursuant to Article IV of these By-Laws.
Section 11. All committees of the Board of Directors shall keep regular
minutes of their proceedings and report same to the Board at the next Board
meeting.
ARTICLE V
Officers
Section 1. As soon as practicable after the annual meeting of
stockholders in each year, the Board of Directors shall elect a President and a
Secretary, and the Board of Directors may, if it so determines, elect from
among its members a Chairman of the Board and a Vice Chairman of the Board.
The Board may also elect one or more Vice Presidents, one or more Assistant
Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers, a Controller and one or more Assistant Controllers and
may give any of them such further designations or alternate titles as it
considers desirable. The Board of
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Directors may also elect such other officers as it may deem necessary. Each
officer shall hold office until the first meeting of the Board of Directors
after the annual meeting of stockholders next succeeding his election, and
until his successor is elected and qualified or until his earlier resignation
or removal. Any officer may resign at any time upon written notice to the
Board of Directors or to the President or the Secretary of the Corporation.
Such resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be
necessary to make it effective. The Board of Directors may remove any officer
with or without cause at any time. Any such removal shall be without prejudice
to the contractual rights of such officer, if any, with the Corporation, but
the election or appointment of an officer shall not of itself create
contractual rights. Any number of offices may be held by the same person. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled for the unexpired portion of the term by the
Board of Directors at any regular or special meeting of the Board.
Section 2. The officers of the Corporation shall have such powers and
duties in the management of the Corporation as may be prescribed by the Board
of Directors and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board of Directors. The
Board may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE VI
Indemnification of Officers, Directors, and Employees
Section 1. (a) The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
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(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation or any person serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b), or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in subsections (a) and (b). Such determination shall be
made (1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders. Any determination made by the Board of
Directors under this by-law shall be final and conclusive on all persons
whomsoever.
(e) Expenses incurred defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation.
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(f) The indemnification and advancement of expenses provided by or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
(g) The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status, as
such, whether or not such person would be entitled to indemnification against
such liability under the provisions of this by-law.
(h) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VII
Stock and Transfers, etc.
Section 1. The certificates of stock of the Corporation shall be numbered
and shall be entered in the books of the Corporation as they are issued. They
shall exhibit the holder's name and number of shares and shall be signed by the
Chairman of the Board, Vice-Chairman of the Board, President, or a
Vice-President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary.
They shall also be countersigned by a financial institution designated by
the Board as Registrar, and by either a financial institution designated by the
Board or this Corporation acting through a person or persons designated by the
Board, as Transfer Agent of the Corporation.
Any signature as required in this Section 1 may be by facsimile signature,
provided that the signature by either the Registrar or Transfer Agent shall be
a manual signature.
Fractional shares shall not be issued.
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Transfers of Stock
Section 2. Transfers of stock shall be made on the books of the
Corporation only by the person named in the certificate or by his attorney,
lawfully constituted in writing, and upon surrender of the certificate
therefor.
Closing of Transfer Books or Fixing Record Date
Section 3. The Board of Directors may fix in advance a date, not
exceeding 60 days preceding the date of any meeting of stockholders, or the
date for the payment of any dividend, or the date for the allotment of rights,
or the date when any change or conversion or exchange of capital stock shall go
into effect, or a date in connection with obtaining such consent, as a record
date for the determination of the stockholders entitled to notice of, and to
vote at, any such meeting and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to
exercise the rights with respect of any such change, conversion or exchange of
capital stock, or to give such consent, and in such case such stockholders and
only such stockholders as shall be stockholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, or to give such consent, as
the case may be, notwithstanding any transfer of any stock on the books of the
Corporation after any such record date fixed as aforesaid.
Registered Stockholders
Section 4. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, except as expressly provided by the laws
of Delaware.
Lost Certificates
Section 5. Any person claiming a certificate of stock to be lost or
destroyed shall make an affidavit or affirmation of that fact and advertise the
same in such manner as the Board of Directors may require, and shall, if the
Board of Directors so requires, give the Corporation a bond of indemnity, in
form and with one or more sureties satisfactory to the Board, in at least
double the value of the stock represented by said certificate, whereupon a new
certificate may be issued of the same tenor and for the same number of shares
as the one alleged to be lost or destroyed.
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ARTICLE VIII
Dividends
Dividends upon the Common Stock of the Corporation may be declared by the
Board of Directors or (if the resolution creating the Executive Committee so
provides) by the Executive Committee at any regular or special meeting out of
any net profits or net assets of the Corporation legally available therefor.
Dividends on the outstanding Common Stock may be declared for a period not to
exceed twelve (12) months in advance of such dividend.
Before payment of any dividend or making any distribution of profits,
there may be set aside out of the surplus or net profits of the Corporation
such sum or sums as the Board of Directors from time to time, in its absolute
discretion, thinks proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the Corporation.
ARTICLE IX
Miscellaneous
Vacancies
Section 1. Except as otherwise provided in the Restated Certificate of
Incorporation, if the office of any director, or of any officer or agent, one
or more, becomes vacant by reason of death, resignation, retirement,
disqualification, removal from office, or otherwise, the directors then in
office, although less than a quorum, by a majority vote, may choose a successor
or successors who shall hold office for the unexpired term in respect of which
such vacancy occurred.
Newly created directorships resulting from any increase in the authorized
number of directors may be filled by the directors then in office, although
less than quorum, by a majority vote, and persons so designated to fill such
newly created directorships shall hold office until the annual meeting of
stockholders next succeeding their election and until their successors are
elected and qualified, or until their earlier resignation or removal.
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Inspection of Books
Section 2. The Board of Directors shall determine from time to time
whether, and if allowed, when and under what conditions and regulations, the
accounts and books of the Corporation (except such as may by statute be
specifically open to inspection) or any of them, shall be open to the
inspection of the stockholders, and the stockholders' rights in this respect
are and shall be restricted and limited accordingly.
Checks
Section 3. All checks, drafts, or other demands for money, made by the
Corporation may be signed or endorsed as the case may be by such officer or
officers or agents as the Board of Directors may from time to time designate.
Notes and Negotiable Paper
Section 4. All notes and negotiable papers (except checks and drafts)
shall be signed or endorsed, as the case may be, by the Chairman of the Board,
the President, and such other officers designated by the Board of Directors,
and countersigned by the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer, and may be endorsed by any one of said officers, but
such endorsement shall require no countersignature; and all acceptances may be
made, endorsed or accepted by any one of said officers so designated.
Notices
Section 5. Whenever, under the provisions of these By-Laws, notice is
required to be given to any director, officer or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, by depositing the same in the post office or letter box, in a postpaid
sealed wrapper, addressed to such director, officer or stockholder, and such
notice shall be deemed to be given at the time when the same shall be thus
mailed; provided, however, that notice given under Section 6 of Article IV
shall be deemed to be given at the time received.
Any stockholder, director, or officer may waive any notice required to be
given under these By-Laws.
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Amendments
Section 6. These By-Laws may be altered or amended by the affirmative
vote of the holders of a majority of the Common Stock issued and outstanding at
any regular or special meeting of the stockholders if notice of the proposed
alteration or amendment be contained in the notice of the meeting, or by the
affirmative vote of a majority of the Board of Directors; provided, that no
amendment with respect to the time or place for the election of directors shall
be made within sixty days next before the day on which such election is to be
held, and that a notice of any such change of time or place shall be given to
each stockholder twenty days before the election is held, in person or by
notice or letter mailed to his last known post office address.
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EXHIBIT 10.22
AMENDED AND RESTATED
REAL ESTATE SALE CONTRACT
THIS AMENDED AND RESTATED REAL ESTATE SALE CONTRACT ("this Contract") is
dated FEBRUARY 21, 1997 and is by and between THE FLORSHEIM SHOE COMPANY, a
Delaware corporation ("Seller") and EVEREST PARTNERS L.L.C., an Illinois
limited liability company ("Purchaser").
Seller and Purchaser are parties to a Real Estate Sale Contract dated July
25, 1996 as amended by a First Amendment dated September 6, 1996, a Second
Amendment dated September 26, 1996, a Third Amendment dated November 4, 1996, a
Fourth Amendment dated December 20, 1996, and two letter agreements extending
the closing date to February 21, 1997 (collectively, "the Original Contract").
Seller and Purchaser have agreed to further amend the Original Contract, and in
consideration thereof Seller and Purchaser hereby amend and restate the
Original Contract in its entirety as follows:
1. PROPERTY. Subject to the terms and conditions contained herein, Seller
shall transfer, assign, sell, and convey or cause to be transferred, assigned,
sold, and conveyed to 130 South Canal Limited Partnership, an Illinois limited
partnership ("the Partnership") or to a land trust designated by Purchaser not
later than 5 days before the Closing Date the land ("the Land") and
improvements in Chicago, Cook County, Illinois with street address 130 South
Canal Street, Chicago (which Land is described as Parcels 1 and 2 in the survey
described in Paragraph 4.B and which is attached hereto as Exhibit B), which
Land comprises approximately 60,579 square feet and is improved with a building
containing approximately 330,000 square feet, and (except as provided in
Exhibit C) all other buildings, structures, and improvements on the Land,
together with all of Seller's rights, titles, and interests, if any, in and to
all easements, party walls, rights of way, privileges, appurtenances, and
rights to the same, belonging to or inuring to the benefit of the Land and all
rights, titles, and interests in and to streets, alleys, or other public ways
adjacent to the Land. The Land and improvements thereon and other real
property interests to be conveyed as aforesaid are collectively referred to
herein as "the Property."
2. PURCHASE PRICE; EARNEST MONEY.
A. The purchase price to be paid by Purchaser to Seller at Closing for the
Property ("the Purchase Price") shall be $7,000,000.00.
B. Purchaser has heretofore delivered to Seller the sum of $300,000.00
("the Earnest Money"). The Earnest Money has been earned by Seller and shall
be non-refundable; provided, however,
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that if the Closing does not occur due to default by Seller, then Seller shall
repay the Earnest Money to Purchaser. At Closing, the Earnest Money shall be
applied to the Purchase Price.
3. SELLER'S DISCLOSURES.
A. Seller has heretofore delivered to Purchaser the following documents
with respect to the Property (collectively referred to herein as "Seller's
Disclosure Documents"):
1. All service contracts and equipment leases affecting the Property
which may be binding on Purchaser after Closing.
2. The Indenture dated October 6, 1947 ("the 1947 Lease") with
respect to Parcel 2.
3. Copies of the following documents, to the extent that the same
were then in Seller's possession:
a. Records and operating statements with respect to the
Property showing the costs and expenses of, or incurred in
connection with, the ownership, management, operation, and
maintenance of the Property on and after January 1, 1993.
b. Real estate tax bills, assessment notices, and information
provided by Seller to its attorneys or consultants in protesting or
contesting real estate tax bills or assessments of the Property for
years after January 1, 1989.
c. Seller's most recent reports on title to the Property.
d. Engineering studies, architectural drawings, plans, and
specifications, and as built surveys of the Property and
improvements thereon.
e. Notices received from governmental authorities alleging
violations of law with respect to the Property or any part or parts
thereof.
f. Documents establishing or claiming that the Property has
at any time been used as a site for the use, generation,
manufacture, storage, disposal, or transportation of any Hazardous
Materials. "Hazardous Materials" means asbestos in any form, oil,
flammable explosive, urea formaldehyde, transformers or other
equipment which contain fluid containing polychlorinated biphenyls,
radioactive materials,
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underground storage tanks, or any other chemical, material, or
substance, or storage device or container therefor, or other
dangerous, hazardous, toxic, or contaminated substances, wastes, or
materials, or materials the exposure to which is prohibited,
limited, or regulated by a federal, state, county, regional, or
local authority or which poses a hazard to the health and safety of
the occupants of the Property.
B. If for any reason Purchaser does not consummate the acquisition of
the Property, then Purchaser shall return Seller's Disclosure Documents to
Seller.
C. Seller has heretofore delivered to Purchaser an affidavit that the
transfer of the Property to Purchaser is not subject to the Illinois
Responsible Property Transfer Act.
4. TITLE INSURANCE; SURVEY; PERMITTED EXCEPTIONS.
A. Attached hereto as Exhibit A is a commitment ("the Commitment") by
Chicago Title Insurance Company ("the Title Insurer") to issue a current form
ALTA owner's title insurance policy covering title to the Property.
B. Attached hereto as Exhibit B is a survey of the Property prepared by
James, Schaeffer & Schimming ("the Surveyor") and dated April 23, 1990. Seller
has heretofore furnished to Purchaser, at Seller's expense, a survey of the
Property prepared by the Surveyor, which survey:
1. Is prepared in accordance with and meet ALTA/ACSM standards.
2. Is certified to Purchaser and Title Insurer and which shall at
Closing be certified to the Partnership and which, upon Purchaser's
notice, shall be certified at Closing to Purchaser's lender and any other
party designated by Purchaser.
3. Shows the location of all improvements on the Property.
4. Shows the location and legal description of each recorded
easement and of each visible easement benefitting or burdening the Land.
5. Shows the location of all party walls, sidewalks, paths, and
driveways on the Land.
6. Shows all access to public streets or roads surrounding the Land,
including access to easements
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benefitting the Land.
7. Shows all encroachments either onto the Property by improvements
on adjacent premises or onto adjacent premises by improvements on the
Property.
8. Certifies whether the Land is in a wetland or flood plain.
C. The following matters shall be permitted exceptions to title
insurance coverage ("Permitted Exceptions"):
1. General exceptions.
2. The lien of general real estate taxes not due and payable.
3. The matters scheduled as exceptions 5 and 7 in Schedule B to the
Commitment attached hereto as Exhibit A.
4. Matters shown on the survey attached hereto as Exhibit B and on
the survey delivered pursuant to Paragraph 4.B hereof.
5. The terms, powers, provisions, and limitations of the trust, if
any, under which title to the Property is held for the benefit of
Purchaser, mortgages securing obligations of Purchaser, and other acts by
or through Purchaser.
6. Matters disclosed by Commonwealth Edison Company as reflected in
its August 27, 1996 letter heretofore delivered to Purchaser and other
utility easements disclosed as a result of Seller's efforts to obtain
extended coverage which do not adversely affect Purchaser's redevelopment
of the Property.
Seller shall not schedule, as exceptions to Seller's warranties in Seller's
deed, any matters other than Permitted Exceptions excluding, however, matters
described in the Commitment as general exceptions.
D. At the Closing, Seller shall deliver to Purchaser evidence that
Purchaser will receive from the Title Insurer at Seller's expense a current
form ALTA owner's title insurance policy insuring the fee simple interest of
the Partnership (or Purchaser's designated land trust) in the Property in the
amount of $8,277,916.00, subject only to Permitted Exceptions, and providing
for an endorsement over general exceptions. Purchaser shall not be obligated
to close if Seller is unable to deliver such evidence; provided, however, that
Seller shall not be in default of this Contract if the Title Insurer is
unwilling to issue an endorsement over utility easements.
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E. Purchaser, at its expense, may direct the Title Insurer to include, in
the owner's title insurance policy, such other endorsements as Purchaser may
request, but the issuance of such other endorsements or the form or content
thereof shall not be a condition of Purchaser's obligation to close.
5. PURCHASER'S INSPECTIONS.
A. Purchaser has heretofore conducted and may hereafter conduct such
inspections and examinations of the Property as Purchaser, in Purchaser's sole
discretion, deems appropriate. Purchaser shall indemnify Seller against any
loss or damage caused by or as a result of such inspections except to the
extent that such loss or damage was the result of Seller's negligence. If
Purchaser does not consummate the acquisition of the Property, then Purchaser
shall repair any damage to the Property caused by such inspections, unless such
damage resulted from Seller's negligence.
B. Purchaser acknowledges and agrees that it has completed its due
diligence inspections of the Property and, except for the Remediation Work as
defined in Paragraph 10 hereof, is satisfied with the condition of the
Property. It is expressly understood and agreed that the ability of Purchaser
to obtaining financing for the Property is not a condition to Purchaser's
obligations under the Contract.
6. PRORATIONS AND CREDITS. General real estate taxes shall be prorated on the
basis of 100% of the most recent ascertainable real estate tax bill for the
Property. Such proration shall be made as of December 20, 1996. The parties
shall reprorate all real estate tax bills as of December 20, 1996 upon receipt
of final real estate tax bills, with payment due within 10 days after written
request therefor. Illinois and Cook County transfer taxes shall be paid by
Seller. Chicago transfer taxes shall be paid by Purchaser. Other proratable
items for which no specific provision as to proration is made elsewhere in this
Contract shall be prorated as of the Closing Date. Purchaser shall receive a
credit against the Purchase Price for all Earnest Money. If out-of-pocket
costs and expenses (including, without limitation, Illinois and/or Cook County
transfer taxes) required to be paid by Seller under this Contract on the
Closing Date are greater than the out-of-pocket costs and expenses which Seller
would have incurred had the Closing Date been December 20, 1996, then Purchaser
shall pay the amount by which such out-of-pocket costs and expenses payable by
Seller on the Closing Date exceed the out-of-pocket costs and expenses which
would have been paid by Seller had the closing occurred on December 20, 1996.
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7. CLOSING.
A. The consummation of the transactions described in this Contract ("the
Closing") shall occur on a date ("the Closing Date") designated by Purchaser by
not less than 5 business days' prior written notice to Seller; provided,
however, that the Closing Date shall not be later than March 14, 1997. The
Closing shall be at the Chicago Loop office of the Title Insurer at such time
that the Title Insurer can schedule the Closing.
B. At the Closing, Seller shall deliver or cause to be delivered to
Purchaser the following:
1. A special warranty deed with release of homestead rights, if any,
duly executed and acknowledged and in form suitable for recording,
conveying the Property to the Partnership (or Purchaser's designated land
trust).
2. An affidavit of title, appropriately executed and acknowledged by
Seller, stating that:
a. Within 4 months preceding the Closing Date no improvements
or repairs have been made in or to the Property, nor any work done,
which have not been fully paid for, no materials have been furnished
or delivered to the Property which have not been fully paid for, no
contract has been made or entered into and nothing has been done,
suffered, or permitted in relation to the Property the consequence
of which will cause any lien or claim of lien to be made against the
Property under the Mechanics Lien Act of the State of Illinois.
b. No person or entity has a right or claim of right to
occupy or be possessed of the Property or any part or parts thereof
other than Seller, Purchaser (pursuant to this Contract), and
persons whose rights are specifically disclosed in the Commitment
(excluding, however, the owner of Parcel 2 as shown in the
Commitment).
c. Seller has done nothing on or subsequent to the effective
date of the most current Commitment which would render inaccurate
the status of title to the Property as reported in such Commitment
(except for acquiring title to Parcel 2).
3. A non-foreign seller affidavit in accordance with the
requirements of Section 1445 of the Internal Revenue Code of 1986, as
amended.
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4. Transfer tax declarations for the State of Illinois, County of
Cook, and City of Chicago.
5. An ALTA statement in duplicate and all other documents reasonably
required by the Title Insurer to issue a policy of title insurance
conforming to the requirements of this Contract.
6. Payoff letters from all holders of obligations secured by
interests in the Property, effective on the Closing Date.
7. Assignments of all guarantees and warranties, if any, on any
property to be conveyed to Purchaser.
8. To the extent available to Seller, originals of all Seller's
Disclosure Documents.
9. A certificate of good standing of Seller dated not earlier than
December 2, 1996.
10. A certificate from the secretary or an assistant secretary of
Seller, certifying that this Contract has been duly authorized by all
necessary corporate action required of Seller and identifying the persons
authorized to act on Seller's behalf to execute this Contract and the
other documents executed and delivered pursuant hereto.
11. An incumbency certificate signed by the secretary or an
assistant secretary of Seller, certifying the signatures of the persons
acting on Seller's behalf to execute this Contract and the other
documents executed and delivered pursuant hereto.
C. At the Closing, Purchaser shall deliver or cause to be delivered to
Seller by wire transfer of immediately available funds in the amount of the
Purchase Price subject to credits for the Earnest Money and prorations,
credits, and adjustments as herein provided.
D. Seller and Purchaser shall jointly prepare a Closing Statement
reciting the Purchase Price and all credits, prorations, and adjustments
thereto.
8. POSSESSION. Seller shall deliver to Purchaser possession of the Property
(excluding those fixtures described on Exhibit C hereto, which Seller shall
remove from the Property when Seller vacates the Property) as follows:
A. Seller shall provide Purchaser with possession of
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approximately 5,000 square feet on the first floor of the building, for use by
Purchaser as a sales office, and approximately 5,000 square feet on the fifth
floor of the building, for use by Purchaser as a model or models. Purchaser
has, with Seller's consent, heretofore affixed and may hereafter, with Seller's
consent, affix marketing signage to the exterior of the building at locations
designated by Purchaser provided that the locations and form and content of the
signage are reasonably acceptable to Seller. During the period during which
Purchaser uses or occupies any portion of such space before Closing, Purchaser
shall pay to Seller in advance for each month (prorated for partial months), on
the first day of such month (or, with respect to the commencement of such
possession period, on the date on which Purchaser takes possession of such
space):
1. All utilities for the space occupied by Purchaser, plus
2. All other costs directly attributable to Purchaser's use,
operation, and maintenance of the space occupied by Purchaser, plus
3. 5% of the real estate taxes assessed against the Property, plus
4. 5% of the normal and routine costs for the operation and
maintenance of the Property (other than as paid by Purchaser pursuant to
Paragraph 8.A.1 and 8.A.2).
Throughout the time that Purchaser retains possession of such space Seller
shall provide unrestricted access to such space to Purchaser and Purchaser's
contractors, guests, and invitees; provided, however, that Purchaser shall not
interfere with Seller's conduct of Seller's business in the Property.
Purchaser shall promptly vacate such space and remove its signage upon the
termination of this Contract for any reason. Purchaser shall reimburse Seller
for all losses, costs, and expenses incurred by Seller as a result of
Purchaser's failure to vacate such space or remove such signage and shall
deliver the space to Seller in substantially the same condition, ordinary wear
and tear excepted, as when delivered to Purchaser.
B. Seller covenants and agrees to vacate and surrender possession of the
Property no later than May 31, 1997. Seller shall not be deemed to have
vacated and surrendered possession of a portion of the Property unless Seller
removes therefrom all of Seller's property and leaves such portion of the
Property in broom clean condition.
C. Subject to Paragraph 8.B, Seller may continue to use and occupy the
Property after Closing on the following terms and
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conditions:
1. Seller shall not occupy any space which is provided to Purchaser
pursuant to Paragraph 8.A.
2. During the period during which Seller continues to use or occupy
any portion of the Property after Closing, Seller shall pay to Purchaser
in advance for each month (prorated for partial months), on the first day
of such month:
a. All utilities for the space occupied by Seller, plus
b. All other costs directly attributable to Seller's
use, operation, and maintenance of the space occupied by Seller,
plus
c. 95% of the real estate taxes assessed against the
Property, plus
d. 95% of the normal and routine costs for the operation and
maintenance of the Property (other than as paid by Seller pursuant
to Paragraph 8.C.1.a and 8.C.1.b).
3. Seller shall pay to Purchaser, as and for use and occupancy for
the Property or such portion thereof that Seller continues to occupy
after Closing, the following amounts, payable in advance for each month
(prorated for partial months) on the first day of such month:
a. $5,357 for each day after the Closing Date and prior to
April 1, 1997 (provided, however, that if Seller continues to occupy
the Property after Closing, then Purchaser will give Seller a
$50,000.00 credit which shall be applied to the first payments, if
any, due from Seller to Purchaser pursuant to this Paragraph
8.C.3.a),
b. $6,451 for each day after March 31, 1997 and prior to May
1, 1997, and
c. $10,000 for each day after April 31, 1997 and prior to
June 1, 1997.
4. In addition, if Seller fails to vacate the Property on May 31,
1997, then (without prejudice to Purchaser's right to remove Seller from
the Property) Seller shall pay Purchaser:
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a. $13,333 for each day after May 31, 1997 that Seller so
holds over possession of the Property, plus
b. $100,000 as liquidated damages for certain losses, costs,
and expenses unrelated to Seller's use and occupancy, which shall be
paid to Purchaser on June 1, 1997.
D. Seller's use and occupancy of the Property shall not be deemed to
be a lease or any other agreement giving Seller the legal rights afforded to a
tenant, or imposing on Purchaser the legal duties imposed on a landlord, under
the statutory and common laws of the State of Illinois.
9. ESCROWS. The sale of the Property shall be closed through a deed and money
escrow at the office of the Title Insurer. The attorneys for the parties are
authorized to sign all strict joint order and deed and money escrow
instructions on behalf of the parties. This Contract shall not be merged into
any escrow agreement but the latter shall be deemed auxiliary to this Contract,
and as between the parties hereto, upon failure of the escrow or otherwise, the
provisions of this Contract shall be controlling. Seller and Purchaser shall
each pay one half of the cost of all escrows other than Purchaser's money
lender's escrow, if any, the cost of which shall be paid by Purchaser.
10. REMEDIATION OF ASBESTOS AND LEAD BASED PAINT.
A. Seller shall cause to be removed from the Property in accordance with
the provisions of this Paragraph 10:
1. All asbestos, asbestos-containing materials, and lead-based paint
present on the Property identified in the Asbestos Inspection Report
dated September, 1996 prepared by Hygienetics Environmental Services,
Inc. as Project No. 3077.064 and the Final Lead-Based Paint Testing
Report prepared by TEM, Incorporated as Project 29345 ("the Reports"),
and
2. All asbestos, asbestos-containing materials, and lead-based paint
present on the Property not disclosed in the Reports but revealed during
the performance of the removal described in Paragraph 10.A.1, and
3. All Hazardous Materials and wastes produced or generated as
by-products as a result of the removal described in Paragraphs 10.A.1 and
10.A.2.
All of the foregoing remediation is hereinafter referred to as "Remediation
Work."
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B. Seller shall cause the Remediation Work to be done in accordance and
compliance with all applicable federal, state, county, regional, and local
laws, statutes, regulations, ordinances, and governmental policies governing
the use, generation, manufacture, storage, disposal, or transportation of
Hazardous Materials (referred to herein as "Environmental Laws"). If Purchaser
desires to have Seller cause the Remediation Work to commence before the
Closing Date, then Seller shall cause such work to be performed as soon as
possible after Purchaser has paid Seller for the cost thereof as provided in
Paragraph 10.D below. Seller shall otherwise cause the Remediation Work to
commence as soon as possible after the Closing Date.
C. The contractors and consultants performing or advising Seller with
respect to the Remediation Work (herein, "Contractors") shall be reasonably
acceptable to Purchaser and the Remediation Work shall be done pursuant to
contracts (and change orders if applicable) reasonably acceptable to Purchaser.
Hygienetics Environmental Services, Inc. and Environmental Hazard Control are
deemed to be contractors acceptable to Purchaser. Purchaser's review and
approval of any Contractor or contract for Remediation Work shall not be deemed
to be an affirmation of the competence of the Contractor, the work proposed to
be done pursuant to the contract, or the compliance of the work with
Environmental Laws and shall not constitute a waiver by Purchaser of any claim
against any Contractor or with respect to any Remediation Work. Purchaser
shall advise Seller and the Contractors with respect to the scheduling and
coordination of the Remediation Work so that Remediation Work shall commence
first on those portions of the Property to which Purchaser requires earlier
access, taking into account Seller's use and occupancy of the Property after
the Closing, provided that Seller shall not be required to so schedule and
coordinate the work if it results in additional cost or expense to Seller.
Seller shall be solely responsible for supervising the performance of the
Remediation Work by the Contractors.
D. Purchaser shall contribute toward the cost of the Remediation Work the
following amounts:
1. $1,118,326 toward all Remediation Work other than Asbestos
Caulking Work as defined in Paragraph 10.D.2 hereof, and
2. $159,590, which will be deposited when Seller is directed by
Purchaser to incur the cost of window removal and scaffolding required to
remove asbestos from window caulking (herein collectively referred to as
"Asbestos Caulking Work") or when the funds deposited by Seller as
hereinafter provided and by Purchaser pursuant to Paragraph
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10.D.1 have been fully expended on other Remediation Work.
Seller shall pay the amount by which the cost of the Remediation Work exceeds
Purchaser's aforesaid contribution. At the Closing, Purchaser shall deposit
into a strict joint order escrow with the Title Insurer or other escrow
reasonably acceptable to Seller and Purchaser the sum of $1,118,326. At the
Closing, Seller shall deposit into said escrow an amount equal to the aggregate
contract sum under all contracts for Remediation Work less the sum of
$1,277,916.00. After the Closing, payment to Contractors shall be made from
said escrow. If and to the extent that Seller has paid Contractors prior to
the establishment of such escrow, then Seller shall be reimbursed at the
Closing for such payments from the escrow. Seller shall not be required to do
the Asbestos Caulking Work or, if the funds deposited into the escrow by Seller
and Purchaser have been fully expended, other Remediation Work until Purchaser
has deposited with the Title Insurer the additional sum of $159,590. Upon
completion of the Remediation Work and payment of all Contractors and provided
that Seller has performed its obligations as provided in this Paragraph 10,
Seller shall be entitled to retain all funds in the escrow.
E. Upon completion of the Remediation Work, Seller shall deliver to
Purchaser copies of all contracts, sworn statements, lien waivers, waste
manifests, and other documents reasonably requested by Purchaser to evidence
that the Remediation Work will not result in any claim for lien against the
Property and that the removal of asbestos, asbestos-containing materials,
lead-based paint, and other Hazardous Materials required to be removed by
Seller pursuant to this Paragraph 10 has been done in compliance with all
Environmental Laws.
F. Without limiting the generality of the provisions of Paragraph 10.C,
Purchaser may withhold approval of a contract for Remediation Work if:
1. The contract proposes to complete the Remediation Work in more
than 10 weeks, or
2. The contract proposes scheduling or coordination of the
Remediation Work which will not facilitate Purchaser's access to those
portions of the Property to which Purchaser requires early access, or
3. The contract does not provide that Purchaser is a third party
beneficiary thereof, or
4. The contract does not provide that after the closing Purchaser
will be a loss payee and named additional insured under the Contractor's
insurance, or
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5. Under the terms of the contract Purchaser could be deemed to be
the generator of the asbestos, asbestos-containing materials, lead-based
paint, or other Hazardous Materials required to be removed by Seller
pursuant to this Paragraph 10.
Seller shall assume all responsibility as the generator of the asbestos,
asbestos-containing materials, lead-based paint, and any Hazardous Materials
required to be removed by Seller pursuant to this Paragraph 10, including (but
not limited to) responsibility for signing all waste manifests.
G. Seller and Purchaser acknowledge that the presence of Contractors on
the Property and the performance of Remediation Work pursuant to this Paragraph
10 shall not constitute possession of the Property by Seller.
11. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to
Purchaser as of July 25, 1996 as follows and in entering into this Contract
Purchaser relies on such representations and warranties:
A. Seller owns fee simple title in and to the Land.
B. Seller knows of no pending or threatened condemnation or eminent domain
proceedings against all or any part of the Property.
C. Seller has received no written notice of any violation of fire, zoning,
building, health, or other applicable codes, laws, or ordinances that have not
been corrected.
D. There is no litigation or proceeding pending or, to the best of
Seller's knowledge, threatened against or relating to the Property that has not
been disclosed to Purchaser in writing.
E. Seller knows of no special assessments affecting the Property in effect
or contemplated.
F. No person or entity other than Seller, Purchaser (pursuant to this
Contract), and the contractors under service contracts delivered pursuant to
Paragraph 3.A.2 hereof is (i) entitled to use, possession, or occupancy of the
Property or any part thereof or (ii) a party to a lease, contract, or agreement
which, if consummated, will give such person or entity a right to use, possess,
or occupy the Property or any part thereof.
G. To the best of Seller's knowledge the heating, air conditioning,
electrical, and plumbing systems in the Improvements are in good working order.
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H. To the best of Seller's knowledge, except as stated herein and in
Seller's Disclosure Documents the Property has not been used as a site for the
use, generation, manufacture, storage, disposal, or transportation of any
Hazardous Materials. To the best of Seller's knowledge Seller has not caused
or permitted any Hazardous Material to be placed, held, located, or disposed of
on, under, or at the Property or any part thereof or into the atmosphere or any
watercourse, body of water or wetlands, or any adjacent land or property and
neither the Property nor any part thereof has been used by Seller or, to
Seller's knowledge, by any other person or entity as a treatment, storage, or
disposal (whether permanent or temporary) site for any Hazardous Material. Two
underground storage tanks are located on the Property which were used solely
and exclusively for heating oil; to the best of Seller's knowledge, the
information disclosed in the Underground Storage Tank Closure Report dated
March 19, 1993 issued by Testwell Craig Liu, Inc. is not inaccurate,
misleading, or incomplete.
I. To the best of Seller's knowledge, the survey attached hereto as
Exhibit B accurately depicts the lot lines of the Property and the location of
all improvements thereon.
J. Each representation and warranty made by Seller herein was true and
complete in all material respects on July 25, 1996. With respect to each
representation and warranty made by Seller herein, Seller has disclosed all
information and has not failed to disclose any information necessary to make
such representation or warranty, in light of the relevant facts and
circumstances, not misleading in any material respect as of the date made. "To
Seller's knowledge" and other similar phrases as used in this Paragraph 11 and
in Paragraph 12.C mean the actual knowledge, as of July 25, 1996, of Larry
Svoboda, John Diebold, and William Mims without independent inquiry or
investigation.
12. SELLER'S COVENANTS.
A. Seller shall give Purchaser immediate notice of the occurrence of any
event of which Seller has knowledge or the receipt by Seller of any written
notice the effect of which would be to make a representation or warranty of
Seller herein untrue or misleading if made on or immediately following the
occurrence of such event or the receipt of such notice or knowledge. If
Purchaser does not terminate this Contract as a result of the information which
is the subject of such disclosure (whether Purchaser obtains such information
through such disclosure or from other sources) then Purchaser shall waive any
claim against Seller with respect to the matter so disclosed.
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B. Seller shall allow Purchaser, and all persons selected by Purchaser,
unrestricted access to the Land and improvements at reasonable times for the
purpose of conducting inspections and examinations thereof.
C. Seller shall disclose to Purchaser's environmental consultants the
identities of persons who, to Seller's knowledge, may have information about
whether the Property has at any time been used as a site for the use,
generation, manufacture, storage, disposal, or transportation of any Hazardous
Materials and shall authorize all such persons, and all environmental
consultants, contractors, and engineers engaged by Seller, to make full
disclosure to Purchaser with respect to the condition of the Property.
D. Seller has relocated its operations from the Property. Subject
thereto, Seller has, after July 25, 1996, continued the ownership and operation
of the Property in its normal course and has not after July 25, 1996 incurred
any obligation, entered into any lease, or done any unusual act with respect to
the ownership, management, operation, and maintenance of the Property which
would be binding on Purchaser after the Closing without prior notice to and
consent of Purchaser. Seller shall, after the date of this Contract, continue
the ownership and operation of the Property in its normal course and shall not
incur any obligation, enter into any lease, or do any unusual act with respect
to the ownership, management, operation, and maintenance of the Property which
would be binding on Purchaser after the Closing without prior notice to and
consent of Purchaser.
E. Provided that this Contract has not been terminated, Seller will
cooperate with Purchaser in signing and filing such documents and forms as
Purchaser may request in connection with (i) the zoning of the Property or (ii)
the assessment, for real estate tax purposes, of, or real estate tax bills
assessed against, the Property. The foregoing to the contrary notwithstanding,
Seller shall not be obligated to cooperate with Purchaser if either (a) Seller
shall be obligated thereby to incur any cost or expense in connection with such
cooperation (for purposes of which, the charges of Seller's attorneys and other
consultants to review materials submitted to Seller shall not be deemed to be
costs which Seller is obligated to incur) or (b) a change in zoning will be
effective prior to Closing or (c) a change in zoning will prevent Seller from
operating its business in the ordinary course while Seller retains possession
as permitted in Paragraph 8 hereof. A change in zoning or reduction of real
estate tax assessments are not conditions of closing.
F. Each Seller's Disclosure Document delivered to Purchaser is be a true
and complete copy of the document in
15
<PAGE> 16
Seller's possession.
G. Seller has disclosed and identified to Purchaser all policies of
insurance maintained in connection with the Property.
13. SELLER'S INDEMNIFICATIONS.
A. Seller hereby agrees to protect, indemnify, and defend (by Katten
Muchin & Zavis or other counsel reasonably acceptable to Purchaser) Purchaser
against and to hold Purchaser harmless from any and all costs, claims, losses,
attorneys' fees, liabilities, and other expenses that Purchaser may incur after
Closing as a result of Seller's breach of or the falsity of any of Seller's
representations or warranties in this Contract or as a result of Seller's
breach of or failure to perform or observe any of Seller's covenants in this
Contract.
B. Seller agrees to indemnify, protect, defend (with counsel reasonably
acceptable to Purchaser), and hold harmless Purchaser from and against any and
all losses, damages, liabilities, costs, expenses, and demands (including
attorneys', consultants', and experts' fees) suffered or incurred by Purchaser
as a result of:
1. Any and all violations of Environmental Laws or releases of
Hazardous Materials in connection with the performance of the Remediation
Work (excluding, however, violations, releases, or events to the extent
caused by the negligence of Purchaser or Purchaser's contractors or
agents), or
2. The presence of Hazardous Materials on the Property (whenever
released) as a result of or in connection with the presence, prior to the
Closing Date, of any underground storage tank on the Property.
Seller shall be deemed to be the generator of the foregoing Hazardous
Materials. If Purchaser receives a letter from the Illinois Environmental
Protection Agency in form and substance satisfactory to Purchaser indicating
that Purchaser shall not be required to take any further action regarding the
underground storage tanks on the Property, or any contamination therefrom, then
the indemnification provisions of this Paragraph 13.B shall terminate to the
extent that the letter states that no further action need be taken with respect
to the closure of the tanks; however, Seller's obligation to indemnify
Purchaser pursuant to this Paragraph 13.B shall continue to the extent that the
letter does not release Seller from liability with respect to the underground
storage tanks and closure thereof.
16
<PAGE> 17
14. PURCHASER'S COVENANT. Purchaser shall give Seller immediate notice of the
occurrence of any event of which Purchaser has knowledge or the receipt by
Purchaser of any written notice the effect of which would be to make a
representation or warranty of Seller herein untrue or misleading if made on or
immediately following the occurrence of such event or the receipt of such
notice or knowledge. If Purchaser does not terminate this Contract as a result
of the information which is the subject of such disclosure (whether Purchaser
obtains such information through such disclosure or from other sources) then
Purchaser shall waive any claim against Seller with respect to the matter so
disclosed.
15. CASUALTY; CONDEMNATION.
A. A fire or other casualty which damages or destroys the Building or
other Improvements or which otherwise damages or adversely affects the Property
shall not terminate this Contract unless Purchaser so elects as herein
provided. Seller shall promptly notify Purchaser in writing of the nature of
the casualty, the amount of insurance coverage, and the anticipated loss
adjustment with respect to the Property. Seller shall further promptly notify
Purchaser in writing of the amount of the award which the insurer will pay in
respect of such loss. If Purchaser so elects, the Closing shall be postponed
pending Seller's receipt of such information so that Purchaser may preserve the
right of termination herein provided. In the event of such casualty, the
insurance proceeds for the Property in respect of such loss shall be applied in
payment of part or all of the Purchase Price. If the insurance proceeds exceed
that portion of the Purchase Price payable by Purchaser to Seller at Closing,
then such excess shall be retained by Seller. Purchaser may elect to terminate
this Contract by giving written notice thereof to Seller at any time after such
casualty and prior to the earlier to occur of (i) 7 days after receipt of
Seller's written notice stating the amount of the award which the insurer will
pay in respect of such loss or (ii) 60 days after the date of such casualty.
Purchaser's failure to give such written notice within such time shall be
deemed a waiver of Purchaser's election to terminate this Contract.
B. If Seller is notified by any governmental agency or authority that the
Property, or any part or parts thereof, will be condemned or otherwise taken
under power of eminent domain, or if Seller learns that a condemnation or
taking is contemplated by any governmental agency or authority, then Seller
shall promptly give Purchaser written notice thereof including, with or in such
written notice, a copy of the notice received by Seller or a description of the
information learned by Seller. Within 21 days after Seller gives such notice
to Purchaser, Purchaser shall, by
17
<PAGE> 18
written notice to Seller, elect either to rescind this Contract or to perform
notwithstanding such condemnation or taking. If Purchaser elects to perform
notwithstanding such condemnation or taking, then Purchaser shall be entitled
to all proceeds paid by the applicable governmental agencies or authorities in
respect thereof. Purchaser's failure to give such written notice of election
within such time shall be deemed an election to rescind this Contract.
16. BROKERS. Purchaser represents and warrants to Seller that Purchaser
neither used nor contacted any broker and that to Purchaser's knowledge no
person is entitled to a commission or fee as a result of or in connection with
the introduction of the parties, the preparation and negotiation of this
Contract, or the consummation of the transactions herein described. Seller
shall be solely responsible for all broker's commissions and fees resulting
from this Contract or the consummation of the transactions described herein
except to that extent that the commission or fee is due and owing as a result
of the actions of Purchaser.
17. RIGHTS UPON DEFAULT.
A. If Purchaser shall be in material default hereunder then, as Seller's
sole remedy (except as provided in Paragraphs 3.B, 5.A, 8.A, and 17.C and
subject to Purchaser's confidentiality obligations under Paragraph 19), the
Earnest Money shall be retained by Seller as liquidated damages and applied by
Seller as full satisfaction for all reasonable attorneys' fees, title costs,
advertising costs, Seller's lost time, effort and profits, and all other
expenses incurred by Seller or on Seller's behalf, and this Contract shall
thereupon terminate.
B. If Seller shall be in material default hereunder prior to Closing then
Purchaser, as its sole and exclusive remedy (subject to Paragraph 17.C hereof),
may either (i) rescind this Contract and all sums paid by Purchaser as Earnest
Money or on the Purchase Price and all interest accrued thereon shall be
immediately returned to Purchaser, or (ii) enforce this Contract by specific
performance.
C. If a party brings suit against the other party to enforce any provision
of this Contract, then the prevailing party shall be entitled to recover from
the other all attorneys' fees and costs of suit incurred in connection
therewith.
D. Tender of the deed, bill of sale, or other document or documents of
conveyance, or Purchase Price, as provided herein, shall be excused when there
has been a material default by the
18
<PAGE> 19
other party.
18. POST-CLOSING COOPERATION. The parties hereto agree that, after the
Closing, they will at all times use commercially reasonable efforts to
cooperate with each other to effectuate the spirit and intent of this Contract
including, without limiting the generality of the foregoing, the execution by
Seller of documents reasonably requested by Purchaser to cause or complete the
conveyance to Purchaser (or Purchaser's designated grantee) of title or
(subject to the provisions of Paragraph 8) the assignment of the exclusive
right to use and occupy the Property.
19. CONFIDENTIALITY.
A. Neither Seller nor Purchaser shall disclose the terms of this Contract
to any party other than Purchaser's lender and to Seller's and Purchaser's
respective attorneys, accountants, and other persons from whom Seller or
Purchaser is seeking advice in connection with the Property or this Contract
and neither Seller nor Purchaser shall, without the prior consent of the other,
make any public announcement of or about this Contract or the transaction
described herein (whether or not consummated) or give any statement to any
person if it is reasonably to be anticipated that such statement will be
published in any news medium; provided, however, that no party shall be
required to treat as confidential, or be prevented or precluded from discussing
with any person, any information, including information contained in this
Contract, which is or becomes a matter of public record.
B. If Purchaser does not consummate the acquisition of the Property for
any reason, then Purchaser shall return all Seller's Disclosure Documents to
Seller. Purchaser shall not disclose Seller's Disclosure Documents to any
party other than Purchaser's lenders and to Purchaser attorneys, accountants,
and other persons from whom Purchaser is seeking advice in connection with the
Property; provided, however, that Purchaser shall not be required to treat as
confidential any such document, or information therein, which is a matter of
public record; and further provided, that the foregoing confidentiality
covenant shall not apply to documents filed by Purchaser in litigation brought
to enforce the provisions of this Contract. The confidentiality obligations in
this Paragraph 19.B are in addition to and not in limitation of the generality
of the provisions of Paragraph 19.A.
20. NOTICES. Any notice, or any other communication required to be given
hereunder, shall be in writing and shall be delivered to the other party either
personally, or by United States mail (postage prepaid, registered or certified,
with return receipt
19
<PAGE> 20
requested), or by messenger service. A party's address for notice shall be as
set forth in this Paragraph unless such party gives notice of a change of
address as provided herein. Notices to Seller shall be addressed to:
Tom Poggensee
The Florsheim Shoe Company
200 North LaSalle Street
Chicago, Illinois 60601
and to Seller's attorney:
Stuart P. Shulruff
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Notices to Purchaser shall be addressed to:
Everest Partners, L.L.C.
Attn: Norman A. Katz
333 West Wacker Drive
Suite 1710
Chicago, Illinois 60606
20
<PAGE> 21
and to Purchaser's attorney:
Jonathan L. Mills
Sugar, Friedberg & Felsenthal
30 North LaSalle Street
Suite 2600
Chicago, Illinois 60602
A notice to a party shall be deemed given to the party when received by the
party's attorney. A notice delivered by United States mail, registered or
certified, is given on the date received or on the date on which delivery is
refused.
21. EXHIBITS. The following are the exhibits to this Contract:
A. Survey
B. Commitment for title insurance
C. Fixtures to be removed by Seller
22. TIME FOR PERFORMANCE; COUNTERPARTS; ENTIRE AGREEMENT; PARTIAL INVALIDITY;
INTERPRETATION; AMENDMENTS; TIME OF THE ESSENCE; BINDING ON SUCCESSORS AND
ASSIGNS; SURVIVAL.
A. If under the terms hereof the performance of any act will or is
required to occur on a Saturday, Sunday, or a holiday recognized in Chicago as
a day on which banking institutions are generally not open for business, then
the performance of such act shall be made on the next day which is not a
Saturday, Sunday, or holiday recognized in Chicago as a day on which banking
institutions are generally not open for business.
B. This Contract may be executed in counterparts, and each counterpart
shall, for all purposes for which an original of this Contract must be produced
or exhibited, be the Contract, but all such counterparts shall constitute one
and the same agreement.
C. This Contract contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior
understandings, discussions, negotiations and representations, if any, with
respect thereto.
D. The invalidity or unenforceability of any provision hereof shall not
affect, modify, or impair the validity and enforceability of all other
provisions hereof.
E. The use of paragraph headings and of singular or plural, masculine,
feminine or neuter nouns and pronouns is for convenience only and shall not
affect the construction to be given any of the provisions hereof. This
Contract shall be governed by and construed in accordance with the laws of the
21
<PAGE> 22
State of Illinois.
F. This Contract may not be modified, terminated, or amended nor any of
its provisions waived except by a written instrument signed by the parties.
G. Time is of the essence of this Contract.
H. This Contract shall be binding upon and inure to the benefit of the
heirs, representatives, successors, and assigns of the parties hereto;
provided, however, that Purchaser may not assign this Contract without Seller's
prior written consent, which shall not be unreasonably withheld.
I. This Contract and the representations, warranties, and covenants
contained herein shall survive the Closing and shall not be deemed merged into
any document of conveyance.
IN WITNESS WHEREOF, the parties hereto have executed this Contract at
Chicago, Illinois on or as of the date first above written.
SELLER:
The Florsheim Shoe Company
By: /s/ Thomas E. Poggensee
--------------------------------
Treasurer, Secretary, Controller and
Chief Accounting Officer
PURCHASER:
Everest Partners L.L.C.
By: /s/ Norman A. Katz
---------------------------------
22
<PAGE> 1
EXHIBIT 11
FLORSHEIM GROUP INC.
Statement re computation of Net Earnings Per Common Share
<TABLE>
<CAPTION>
Twelve Months Twelve Months
Ended Ended
December 30, 1995 (1) December 28, 1996
-------------------------------------------------
<S> <C> <C>
Primary:
Shares Outstanding 8,346,051 8,346,051
Common Stock Equivalents - 33,236
--------- ---------
Weighted average common share during the period 8,346,051 8,379,287
</TABLE>
(1) Common stock equivalents were not included since the exercise of them
would have had an antidilutive effect on the net loss per share.
<PAGE> 1
FLORSHEIM GROUP INC. EXHIBIT 12.1
Earnings to Fixed Charges
(Dollars in thousands, except ratio data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Five months Five months Twelve months Twelve months Twelve months Twelve months
ended ended ended ended ended ended
Aug. 2, 1992 Jan. 2, 1993 Jan. 1, 1994 Dec. 31, 1994 Dec. 30, 1995 Dec. 28, 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) before
income taxes $ (11,313) $ 13,406 $ 19,631 $ 9,530 $ (6,287) $ 2,785
Fixed charges 7,436 7,313 17,027 17,522 20,720 17,429
- ---------------------------------------------------------------------------------------------------------------------
Earnings as adjusted (3,877) 20,719 36,658 27,052 14,433 20,214
- ---------------------------------------------------------------------------------------------------------------------
Fixed charges:
Interest expense 4,456 4,457 10,350 10,408 13,274 9,989
Interest factor of rents:
(1/3 of rent expense) 2,980 2,856 6,677 7,114 7,446 7,440
- ---------------------------------------------------------------------------------------------------------------------
Total fixed charges $ 7,436 $ 7,313 $ 17,027 $ 17,522 $ 20,720 $ 17,429
- ---------------------------------------------------------------------------------------------------------------------
Earnings as adjusted/
Total fixed charges - 2.83 2.15 1.54 - 1.16
- ---------------------------------------------------------------------------------------------------------------------
Deficiency $ (11,313) $ (6,287)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
<PAGE> 2
FLORSHEIM GROUP INC. Exhibit 12.1 Cont.
Earnings to Fixed Charges
(Dollars in thousands, except ratio data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Proforma (1) Proforma (1)
Twelve months Twelve months
ended ended
Jan. 1, 1994 Dec. 31, 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Earnings (loss) before
income taxes $ 11,438 $ 1,581
Fixed charges 21,127 21,614
- ------------------------------------------------------------------------------------------------------------
Earnings as adjusted $ 32,565 $ 23,195
- ------------------------------------------------------------------------------------------------------------
Fixed charges:
Interest expense 14,150 14,500
(1/3 of rent expense) 6,677 7,114
- ------------------------------------------------------------------------------------------------------------
Total fixed charges $ 20,827 $ 21,614
- ------------------------------------------------------------------------------------------------------------
Earnings as adjusted / total fixed charges 1.54 1.07
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See item 6 to Selected Consolidated Financial and Operating Data. Pro
forma information adjustments for the spin off and debt transactions as if
they occurred January 2, 1993.
<PAGE> 1
EXHIBIT 21
Florsheim Group Inc.
Subsidiaries of the Company
The Florsheim Shoe Store Company - Northeast, a Delaware corporation
The Florsheim Shoe Store Company - West, a Delaware corporation
L.J. O'Neill Shoe Company, a Missouri corporation
Florsheim Occupational Footwear, Inc., a Missouri corporation
Florsheim Australia Limited, an Australian corporation
Florsheim Canada Inc., a Canadian corporation
Florsheim Europe S.R.L., an Italian corporation
Florsheim Pacific, Limited, a Hong Kong corporation
Florsheim S.A. de C.V., a Mexican corporation
Florsheim B.V., a Netherlands corporation
Florsheim Limited, a U.K. corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Florsheim Group Inc.:
We consent to the use of our report dated February 3, 1997, on the consolidated
balance sheets of Florsheim Group Inc. and subsidiaries as of December 28, 1996
and December 30, 1995, the related consolidated statements of operations, cash
flows, and shareholders' equity for the years ended December 28, 1996, December
30, 1995 and December 31, 1994 and related schedule, in the December 28, 1996
annual report on Form 10-K of Florsheim Group Inc.
KPMG Peat Marwick LLP
Chicago, Illinois
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-28-1996
<CASH> 21,691
<SECURITIES> 0
<RECEIVABLES> 26,431
<ALLOWANCES> 1,705
<INVENTORY> 73,824
<CURRENT-ASSETS> 130,719
<PP&E> 41,920
<DEPRECIATION> 16,946
<TOTAL-ASSETS> 185,238
<CURRENT-LIABILITIES> 35,603
<BONDS> 69,450
0
0
<COMMON> 8,346
<OTHER-SE> 49,309
<TOTAL-LIABILITY-AND-EQUITY> 185,238
<SALES> 244,855
<TOTAL-REVENUES> 244,855
<CGS> 128,082
<TOTAL-COSTS> 105,365
<OTHER-EXPENSES> (1,366)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,989
<INCOME-PRETAX> 2,785
<INCOME-TAX> 821
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,964
<EPS-PRIMARY> .23
<EPS-DILUTED> 0
</TABLE>
