<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED July 4, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_______________________ TO _______________________
COMMISSION FILE NUMBER 1-13474
FLORSHEIM GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3520923
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
200 North LaSalle Street, Chicago, Illinois 60601-1014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 458-2500
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
8,412,901 Shares as of July 24, 1998
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended July 4, 1998.
Consolidated Balance Sheet:
July 4, 1998
January 3, 1998
Consolidated Statement of Operations:
Three Months Ended July 4, 1998
Three Months Ended June 28, 1997
Six Months Ended July 4, 1998
Six Months Ended June 28, 1997
Consolidated Statement of Cash Flows:
Six Months Ended July 4, 1998
Six Months Ended June 28, 1997
Notes to Consolidated Financial Statements
The financial statements are unaudited, but include all adjustments (consisting
of normal recurring adjustments) which the management of the Company considers
necessary for a fair presentation of the period. The results for the three
months and the six months ended July 4, 1998 are not necessarily indicative of
the results to be expected for the full year.
2
<PAGE> 3
FLORSHEIM GROUP INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
Unaudited
January 3, July 4,
ASSETS 1998 1998
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,195 $ 4,282
Receivables, less allowances of $1,084 at
January 3, 1998 and $1,051 at July 4, 1998 26,594 33,732
Inventories 80,989 71,625
Deferred tax assets, net 3,541 3,549
Prepaid expenses and other current assets 4,254 5,251
- - ------------------------------------------------------------------------------------------
Total current assets 122,573 118,439
Property, plant and equipment 48,417 51,813
Less accumulated depreciation 21,172 23,674
- - ------------------------------------------------------------------------------------------
Net property, plant and equipment 27,245 28,139
Deferred tax assets, net 12,976 12,156
Other assets 20,852 21,876
- - ------------------------------------------------------------------------------------------
$ 183,646 $ 180,610
- - ------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 10,398 $ 3,818
Accrued expenses 11,690 10,843
Accrued interest expense 1,075 982
Accrued income taxes payable 743 108
Revolving credit facility - short term 4,500 8,722
- - ------------------------------------------------------------------------------------------
Total current liabilities 28,406 24,473
Long-term debt 18,412 18,412
Revolving credit facility - long term 58,500 58,500
Other long-term liabilities 23,846 23,777
- - ------------------------------------------------------------------------------------------
129,164 125,162
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, 8,412,901 shares
issued and outstanding 8,413 8,413
Paid-in capital 50,483 50,483
Accumulated translation adjustment (1,621) (1,782)
Accumulated deficit (2,793) (1,666)
- - ------------------------------------------------------------------------------------------
Total shareholders' equity 54,482 55,448
- - ------------------------------------------------------------------------------------------
$ 183,646 $ 180,610
- - ------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
Three months Three months
ended ended
June 28, July 4,
1997 1998
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 64,215 $ 61,812
Cost of sales 33,905 33,162
- - ------------------------------------------------------------------------------------------
Gross profit 30,310 28,650
Selling, general
Selling, General and administrative expenses 27,440 25,456
- - ------------------------------------------------------------------------------------------
Earnings from operations 2,870 3,194
Interest expense, net 2,226 2,250
Other income (expense), net 17 (9)
- - ------------------------------------------------------------------------------------------
Earnings before income tax expense and extraordinary item 661 935
Income tax expense 237 337
- - ------------------------------------------------------------------------------------------
Earnings before extraordinary item 424 598
Extraordinary item (less applicable income taxes of $2,812) (5,042) --
- - ------------------------------------------------------------------------------------------
Net earnings (loss) $ (4,618) $ 598
- - ------------------------------------------------------------------------------------------
Basic Earnings Per Share:
Earnings Before Extraordinary Item: $ 0.05 $ 0.07
Extraordinary item: (0.60) --
----------- -----------
Net Earnings (Loss): $ (0.55) $ 0.07
- - ------------------------------------------------------------------------------------------
Diluted Earnings Per Share:
Earnings Before Extraordinary Item: $ 0.05 $ 0.07
Extraordinary item: (0.60) --
----------- -----------
Net Earnings (Loss): $ (0.55) $ 0.07
- - ------------------------------------------------------------------------------------------
Basic weighted average number of shares outstanding 8,346,051 8,412,901
Diluted weighted average number of shares outstanding 8,346,051 8,588,398
- - ------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
Six months Six months
ended ended
June 28, July 4,
1997 1998
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 123,398 $ 120,482
Cost of sales 63,348 64,048
- - ------------------------------------------------------------------------------------------
Gross profit 60,050 56,434
Selling, general
and administrative expenses 53,932 50,354
Non-recurring selling, general
and administrative expenses (4,670) --
- - ------------------------------------------------------------------------------------------
Earnings from operations 10,788 6,080
Interest expense, net 4,728 4,316
Other expense, net (2) (7)
- - ------------------------------------------------------------------------------------------
Earnings before income tax expense and extraordinary item 6,058 1,757
Income tax expense 2,169 633
- - ------------------------------------------------------------------------------------------
Earnings before extraordinary item 3,889 1,124
Extraordinary item (less applicable income taxes of $2,812) (5,042) --
- - ------------------------------------------------------------------------------------------
Net earnings (loss) $ (1,153) $ 1,124
- - ------------------------------------------------------------------------------------------
Basic Earnings Per Share:
Earnings before extraordinary item: $ 0.47 $ 0.13
Extraordinary item: (0.60) --
----------- -----------
Net Earnings (Loss): $ (0.13) $ 0.13
- - ------------------------------------------------------------------------------------------
Diluted Earnings Per Share:
Earnings before extraordinary item: $ 0.47 $ 0.13
Extraordinary item: (0.60) --
----------- -----------
Net Earnings (Loss): $ (0.13) $ 0.13
- - ------------------------------------------------------------------------------------------
Basic weighted average number of shares outstanding 8,346,051 8,412,901
Diluted weighted average number of shares outstanding 8,346,051 8,479,341
- - ------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------
Six months Six months
ended ended
June 28, July 4,
1997 1998
- - -----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,153) $ 1,124
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Gain on disposal of assets (4,847) (22)
Depreciation and amortization 2,624 2,431
Deferred taxes (923) 812
Extraordinary item 5,042 --
Noncash interest expense 331 216
Increase in receivables (4,837) (7,138)
Decrease (increase) in inventories (6,083) 9,364
Increase in prepaid expenses and other assets (2,842) (2,092)
Decrease in accounts payable, accrued
interest expense and other accrued expenses (11,027) (8,155)
Increase (decrease) in other long-term liabilities 1,065 (69)
- - -----------------------------------------------------------------------------------
Net cash used in operating activities (22,650) (3,529)
- - -----------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from the sale of assets of 130 S. Canal
in 3/97, net of transaction costs 6,277 --
Proceeds from the disposal of assets 38 757
Additions to property, plant and equipment (3,339) (4,363)
- - -----------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 2,976 (3,606)
- - -----------------------------------------------------------------------------------
Cash flows from financing activities:
Receipts from new revolving credit facility 59,500 --
Repurchase of 12-3/4% Senior Notes, including
tender premium and refinancing costs, net of tax (56,080) --
Net borrowings under revolving credit facility -- 4,222
- - -----------------------------------------------------------------------------------
Net cash used in financing activities 3,420 4,222
- - -----------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (16,254) (2,913)
Cash and cash equivalents at beginning of period 21,691 7,195
- - -----------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,437 $ 4,282
- - -----------------------------------------------------------------------------------
Supplemental disclosure:
Cash payments for income taxes, net $ 725 $ 553
Cash payments for interest $ 6,184 $ 4,193
- - -----------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended July 4, 1998
(Dollars in thousands)
(Unaudited)
(1) DISTRIBUTION
Effective November 17, 1994, Florsheim Group Inc. (Florsheim or the
Company) became an independent public company. Furniture Brands
International, Inc., formerly known as INTERCO INCORPORATED (INTERCO),
its former parent company and sole stockholder, distributed all of the
Company's common stock to existing INTERCO shareholders at a rate of
one share of Florsheim common stock for every six shares of INTERCO
common stock (the Distribution). In connection with the Distribution,
Florsheim issued $85,000 in 12-3/4% Senior Notes due 2002 (Senior
Notes) and entered into a $75,000 secured credit facility. Florsheim
used the proceeds from the Senior Notes and $25,000 borrowed under the
credit facility to pay financing expenses and repay its share of
outstanding joint and several indebtedness issued in connection with
the 1992 plan of reorganization of INTERCO and its principal
subsidiaries.
(2) SALE OF ASSETS OF CORPORATE HEADQUARTERS BUILDING
On March 20, 1997, the Company completed the sale of the corporate
headquarters building located in downtown Chicago, Illinois. The net
gain on sale of $4,837 is included in non-recurring selling, general
and administrative expenses.
(3) TENDER OFFER FOR SENIOR NOTES
On May 9, 1997, the Company completed its cash tender offer and consent
solicitation relating to its Senior Notes. Approximately $51 million
aggregate principal amount of Senior Notes were tendered, representing
approximately 73% of the $69.45 million aggregate principal amount of
outstanding Senior Notes. The Company also executed a new $110 million,
five-year secured revolving credit facility that replaced the $75
million credit facility described above. An extraordinary loss of
approximately $5.0 million, net of tax, was associated with the tender
premium and expenses related to the repurchase of the Senior Notes and
the execution of the new revolving credit facility.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended July 4, 1998
(Dollars in thousands)
(Unaudited)
(4) NET EARNINGS (LOSS) PER COMMON SHARE
For the three and six months ended July 4, 1998, net earnings per share
data was computed using the average weighted basic and diluted shares
outstanding. For the three and six months ended June 28, 1997, net loss
per share data was computed using the average weighted basic shares
outstanding. Common stock equivalents were not used due to the
antidilutive effect on the computation.
(5) COMPREHENSIVE INCOME (LOSS)
Comprehensive Income (Loss) is as follows:
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
June 28, July 4,
1997 1998
- - --------------------------------------------------------------------------------
<S> <C> <C>
Net earnings (loss) $ (4,618) $ 598
Other Comprehensive Loss:
Foreign currency adjustments (556) (124)
---------- ---------
Comprehensive Income (Loss) $ (5,174) $ 474
========== =========
<CAPTION>
- - --------------------------------------------------------------------------------
Six months Six months
Ended Ended
June 28, July 4,
1997 1998
- - --------------------------------------------------------------------------------
<S> <C> <C>
Net earnings (loss) $ (1,153) $ 1,124
Other Comprehensive Loss:
Foreign currency adjustments (785) (161)
---------- ---------
Comprehensive Income (Loss) $ (1,938) $ 963
========== =========
- - --------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended July 4, 1998
(Dollars in thousands)
(Unaudited)
(6) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
January 3, July 4,
1998 1998
- - --------------------------------------------------------------------------------
<S> <C> <C>
Retail merchandise $ 40,531 $ 41,979
Finished Products 30,028 21,933
Work-in-process 997 2,050
Raw materials 9,433 5,663
-------- --------
$ 80,989 $ 71,625
======== ========
- - --------------------------------------------------------------------------------
</TABLE>
(7) SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In connection with the Distribution, Florsheim issued $85,000, of which
$18,412 are outstanding at July 4, 1998, of 12-3/4% Senior Notes due
2002. The Senior Notes are guaranteed, on a joint and several basis, by
all domestic subsidiaries of Florsheim.
The following condensed consolidating information presents:
1. Condensed consolidating balance sheets as of January 3, 1998 and
July 4, 1998, condensed consolidating statements of operations for
the three months ended June 28, 1997 and the three months ended July
4, 1998, condensed consolidating statements of operations and
statements of cash flows for the six months ended June 28, 1997 and
the six months ended July 4, 1998, 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.
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For six months ended July 4, 1998
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Balance Sheet
January 3, 1998
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 4,389 $ 374 $ 2,432 $ -- $ 7,195
Receivables 23,554 104 5,635 (2,699) 26,594
Inventories 48,949 20,415 11,625 -- 80,989
Prepaid expenses and
other current assets 5,773 940 1,082 -- 7,795
- - ------------------------------------------------------------------------------------------------------------------
Total current assets 82,665 21,833 20,774 (2,699) 122,573
Net property, plant and
equipment 19,917 4,724 2,604 -- 27,245
Other assets 35,797 (933) 419 (1,455) 33,828
Investments in subsidiaries 40,027 -- -- (40,027) --
- - ------------------------------------------------------------------------------------------------------------------
Total assets $178,406 $ 25,624 $ 23,797 $(44,181) $183,646
==================================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Revolving credit facility,
short-term $ 4,500 $ -- $ -- $ -- $ 4,500
Accounts payable 8,295 418 4,384 (2,699) 10,398
Accrued expenses
and other current
liabilities 10,371 614 2,523 -- 13,508
- - ------------------------------------------------------------------------------------------------------------------
Total current liabilities 23,166 1,032 6,907 (2,699) 28,406
Long-term debt, less
current maturities 76,912 -- -- -- 76,912
Other long-term liabilities 23,846 -- 1,455 (1,455) 23,846
Shareholders' equity 54,482 24,592 15,435 (40,027) 54,482
- - ------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $178,406 $ 25,624 $ 23,797 $(44,181) $183,646
==================================================================================================================
</TABLE>
10
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For six months ended July 4, 1998
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Balance Sheet
July 4, 1998
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 1,890 $ 1,000 $ 1,392 $ -- $ 4,282
Receivables 31,086 262 6,584 (4,200) 33,732
Inventories 40,101 18,936 12,588 -- 71,625
Prepaid expenses and
other current assets 6,576 897 1,327 -- 8,800
- - -----------------------------------------------------------------------------------------------------------------
Total current assets 79,653 21,095 21,891 (4,200) 118,439
Net property, plant and
equipment 21,281 4,360 2,498 -- 28,139
Other assets 34,534 -- 69 (570) 34,032
Investments in subsidiaries 40,155 -- -- (40,155) --
- - -----------------------------------------------------------------------------------------------------------------
Total assets $175,623 $ 25,455 $ 24,458 $(44,925) $180,610
=================================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Debt revolver - short term 8,500 -- 222 -- 8,722
Accounts payable 6,325 600 1,093 (4,200) 3,818
Accrued expenses
and other current
liabilities 4,664 750 6,519 -- 11,933
- - -----------------------------------------------------------------------------------------------------------------
Total current liabilities 19,489 1,350 7,834 (4,200) 24,473
Long-term debt, less
current maturities 76,912 -- -- -- 76,912
Other long-term liabilities 23,777 -- 570 (570) 23,777
Shareholders' equity 55,445 24,104 16,054 (40,155) 55,448
- - -----------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $175,623 $ 25,455 $ 24,458 $(44,925) $180,610
=================================================================================================================
</TABLE>
11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For six months ended July 4, 1998
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Statements of Operations
For three months ended June 28, 1997
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 46,600 $ 12,350 $ 10,985 $ (5,720) $ 64,215
Cost of sales 26,549 6,677 6,399 (5,720) 33,905
- - ----------------------------------------------------------------------------------------------------------------------
Gross profit 20,051 5,673 4,586 -- 30,310
Selling, general and
administrative expenses 17,693 5,617 4,130 -- 27,440
- - ----------------------------------------------------------------------------------------------------------------------
Earnings from operations 2,358 56 456 -- 2,870
Interest expense 2,226 -- -- -- 2,226
Equity in earnings of subsidiaries,
net of tax 374 -- -- (374) --
Other income (expense), net 18 -- (1) -- 17
- - ----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes and extraordinary item 524 56 455 (374) 661
Income tax expense (benefit) 99 23 115 -- 237
- - ----------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item 425 33 340 (374) 424
Extraordinary item (less applicable
income taxes of $2,812) (5,042) (5,042)
- - ----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (4,617) $ 33 $ 340 $ (374) $ (4,618)
======================================================================================================================
</TABLE>
For three months ended July 4, 1998
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 43,861 $ 10,726 $ 9,515 $ (2,290) $ 61,812
Cost of sales 23,934 5,974 5,544 (2,290) 33,162
- - ----------------------------------------------------------------------------------------------------------------------
Gross profit 19,927 4,752 3,971 -- 28,650
Selling, general and
administrative expenses 16,485 5,274 3,699 -- 25,456
- - ----------------------------------------------------------------------------------------------------------------------
Earnings from operations 3,442 (522) 272 -- 3,194
Interest expense 2,250 -- -- -- 2,250
Equity in earnings of subsidiaries,
net of tax (150) -- -- 150 --
Other income (expense), net (6) 1 (3) -- (9)
- - ----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 1,036 (521) 269 (150) 935
Income tax expense (benefit) 440 (184) 80 -- 337
- - ----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 596 $ (337) $ 189 $ (150) $ 598
======================================================================================================================
</TABLE>
12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For six months ended July 4, 1998
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Statements of Operations
For six months ended June 28, 1997
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 92,126 $ 23,479 $ 21,909 $(14,116) $123,398
Cost of sales 52,200 12,702 12,562 (14,116) 63,348
- - ----------------------------------------------------------------------------------------------------------------------
Gross profit 39,926 10,777 9,347 -- 60,050
Selling, general and
administrative expenses 34,573 11,139 8,220 -- 53,932
Non-recurring selling, general,
administrative expenses (4,670) -- -- -- (4,670)
- - ----------------------------------------------------------------------------------------------------------------------
Earnings from operations 10,023 (362) 1,127 -- 10,788
Interest expense 4,728 -- -- -- 4,728
Equity in earnings of subsidiaries,
net of tax 554 -- -- (554) --
Other income (expense), net 17 -- (19) -- (2)
- - ----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes and extraordinary item 5,866 (362) 1,108 (554) 6,058
Income tax expense (benefit) 1,977 (123) 315 -- 2,169
- - ----------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item 3,889 (239) 793 (554) 3,889
Extraordinary item (less applicable
income taxes of $2,812) (5,042) (5,042)
- - ----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (1,153) $ (239) $ 793 $ (554) $ (1,153)
======================================================================================================================
</TABLE>
For six months ended July 4, 1998
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 88,543 $ 21,350 $ 19,751 $ (9,162) $120,482
Cost of sales 49,378 11,996 11,836 (9,162) 64,048
- - ----------------------------------------------------------------------------------------------------------------------
Gross profit 39,165 9,354 7,915 -- 56,434
Selling, general and
administrative expenses 32,231 11,154 6,971 -- 50,354
- - ----------------------------------------------------------------------------------------------------------------------
Earnings from operations 6,934 (1,800) 944 -- 6,080
Interest expense 4,316 -- -- -- 4,316
Equity in earnings of subsidiaries,
net of tax (377) -- -- 377 --
Other income (expense), net (31) -- 23 -- (7)
- - ----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes and extraordinary item 2,210 (1,800) 967 377 1,757
Income tax expense (benefit) 1,088 (630) 174 -- 633
- - ----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,122 $ (1,170) $ 793 $ 377 $ 1,124
======================================================================================================================
</TABLE>
13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For six months ended July 4, 1998
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Statements of Cash Flows
For six months ended June 28, 1997
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(22,207) $ 835 $ 1,912 $ (3,190) $(22,650)
- - ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from the sale of
assets of 130 S. Canal, net
of transaction costs $ 6,277 6,277
Proceeds from the
disposal of assets 38 -- -- -- 38
Additions to property,
plant and equipment (2,756) (442) (141) -- (3,339)
- - ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing
activities 3,559 (442) (141) -- 2,976
- - ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Net capital contribution
from (to) Parent (785) (194) (2,211) 3,190 --
Receipts from new
revolving credit facility 59,500 -- -- -- 59,500
Repurchase of 12-3/4% Senior
Notes including, tender premium
and refinancing costs, net of tax (56,080) -- -- -- (56,080)
- - ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 2,635 (194) (2,211) 3,190 3,420
- - ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (16,013) 199 (440) -- (16,254)
Cash and cash equivalents
at beginning of period 18,427 397 2,867 -- 21,691
- - ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 2,414 $ 596 $ 2,427 $ -- $ 5,437
======================================================================================================================
</TABLE>
14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For six months ended July 4, 1998
(Continued)
(Dollars in thousands)
(Unaudited)
Condensed Consolidating Statements of Cash Flows
For six months ended July 4, 1998
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (3,430) $ 227 $ (831) $ 505 $ (3,529)
- - ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from the
disposal of assets 757 -- -- -- 757
Additions to property,
plant and equipment (3,665) (280) (418) -- (4,363)
- - ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing
activities (2,908) (280) (418) -- (3,606)
- - ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Net capital contribution
from (to) Parent (161) 679 (13) (505) --
Net borrowings under
revolving credit facility 4,000 -- 222 -- 4,222
- - ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 3,839 679 209 (505) 4,222
- - ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (2,499) 626 (1,040) -- (2,913)
Cash and cash equivalents
at beginning of period 4,389 374 2,432 -- 7,195
- - ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 1,890 $ 1,000 $ 1,392 $ -- $ 4,282
======================================================================================================================
</TABLE>
25
<PAGE> 16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
OVERVIEW
Florsheim Group Inc. (Florsheim or the Company), founded in 1892, designs,
markets, manufactures, and sources a diverse and extensive range of products in
the middle to upper price range of the men's quality footwear market. Florsheim
distributes its products in more than 6,000 department and specialty store
locations worldwide and through 323 company-operated specialty stores and outlet
stores as of July 4, 1998.
Effective November 17, 1994, Florsheim became an independent public company when
Furniture Brands International, Inc., formerly known as INTERCO INCORPORATED,
its former parent company and sole stockholder, distributed all of the Company's
common stock to existing INTERCO shareholders at a rate of one share of
Florsheim common stock for every six shares of INTERCO common stock (the
Distribution). In connection with the Distribution, Florsheim issued $85,000 in
12-3/4% Senior Notes due 2002 (Senior Notes) and entered into a $75,000 secured
credit facility (old credit facility). Florsheim used the proceeds from the
Senior Notes and $25,000 borrowed under the old credit facility to pay financing
expenses and repay its share of the outstanding joint and several indebtedness
issued in connection with the 1992 plan of reorganization of INTERCO and its
principal subsidiaries.
On May 9, 1997, the Company completed a cash tender offer and consent
solicitation relating to the Senior Notes. Approximately $51 million aggregate
principal amount of Senior Notes were tendered, representing approximately 73%
of the $69.45 million aggregate principal amount of outstanding Senior Notes.
The Company also executed a new $110 million, five-year secured revolving credit
facility (credit facility) that replaces the $75 million old credit facility
described above.
16
<PAGE> 17
RESULTS OF OPERATIONS
Three Months Ended July 4, 1998 Compared to Three Months Ended June 28, 1997.
The following tables set forth, for the periods indicated, certain historical
operating data, expressed in thousands of dollars and as a percentage of net
sales, and retail store information.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
Three months ended
-----------------------------------------------
(Dollars in thousands) June 28, 1997 July 4, 1998
- - ------------------------------------------------------------------------------------------
Amount % Amount %
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
U.S. Wholesale $ 23,108 36.0 % $ 23,315 37.7 %
U.S. Retail 29,012 45.2 27,737 44.9
International (including
exports from U.S.) 12,095 18.8 10,760 17.4
- - ------------------------------------------------------------------------------------------
Total net sales $ 64,215 100.0 % $ 61,812 100.0 %
- - ------------------------------------------------------------------------------------------
Percent change in same store
sales (1) 2.4 % 3.2 %
EBITDA (2) $ 4,179 6.5 % $ 4,420 7.2 %
- - ------------------------------------------------------------------------------------------
Number of retail stores:
U.S. specialty 198 179
U.S. outlets 94 90
International 54 54
-------- --------
Total 346 323
======== ========
- - ------------------------------------------------------------------------------------------
</TABLE>
(1) Includes only those sales figures for U.S. specialty stores that have
been in operation for at least twelve full months. Percentage change
reflects figures for period depicted as compared to the figures from
the prior year period of comparable length.
(2) Earnings before interest expense, income taxes, depreciation and
amortization, and other income (expense), net and extraordinary items.
17
<PAGE> 18
<TABLE>
<CAPTION>
Three months ended
------------------------
June 28, July 4,
Operations data (as a percent of net sales) 1997 1998
- - --------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.0 % 100.0 %
Gross profit 47.2 46.4
Selling, general, and administrative expenses 42.7 41.2
Earnings from operations 4.5 5.2
Interest expense 3.5 3.6
Extraordinary item, net of tax (7.9) -
Net earnings (loss) (7.2) 1.0
Earnings before extraordinary item 0.7 1.0
================================================================================
</TABLE>
Net sales for the three months ended July 4, 1998 (Second Quarter 1998) were
$61,812, down $2,403, or 3.7%, as compared to the three months ended June 28,
1997 (Second Quarter 1997). U.S. wholesale net sales increased $207, or 0.9%,
due to 1998 shipments to new accounts offset by reductions in promotional
closeout shipments included in Second Quarter 1997 sales. U.S. retail net sales
decreased $1,275, or 4.4%, as a result of sales reductions from net store
closings partially offset by Second Quarter 1998 same store sales increase of
3.2% at U.S. specialty stores. International sales increased $1,335, or 11.0%,
primarily due to reduced sales in Southeast Asia caused by currency
devaluations.
Gross profit margin for Second Quarter 1998 was 46.4% of net sales, as compared
to 47.2% of net sales for Second Quarter 1997. The decrease was due to a mix
shift to a higher percentage of wholesale sales.
Selling, general and administrative expenses for Second Quarter 1998 were
$25,456, a decrease of $1,984 or 7.2%, from Second Quarter 1997. Selling,
general and administrative expenses for Second Quarter 1998 were 41.2% of net
sales, a decrease from 42.7% of net sales for Second Quarter 1997 partially due
to expense reduction programs.
Earnings from operations for Second Quarter 1998 were $3,194, an increase of
$324, or 11.3%, from Second Quarter 1997, and EBITDA for Second Quarter 1998 was
$4,420, an increase of $241, or 5.8%, from Second Quarter 1997. As a result,
earnings from operations for Second Quarter 1998 were 5.2% of net sales, as
compared to 4.5% of net sales for Second Quarter 1997, and EBITDA for Second
Quarter 1998 was 7.2% of net sales, as compared to 6.5% of net sales for Second
Quarter 1997. EBITDA is presented as a supplemental disclosure and not as an
alternative to earnings from operations or cash flows from operating activities
computed in accordance with generally accepted accounting principles as an
indicator of operating performance. EBITDA is frequently used to analyze
companies on the basis of operating performance, leverage, and liquidity.
Earnings from operations and EBITDA in Second Quarter 1998 are improved from
Second Quarter 1997 primarily due to the reduction in selling, general, and
administrative expenses partially offset by the Southeast Asia currency
devaluation.
Interest expense for Second Quarter 1998 was $2,250 as compared to the Second
Quarter 1997 amount of $2,226. This increase is due to the cost of increased
average outstanding borrowings during the Second Quarter 1998 as compared to the
cost of the average outstanding borrowings during the Second Quarter 1997 and as
a result of the repurchase of the Senior Notes.
An extraordinary loss associated with the tender premium and expenses related to
the repurchase of the Senior Notes and the execution of the new revolving credit
facility was $5,042, net of tax, for Second Quarter 1997.
18
<PAGE> 19
The diluted earnings per share for Second Quarter 1998, were $0.07 per share, an
improvement from earnings per share before extraordinary item of $0.05 in Second
Quarter 1997. The diluted earnings per share for Second Quarter 1997 after the
extraordinary item was ($0.55).
SIX MONTHS ENDED JULY 4, 1998 COMPARED TO SIX MONTHS ENDED JUNE 28, 1997.
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>
- - ------------------------------------------------------------------------------------------
Six months ended
-----------------------------------------------
(Dollars in thousands) June 28, 1997 July 4, 1998
- - ------------------------------------------------------------------------------------------
Amount % Amount %
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
U.S. Wholesale $ 41,814 33.9 % $ 44,087 36.6 %
U.S. Retail 57,697 46.8 54,036 44.8
International (including
exports from U.S.) 23,887 19.4 22,359 18.6
- - ------------------------------------------------------------------------------------------
Total net sales $123,398 100.0 % $120,482 100.0 %
- - ------------------------------------------------------------------------------------------
Percent change in same store
sales (1) 6.0 % (2.2)%
EBITDA (2) $ 8,742 7.1 % $ 8,511 6.9 %
==========================================================================================
</TABLE>
(1) Includes only those sales figures for U.S. specialty stores that have
been in operation for at least twelve full months. Percentage change
reflects figures for period depicted as compared to the figures from
the prior year period of comparable length.
(2) Earnings before interest expense, income taxes, depreciation and
amortization, and other income (expense), net, and the non-recurring
selling, general, and administrative expense and extraordinary item
recorded in 1997.
19
<PAGE> 20
<TABLE>
<CAPTION>
Six months ended
----------------------
June 28, July 4,
Operations data (as a percent of net sales) 1997 1998
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.0 % 100.0 %
Gross profit 48.7 46.8
Selling, general, and administrative expenses, excluding
non-recurring selling, general and administrative expenses 43.7 41.8
Earnings from operations, excluding non-recurring
selling, general and administrative expenses 5.0 5.0
Interest expense 3.8 3.6
Extraordinary item, net of tax (4.1) --
Net earnings (loss) (0.9) 0.9
Earnings before extraordinary item - pro forma 0.7 (1) 0.9
- - ----------------------------------------------------------------------------------------
</TABLE>
(1) Pro forma excludes gain on sale of 130 S. Canal.
20
<PAGE> 21
Net sales for the six months ended July 4, 1998 (First Half 1998) were $120,482,
up $2,916, or 2.4%, as compared to the six months ended June 28, 19976 (First
Half 1997). U.S. wholesale net sales increased $2,273, or 5.4%, due to gains
from increased number of accounts for wholesale distribution. U.S. retail net
sales decreased $3,661, or 6.3%, as a result of sales reductions from net store
closings and First Half 1998 same store sales decrease at U.S. specialty stores
of 2.2%. International sales increased $1,528, or 6.4%, primarily due to reduced
sales in Southeast Asia caused by currency devaluations.
Gross profit margin for First Half 1998 was 46.8% of net sales, as compared to
48.7% of net sales for First Half 1997. The decrease was due to price promotion
activity during the First Quarter 1998, store closings and the mix shift to a
higher percentage of wholesale sales.
Selling, general and administrative expenses for the First Half 1998 were
$50,354, a decrease of $3,578, or 6.6%, from First Half 1997. Selling, general
and administrative expenses for First Half 1998 were 41.8% of net sales, a
decrease from 43.7% of net sales for First Half 1997. The decrease is
attributable to cost reduction programs and store closings.
Earnings from operations for First Half 1998 were $6,080, a decrease of $4,709,
or 43.6%, from First Half 1997, including non-recurring selling, general and
administrative expenses of $4,670. Excluding the non-recurring selling, general
and administrative expenses, earnings from operations for First Half 1997 were
$6,119. EBITDA for First Half 1998 was $8,511, a decrease of $212, or 2.4%, from
First Half 1997, excluding non-recurring selling, general and administrative
expenses. As a result, earnings from operations for First Half 1998 was 5.0% of
net sales, as compared to 8.7% of net sales for First Half 1997, and EBITDA for
First Half 1998 was 7.1% of net sales, as compared to 7.1% of net sales for
First Half 1997. The decrease in earnings from operations and EBITDA in First
Half 1998 is primarily due to store closings and a decrease in same store sales.
The gain of $4,670 in non-recurring selling, general, and administrative expense
for First Half 1997 related to the sale of corporate headquarters building
located in downtown Chicago recorded in First Quarter 1997.
Interest expense for First Half 1998 was $4,316, as compared to the First Half
1997 amount of $4,728. This decrease is due to the lower amount of Senior Notes
outstanding and lower average outstanding borrowings under the credit facility
during the First Half 1998 as compared to the average outstanding during First
Half 1997.
An extraordinary loss associated with the tender premium and expenses related to
the repurchase of the Senior Notes and the execution of the new revolving credit
facility was $5,042, net of tax, for First Half 1997.
The diluted earnings per share for First Half 1998, were $0.13 per share, an
increase from the earnings before extraordinary item per share amount of $ 0.47
in First Half 1997. Included in the First Half 1997 amount was the non-recurring
pre-tax gain of $4,670 generated by the sale of the Company's former corporate
headquarters building.
21
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital at July 4, 1998 was $93,966, as compared to $94,167 at January
3, 1998. The decrease during the First Half 1998 is primarily due to the
inventory reduction programs initiated in First Half 1998 offset by increased
receivables due from customers and capital expenditures. Cash interest payments
totaled $4,193 during First Half 1998, and cash income tax payments were $553
during First Half 1998.
FINANCING ARRANGEMENTS
On May 9, 1997, the Company completed its cash tender offer and consent
solicitation relating to its Senior Notes. Approximately $51 million aggregate
principal amount of Senior Notes were tendered, representing approximately 73%
of the $69.45 million aggregate principal amount of outstanding Senior Notes.
Approximately $18.4 million of Senior Notes remain outstanding. The Company also
has executed a new $110 million, five-year secured revolving credit facility
that replaces the $75 million credit facility described in "Overview".
Borrowings under the new credit facility were used to finance the tender offer
for the Senior Notes.
Further credit facility borrowings will be made from time to time to finance
future liquidity requirements, including the month-to-month working capital
requirements. The revolving credit facility provides for borrowings of up to
$110,000 and other extensions of credit based on a debt-to-EBITDA ratio and
other covenants. The cash borrowings under the credit facility bear interest at
the prime rate plus a factor, currently 1.25 %, or at an adjusted LIBOR rate
plus a factor, currently 2.25 %, depending on the type of loan the Company
executes and various covenant ratios.
As of July 4, 1998, total debt including the Senior Notes outstanding and the
borrowings under the credit facility totaled $85.6 million as compared to $81.4
million as of January 3, 1998.
SEASONALITY OF BUSINESS
In total, the Company's net sales are generally not seasonal; however earnings
from operations and EBITDA tend to be higher in the fourth quarter due to the
proportionately higher retail sales which include both a wholesale and a retail
margin.
22
<PAGE> 23
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders, held on May 20, 1998,
stockholders voted upon the following matters:
(a) Election of 10 directors. The number of votes cast for and withheld
for each individual are as follows:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Adam Aron 8,066,364 21,038
Bernard Attal 8,067,339 20,063
Charles J. Campbell 8,067,947 19,455
Robert H. Falk 8,067,955 19,447
Michael S. Gross 8,067,870 19,532
John J. Hannan 8,067,955 19,447
Jashua J. Harris 8,067,855 19,547
John H. Kissick 8,067,956 19,446
Ronald J. Mueller 8,066,196 21,206
Michael D. Weiner 8,067,955 19,447
</TABLE>
(b) Ratification of the selection of KPMG Peat Marwick LLP as
Independent Auditors for the year ending January 2, 1999.
Affirmative Votes 8,065,314
Negative Votes 3,060
Abstention Votes 19,028
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
27 Financial Data Schedule
(b) A Form 8-K was not required to be filed during the quarter ended
July 4, 1998.
23
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLORSHEIM GROUP INC.
(Registrant)
By: /s/ Richard J. Anglin
---------------------------------------
Richard J. Anglin
Vice-President, Chief Financial Officer
Date: August 14, 1998
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> APR-05-1998
<PERIOD-END> JUL-04-1998
<EXCHANGE-RATE> 1
<CASH> 4,282
<SECURITIES> 0
<RECEIVABLES> 33,732
<ALLOWANCES> 1,051
<INVENTORY> 71,625
<CURRENT-ASSETS> 8,800
<PP&E> 51,813
<DEPRECIATION> 23,674
<TOTAL-ASSETS> 180,610
<CURRENT-LIABILITIES> 24,473
<BONDS> 76,912
0
0
<COMMON> 8,413
<OTHER-SE> 47,035
<TOTAL-LIABILITY-AND-EQUITY> 180,610
<SALES> 61,812
<TOTAL-REVENUES> 61,812
<CGS> 33,162
<TOTAL-COSTS> 25,456
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,250
<INCOME-PRETAX> 935
<INCOME-TAX> 337
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 598
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
