<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 APRIL 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
8,412,901 Shares as of May 1, 1998
================================================================================
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended April 4, 1998.
Consolidated Balance Sheet:
April 4, 1998
January 3, 1998
Consolidated Statement of Operations:
Three Months Ended April 4, 1998
Three Months Ended March 29, 1997
Consolidated Statement of Cash Flows:
Three Months Ended April 4, 1998
Three Months Ended March 29, 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 ended April 4, 1998 are not necessarily indicative of the results to be
expected for the full year.
1
<PAGE> 3
FLORSHEIM GROUP INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
Unaudited
January 3, April 4,
ASSETS 1998 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,195 $ 3,903
Receivables, less allowances of $1,084 at
January 3, 1998 and $1,054 at April 4, 1998 26,594 32,020
Inventories 80,989 77,460
Deferred tax assets, net 3,541 3,574
Prepaid expenses and other current assets 4,254 4,453
--------- ---------
Total current assets 122,573 121,410
Property, plant and equipment 48,417 49,028
Less: accumulated depreciation 21,172 21,766
--------- ---------
Net property, plant and equipment 27,245 27,262
Deferred tax assets, net 12,976 12,775
Other assets 20,852 21,514
--------- ---------
$ 183,646 $ 182,961
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,398 $ 8,051
Accrued expenses 11,690 9,241
Accrued interest expense 1,075 486
Accrued income taxes payable 743 17
Revolving facility - short term 4,500 9,500
--------- ---------
Total current liabilities 28,406 27,295
Long-term debt 18,412 18,412
Revolving facility - long term 58,500 58,500
Other long-term liabilities 23,846 23,783
--------- ---------
129,164 127,990
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) (1,658)
Accumulated deficit (2,793) (2,267)
--------- ---------
Total shareholders' equity 54,482 54,971
--------- ---------
$ 183,646 $ 182,961
========= =========
</TABLE>
2
<PAGE> 4
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 29, April 4,
1997 1998
----------- -----------
<S> <C> <C>
Net sales $ 59,183 $ 58,670
Cost of sales 29,443 30,886
----------- -----------
Gross profit 29,740 27,784
Selling, general
and administrative expenses 26,492 24,898
Non-recurring selling, general
and administrative expenses (4,670) --
----------- -----------
Earnings from operations 7,918 2,886
Interest expense, net 2,502 2,066
Other income (expense), net (19) 2
----------- -----------
Earnings before income tax expense 5,397 822
Income tax expense 1,932 296
----------- -----------
Net earnings $ 3,465 $ 526
----------- -----------
Basic Earnings Per Share:
Net Earnings $ 0.42 $ 0.06
----------- -----------
Diluted Earnings Per Share:
Net Earnings $ 0.41 $ 0.06
----------- -----------
Basic weighted average number of shares outstanding 8,346,051 8,412,901
Diluted weighted average number of shares outstanding 8,481,540 8,573,421
----------- -----------
</TABLE>
3
<PAGE> 5
FLORSHEIM GROUP INC.
Consolidated Statement of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 29, April 4,
1997 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,465 $ 526
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Gain on disposal of assets (4,832) (22)
Depreciation and amortization 1,315 1,205
Deferred taxes 1,726 168
Noncash interest expense 221 108
Increase in receivables (2,949) (5,426)
Decrease (Increase) in inventories (2,407) 3,529
Increase in prepaid expenses and other assets (1,828) (859)
Decrease in accounts payable, accrued
interest expense and other accrued expenses (11,236) (6,111)
Increase (Decrease) in other long-term liabilities 388 (63)
-------- --------
Net cash used in operating activities (16,137) (6,945)
-------- --------
Cash flows from investing activities:
Proceeds from sale of assets of 130 S.Canal
in 3/97, net of transaction costs 6,277 --
Proceeds from the disposal of assets 5 277
Additions to property, plant and equipment (1,399) (1,624)
-------- --------
Net cash provided by (used in) investing activities 4,883 (1,347)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving credit facility -- 5,000
-------- --------
Net cash provided by financing activities -- 5,000
-------- --------
Net decrease in cash and cash equivalents (11,254) (3,292)
Cash and cash equivalents at beginning of period 21,691 7,195
-------- --------
Cash and cash equivalents at end of period $ 10,437 $ 3,903
-------- --------
Supplemental disclosure:
Cash payments for income taxes, net $ 99 $ 860
Cash payments for interest $ 4,441 $ 2,547
======== ========
</TABLE>
4
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended April 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 (old credit
facility).
(2) NET EARNINGS PER COMMON SHARE
Earnings Per Share is computed, presented and disclosed according to
the provisions of SFAS No. 128, Earnings Per Share (EPS). All prior
period EPS data presented has been restated to conform with SFAS No.
128. It replaces the presentation of primary EPS with a presentation of
basic EPS and fully diluted EPS with diluted EPS.
(3) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
January 3, April 4,
1998 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Retail merchandise $40,531 $40,283
Finished products 30,028 27,551
Work-in-process 997 1,434
Raw materials 9,433 8,192
------- -------
$80,989 $77,460
======= =======
- -------------------------------------------------------------------------------------
</TABLE>
(4) SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In connection with the Distribution, Florsheim issued the senior notes,
of which $18,412 are outstanding at April 4, 1998. The senior notes are
guaranteed, on a joint and several basis, by all domestic subsidiaries
of Florsheim.
5
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended April 4, 1998
(Dollars in thousands)
(Unaudited)
The following condensed consolidating information presents:
1. Condensed consolidating balance sheets as of January 3, 1998
and April 4, 1998, condensed consolidating statements of
operations and statements of cash flows for the three months
ended March 29, 1997 and the three months ended April 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.
6
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended April 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>
7
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended April 4, 1998
(Continued)
(Dollars in thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Condensed Consolidating Balance Sheet
April 4, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 492 $ 1,172 $ 2,239 $ -- $ 3,903
Receivables 29,885 230 6,359 (4,454) 32,020
Inventories 46,020 19,316 12,124 -- 77,460
Prepaid expenses and
other current assets 6,215 942 870 -- 8,027
-------- -------- -------- -------- --------
Total current assets 82,612 21,660 21,592 (4,454) 121,410
Net property, plant and
equipment 20,567 4,439 2,256 -- 27,262
Other assets 35,527 (932) 402 (708) 34,289
Investments in subsidiaries 39,316 -- -- (39,316) --
-------- -------- -------- -------- --------
Total assets $178,022 $ 25,167 $ 24,250 $(44,478) $182,961
-------- -------- -------- -------- --------
Liabilities and Shareholders' Equity:
Current liabilities:
Revolving credit facility,
short-term $ 9,500 $ -- $ -- $ -- $ 9,500
Accounts payable 6,095 760 5,650 (4,454) 8,051
Accrued expenses
and other current
liabilities 6,761 1,094 1,889 -- 9,744
-------- -------- -------- -------- --------
Total current liabilities 22,356 1,854 7,539 (4,454) 27,295
Long-term debt, less
current maturities 76,912 -- -- -- 76,912
Other long-term liabilities 23,783 -- 708 (708) 23,783
Shareholders' equity 54,971 23,313 16,003 (39,316) 54,971
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity $178,022 $ 25,167 $ 24,250 $(44,478) $182,961
-------- -------- -------- -------- --------
</TABLE>
8
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended April 4, 1998
(Continued)
(Dollars in thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Condensed Consolidating Statements of Operations
For three months ended March 29, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 45,526 $ 11,129 $ 10,924 $ (8,396) $ 59,183
Cost of sales 25,651 6,025 6,163 (8,396) 29,443
-------- -------- -------- -------- --------
Gross profit 19,875 5,104 4,761 -- 29,740
Selling, general and
administrative expenses 16,880 5,522 4,090 -- 26,492
Non-recurring selling, general and
administrative expenses (4,670) -- -- -- (4,670)
-------- -------- -------- -------- --------
Earnings (loss) from operations 7,665 (418) 671 -- 7,918
Interest expense 2,502 -- -- -- 2,502
Equity in earnings of subsidiaries,
net of tax 180 -- -- (180) --
Other expense, net (1) -- (18) -- (19)
-------- -------- -------- -------- --------
Earnings (loss) before income
tax expense (benefit) 5,342 (418) 653 (180) 5,397
Income tax expense (benefit) 1,878 (146) 200 1,932
-------- -------- -------- -------- --------
Net earnings (loss) $ 3,464 $ (272) $ 453 $ (180) $ 3,465
======== ======== ======== ======== ========
</TABLE>
For three months ended April 4, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 44,682 $ 10,624 $ 10,236 $ (6,872) $ 58,670
Cost of sales 25,444 6,022 6,292 (6,872) 30,886
-------- -------- -------- -------- --------
Gross profit 19,238 4,602 3,944 -- 27,784
Selling, general and
administrative expenses 15,746 5,880 3,272 -- 24,898
-------- -------- -------- -------- --------
Earnings (loss) from operations 3,492 (1,278) 672 -- 2,886
Interest expense 2,066 -- -- -- 2,066
Equity in earnings of subsidiaries,
net of tax (227) -- -- 227 --
Other income (expense), net (25) 1 26 -- 2
-------- -------- -------- -------- --------
Earnings (loss) before income
tax expense 1,174 (1,277) 698 227 822
Income tax expense (benefit) 648 (446) 94 -- 296
-------- -------- -------- -------- --------
Net earnings (loss) $ 526 $ (831) $ 604 $ 227 $ 526
-------- -------- -------- -------- --------
</TABLE>
9
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended April 4, 1998
(Continued)
(Dollars in thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Condensed Consolidating Statements of Cash Flows
For three months ended March 29, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(15,641) $ (978) $ (1,209) $ 1,691 $(16,137)
-------- -------- -------- -------- --------
Cash flows from investing
activities:
Proceeds from the sale of assets of
130 S. Canal, net of transaction costs 6,277 -- -- -- 6,277
Proceeds from the
disposal of assets 5 -- -- -- 5
Additions to property,
plant and equipment (1,179) (175) (45) -- (1,399)
-------- -------- -------- -------- --------
Net cash used in investing
activities 5,103 (175) (45) -- 4,883
-------- -------- -------- -------- --------
Cash flows from financing
activities:
Net capital contribution
from (to) Parent (229) 756 1,164 (1,691) --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities (229) 756 1,164 (1,691) --
-------- -------- -------- -------- --------
Net increase in cash and cash
equivalents (10,767) (397) (90) -- (11,254)
Cash and cash equivalents
at beginning of period 18,427 397 2,867 -- 21,691
-------- -------- -------- -------- --------
Cash and cash equivalents
at end of period $ 7,660 $ -- $ 2,777 $ -- $ 10,437
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended April 4, 1998
(Continued)
(Dollars in thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Condensed Consolidating Statements of Cash Flows
For three months ended April 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 $(7,617) $ 1,247 $ (101) $ (474) $(6,945)
------- ------- ------- ------- -------
Cash flows from investing
activities:
Proceeds from the
disposal of assets 277 -- -- -- 277
Additions to property,
plant and equipment (1,520) (11) (93) -- (1,624)
------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities (1,243) (11) (93) -- (1,347)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Net capital contribution
from (to) Parent (37) (438) 1 474 --
Revolving Facility - S/T 5,000 -- -- -- 5,000
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities 4,963 (438) 1 474 5,000
------- ------- ------- ------- -------
Net increase in cash and cash
equivalents (3,897) 798 (193) -- (3,292)
Cash and cash equivalents
at beginning of period 4,389 374 2,432 -- 7,195
------- ------- ------- ------- -------
Cash and cash equivalents
at end of period $ 492 $ 1,172 $ 2,239 $ -- $ 3,903
======= ======= ======= ======= =======
</TABLE>
11
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands)
OVERVIEW
Florsheim Group Inc. (Florsheim or the Company), founded in 1892, designs,
markets, manufactures, and sources a diverse and extensive range of products in
the middle to upper price range of the men's quality footwear market. Florsheim
distributes its products in more than 6,000 department and specialty store
locations worldwide and through 329 Company-operated specialty stores and outlet
stores as of April 4, 1998.
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
secured credit facility (old credit facility).
On March 20, 1997, the Company completed the sale of the corporate headquarters
building located in downtown Chicago, Illinois for an all cash sale price of
approximately $8,050. Net cash proceeds were approximately $6,000 before income
taxes. The pretax gain on sale of $4,300 and other costs related to the sale are
included in non-recurring selling, general, and administrative expenses for the
three months ended March 29, 1997.
On May 9, 1997, the Company completed a cash tender offer relating to the senior
notes. Approximately $51,000 aggregate principal amount of senior notes were
tendered, representing approximately 73% of the $69,450 aggregate principal
amount of outstanding senior notes. The Company also executed a new $110,000,
five-year secured revolving credit facility (credit facility) that replaces the
old credit facility described above.
12
<PAGE> 14
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 4, 1998 COMPARED TO THREE MONTHS ENDED MARCH 29, 1997.
Historical Comparisons
The following tables set forth, for the periods indicated, certain historical
operating data, expressed in thousands of dollars and as a percentage of net
sales, and retail store information.
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------
(Dollars in thousands) March 29, 1997 April 4, 1998
- ----------------------------------------------------------------------------------------
Amount % Amount %
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
U.S. Wholesale $18,706 31.6% $20,772 35.4%
U.S. Retail 28,685 48.5 26,299 44.8
International (including
exports from U.S.) 11,792 19.9 11,599 19.8
------- ----- ------- -----
Total net sales $59,183 100.0% $58,670 100.0%
------- ----- ------- -----
Percent change in same store
sales (1) 9.7% (7.2)%
EBITDA (2) $ 4,573 7.7% $ 4,091 7.0%
------- ----- ------- -----
Number of retail stores:
U.S. specialty 202 185
U.S. outlets 95 92
International 54 52
------- -------
Total 351 329
======= =======
</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.
(2) Earnings before interest expense, income taxes, depreciation
and amortization, other income (expense), net, and
non-recurring items.
<TABLE>
<CAPTION>
Three months ended
-----------------------
March 29, April 4,
Operations data (as a percent of net sales) 1997 1998
--------- ---------
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 50.3% 47.4%
Selling, general and administrative expenses, excluding
non-recurring selling, general, and administrative expenses 44.8% 42.4%
Earnings from operations, excluding non-recurring
selling, general, and administrative expenses 5.5% 4.9%
Interest expense 4.2% 3.5%
Net earnings 0.8% 0.9%
====== ======
</TABLE>
13
<PAGE> 15
Net sales for the three months ended April 4, 1998 (First Quarter 1998) were
$58,670, down $513, or 0.9%, as compared to the three months ended March 29,
1997 (First Quarter 1997) U.S. wholesale net sales increased $2,066, or 11.0%,
due to gains from increased unit volume combined with an increase in average
selling price per unit attributable primarily to the new product introductions
and increased wholesale distribution. U.S. retail net sales decreased $2,386, or
8.3%, as a result of sales reductions from net store closings and First Quarter
1997 same store sales decrease of 7.2% at U.S. specialty stores. International
sales decreased $193, or 1.6%, primarily due to reduced sales in Southeast Asia
caused by currency devaluations.
Gross profit margin for First Quarter 1998 was 47.4% of net sales, as compared
to 50.3% of net sales for First Quarter 1997. The decrease was due to a mix
shift to a higher percentage of wholesale sales, the inefficient market
conditions in Pacific and Australia, and price promotion activity in the retail
stores early in the First Quarter 1998.
Selling, general and administrative expenses for First Quarter 1998 were
$24,898, a decrease of $1,594 or 6.0%, from First Quarter 1997, excluding the
non-recurring selling, general, and administrative expenses in 1997. Selling,
general and administrative expenses for First Quarter 1998 were 42.4% of net
sales, a decrease from 44.8% of net sales for First Quarter 1997. Expense
decreases were primarily due to expense reduction programs. Non-recurring
selling, general, and administrative expenses of $4,670 for First Quarter 1997
were related to the gain on the sale of the corporate headquarters building
located in downtown Chicago.
Earnings from operations for First Quarter 1997, were $2,886, a decrease of $362
or 11.1%, from First Quarter 1997, excluding the non-recurring selling, general,
and administrative expenses in 1997, and EBITDA for First Quarter 1998 was
$4,091, a decrease of $482 or 10.5%, from First Quarter 1997. Earnings from
operations for First Quarter 1998 were 4.9% of net sales, as compared to 5.5% of
net sales for First Quarter 1997, and EBITDA for First Quarter 1998 was 7.0% of
net sales, as compared to 7.7% of net sales for First Quarter 1997. EBITDA is
presented as a supplemental disclosure; EBITDA is frequently used to analyze
companies on the basis of operating performance, leverage, and liquidity.
Earnings from operations and EBITDA in First Quarter 1998 were below First
Quarter 1997 primarily due to lower retail sales and price promotion activity,
partially offset by cost reductions. A gain of $4,670 in non-recurring selling,
general, and administrative expense for First Quarter 1997 was related to the
sale of the corporate headquarters building located in downtown Chicago.
Interest expense for First Quarter 1998 was $2,066 as compared to the First
Quarter 1997 amount of $2,502. This decrease is due to the lower average cost of
outstanding debt as a result of the repurchase of the senior notes from
borrowings under the Company's new credit facility.
The diluted earnings per share (EPS) for First Quarter 1998 were $0.06 per
share, a decrease from a diluted earnings per share of $0.41 per share in First
Quarter 1997. Included in the First Quarter 1997 amount was the non-recurring
gain of $4,670 generated by the sale of the Company's former corporate
headquarters building. The EPS for First Quarter 1997 without the non-recurring
gain would have been $0.06.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital at April 4, 1998 was $94,115, as compared to $94,167 at January
3, 1998, a decrease of $52. The increase in receivables and decrease in
inventories offsets the decrease in cash. Cash interest payments totaled $2,547
during First Quarter 1998 compared to $4,441 during the First Quarter 1997, and
cash income tax payments were $860 during the First Quarter 1998 compared to $99
during the First Quarter 1997.
14
<PAGE> 16
FINANCING ARRANGEMENTS
On May 9, 1997, the Company completed its cash tender offer and consent
solicitation relating to its senior notes. Approximately $51,000 aggregate
principal amount of senior notes were tendered, representing approximately 73%
of the $69,450 aggregate principal amount of outstanding senior notes.
Approximately $18,400 of senior notes remain outstanding. The Company also
executed a new $110,000, five-year secured revolving credit facility that
replaced the $75,000 old credit facility described in "Overview." Borrowings
under the new credit facility were used to finance the tender offer for the
senior notes. At April 4, 1998, outstanding borrowings under the credit facility
totaled $9,500 which were classified as short term and $58,500 which were
classified as long term. Further credit facility borrowings will be made from
time to time to finance future liquidity requirements, including the
month-to-month working capital requirements. The revolving credit facility
provides for borrowings of up to $110,000 and other extensions of credit based
on a debt-to-EBITDA ratio and other covenants. The cash borrowings under the
credit facility bear interest at the prime rate plus a factor, currently 1.25%
or at an adjusted LIBOR rate plus a factor, currently 2.25% depending on the
type of loan the Company executes and various covenant ratios.
On April 22, 1998, the Company received an amendment to the credit facility
adjusting certain financial covenants in a manner more favorable to the Company.
The adjustments to the covenants were necessary due to the financial performance
during the twelve months ended January 3, 1998 and the anticipated performance
in the future.
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.
15
<PAGE> 17
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
4.1 First Amendment, dated as of April 22, 1998, to the
Credit Agreement, dated as of May 9, 1997, among the
Company, the Banks party thereto from time to time,
and Bankers Trust Company, as Agent.
11. Statement re Computation of Net Earnings Per Common
Share.
27. Financial Data Schedule.
(b) A Form 8-K was not required to be filed during the quarter ended
April 4, 1998.
16
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FLORSHEIM GROUP INC.
(Registrant)
By /S/ Richard J. Anglin
---------------------
Richard J. Anglin
Vice-President, Chief Financial Officer
Date: May 14, 1998
17
<PAGE> 1
Exhibit 4.1
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
April 22, 1998, among FLORSHEIM GROUP INC., a Delaware corporation (the
"Borrower"), the lending institutions from time to time party to the Credit
Agreement referred to below (the "Banks"), and BANKERS TRUST COMPANY, as agent
(the "Agent"). All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided such terms in the Credit Agreement
referred to below.
WITNESSETH
WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit
Agreement, dated as of May 9, 1997 (as amended, modified or supplemented to the
date hereof, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement as
herein provided, subject to and on the terms and conditions set forth herein;
NOW, THEREFORE, it is agreed:
1. Section 9.07 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing immediately before clause (y) of subsection
(a) thereof, (ii) inserting a comma in lieu thereof, (iii) deleting the text
"and each Fiscal Year thereafter until the "Maturity Date" appearing in clause
(y) of subsection (a) thereof, (iv) deleting the amount "$12,000,000" appearing
in clause (y) of subsection (a) thereof, (v) inserting the new amount
"$13,000,000" in lieu thereof, (vi) inserting the following new text at the end
of clause (y) of subsection (a) thereof.
"and (z) during each Fiscal Year beginning after January 2, 1999 until
the Maturity Date, the Borrower and its Subsidiaries may make Capital
Expenditures in an aggregate amount not to exceed $12,000,000",
(vii) deleting the second parenthetical appearing in subsection (b) thereof in
its entirety and (viii) inserting the following new parenthetical in lieu
thereof:
"(or (i) $13,000,000 in the case of the Fiscal Year ended January 2,
1999 or (ii) $12,000,000 in the case of a Fiscal Year beginning after
January 2, 1999)".
2. Section 9.08 of the Credit Agreement is hereby amended by (a)
deleting the dates listed under the heading "Fiscal Quarter Ended Closest to"
and the amounts corresponding thereto and (b) inserting the following new dates
and amounts in lieu thereof:
<PAGE> 2
"March 31, 1998 $16,250,000
June 30, 1998 16,250,000
September 30, 1998 16,750,000
December 31, 1998 17,750,000
March 31, 1999 19,000,000
June 30, 1999 20,000,000
September 30, 1999 20,500,000
December 31, 1999 21,000,000
March 31, 2000 21,500,000
June 30, 2000 22,000,000
September 30, 2000 22,500,000
December 31, 2000 23,000,000"
and each fiscal quarter
thereafter
3. Section 9.09 of the Credit Agreement is hereby amended by (i)
deleting the dates listed under the heading "Fiscal Quarter Ended Closest to"
and the ratios corresponding thereto and (b) inserting the following new dates
and ratios in lieu thereof:
"March 31, 1998 5.20:1.00
June 30, 1998 5.20:1.00
September 30, 1998 4.90:1.00
December 31, 1998 4.50:1.00
March 31, 1999 4.25:1.00
June 30, 1999 4.00:1.00
September 30, 1999 3.75:1.00
December 31, 1999 3.60:1.00
March 31, 2000 3.50:1.00"
and each fiscal quarter
thereafter
4. Section 9.10 of the Credit Agreement is hereby amended by (i)
deleting the dates listed under the heading "Fiscal Quarter Ended Closest to"
and the ratios corresponding thereto and (b) inserting the following new dates
and ratios in lieu thereof:
"March 31, 1998 1.95:1.00
June 30, 1998 1.95:1.00
September 30, 1998 2.05:1.00
December 31, 1998 2.20:1.00
<PAGE> 3
March 31, 1999 2.30:1.00
June 30, 1999 2.35:1.00
September 30, 1999 2.45:1.00
December 31, 1999 2.60:1.00
March 31, 2000 2.70:1.00
June 30, 2000 2.80:1.00
September 30, 2000 2.85:1.00
December 31, 2000 3.00:1.00"
and each fiscal quarter
thereafter
5. In order to induce the undersigned Banks to enter into this
Amendment, the Borrower hereby represents and warrants that (i) the
representations and warranties contained in the Credit Agreement are true and
correct in all material respects on and as of the First Amendment Effective Date
(as defined in Section 9 of this Amendment) (it being understood and agreed that
any representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct in all material respects only as of
such specified date) and (ii) there exists no Default or Event of Default on the
First Amendment Effective Date, in each case after giving effect to this
Amendment.
6. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
7. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent at the Notice
Office.
8. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
9. This Amendment shall become effective on the date (the "First
Amendment Effective Date") when the Borrower and the Required Banks (i) shall
have signed a counterpart hereof (whether the same or different counterparts)
and (ii) shall have delivered (including by way of facsimile transmission) the
same to the Agent at the Notice Office.
10. From and after the First Amendment Effective Date, all references
in the Credit Agreement and each of the Credit Documents to the Credit Agreement
shall be deemed to be references to the Credit Agreement as amended hereby.
* * * *
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date first above
written.
FLORSHEIM GROUP INC.
By: /S/ Richard J. Anglin
----------------------
Name: Richard J. Anglin
Title: Vice President, Chief Financial Officer
BANKERS TRUST COMPANY,
Individually, and as Agent
By: /S/ Anthony LoGrippo
-----------------------------
Name: Anthony LoGrippo
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
-----------------------------
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
By: /S/ David Bouhl
-----------------------------
Name: David Bouhl, F.V.P.
Title: Head of Corporate Banking, Chicago
By: /S/ Dennis M. Toolan
-----------------------------
Name: Dennis M. Toolan
Title: Senior Vice President
<PAGE> 5
CREDIT LYONNAIS NEW YORK BRANCH
By: /S/ Attila Koc
-----------------------------
Name: Attila Koc
Title: First Vice President
HARRIS TRUST AND SAVINGS BANK
By: /S/ Scott F. Geik
-----------------------------
Name: Scott F. Geik
Title: Vice President
HELLER FINANCIAL, INC.
By: /S/ Patrick Hayes
-----------------------------
Name: Patrick Hayes
Title: Vice President
LASALLE NATIONAL BANK
By: /S/ S.M. Marks
-----------------------------
Name: S.M. Marks
Title: Vice President
SOCIETE GENERALE, CHICAGO BRANCHE
By: /S/ Robert W. Bolt
-----------------------------
Name: Robert W. Bolt
Title: Director
<PAGE> 6
THE SUMITOMO BANK, LIMITED
By:
-----------------------------
Name:
Title:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /S/ Perry Vavoules
-----------------------------
Name: Perry Vavoules
Title: Senior Vice President
<PAGE> 1
FLORSHEIM GROUP EXHIBIT 11
INC.
Statement re computation of Net Earnings Per Common Share
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 29, 1997 April 4, 1998
-------------- -------------
<S> <C> <C>
Basic Weighted Average Number of Shares Outstanding 8,346,051 8,412,901
Common Stock Equivalents 135,489 160,520
Diluted Weighted Average Number of Shares Outstanding 8,481,540 8,573,421
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
[TO COME]
</TABLE>
