<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 3, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________________
TO _______________________
COMMISSION FILE NUMBER 1-13474
FLORSHEIM GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3520923
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 North LaSalle Street, Chicago, Illinois 60601-1014
- ------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 458-2500
---------------
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.
8,453,651 Shares as of May 3, 1999
----------------------------------
===============================================================================
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended April 3, 1999.
Consolidated Balance Sheet:
April 3, 1999
January 2, 1999
Consolidated Statement of Operations and Comprehensive Income:
Three Months Ended April 3, 1999
Three Months Ended April 4, 1998
Consolidated Statement of Cash Flows:
Three Months Ended April 3, 1999
Three Months Ended April 4, 1998
Notes to Consolidated Financial Statements
2
<PAGE> 3
FLORSHEIM GROUP INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
=======================================================================================================
January 2, April 3,
ASSETS 1999 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,931 $ 6,685
Receivables, less allowances of $1,207 at
January 2, 1999 and $1,304 at April 3, 1999 33,370 35,966
Inventories 79,855 80,580
Deferred tax assets, net 4,719 4,738
Prepaid expenses and other current assets 5,451 6,083
- -------------------------------------------------------------------------------------------------------
Total current assets 130,326 134,052
Property, plant and equipment:
Buildings and improvements 23,363 22,952
Machinery and equipment 31,848 32,617
- -------------------------------------------------------------------------------------------------------
55,211 55,569
Less: accumulated depreciation (24,230) (24,667)
- -------------------------------------------------------------------------------------------------------
Net property, plant and equipment 30,981 30,902
Deferred tax assets, net 12,852 12,342
Other assets 25,407 26,283
- -------------------------------------------------------------------------------------------------------
$199,566 $203,579
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------
Current liabilities:
Bank credit facility $ 18,500 $ 24,500
Accounts payable 16,183 14,417
Accrued employee compensation 3,958 4,508
Accrued interest expense 981 514
Other accrued expenses 7,120 6,133
Income taxes payable 132 (51)
- -------------------------------------------------------------------------------------------------------
Total current liabilities 46,874 50,021
Bank credit facility 58,500 58,500
Long-term debt 18,412 18,412
Deferred postretirement benefits other than pension 19,122 19,142
Other long-term liabilities 3,311 3,319
- -------------------------------------------------------------------------------------------------------
Total liabilities 146,219 149,394
Shareholders' equity:
Common stock, 20,000,000 shares authorized, without par value,
$1.00 stated value, 8,453,651 shares issued and outstanding 8,454 8,454
Paid-in capital 50,580 50,577
Accumulated other comprehensive loss -
translation adjustment (2,335) (2,473)
Accumulated deficit (3,352) (2,373)
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 53,347 54,185
- -------------------------------------------------------------------------------------------------------
$199,566 $203,579
- -------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
========================================================================
Three months Three months
ended ended
April 4, April 3,
1998 1999
========================================================================
<S> <C> <C>
Net sales $58,670 $63,525
Cost of sales 30,886 33,402
========================================================================
Gross profit 27,784 30,123
Selling, general and administrative expenses 24,896 26,200
========================================================================
Earnings from operations 2,888 3,923
Interest expense, net 2,066 2,397
========================================================================
Earnings before income tax expense 822 1,526
Income tax expense 296 547
========================================================================
Net earnings $ 526 $ 979
Other comprehensive loss, net of tax:
Foreign currency translation adjustment (37) (138)
========================================================================
Comprehensive earnings $ 489 $ 841
========================================================================
Earnings per share:
Basic $ 0.06 $ 0.12
Diluted 0.06 0.11
Weighted average number of shares outstanding:
Basic 8,413 8,454
Diluted 8,573 8,526
========================================================================
</TABLE>
4
<PAGE> 5
FLORSHEIM GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
===============================================================================================
Three months Three months
ended ended
April 4, April 3,
1998 1999
===============================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 526 $ 979
Adjustments to reconcile net earnings to net cash
used in operating activities
Gain on disposal of assets (22) (10)
Depreciation and amortization 1,205 1,518
Deferred taxes 168 491
Noncash interest expense 108 108
Increase in receivables (5,426) (2,596)
Decrease (increase) in inventories 3,529 (725)
Increase in prepaid expenses and other assets (859) (1,598)
Decrease in accounts payable, accrued
interest expense and other accrued expenses (6,111) (2,857)
Increase (decrease) in other long-term liabilities (63) 28
- -----------------------------------------------------------------------------------------------
Net cash used in operating activities (6,945) (4,662)
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from the disposal of assets 277 10
Additions to property, plant and equipment (1,624) (1,594)
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (1,347) (1,584)
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under bank credit facility 5,000 6,000
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,000 6,000
- -----------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (3,292) (246)
Cash and cash equivalents at beginning of period 7,195 6,931
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,903 $ 6,685
- -----------------------------------------------------------------------------------------------
Supplemental disclosure:
Cash payments for income taxes, net $ 860 $ 1,221
Cash payments for interest $ 2,547 $ 2,756
===============================================================================================
</TABLE>
5
<PAGE> 6
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation
have been included. Operating results for the three month period ended
April 3, 1999 are not necessarily indicative of the results that may
be expected for the year ended January 1, 2000.
The balance sheet at January 2, 1999 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report in Form 10-K for the fiscal year ended January 2, 1999.
(2) INVENTORIES
Inventories are summarized as follows:
====================================================================
January 2, April 3,
1999 1999
--------------------------------------------------------------------
Retail merchandise $39,375 $30,858
Finished Products 32,621 37,453
Work-in-Process 1,172 1,007
Raw materials 6,687 11,262
------- -------
$79,855 $80,580
======= =======
====================================================================
6
<PAGE> 7
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
(3) EARNINGS PER SHARE
The Company presents basic and diluted earnings per share. Basic
earnings excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings reflects
the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the equity. Basic and diluted earnings per
share do not include securities in instances where they would be
antidilutive.
The following table provides a reconciliation of the weighted average
shares outstanding used in calculating basic and diluted earnings per
share:
====================================================================
Fiscal Year Ended
-----------------------
April 4, April 3,
1999 1999
--------------------------------------------------------------------
Weighted average shares
outstanding-basic $ 8,413 8,454
Assumed exercise of stock options 160 72
------- -------
Weighted average shares
outstanding - diluted 8,573 8,526
------- -------
====================================================================
7
<PAGE> 8
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
(4) BUSINESS SEGMENT INFORMATION
Operating segment information is as follows:
<TABLE>
<CAPTION>
=========================================================================
Three Months Ended
April 4, April 3,
1998 1999
------------------------------------
Net Sales
------------------------------------
<S> <C> <C>
U.S. Wholesale $ 20,929 $ 26,607
U.S. Retail 26,299 25,012
International 11,442 11,906
-------- ---------
$ 58,670 $ 63,525
======== =========
Earnings (Loss) from Operations
------------------------------------
U.S. Wholesale $ 4,785 $ 3,813
U.S. Retail (2,596) (655)
International 699 765
-------- ---------
$ 2,888 $ 3,923
======== =========
Total Assets
------------------------------------
January 2, April 3,
1999 1999
----------- -----------
U.S. Wholesale $105,459 $ 108,824
U.S. Retail 71,544 70,898
International 22,563 23,857
-------- ---------
$199,566 $ 203,579
======== =========
</TABLE>
=========================================================================
U.S. Wholesale includes certain corporate expenses and assets which are not
charged to other reportable segments.
8
<PAGE> 9
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
(5) SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
At April 3, 1999, Florsheim had $18,412 of senior notes outstanding.
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 2, 1999 and
April 3, 1999, condensed consolidating statements of operations
and statements of cash flows for the three months ended April 4,
1998 and the three months ended April 3, 1999, 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 subsidiary by dividend or loan.
9
<PAGE> 10
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================================
Condensed Consolidating Balance Sheet
January 2, 1999
===================================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 3,030 $ 1,047 $ 2,854 $ - $ 6,931
Receivables, net 30,280 169 5,372 (2,451) 33,370
Inventories 52,483 16,848 10,524 - 79,855
Prepaid expenses and
other current assets 7,811 746 2,225 (612) 10,170
Total current assets 93,604 18,810 20,975 (3,063) 130,326
Net property, plant and
equipment 24,524 4,101 2,356 - 30,981
Other assets 39,550 (1,343) 52 - 38,259
Investments in subsidiaries 37,210 - - (37,210) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $194,888 $ 21,568 $23,383 $(40,273) $199,566
===================================================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Bank credit facility $ 18,500 $ - $ - $ - $ 18,500
Accounts payable 15,432 194 3,008 (2,451) 16,183
Accrued expenses
and other current
liabilities 8,264 1,244 2,683 - 12,191
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 42,196 1,438 5,691 (2,451) 46,874
Deferred postretirement
benefits 19,122 - - - 19,122
Long-term debt, less
current maturities 76,912 - - - 76,912
Other long-term liabilities 3,311 - 612 (612) 3,311
Shareholders' equity 53,347 20,130 17,080 (37,210) 53,347
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $194,888 $ 21,568 $23,383 $(40,273) $199,566
===================================================================================================================================
</TABLE>
10
<PAGE> 11
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================================
Condensed Consolidating Balance Sheet
April 3, 1999
===================================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash
equivalents $ 3,403 $ 313 $ 2,969 $ - $ 6,685
Receivables, net 33,326 115 6,500 (3,975) 35,966
Inventories 53,186 17,077 10,317 - 80,580
Prepaid expenses and
other current assets 8,425 809 1,587 - 10,821
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 98,340 18,314 21,373 (3,975) 134,052
Net property, plant and
equipment 24,504 4,033 2,365 - 30,902
Other assets 37,552 - 1,073 - 38,625
Investments in subsidiaries 37,945 - - (37,945) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $198,341 $22,347 $24,811 $ (41,920) $ 203,579
===================================================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Bank credit facility $ 24,500 $ - $ - $ - $ 24,500
Accounts payable 12,559 499 5,334 (3,975) 14,417
Accrued expenses
and other current
liabilities 7,724 1,711 1,669 - 11,104
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 44,783 2,210 7,003 (3,975) 50,021
Long-term debt, less
current maturities 76,912 - - - 76,912
Deferred postretirement
benefits 19,142 - - - 19,142
Other long-term liabilities 3,319 - - - 3,319
Shareholders' equity 54,185 20,137 17,808 (37,945) 54,185
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $198,341 $22,347 $24,811 $ (41,920) $ 203,579
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
====================================================================================================================================
Condensed Consolidating Statements of Operations
For three months ended April 4, 1998
====================================================================================================================================
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 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
====================================================================================================================================
<CAPTION>
For three months ended April 3, 1999
====================================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 45,688 $ 10,208 $ 10,686 $(3,057) $ 63,525
Cost of sales 24,991 4,975 6,493 (3,057) 33,402
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 20,697 5,233 4,193 - 30,123
Selling, general and
administrative expenses 17,545 5,226 3,429 - 26,200
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings from operations 3,152 7 764 - 3,923
Interest expense 2,396 - 1 - 2,397
- ------------------------------------------------------------------------------------------------------------------------------------
Equity in earnings of subsidiaries,
net of tax 735 - - (735) -
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income
tax expense 1,491 7 763 (735) 1,526
Income tax expense 512 - 35 - 547
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 979 $ 7 $ 728 $ (735) $ 979
====================================================================================================================================
</TABLE>
12
<PAGE> 13
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
================================================================================================================================
Condensed Consolidating Statements of Cash Flows
For three months ended April 4, 1998
================================================================================================================================
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 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-Short Term 5,000 - - - 5,000
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 4,963 (438) 1 474 5,000
- --------------------------------------------------------------------------------------------------------------------------------
Net decrease 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>
13
<PAGE> 14
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
=================================================================================================================
Condensed Consolidating Statements of Cash Flows
For three months ended April 3, 1999
=================================================================================================================
Guarantor Nonguarantor
Parent subsidiaries subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (4,181) $ (734) $ 253 $ - $ (4,662)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from the
disposal of assets 10 - - - 10
Additions to property,
plant and equipment (1,594) - - - (1,594)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing -
activities (1,584) - - - (1,584)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Net capital contribution
from (to) Parent 138 - (138) - -
Revolving facility-Short Term 6,000 - - - 6,000
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 6,138 - (138) - 6,000
- -----------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash
equivalents 373 (734) 115 - (246)
Cash and cash equivalents
at beginning of period 3,030 1,047 2,854 - 6,931
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 3,403 $ 313 $ 2,969 $ - $ 6,685
=================================================================================================================
</TABLE>
14
<PAGE> 15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 3, 1999 COMPARED TO THREE MONTHS ENDED APRIL 4, 1998.
The following tables set forth, for the periods indicated, certain historical
operating data, expressed in thousands of dollars and retail store information.
<TABLE>
<CAPTION>
=====================================================================================
Three months ended
------------------------------------
(Dollars in thousands) April 4, 1998 April 3, 1999
- -------------------------------------------------------------------------------------
Amount Amount
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net sales:
U.S. Wholesale $ 20,929 $26,607
U.S. Retail 26,299 25,012
International (including
exports from U.S.) 11,442 11,906
- -------------------------------------------------------------------------------------
Total net sales 58,670 63,525
======== =======
Percent change in same store
sales (1) (7.2)% 5.4%
- -------------------------------------------------------------------------------------
Number of retail stores:
U.S. specialty 185 169
U.S. outlets 92 75
International 52 53
-------- -------
Total 329 297
======== =======
=====================================================================================
</TABLE>
(1) Includes only those figures for U.S. specialty stores that have been in
operation for a least twelve full months. Percentage change reflects
figures for period depicted as compared to the figures from the prior
period.
15
<PAGE> 16
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
Net sales for the three months ended April 3, 1999 were $63.5 million, up $4.9
million, or 8.3%, as compared to the three months ended April 4, 1998. U.S.
Wholesale net sales increased $5.7 million, or 27.1%, due primarily to increased
sales to department stores. The first quarter of 1999 included the rollout of
the Company's @ease product line into Sears Roebuck & Co. The Company also had
strong sales to JC Penney Co. in the 1999 period. JC Penney Co. became a new
customer to the company in the second quarter of 1998. U.S. Wholesale also
showed improved sales of its new products, particularly success of its new
MagneForce golf shoe line. U.S. retail net sales decreased $1.3 million, or
4.9%, due to planned store closings in the first quarter 1999. On a same store
basis, sales were up 5.4% over the first quarter of 1998 as a result of the
success of the spring product line.
Gross profit margin for the first quarter 1999 was 47.4% of net sales, unchanged
from the first quarter 1998. While each of the business segments (Wholesale,
Retail and International) had strong margin rates, the mix of business resulted
in a flat rate compared to last year. Wholesale, which has a lower margin rate,
has grown faster than Retail.
Selling, general and administrative expenses for the first quarter of 1999 were
$26.2 million, an increase of $1.3 million or 5.2%, from first quarter of 1998.
Selling, general and administrative expenses for first quarter of 1999 were
41.2% of net sales compared to 42.4% for first quarter of 1998.
Earnings from operations were $3.9 million in the first quarter of 1999 compared
to $2.9 million in the first quarter of 1998. The increase in earnings resulted
primarily from the increased sales volume and improved performance in the U.S.
Retail operations.
Interest expense for the first quarter of 1999 was $2.4 million, as compared to
the first quarter of 1998 amount of $2.1 million. This increase is due to the
higher average outstanding borrowings under the bank credit facility.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at April 3, 1999 was $84.0 million, as compared to $83.4 million
at January 2, 1999. Borrowings under the Company's bank credit facility were
$83.0 million at April 3, 1999, compared to $77.0 million at January 2, 1999.
Additional borrowings were made to finance receivables and reduce accounts
payable and accrued expenses.
INFORMATION TECHNOLOGY UPGRADE AND YEAR 2000
General, The Company is currently working to resolve the potential impact of the
Year 2000 Issue on the processing of time-sensitive information by its
computerized information systems. Year 2000 issues may arise as the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This situation could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
related activities.
The Company named a task force in April 1998 to assess and develop action plans
to address and assess the potential impact of the Year 2000 Issue. The task
force is also responsible to evaluate the exposures from third party (e.g.
suppliers and customers) failures to correct their systems for Year 2000.
Commencing in May 1998, questionnaires were sent to the third parties identified
by various areas of the Company's operating units and the task force is in the
process of receiving and will review all responses to identify potential Year
2000 risks.
16
<PAGE> 17
FLORSHEIM GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended April 3, 1999
(Dollars in thousands)
(Unaudited)
Internal Systems, The Company completed an assessment of the impact of the Year
2000 issues on its internal systems and determined that it has to modify or
replace portions of its computer hardware and software to enable these systems
to function properly with respect to dates in the Year 2000 and thereafter.
These issues are being addressed as part of the overall information technology
upgrade described in the following paragraph. The Company believes that the Year
2000 issue will not pose significant operational problems for its internal
computer systems.
The Company is in the process of a significant information technology upgrade,
costing approximately $12.9 million, which is being capitalized during 1997,
1998 and 1999. The Year 2000 issue is being addressed within this upgrade. The
Company will utilize both internal and external resources to reprogram or
replace, and test equipment and software to resolve the Year 2000 Issue. The
Company has competed two of the three phases of the upgrade, which include the
financial systems and the wholesale and warehouse systems. The Company
anticipates completing the retail system which is the third phase of system
upgrade and the Year 2000 project no later than October, 1999. The Company is
currently developing a contingency plan for the retail system. Total costs for
the system upgrade to date are approximately $8.7 million.
The costs of the systems project and the date on which the Company believes it
will complete the Year 2000 modifications are based upon management's best
estimates, which were derived by utilizing numerous assumptions of future
events, including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and the actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes and the impact of third party information system failures.
Suppliers. The Company utilizes numerous suppliers to supply materials and
components for its various products. As noted above, the Company has surveyed
all of its major suppliers regarding their Year 2000 status. A number of
suppliers have returned completed questionnaires to the Company, some of which
state that they are either Year 2000 compliant or that they anticipate that they
will be Year 2000 compliant by a date early enough to avoid any disruption.
However, the Company, is unable to verify this information, and it is possible
that the advice received from suppliers may be erroneous. Moreover, certain
suppliers have not yet responded to the Company's request for information and
may not be Year 2000 compliant. The Company does not currently anticipate that
suppliers' Year 2000 issues would have a material adverse effect on the Company
but is still evaluating the issue.
Service Providers. The Company has submitted questionnaires to, but is not
currently aware of the Year 2000 readiness of, certain outside service companies
such as freight, telecommunications are utility providers. Failure of certain of
these providers to be Year 2000 compliant could have a material adverse effect
on the Company which is not currently quantifiable, and it is possible that the
Company's operations could be seriously disrupted.
Customers. The Company's major customers have been surveyed by the Company for
Year 2000 compliance, and the Company is in the process of evaluating responses.
A customer's Year 2000 issues could cause a delay in receipt of purchase orders
or in payment. If Year 2000 issues are widespread among the Company's customers,
the Company's sales and cash flows could be materially adversely affected.
17
<PAGE> 18
FORWARD LOOKING STATEMENTS
When used in this discussion, the words "believes" and "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, over which the Company has no
control, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligations to republish revised forward-looking statements to reflect events or
circumstances after the date thereof or to reflect the occurrence of
unanticipated events. Readers are also urged to carefully review and consider
the various disclosures made by the Company in this report, as well as the
Company's periodic reports with the Securities Exchange Commission.
Item 3. QUANTITATIVE AND QUANTITATIVE DISCLOSURE
ABOUT MARKET RISKS
Not Applicable.
18
<PAGE> 19
PART II OTHER INFORMATION
Item 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
27. Financial Data Schedule.
(b) Form 8-K was not required to be filed during the quarter ended
April 3, 1999.
19
<PAGE> 20
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 17, 1999
20
<PAGE> 21
EXHIBIT INDEX
Exhibit Sequential
No. Page No.
- ------- ----------
27 Financial Data Schedule 19
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<EXCHANGE-RATE> 1
<CASH> 5,417
<SECURITIES> 1,268
<RECEIVABLES> 35,966
<ALLOWANCES> 1,304
<INVENTORY> 80,580
<CURRENT-ASSETS> 134,052
<PP&E> 30,902
<DEPRECIATION> 1,673
<TOTAL-ASSETS> 203,579
<CURRENT-LIABILITIES> 50,021
<BONDS> 76,912
0
0
<COMMON> 8,454
<OTHER-SE> 45,731
<TOTAL-LIABILITY-AND-EQUITY> 203,579
<SALES> 63,525
<TOTAL-REVENUES> 63,525
<CGS> 33,402
<TOTAL-COSTS> 26,268
<OTHER-EXPENSES> (26)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,397
<INCOME-PRETAX> 1,526
<INCOME-TAX> 547
<INCOME-CONTINUING> 979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 979
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
