e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the fiscal year ended December 31, 2010
or
|
|
|
o |
|
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: 000-23800
LaCrosse Footwear, Inc.
(Exact name of registrant as specified in its charter)
Wisconsin
(State or other jurisdiction
of incorporation or organization)
39-1446816
(I.R.S. Employer Identification No.)
17634 NE Airport Way
Portland, Oregon
(Address
of principal executive offices)
97230
(Zip code)
Registrants telephone number, including area code: (503) 262-0110
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
Title of Each Class:
|
|
Name of each exchange on which registered : |
Common Stock, $.01 par value per share
|
|
NASDAQ Global Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark whether the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
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 requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller Reporting Company þ |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the
registrant computed by reference to the closing price of the Companys common stock on the NASDAQ
Global Market as of June 26, 2010, the last business day of the registrants most recently
completed second fiscal quarter, was $88,642,270.
Number of shares of the registrants common stock outstanding at February 25, 2011: 6,499,530
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Companys 2011 Annual Meeting of Shareholders have been
incorporated by reference into Part III of this Form 10-K. The Proxy Statement is expected to be
filed with the Commission within 120 days after December 31, 2010, the end of the Companys fiscal
year.
Forward Looking Statements
This Annual Report on Form 10-K, including Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7, contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. LaCrosse Footwear, Inc.
(LaCrosse or the Company) may also make forward-looking statements in other reports filed with
the SEC, in materials delivered to stockholders and in press releases. In addition, the Companys
representatives may from time to time make oral forward-looking statements.
Forward-looking statements relate to future events and typically address the Companys expected
future business and financial performance. Words such as plan, expect, aim, believe,
project, target, anticipate, intend, estimate, will, should, could and other terms
of similar meaning typically identify such forward-looking statements. In particular, these
include statements about the Companys strategy for growth, growing demand, product development,
market position, future performance or results of current or anticipated products, interest rates,
foreign exchange rates, future financial results, impact of the expansion of our domestic
production capacity, our ability to recover increased costs through associated increases in the
price of our products, our relationships with customers and suppliers, our ability to find
alternative suppliers, future business volumes with the U.S. government, expectations concerning
future capital expenditures, future cash dividend policies, future pension plan contributions, the
adequacy of our existing resources and anticipated cash flows from operations to satisfy our
working capital needs, and the outcome of contingencies, such as legal proceedings. The Company
assumes no obligation to update or revise any forward-looking statements.
Forward-looking statements are based on certain assumptions and expectations of future events and
trends that are subject to risks and uncertainties. Actual future results and trends may differ
materially from historical results or those reflected in any such forward-looking statements
depending on a variety of factors. Discussion of these factors is incorporated by reference from
Part I, Item 1A, Risk Factors, and should be considered an integral part of Part II, Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations.
PART I
Item 1. Business
Unless the context requires otherwise, references in this Annual Report to we, us or our
refer collectively to LaCrosse Footwear, Inc. and its subsidiaries.
General
The Company is a leading developer and marketer of branded, premium and innovative footwear for
work and outdoor users. Our trusted DANNER® and LACROSSE® brands are
distributed domestically through a nationwide network of retailers and distributors, and
internationally through our Danish subsidiary, LaCrosse Europe ApS, and distributors and retailers
in Asia, Europe and North America. Work consumers include people in military services, law
enforcement, transportation, mining, oil and gas exploration and extraction, construction and other
occupations that require high-performance and protective footwear as a critical tool for the job.
Outdoor consumers include people active in hunting, outdoor cross-training, hiking and other
outdoor recreational activities.
Company History
LaCrosse traces its roots back to 1897, with the founding of La Crosse Rubber Mills, a manufacturer
of rubber and vinyl footwear. Located in La Crosse, Wisconsin, the original company was purchased
from the founders in 1982 by George Schneider and the Schneider family. LaCrosse Footwear, Inc.
was incorporated under the
-1-
laws of Wisconsin on August 15, 1983. Shortly after incorporation we entered into an exclusive
distribution agreement with a distributor in Japan and our relationship with that distributor
continues today. In 1994, we expanded our brand portfolio through the acquisition of Danner Shoe
Manufacturing, a premium maker of leather boots since 1932, located in Portland, Oregon. Danner
had developed a strong reputation among loggers, shipyard workers and outdoor enthusiasts.
In 2005, we opened our first international office in China to diversify our manufacturing capacity
and ensure our high quality standards are met. In 2006, we opened our new Danner distribution
center and corporate headquarters in Portland, Oregon. In 2008, LaCrosse Europe, Inc. and its
wholly-owned subsidiary, LaCrosse Europe ApS, were established in Copenhagen, Denmark, to acquire
certain assets of our former European distributor and to strengthen LaCrosses direct sales and
marketing support to customers in Europe. In 2009, we opened our new Midwest distribution center
for our LACROSSE® brand in Indianapolis, Indiana. In 2010, we opened our new Danner factory and
factory store in Portland, Oregon. Our new, world-class Danner factory significantly increases our
capacity to meet worldwide demand from our customers in the work, military, law enforcement,
outdoor recreation, hunting and Japanese markets who depend on our U.S.-manufactured
DANNER® footwear being crafted to the very highest standards. Our new factory store
provides increased floor space to showcase a broader range of products, features onsite master
craftsmen in our recrafting operation, and highlights the Danner craftsmanship story.
Corporate Strategy
Our corporate strategic initiatives include the following:
|
|
|
Build identity, expand awareness and create demand for the DANNER® and
LACROSSE® brands. |
|
|
|
|
Identify and develop new products and technologies that can be leveraged across multiple
market segments. |
|
|
|
|
Increase demand through our four distribution channels and work and outdoor market
categories. |
|
|
|
|
Improve operational efficiency. |
|
|
|
|
Maximize return on capital. |
Product Positioning and Branding
During 2010, we offered 326 styles of footwear. Our branded product offerings for the work and
outdoor markets include the following brands:
Danner
The DANNER® brand is known for crafting higher standards in premium footwear, with
rugged designs that exceed customer expectations for performance and quality, and with a classic
outdoor heritage and authentic character. The brand represents the highest level of performance
and features with a select line of high-quality, feature-driven footwear products at premium
prices. Danner products consist of premium quality work and outdoor boots with many features
including our stitch-down manufacturing process, which provides outstanding support and built-in
comfort. Danner was the first footwear manufacturer to include a waterproof, breathable
GORE-TEX® liner in its leather boots. Danners product offerings include product
categories such as uniform, hunting, work, hiking and related accessories.
LaCrosse
The LACROSSE® brand builds products designed to help the consumer dominate their
ground whether in work or recreation. Among our target customers, the LACROSSE® brand is known for
high performance in the field and on the job. Designed for durability and reliability, LaCrosse
boots are built to satisfy specific end-user
needs, such as being protective against water, extreme cold, chemicals and other harsh
environments.
-2-
LaCrosses product offerings include product categories such as hunting, work, cold weather
and related accessories.
Work and Outdoor Markets
In 2010, 2009 and 2008 sales into the work market represented approximately 63%, 63%, and 59% of
our total net sales, respectively, and sales to the outdoor market represented approximately 37%,
37%, and 41% of our total net sales, respectively.
Product Design and Development
Our product design and development concepts originate from our staff and through communication with
our customers and suppliers. We stay in constant contact with our customers to understand consumer
demand and trends. Product concepts are based upon perceived consumer needs and may include new
technological developments in footwear and materials.
Consumers, sales representatives and suppliers all provide information to our marketing and product
development personnel during the concept, development and testing of new products. Our marketing
and product development personnel, at times in conjunction with design consultants, determine the
final aesthetics of the product. Once a product design is approved for production, responsibility
is shared with outside sourcing facilities or with our domestic manufacturing facility for pattern
development and commercialization. Our presence in Portland, Oregon provides access to a broad
talent pool of footwear design professionals.
Customers, Sales, and Distribution Channels
We market our two brands, LACROSSE® and DANNER®, through four channels of
distribution: (1) wholesale, (2) government, (3) direct, and (4) international.
Within the wholesale channel, the LACROSSE® and DANNER® brands are marketed
through our employee field sales staff and certain independent distributors. A national account
sales team complements the sales activities for the brands.
Our wholesale channel accounts consist of approximately 3,400 customers, including sporting goods
and outdoor retailers, general merchandise and independent shoe stores, wholesalers, and industrial
distributors. Our wholesale customer base is diversified as to size and location of customers
and markets served.
The government channel, in which we position the DANNER® brand, provides performance
footwear built to meet the demands and specific requirements for multiple branches of the U.S.
military as well as federal, state, and other government agencies. Many of these products are
manufactured in the Companys ISO 9001 certified manufacturing facility located in Portland,
Oregon. In addition to receiving direct orders for these products from the respective branches of
the military, Danner military products are also available through retail and exchange stores on
U.S. Marine Corps, U.S. Army, and U.S. Air Force bases, and on Danners web site (www.danner.com).
Through the direct channel of distribution, we currently operate four Internet websites for use by
consumers and retailers. The primary purposes of the consumer-oriented websites are to provide
product and company information and to sell products to consumers who choose to purchase directly
from us. From a direct channel standpoint, we believe each brand is positioned uniquely in the
marketplace to capitalize on differences in end-user expectations for performance, price, and
function.
The direct channel also includes our flagship Danner factory store in Portland, Oregon. The
factory store sells first quality products, factory seconds, and slow-moving merchandise for both
DANNER® and LACROSSE®
brands. In 2010, we relocated our factory store approximately one mile from its previous location.
Our new
-3-
factory store provides increased floor space to showcase a broader range of products,
features onsite master craftsmen in our recrafting operation, and highlights the Danner
craftsmanship story. Refer to Item 2. Properties in this Form 10-K for further information.
International sales are derived through the Companys European subsidiary sales staff, its Japanese
distributor and through various independent distributor and dealer networks in other countries
outside of the United States.
Advertising and Promotion
We create customized advertising and marketing materials and programs for each brand and
distribution channel, which allows us to emphasize relevant product features that have special
appeal to the applicable targeted consumer.
We advertise and promote our products through a variety of methods including national and regional
print, targeted broadcast media and out-of-home advertising, public relations, point-of-sale
displays, catalogs and packaging, sponsorships, online promotion and co-promotion with dealers and
suppliers. Our largest marketing investments include:
|
|
|
Marketing development funds provided by the Company to help our retail customers market
and sell Danner and LaCrosse products through advertising, local retail partner events and
similar activities; |
|
|
|
|
Marketing material updates, website upgrades, campaign development and related
advertising; and |
|
|
|
|
Visual merchandising, which focuses on all branded point-of-sale development and
production. |
We believe that once consumers understand the features and benefits of our products, they will be
more likely to become loyal consumers. As such, we are committed to ensuring that the benefits,
features and advanced technologies of all our products are clearly articulated at our customers
retail stores. We have established retail store education programs to train the sales associates of
key retailers on our unique product attributes. We coordinate with retail store managers to
improve product positioning and point-of-sale information displays.
Manufacturing and Sourcing
Manufacturing Overview
We source approximately two-thirds of the products we sell through a network of international
contract manufacturers, primarily in Asia, with the remaining one-third manufactured domestically
in our Portland, Oregon facility. In August 2010, we moved our Danner factory to a 59,000 square
foot industrial building approximately one mile from our corporate headquarters. Our new facility
significantly enables us to extend our great tradition of superior craftsmanship by significantly
increasing our capacity to meet demand from our customers in the work, military, law enforcement,
outdoor recreation, hunting and Japanese markets who depend on our U.S.-manufactured
DANNER® footwear being crafted to the very highest standards. Furthermore, this
state-of-the-art facility allows us to continue to innovate with new footwear designs and
production processes by expanding our overall capabilities and capacity. The new factory also
improves our operating efficiencies by incorporating the latest lean manufacturing techniques to
meet at-once demand.
-4-
Sourcing Overview
LaCrosse International, Inc. is a wholly owned subsidiary of LaCrosse Footwear, Inc. with an office
in Zhongshan, China. LaCrosse International has three primary functions:
|
|
|
Work with suppliers to maintain our standards for high quality products; |
|
|
|
|
Locate and develop relationships with complementary sourcing alternatives; and |
|
|
|
|
Increase speed to market for new products. |
We do not have any long-term contracts with our contract manufacturers, choosing instead to retain
the flexibility to re-evaluate our sourcing and manufacturing base on an ongoing basis.
Substantially all of our transactions with our foreign contract manufacturers are denominated in
U.S. dollars. However, these U.S. dollar prices are impacted by foreign currency exchange rates
and commodity prices. We regularly evaluate our vendors on the quality of their work, cost and
ability to deliver on time.
The raw materials used in production of our products are primarily leather and crude rubber. We
have historically been able to recover any significant increases in raw material costs as well as
increases in direct labor costs through associated product price increases.
Both our contract manufacturers and our domestic manufacturing facility purchase
GORE-TEX® waterproof fabric directly from W.L. Gore and Associates (Gore), for both
LaCrosse and Danner footwear. GORE-TEX® is a registered trademark of Gore. Over 75% of
Danner styles are lined with GORE-TEX®. While we believe that our relationship with
Gore is good, our contracts with Gore are terminable by either party upon 180 days written notice.
In the event the relationship was to terminate, we have identified other sources of products with
similar characteristics.
Competition
The categories of the footwear markets in which we operate are highly competitive. We compete with
numerous other manufacturers and distributors, many of whom have substantially greater financial,
distribution and marketing resources than we do. Because we have a broad product line, our
competition varies by product category. We believe that we maintain a competitive position through
the strength of our brands, our attention to quality, delivery of value, position as an innovator,
our record of delivering products on a timely basis, strong customer relationships, and, in some
cases, the breadth of our product line.
Certain of our competitors in leather footwear categories have strong brand name recognition in the
markets they serve and are the major competitors of our DANNER® and LACROSSE®
leather product lines. These competitors manufacture domestically and/or import products from
offshore. Domestically manufactured DANNER® brand products are generally at a price
disadvantage against lower-cost imported products. Danner focuses on the premium quality, premium
price segment of the market in which product function, design, comfort, quality, continued
technological improvements, brand awareness, and timeliness of product delivery are the overriding
characteristics that consumers demand. By devoting attention to these factors, we believe that the
DANNER® footwear line has maintained a strong competitive position in our market.
Several rubber boot marketers with strong brand recognition in their respective markets are
competitors of the LACROSSE® brand. We occupy a favorable niche in the higher price
segments of the work and outdoor rubber boot markets. Our history of supplying quality rubber
boots, all of which are currently sourced from overseas suppliers, has provided a foundation to
compete effectively. Other suppliers offer similar products, some at
lower prices and quality levels, against which we must effectively compete. We believe that our
superior quality products, innovation and design leadership, coupled with solid delivery and
customer support enables us to effectively compete in this market.
-5-
Employees
As of December 31, 2010, we had 499 employees located in the United States, 11 employees in China
and 6 in Denmark. Substantially all employees are full time. Approximately 260 employees in our
Portland, Oregon facilities are represented by the United Food & Commercial Workers Union (UFCW)
under a collective bargaining agreement that will expire in January 2012.
Trademarks and Trade Names; Patents
We own United States federal registrations for several of our trademarks, including
LACROSSE®, DANNER®, BURLY®, ALPHA-BURLY®, the stylized
Indianhead design that serves as our logo, ICE KING®, ICEMAN®, TERRA
FORCE®, HYPER-DRI®, CAMOHIDETM, ACADIA®, QUAD
COMFORT®, STRIKER®, PRONGHORNTM, and TFX®. We rely on
common law trademark rights for all unregistered brands. We defend our trademarks and trade names
against infringement to the fullest extent practicable under the law. Each federally registered
trademark is renewable indefinitely if the trademark is still in use at the time of renewal.
Pursuant to our agreements with Gore we are permitted to use the GORE-TEX® mark to
designate our footwear styles lined with GORE-TEX® waterproof fabric.
We also own several United States patents related to our footwear and have other technologies that
are patent-pending at this time. Our portfolio of issued patents currently extends as far as 2027.
We register our trademarks, tradenames and patents in foreign jurisdictions based on the footwear
styles and brands introduced to the relevant jurisdiction.
Seasonality
Sales have been historically higher during the second half of the year due primarily to greater
consumer demand for our outdoor product offerings during the fall and winter months. Accordingly,
the amount of our fixed operating expenses represents a larger percentage of our net sales in the
first two quarters than in the last two quarters of each year. We expect this seasonality to
continue in the coming periods.
We place orders for products sourced from overseas suppliers during the first quarter with
anticipated deliveries starting late in the second quarter. As a result, our inventories generally
peak early in the third quarter, and then trend down to the end of the year.
Factors other than seasonality could have a significant impact on our sales backlog. Our order
backlog may experience cancellations by our customers. Accordingly, our backlog at any point in
time may not be indicative of future results.
Additionally, the timing of receipt of large military contracts has historically caused
fluctuations in our quarterly revenue patterns. During periods in which we receive fewer military
contract sales, our fixed operating expenses will represent a larger percentage of net sales.
Foreign Operations and Sales Outside of the United States
As previously noted, we maintain offices in China and Denmark to support our contract manufacturers
and European sales staff, respectively. Our sales outside of the Unites States are conducted
through our European subsidiary, our Japan distributor, and certain other distribution partners.
Such sales accounted for approximately 6%, 5%, and 6% of our net sales in 2010, 2009, and 2008,
respectively.
-6-
The net book value of fixed assets located outside of the U.S. totaled $0.7 million, $0.5 million,
and $0.6 million at December 31, 2010, 2009, and 2008, respectively. Such assets consist primarily
of manufacturing assets, office equipment and software.
Environmental Matters
We are subject to environmental laws and regulations concerning emissions to the air, discharges to
waterways and the generation, handling, storage, transportation, treatment and disposal of waste
materials. Such laws and regulations are constantly evolving and it is difficult to accurately
assess the effect they will have on our operations in the future.
Compliance with federal, state and local requirements regulating the discharge of materials into
the environment, or otherwise relating to the protection of the environment, have not had, nor are
they anticipated to have in the future, a material effect on our capital expenditures, earnings or
competitive position.
Executive Officers of the Registrant
The following table lists the names, ages and titles of our executive officers. All executive
officers serve at the discretion of the Companys Board of Directors.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Joseph P. Schneider
|
|
|
51 |
|
|
President, Chief Executive Officer and Director |
David P. Carlson
|
|
|
55 |
|
|
Executive Vice President, Chief Financial Officer, and Secretary |
Ross M. Vonhoff
|
|
|
45 |
|
|
Senior Vice President of Operations and Marketing |
C. Kirk Layton
|
|
|
55 |
|
|
Vice President of Finance and Assistant Secretary |
Where You Can Find More Information
We file annual reports, quarterly reports, current reports, proxy statements and other information
with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 as
amended (Exchange Act). Copies of our reports, proxy statements and other information filed with
the SEC are available for inspection at the offices of the SECs Public Reference Room, 100 F
Street NE, Washington, D.C. 20549. The SEC may be contacted at 1-800-SEC-0330 for further
information. The SEC maintains an Internet site at www.sec.gov where SEC filings can be
obtained. We also make available on our corporate website at www.lacrossefootwearinc.com,
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act as soon as reasonably practicable after they are filed electronically with the SEC. The
information found on our website is not part of this Form 10-K. Our investor relations department
can also be contacted for such reports at (800) 654-3517.
Item 1A. Risk Factors
In evaluating our Company, careful consideration should be given to the following risk factors, in
addition to the other information included in this Annual Report on Form 10-K. Each of these risk
factors could adversely affect our business, future operating results and/or financial condition,
as well as adversely affect the value of an investment in our common stock. In addition to the
following disclosures, please refer to the other information contained in this report, including
the consolidated financial statements and the related notes.
-7-
Sales to the U.S. Government, which are becoming an increasingly significant portion of our net
sales, may not continue at current levels, or we may not be able to fill these orders due to
facility constraints. Additionally, we may continue to experience significant fluctuations in our
quarterly revenue performance due to the timing of orders and requested shipment dates for U.S.
government contract orders.
Our ability to continue to generate sales growth in the government channel is partially dependent
upon a wide range of factors, some of which are outside of our ability to control. Such factors
include the current U.S. governments policies regarding troop deployments in various global
regions requiring our specialized footwear, the potential for reductions in the U.S. budget, our
ability to meet aggressive delivery schedules, and increased competition from other footwear
suppliers who may compete more effectively on the basis of price. Additionally, a substantial
portion of our U.S. government sales must be produced by our domestic manufacturing facility. We
may experience disruptions in manufacturing and shipping products to our customers. Any such delay
or disruption would adversely affect our results of operations. Being unable to fill orders on a
timely basis could cause us to lose future orders from these sources and other customers in the
work, law enforcement, Japanese and other markets who depend on our U.S.-manufactured Danner
footwear being crafted to the very highest standards and being delivered on schedule. Given that
government orders can be sporadic, we may incur fixed costs associated with this operation even if
the orders do not support such levels of fixed costs. If government orders do not continue at
current levels, or if we are unable to fill orders, it would have a negative impact on our earnings
and results of operations.
For all of our distribution channels, including domestic retailers, a deterioration in the general
business environment and lack of growth in consumer spending due to unfavorable economic and
consumer credit conditions could create an environment of increasing price discounts which would
negatively impact our revenues, gross margins and earnings.
Our success in generating sales of our products to consumers depends upon a number of factors,
including economic factors impacting disposable consumer income. These economic factors include
considerations such as employment levels, general business conditions, consumer confidence,
prevailing interest rates and changes in tax laws. In addition, spending patterns of consumers may
be affected by changes in the amount or severity of inclement weather, the acceptability of U.S.
brands in international markets and the growth or decline of global footwear markets.
Reduced levels of consumer spending may negatively impact our domestic wholesale partners, which
would impact their financial operations and their access to capital to fund growth, which increases
and concentrates our credit risk.
A contraction in consumer spending and tightening of credit markets creates an unfavorable business
environment for our wholesale partners, especially those who use debt to finance their inventory
purchases and other operating capital requirements. If our wholesale partners are unable to obtain
financing for their inventory purchases and to fund their operations, it could result in delayed
payment or non-payment of amounts owed to us and/or a reduction in the number of sales we make to
such wholesale partners, either of which could have a material adverse effect on our results of
operations.
Changes in the price or availability of raw materials and labor in the global market, as well as
currency fluctuation and other risks associated with international operations could disrupt our
operations and adversely affect our financial results, particularly our gross margins.
Raw materials and component parts are purchased by us and our third-party manufacturers from
various suppliers to be used in the manufacturing of our products. Changes in relationships with
suppliers or increases in the costs of purchased raw materials or component parts could result in
manufacturing interruptions, delays or inefficiencies and could affect our ability to successfully
market our products. These occurrences would negatively affect our business, product gross margins
and results of operations.
-8-
Our product costs are subject to risks associated with foreign currency fluctuations (particularly
with respect to the Chinese Renminbi), rubber price increases, oil price increases, higher foreign
labor costs and other variable costs associated with our operations including trade laws, duties
and taxes, and other product sourcing costs. If we are unable to increase our selling prices to
offset such cost increases, our revenues and earnings would be negatively impacted.
If petroleum costs were to increase, it could result in significantly higher freight costs to our
company, as we rely on transport companies to deliver our products from abroad to our distribution
centers, and in some cases directly to our customers. Increased petroleum costs also affect our
manufacturing costs. Foreign currency fluctuations and increased labor cost abroad would be
problematic given our dependence on manufacturing in Asia and distribution through our European
subsidiary. Our profit margins may increase or decrease as foreign currency rates, prices of
petroleum, and the cost of foreign labor fluctuate and we are unable to pass those costs on to our
customers.
We may experience consolidation in our raw materials supply base for outsoles and leather, which
presents overall risks in our supply base.
Interruptions in supply of raw materials or increased costs for such raw materials could negatively
impact the operations of our domestic manufacturing facility as well as our international
manufacturing partners. Raw materials supply constraints or price increases could negatively
impact our customer relationships, our ability to fill current and future orders and our results of
operations.
Our European subsidiary, LaCrosse Europe ApS, increases our exposure to risks associated with
foreign operations and the outsourcing of our European distribution center.
Foreign operations through our European subsidiary increases our exposure to risks associated with
foreign currency transactions and compliance with foreign laws. Also, our distribution center for
Europe is owned and managed by an independent third party, which increases our risks associated
with inventory management and timely and accurate customer shipments. Any negative outcome related
to these risks would have an adverse impact on our results of operations.
Our profitability is significantly dependent upon future effective tax rates for federal, state and
international taxing jurisdictions.
Tax rates on corporations may be increased in future periods. Higher effective federal, state and
international tax rates would lower our earnings performance and restrict our ability to invest in
various areas of our business. Future changes to rates of taxation in areas outside of the U.S.
could also negatively impact our future earnings performance.
-9-
We conduct a significant portion of our manufacturing activities and a certain portion of our net
sales occurs outside the U.S.; therefore we are subject to the risks of international commerce.
Also, any adverse political conditions or governmental actions, including the imposition of duties
and quotas, internally within China (where the majority of our third-party manufacturers are
concentrated) or externally with NAFTA countries and the European Union could disrupt our supply of
product to customers.
We use third-party manufacturers located in foreign countries, primarily in Asia, to manufacture
the majority of our products, including all of our LACROSSE® branded products. Foreign
manufacturing and sales activities are subject to numerous risks, including the following:
|
|
|
delays associated with the manufacture, transportation and delivery of
foreign-sourced products; |
|
|
|
|
tariffs, import and export controls and other non-tariff barriers such as quotas and
local content rules; |
|
|
|
|
delays in the transportation and delivery of goods due to increased security
concerns, labor disputes at various ports or other events; |
|
|
|
|
foreign currency fluctuations (particularly with respect to the Chinese Renminbi),
a risk which we do not currently seek to mitigate through hedging transactions; |
|
|
|
|
restrictions on the transfer of funds; |
|
|
|
|
changing economic conditions; |
|
|
|
|
restrictions, due to privacy laws, on the handling and transfer of consumer and other
personal information; |
|
|
|
|
changes in governmental policies and regulations; |
|
|
|
|
political unrest, terrorism or war, any of which can interrupt commerce; |
|
|
|
|
Work slowdowns, stoppages, strikes, expropriation or nationalization affecting our
manufacturing partners; |
|
|
|
|
difficulties in managing foreign operations effectively and efficiently from the
U.S.; |
|
|
|
|
difficulties in understanding and complying with local laws, regulations and customs
in foreign jurisdictions; |
|
|
|
|
limited capital of foreign distributors and the possibility that such distributors
may terminate their operations or their relationships with us; and |
|
|
|
|
concentration of credit risk, currency, and political risks associated with
international distributors. |
Additionally, although net sales outside of the U.S. do not constitute a significant portion of our
revenues, we expect our international sales will grow over the next few years. Our ability to
continue to do business in international markets is subject to risks associated with international
sales operations, as noted above, as well as the difficulties associated with promoting products in
emerging markets. We are also subject to additional risk as we have a limited number of foreign
distributors, who may have inadequate capital to continue operations over the long term. Certain
of our sales to the international markets are achieved through those foreign
distributors, principally in Japan. Our sales and sales growth may be adversely affected if our
relationships with those distributors were to deteriorate and we are unable to engage suitable
alternatives in a timely manner.
Furthermore, many of our imported products are subject to duties, tariffs or quotas that affect the
cost and quantity of various types of goods imported into NAFTA or European Union countries and
into our other sales markets. The countries in which our products are produced or sold may adjust
or impose new quotas, duties, tariffs or other restrictions, any of which could have a material
adverse effect on us.
-10-
Because we depend on third-party manufacturers, we face challenges in maintaining a timely supply
of goods to meet sales demand, and we may experience delay or interruptions in our supply chain.
Any shortfall or delay in the supply of our products may decrease our sales and have an adverse
impact on our customer relationships.
Third-party manufacturers located primarily in Asia produce approximately two-thirds of our
footwear products. We depend on these manufacturers ability to finance the production of goods
ordered and to maintain adequate manufacturing capacity. We do not exert direct control over the
third-party manufacturers, so we may be unable to obtain timely delivery of acceptable products.
Due to various potential factors outside of our control, one or more of our third-party
manufacturers may be unable to continue meeting our production requirements. Also, certain of our
third-party manufacturers have manufacturing arrangements with companies that are much larger than
we are and whose production needs are much greater than ours. As a result, such manufacturers may
choose to devote additional resources to the production of products other than ours if their
capacity is limited.
In addition, we do not have long-term supply contracts with these third-party manufacturers, and
any of them could unilaterally terminate their relationship with us at any time or seek to increase
the prices they charge us. As a result, we are not assured of an uninterrupted supply of products
of an acceptable quality and price from our third-party manufacturers. We may be unable to offset
any interruption or decrease in supply of our products by increasing production in our
company-operated manufacturing facility due to capacity constraints, and we may be unable to
substitute suitable alternative third-party manufacturers in a timely manner or at acceptable
prices. Any disruption in the supply of products from our third-party manufacturers may harm our
business and could result in a loss of sales and an increase in production costs, which would
adversely affect our results of operations.
Our business is substantially affected by weather conditions, and sustained periods of warm and/or
dry weather can negatively impact our sales. Additionally, such weather conditions may negatively
impact our inventory levels and subsequent period sales.
We sell our products into two primary markets, work and outdoor. For the year ended December 31,
2010, 37% of our annual revenues were to the outdoor market. This market category is highly
seasonal and weather dependent. Sales of these products are largely dependent on the timing and
severity of weather in the different regions of the United States and Europe. During sustained
periods of warm and/or dry weather conditions, certain key categories in the outdoor market may be
negatively impacted, including hunting, hiking and cold weather products, as consumers postpone
purchases of our products pending the resumption of more conducive weather patterns. Additionally,
given our advance ordering timelines, such reduced demand during normal
outdoor market seasons may also negatively impact our inventory levels and subsequent period
profits as such excess inventories are sold.
If we do not accurately forecast consumer demand, we may have excess inventory to liquidate or have
greater difficulty filling our customers orders, either of which could adversely affect our
business.
The footwear industry is subject to cyclical variations and declines in performance, as well as
fashion risks and rapid changes in consumer preferences, the effects of weather, general economic
conditions and other factors affecting demand. Furthermore, the footwear industry has relatively
long lead times for the design and manufacture of products. Consequently, we must commit to
production based on our forecasts of consumer demand.
If we overestimate demand for our products, we may be forced to liquidate excess inventories at a
discount to customers, resulting in markdowns and lower gross margins. Conversely, if we
underestimate consumer demand, we could have inventory shortages, which can result in lost
potential sales, delays in shipments to
-11-
customers, strains on our relationships with customers and
diminished brand loyalty. A decline in demand for our products, or any failure on our part to
satisfy increased demand for our products, could adversely affect our business and results of
operations.
Labor disruptions or disruptions due to natural disasters or casualty losses at one of our
distribution facilities or our domestic manufacturing facility could have a material adverse effect
on our operations.
Some of our employees at our Danner distribution and manufacturing facilities are organized in a
labor union, the United Food and Commercial Workers Union. Our inability to renew, on favorable
terms, the collective bargaining agreement between us and the union that represents our employees,
or any strike, work stoppage or other labor disruption could impair our ability to adequately
supply our customers and could have an adverse effect on our results of operations.
In addition, any natural disaster or other serious disruption at one of these facilities, including
our distribution facility in Indianapolis, Indiana, and third-party manufactures due to fire,
earthquake, tornadoes, flood, terrorist attack or any other natural or manmade cause could damage a
portion of our inventory or impair our ability to use our warehouse for our products. Any of these
occurrences could impair our ability to adequately supply our customers and could have an adverse
effect on our results of operations.
Our financial success may be limited by the strength of our relationships with our wholesale
customers and by the success of such wholesale customers.
Our financial success is significantly related to the willingness of our wholesale customers to
continue to carry our products and to the success of such customers in selling our products. We do
not have long-term contracts with any of our wholesale customers. Sales to our wholesale customers
are increasingly on an order-by-order basis and are subject to rights of cancellation and
rescheduling by the customer. If we cannot fill our wholesale customers orders in a timely manner,
the sales of our products and our relationships with those customers may suffer, and this could
have a material adverse effect on our sales and ability to grow our product line.
If any of our major wholesale customers experiences a significant downturn in its business or fails
to remain committed to our products or brands, then these customers may reduce or discontinue
purchases from us in the future. In addition, we extend credit to our customers based on an
evaluation of each customers financial condition. If a significant customer to whom we have
extended credit experiences financial difficulties, our bad debt expense may increase relative to
revenues in the future, which would adversely impact our net income and cash flow.
We face significant competition and if we are unable to compete effectively, sales of our products
may decline and our business could be harmed.
The footwear industry is highly competitive. Some of our competitors have products with similar
characteristics, such as design and materials, with certain of our products. In addition, access to
offshore manufacturing is also making it easier for new companies to enter the markets in which we
compete.
The footwear industry includes footwear manufacturers, fashion-oriented footwear marketers,
vertically integrated specialty stores and retailers of private label products. Our principal
competitive differentiators include product design, product performance, quality, brand image,
marketing and promotion, customer support and service, the ability to meet delivery commitments to
retailers, and others. Certain of our competitors have significantly greater financial resources
and stronger brand recognition than we have. Additionally, they have greater distribution
capabilities and a broader market presence in retail outlets, or have their own retail outlets. If
we fail to compete successfully in the future, our sales and profits may decline and our financial
condition may deteriorate.
-12-
We may be unable to meet changing consumer preferences and demands.
The footwear industry is subject to rapid changes in consumer preferences. Our success depends in
large part on our ability to continuously develop, market and deliver innovative and functional
products that are competitive with other brands in our market. In addition, we must design and
manufacture products that appeal to many consumer markets at a range of price points. While we
continually update our product line with new and innovative products, our products may not continue
to be popular and new products we introduce may not achieve adequate consumer acceptance for us to
recover development, manufacturing, marketing and other costs. Our failure to anticipate, identify
and react to shifts in consumer preferences and maintain a strong brand image could adversely
affect our sales and results of operations.
Our failure or inability to protect our intellectual property could significantly harm our
competitive position and reduce future revenues.
Protecting our intellectual property is an important factor in maintaining our brand and our
competitive position in the footwear industry. If we do not or are unable to adequately protect
our intellectual property, our sales and profitability could be adversely affected. We currently
hold a number of patents and trademarks and have patent and trademark applications pending.
However, our efforts to protect our proprietary rights may be inadequate and applicable laws
provide only limited protection. We have a number of licensing agreements, both for product,
camouflage patterns and trademarks, which are significant to our business. If we are unable to
renew the agreements, and suitable replacements are not available in a timely manner, our revenues
could be negatively impacted.
We depend on a limited number of suppliers for key production materials, and any disruption in the
supply of such materials could interrupt product manufacturing and increase product costs.
We depend on a limited number of sources for the primary materials used to make our footwear. For
example, we (and our suppliers) purchase GORE-TEX® waterproof fabric directly from W.L.
Gore and Associates (Gore), for both our LaCrosse and Danner footwear. Over three-fourths of
Danner styles are GORE-TEX® lined.
While we consider our relationship with Gore to be good, the agreements with Gore are terminable by
either party upon 180 days written notice. If Gore were to terminate our agreements, the time
required to obtain substitute materials could interrupt our production cycle. Additionally,
consumers may be unwilling to accept any such replacement material. Any termination or delay in
our supply of GORE-TEX® waterproof fabric or
the loss of our ability to use the GORE-TEX® mark in association with our products, or
in the procurement of any other key product component, could result in lost potential sales, delays
in shipments to customers, strained relationships with customers and diminished brand loyalty.
In order to be successful, we must retain and motivate key employees, and the failure to do so
could have an adverse impact on our business.
Our future success will depend in part on the continued service of key personnel. Our future
success will also depend on our ability to attract and retain key managers, product development
engineers, sales people, and others. We face competition for such individuals throughout the
footwear and work and outdoor products industries. Not being able to attract or retain these
employees could have a material adverse effect on our financial performance.
-13-
If we fail to comply with the covenants contained in our revolving credit facility, we may be
unable to maintain existing, or secure additional financing, and repayment obligations on any
outstanding indebtedness may be accelerated.
Our revolving credit facility contains financial and operating covenants with which we must comply.
Our continued compliance with these covenants is dependent on our financial results, which are
subject to fluctuation as described elsewhere in these risk factors. If we fail to comply with the
covenants in the future or if our lender does not agree to waive any future non-compliance, we may
be unable to borrow funds and any outstanding indebtedness could become immediately due and
payable, which could harm our business. At December 31, 2010 we had no outstanding borrowing under
this credit facility.
Our articles of incorporation, bylaws and Wisconsin corporate law each contain provisions that
could delay, defer or prevent a change in control of our company or changes in our management.
Among other things, these provisions:
|
|
|
classify our board of directors so that only some of our directors are elected each
year; |
|
|
|
|
do not permit cumulative voting in the election of directors, which would otherwise
allow less than a majority of stockholders to elect director candidates; and |
|
|
|
|
establish advance notice and other procedural requirements for submitting nominations
for election to the board of directors and for proposing matters that can be acted upon by
stockholders at a meeting. |
These provisions could discourage proxy contests and make it more difficult for our stockholders to
elect directors and take other corporate actions, which may prevent a change of control and/or
changes in our management that a stockholder might consider favorable. In addition, Subchapter XI
of the Wisconsin Business Corporation Law includes provisions that may discourage, delay, or
prevent a change in control. Any delay or prevention of a change of control or change in
management that stockholders might otherwise consider to be favorable could cause the market price
of our common stock to decline.
Item 1B. Unresolved Staff Comments
None.
-14-
Item 2. Properties
The following table sets forth certain information, as of December 31, 2010, relating to our
principal facilities.
|
|
|
|
|
|
|
|
|
|
|
PROPERTIES |
|
|
|
|
|
|
Approximate Floor |
|
|
Location |
|
Owned or Leased |
|
Area in Square Feet |
|
Principal Uses |
Portland, OR
|
|
Leased (1)
|
|
|
145,000 |
|
|
Principal sales,
marketing and executive
offices and
distribution facility |
|
|
|
|
|
|
|
|
|
Indianapolis, IN
|
|
Leased (2)
|
|
|
380,000 |
|
|
Distribution facility |
|
|
|
|
|
|
|
|
|
Zhongshan, China
|
|
Leased (3)
|
|
|
1,400 |
|
|
Office space |
|
|
|
|
|
|
|
|
|
Copenhagen, Denmark
|
|
Leased (4)
|
|
|
2,300 |
|
|
Office space |
|
|
|
|
|
|
|
|
|
Portland, OR
|
|
Leased (5)
|
|
|
59,000 |
|
|
Manufacturing operations |
|
|
|
|
|
|
|
|
|
Portland, OR
|
|
Leased (6)
|
|
|
12,600 |
|
|
Factory store |
|
|
|
(1) |
|
The lease term on the Single Tenant Industrial Lease is 120 months from August 1,
2006 and the Lease provides for potential term extensions of up to 60 months after the
original term. |
|
(2) |
|
In June 2008, we signed a Single Tenant Industrial Lease for 124 months beginning March
1, 2009. |
|
(3) |
|
The lease for this facility expires November, 2012. |
|
(4) |
|
The lease for this facility expires June, 2012. |
|
(5) |
|
In February 2010, we signed a multi-tenant lease to relocate our Danner factory.
The lease has an initial term of 64 months, and includes provision for three
successive extension terms of five years each. The initial term of the lease
commenced on May 1, 2010. |
|
(6) |
|
In January 2010, we signed a lease to move our Danner Factory Store to a new
facility in Portland. The lease has an initial term of 64 months and includes
provision for three successive extension terms of five years each. The initial term
of the lease commenced on March 1, 2010. |
Item 3. Legal Proceedings
From time to time, we become involved in ordinary, routine or regulatory legal proceedings
incidental to our business. When a loss is deemed probable to occur and the amount of such loss
can be reasonably estimated, a liability is recorded in our financial statements.
-15-
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Price Range of Common Stock
Our common stock is publicly traded on the NASDAQ Global Market under the ticker symbol BOOT. On
February 25, 2011, the closing sale price of our common stock was $17.18 per share, as reported on
the NASDAQ Global Market. The table below shows the high and low sales prices per share of our
common stock as reported by the NASDAQ Global Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
|
|
|
|
First Quarter |
|
$ |
17.42 |
|
|
$ |
12.38 |
|
|
$ |
13.40 |
|
|
$ |
7.00 |
|
Second Quarter |
|
$ |
21.00 |
|
|
$ |
14.95 |
|
|
$ |
10.84 |
|
|
$ |
7.10 |
|
Third Quarter |
|
$ |
19.32 |
|
|
$ |
11.50 |
|
|
$ |
12.25 |
|
|
$ |
9.22 |
|
Fourth Quarter |
|
$ |
17.25 |
|
|
$ |
13.52 |
|
|
$ |
15.09 |
|
|
$ |
11.34 |
|
As of February 25, 2011, there were 210 shareholders of record and approximately 1,080
beneficial owners of our common stock.
Dividends
During the first quarter of 2008, the Company paid a special dividend and a quarterly dividend
totaling $7.0 million, or $1.125 per common share. Quarterly dividends totaling $2.3 million, in
the amount of $0.125 per common share, were paid in the second, third and fourth quarters of 2008,
respectively.
In 2009, the Company paid quarterly dividends of $0.8 million, or $0.125 per common share, totaling
$3.2 million.
During the first quarter of 2010, the Company paid a special dividend and a quarterly dividend
totaling $7.2 million or $1.125 per common share. Subsequently, quarterly dividends totaling $2.4
million, in the amount of $0.125 per common share, were paid in the second, third and fourth
quarters, respectively.
On February 1, 2011, we announced a quarterly cash dividend of twelve and one-half cents ($0.125)
per share of common stock to shareholders of record on February 22, 2011. This cash dividend will
be paid on March 18, 2011 and will amount to approximately $0.8 million.
The Board, while not declaring future dividends, currently intends to continue its policy
of declaring and paying quarterly dividends of twelve and one-half cents ($0.125) per share of
common stock. However, future dividend policies and dividend payments, if any, will depend upon our
earnings and financial condition, our need for funds for other projects, any limitations on
payments of dividends in our current or future debt agreements and other factors.
Sales of Unregistered Securities
None.
-16-
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Equity Compensation Plan Information
The information required by this item with respect to our equity compensation plans is contained in
Part III, Item 11 of this Annual Report on Form 10-K.
Market Price of the Registrants Common Equity
The following graph compares on a cumulative basis changes since December 31, 2005, in (a) the
total shareholder return on our common stock with (b) the total return on the NASDAQ Global Market
Index and (c) the total return on the Morningstar Textile-Apparel Footwear/Accessories Industry
Group Index (the Morningstar Group Index, which was formerly known as the Hemscott
Textile-Apparel Footwear/Accessories Industry Group Index). Such changes have been measured by
dividing (a) the sum of (i) the amount of dividends for the measurement period, assuming dividend
reinvestment, and (ii) the difference between the price per share at the end of and the beginning
of the measurement period, by (b) the price per share at the beginning of the measurement period.
The graph assumes $100 was invested on December 31, 2005 in LaCrosse Footwear, Inc. common stock,
the NASDAQ Global Market Index and the Morningstar Group Index.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG LACROSSE FOOTWEAR, INC.,
NASDAQ MARKET INDEX AND MORNINGSTAR GROUP INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2005 |
|
|
12/31/2006 |
|
|
12/31/2007 |
|
|
12/31/2008 |
|
|
12/31/2009 |
|
|
12/31/2010 |
|
LaCrosse Footwear |
|
$ |
100 |
|
|
$ |
123 |
|
|
$ |
163 |
|
|
$ |
127 |
|
|
$ |
133 |
|
|
$ |
192 |
|
NASDAQ Market Index |
|
$ |
100 |
|
|
$ |
110 |
|
|
$ |
122 |
|
|
$ |
73 |
|
|
$ |
106 |
|
|
$ |
125 |
|
Morningstar Group Index |
|
$ |
100 |
|
|
$ |
123 |
|
|
$ |
122 |
|
|
$ |
86 |
|
|
$ |
129 |
|
|
$ |
173 |
|
-17-
Item 6. Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Income Statement Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 (in thousands, except per share data) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Net sales |
|
$ |
150,542 |
|
|
$ |
139,152 |
|
|
$ |
127,956 |
|
|
$ |
118,179 |
|
|
$ |
107,798 |
|
Operating income |
|
$ |
11,430 |
|
|
$ |
8,585 |
|
|
$ |
10,120 |
|
|
$ |
10,983 |
|
|
$ |
8,834 |
|
Net income |
|
$ |
6,881 |
|
|
$ |
5,510 |
|
|
$ |
6,167 |
|
|
$ |
7,300 |
|
|
$ |
6,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.07 |
|
|
$ |
0.87 |
|
|
$ |
0.99 |
|
|
$ |
1.20 |
|
|
$ |
1.05 |
|
Diluted |
|
$ |
1.04 |
|
|
$ |
0.86 |
|
|
$ |
0.96 |
|
|
$ |
1.15 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
6,429 |
|
|
|
6,303 |
|
|
|
6,215 |
|
|
|
6,087 |
|
|
|
6,022 |
|
Diluted |
|
|
6,590 |
|
|
|
6,375 |
|
|
|
6,417 |
|
|
|
6,357 |
|
|
|
6,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 (in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Cash and cash equivalents |
|
$ |
4,274 |
|
|
$ |
17,739 |
|
|
$ |
13,683 |
|
|
$ |
15,385 |
|
|
$ |
12,702 |
|
Inventories |
|
$ |
40,071 |
|
|
$ |
27,031 |
|
|
$ |
28,618 |
|
|
$ |
27,131 |
|
|
$ |
22,038 |
|
Total assets |
|
$ |
97,270 |
|
|
$ |
88,585 |
|
|
$ |
84,565 |
|
|
$ |
83,547 |
|
|
$ |
73,533 |
|
Long-term debt, including current maturities |
|
|
263 |
|
|
|
|
|
|
|
|
|
|
$ |
394 |
|
|
$ |
506 |
|
Shareholders equity |
|
$ |
64,448 |
|
|
$ |
65,595 |
|
|
$ |
61,412 |
|
|
$ |
65,985 |
|
|
$ |
57,344 |
|
Dividends paid |
|
$ |
9,621 |
|
|
$ |
3,154 |
|
|
$ |
9,322 |
|
|
$ |
914 |
|
|
$ |
0 |
|
Dividends paid per common share |
|
$ |
1.50 |
|
|
$ |
0.50 |
|
|
$ |
1.50 |
|
|
$ |
0.15 |
|
|
$ |
0.00 |
|
Inventory turns |
|
|
2.7 |
|
|
|
3.1 |
|
|
|
2.8 |
|
|
|
2.9 |
|
|
|
2.8 |
|
Fourth quarter days sales outstanding |
|
|
39 |
|
|
|
46 |
|
|
|
57 |
|
|
|
62 |
|
|
|
56 |
|
-18-
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Our mission is to maximize the work and outdoor experience for our consumers. To achieve this, we
design, develop, manufacture and market premium-quality, high-performance footwear, supported by
compelling marketing and superior customer service. Our trusted DANNER® and
LACROSSE® brands are sold through four channels of distribution: (1) wholesale (2)
government (3) direct and (4) international. We focus on two types of consumers for our footwear
lines: work and outdoor. Work consumers include people in military services, law enforcement,
transportation, mining, oil and gas exploration and extraction, construction and other occupations
that require high-performance and protective footwear as a critical tool for the job. Outdoor
consumers include people active in hunting, outdoor cross-training, hiking and other outdoor
recreational activities.
Weather, especially in the fall and winter, has been, and will likely continue to be, a significant
contributing factor impacting our financial performance. Our sales are typically higher in the
second half of the year due to stronger demand for our cold and wet weather outdoor product
offerings. We augment these offerings by infusing innovative technology into all product categories
with the intent to create additional demand in all four quarters of the year.
Our sales performance continues to be driven by the success of our new product lines, our ability
to meet at-once demand, and our ability to diversify and strengthen our portfolio of sales
channels. We have experienced, and may continue to experience significant fluctuations in our
quarterly revenue performance due to the timing of orders and requested shipment dates for U.S.
government contract orders. Future U.S. government sales are dependent upon a wide range of
factors, some of which are outside of our control. Such factors include the U.S. governments
policies regarding troop deployments in global regions requiring our specialized footwear, our
ability to meet aggressive delivery schedules and increased competition from other footwear
suppliers.
We continually evaluate our portfolio of product offerings to ensure we are providing innovative
and high-performance products to the marketplace. As a part of this evaluation process, during 2010
we decided to discontinue our offerings in the apparel business, which has historically represented
approximately $5.0 million of annual net sales. We believe that our remaining apparel inventories
will be sold by the end of the second quarter of 2011 and will have a negligible impact on our
gross margins.
One of our key contract manufacturers experienced capacity constraints during 2010, which
negatively affected our supply of certain leather footwear products during the year. Additionally,
we have seen a trend of increasing raw materials prices. We have taken steps to pursue various
alternatives to improve capacity, manage product costs, and maintain product availability to meet
forecasted demand for the long term.
-19-
RESULTS OF OPERATIONS
Financial Summary 2010 versus 2009
The following table sets forth selected financial information derived from our consolidated
financial statements. The discussion that follows the table should be read in conjunction with the
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Net Sales |
|
$ |
150.5 |
|
|
$ |
139.2 |
|
|
$ |
11.3 |
|
|
|
8 |
% |
Gross Profit |
|
$ |
59.1 |
|
|
$ |
54.1 |
|
|
$ |
5.0 |
|
|
|
9 |
% |
Gross Margin % |
|
|
39.3 |
% |
|
|
38.9 |
% |
|
|
|
|
|
40 bps |
Selling and Administrative Expenses |
|
$ |
47.7 |
|
|
$ |
45.5 |
|
|
$ |
2.2 |
|
|
|
5 |
% |
% of Net Sales |
|
|
31.7 |
% |
|
|
32.7 |
% |
|
|
|
|
|
(100 bps) |
Non-Operating Expense, Net |
|
$ |
(0.2 |
) |
|
$ |
(0.4 |
) |
|
$ |
0.2 |
|
|
|
(50 |
%) |
Income Before Income Taxes |
|
$ |
11.2 |
|
|
$ |
8.2 |
|
|
$ |
3.0 |
|
|
|
37 |
% |
Income Tax Provision |
|
$ |
4.3 |
|
|
$ |
2.7 |
|
|
$ |
1.6 |
|
|
|
59 |
% |
Net Income |
|
$ |
6.9 |
|
|
$ |
5.5 |
|
|
$ |
1.4 |
|
|
|
25 |
% |
Consolidated Net Sales: Consolidated net sales for 2010 increased 8%, to $150.5 million, from
$139.2 million in 2009. Sales to the work market were $94.7 million for the full year of 2010, up
7% from $88.2 million in 2009. The growth in work sales reflects continued expansion into various
areas of the U.S. government and growth in sales of occupational footwear to the wholesale market.
Sales to the outdoor market for 2010 were $55.8 million, up 9% from $51.0 million in 2009. The
growth in outdoor sales reflects a rebounding retail environment and several successful product
introductions.
Gross Margin: Gross margin for 2010 was 39.3% of consolidated net sales, compared to 38.9% in
2009. The year-over-year increase in gross margin is primarily the result of a reduction of
closeout sales (100 basis points) partially offset by Portland factory relocation costs (20 basis
points), changes in our channel sales mix (20 basis points) and other items (20 basis points).
Selling and Administrative Expenses: Selling and administrative expenses in 2010 increased $2.2
million, or 5%, to $47.7 million from $45.5 million in 2009. Selling and administrative expenses as
a percent of net sales decreased to 31.7% in 2010 from 32.7% in 2009. The increase in selling and
administrative expenses primarily relates to investments in our new Portland factory and factory
store ($0.9 million), investments in marketing and product development ($2.2 million) and other
items ($1.4 million). These items were partially offset by lower costs in our Midwest distribution
center ($1.2 million) and our sales organizations in the U.S. and Europe ($1.1 million).
Non-operating Expense, Net: Non-operating expense was $0.2 million in 2010 compared to $0.4 million
in 2009. The decrease in non-operating expense is primarily the result of asset disposal costs
during 2009.
Income Taxes: We recognized income tax expense at an effective rate of 38.5% in 2010 compared to
an effective tax rate of 32.9% in 2009. The higher effective rate for 2010 was primarily due to
non-recurring discrete items in 2009, including a reduction in our reserve for uncertain tax
positions as a result of the completion of an Internal Revenue Service examination, as well as the
adoption of a new transfer pricing policy in 2009 for our European sales subsidiary.
Net Income: For 2010, net income was $6.9 million or $1.04 per diluted share, up 25% from
$5.5 million or $0.86 per diluted share in 2009. The net income increase of $1.4 million is
attributable to the gross profit, expense and tax rate changes discussed above.
-20-
Financial Summary 2009 versus 2008
The following table sets forth selected financial information derived from our consolidated
financial statements. The discussion that follows the table should be read in conjunction with the
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
Net Sales |
|
$ |
139.2 |
|
|
$ |
128.0 |
|
|
$ |
11.2 |
|
|
|
9 |
% |
Gross Profit |
|
$ |
54.1 |
|
|
$ |
50.7 |
|
|
$ |
3.4 |
|
|
|
7 |
% |
Gross Margin % |
|
|
38.9 |
% |
|
|
39.6 |
% |
|
|
|
|
|
(70 bps) |
Selling and Administrative Expenses |
|
$ |
45.5 |
|
|
$ |
40.5 |
|
|
$ |
5.0 |
|
|
|
12 |
% |
% of Net Sales |
|
|
32.7 |
% |
|
|
31.7 |
% |
|
|
|
|
|
100 bps |
Non-Operating Expense, net |
|
$ |
(0.4 |
) |
|
$ |
(0.0 |
) |
|
$ |
(0.4 |
) |
|
|
|
|
Income Before Income Taxes |
|
$ |
8.2 |
|
|
$ |
10.1 |
|
|
$ |
(1.9 |
) |
|
|
(19 |
%) |
Income Tax Provision |
|
$ |
2.7 |
|
|
$ |
3.9 |
|
|
$ |
(1.2 |
) |
|
|
(31 |
%) |
Net Income |
|
$ |
5.5 |
|
|
$ |
6.2 |
|
|
$ |
(0.7 |
) |
|
|
(11 |
%) |
Consolidated Net Sales: Consolidated net sales for 2009 increased 9%, to $139.2 million, from
$128.0 million in 2008. Sales to the work market were $88.2 million for the full year of 2009, up
18% from $74.9 million in 2008. The growth in work sales primarily reflects continued expansion
into various areas of the U.S. government. Sales to the outdoor market for 2009 were $51.0
million, down 4% from $53.1 million in 2008, reflecting softness in the overall retail environment
throughout the first three quarters of 2009.
Gross Margin: Gross margin for 2009 was 38.9% of consolidated net sales, compared to 39.6% in
2008. The year-over-year decrease in gross margin primarily reflects the impact of a greater
portion of revenue coming from U.S. government shipments (20 basis points), cost increases
associated with key rubber styles (20 basis points) and other various cost changes (30 basis
points).
Selling and Administrative Expenses: Selling and administrative expenses in 2009 increased $5.0
million, or 12%, to $45.5 million from $40.5 million in 2008. Selling and administrative expenses
as a percent of net sales increased from 31.7% in 2008 to 32.7% in 2009. The $5.0 million increase
in selling and administrative expenses reflects higher costs related to the establishment our new
Midwest distribution center ($1.3 million), expenses related to our European sales subsidiary and
other investments in sales, product development and marketing ($1.6 million), bad debt expenses
related to the bankruptcy of two significant retail customers during the first quarter of 2009
($0.3 million), the operation of our wholly-owned subsidiary Environmentally Neutral Design, Inc.
(END), which was acquired in the second quarter of 2009 ($0.6 million), and other expenses ($1.2
million).
Non-operating Expense, Net: Non-operating expense was $0.4 million in 2009 compared to $0.0 million
in 2008. The increase in non-operating expense is primarily the result of certain asset disposal
costs ($0.2 million). Non-operating income also decreased from 2008 due to lower interest rates in
2009 ($0.2 million).
Income Taxes: We recognized income tax expense at an effective rate of 32.9% in 2009 compared to
an effective tax rate of 38.9% in 2008. The lower effective rate for 2009 was primarily due to a
reduction in our reserve for uncertain tax positions as a result of the completion of an Internal
Revenue Service examination in the second quarter of 2009 for the tax years 2005 through 2007, as
well as the adoption of a new transfer pricing policy for our European sales subsidiary.
Net Income: Net income recognized during 2009 was $5.5 million, or $0.86 diluted earnings per
common share, compared to $6.2 million, or $0.96 diluted earnings per common share, in 2008. The
net income decline of $0.7 million is attributable to the gross profit, expense and tax rate
changes discussed above.
-21-
LIQUIDITY AND CAPITAL RESOURCES
We have historically funded working capital requirements and capital expenditures with cash
generated from operations and borrowings under a revolving credit agreement or other long-term
lending arrangements. We require working capital to support fluctuating accounts receivable and
inventory levels caused by our seasonal business cycle. Working capital requirements are generally
the lowest in the first quarter and the highest during the third quarter.
On March 9, 2009, we entered into a 3-year extension of our previous line of credit agreement with
Wells Fargo Bank, N.A., which expires June 30, 2012. Amounts borrowed under the agreement are
secured by substantially all of our assets. The maximum aggregate principal amount of borrowings
allowed from January 1 to May 31 is $17.5 million and from June 1 to December 31, the total
available is $30 million. There are no borrowing base limitations under the credit agreement. The
credit agreement provides for an interest rate of LIBOR plus 1.75% and an annual commitment fee of
0.15% on the unused balance. At December 31, 2010 and 2009, we had no outstanding balances due
under this financing agreement. See Note 5, Financing Arrangements and Note 15. Subsequent
Events to the accompanying consolidated financial statements for additional information.
On January 26, 2010, we entered into a letter amendment to our line of credit agreement with Wells
Fargo Bank, N.A. which increased the allowable capital expenditures for the years ended December
31, 2009 and 2010, and increased allowable cash dividends for the year ending December 31, 2010.
On September 30, 2010, we entered into a second letter amendment to our line of credit agreement
with Wells Fargo Bank, N.A. which increased the allowable capital expenditures for the remainder of
2010.
On January 31, 2011, we entered into a third letter amendment to our line of credit agreement with
Wells Fargo Bank, N.A. which increased the allowable capital expenditures for the remainder of the
credit agreement term.
In June 2006, we received a grant of $0.2 million and a non-interest bearing loan of $0.6 million
from the Portland Development Commission, which were used to finance certain leasehold improvements
at our Portland distribution facility. The grant is recorded as deferred revenue and is being
amortized as a reduction of operating expenses on a straight-line basis over five years, which is
the estimated useful life of the associated leasehold improvements. In the third quarter of 2008,
the loan was forgiven by the Portland Development Commission and accordingly we have reclassified
the remaining unamortized long-term debt to deferred revenue and will continue to amortize the
balance until 2011.
In May 2010, we received a loan of $0.3 million from the State of Oregon to finance certain
equipment purchases at our new Danner factory which began production in the third quarter of 2010.
The State of Oregon will forgive all, or a portion of the loan, along with all interest accruing on
any portion of the loan forgiven upon meeting employment criteria at the Danner factory. The
employment criteria require us to maintain a certain number of employees at the Danner factory over
a consecutive eight quarter period beginning July 1, 2010 and ending no later than September 30,
2014. At that time the remaining loan balance which has not been forgiven will bear interest at
5.0% per annum and will mature on October 31, 2014. As we meet the specified employment criteria
at the Danner factory during a given period, beginning with the fourth quarter of 2010, a
corresponding portion of the loan will be reclassified to deferred revenue and amortized over the
life of the factory lease.
Consolidated Statements of Cash Flows
Net cash provided by operating activities was $5.1 million in 2010, compared to $12.2 million for
2009. The decline in cash provided by operating activities of $7.1 million was primarily related to
an increase in our inventories, partially offset by a greater accounts payable in 2010 as compared
to 2009. The higher inventory
-22-
build-up in 2010 is primarily attributable to a planned increase in
inventory of core products intended to improve availability for at-once demand. The increase in
accounts payable is primarily related to increased inventory purchases as well as the timing of
payments to our third-party manufacturers for inventories.
Net cash used in investing activities was $10.6 million in 2010 compared to $5.6 million in 2009.
We purchased property and equipment of $10.6 million and $5.3 million in 2010 and 2009,
respectively. Capital expenditures during 2010 primarily represent investments in our new factory
store and Danner factory which opened during the second and third quarters of 2010, respectively.
In 2009, capital expenditures included $2.6 million related to racking, computer systems and other
build-out costs in our new Indianapolis distribution center in the first half of 2009. During 2011,
we expect total capital expenditures to be approximately $5.0 million.
Net cash used in financing activities was $7.9 million in 2010 compared to $2.6 million in 2009.
The increase of $5.3 million was attributable to higher dividends of $6.5 million, which represents
a special dividend of $1.00 per share paid in the first quarter of 2010, partially offset by higher
proceeds from the exercise of stock options ($0.9 million) and proceeds from a long-term debt
agreement with the State of Oregon for the Danner factory facility ($0.3 million).
On February 1, 2011, we announced a first quarter cash dividend of twelve and one-half cents
($0.125) per share of common stock. This dividend will be paid on March 18, 2011 to shareholders
of record on February 22, 2011 and amount to approximately $0.8 million.
At December 31, 2010 and 2009, our pension plan had accumulated benefit obligations in excess of
the respective plan assets of $4.1 million and $4.4 million, respectively. This obligation in
excess of plan assets and accrued liabilities resulted in a cumulative reduction of equity, net of
tax, of $3.3 million and $3.1 million as of December 31, 2010 and 2009, respectively. We expect to
contribute $1.0 million to the pension plan in 2011.
OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We do not have any off-balance sheet financing arrangements, other than operating leases and
purchase commitments that are disclosed in the contractual obligations table below and in our
consolidated financial statements, nor do we have any transactions, arrangements or other
relationships with any special purpose entities established by us, at our direction or for our
benefit.
A summary of our contractual cash obligations at December 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
Payments due by period |
|
Contractual Obligations |
|
Total |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Operating leases |
|
$ |
18,348 |
|
|
$ |
2,589 |
|
|
$ |
2,600 |
|
|
$ |
2,596 |
|
|
$ |
2,686 |
|
|
$ |
2,615 |
|
|
$ |
5,262 |
|
Product purchase
obligations (1) |
|
|
16,551 |
|
|
|
16,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Part I, Item 2 Properties for a description of our leased facilities.
|
|
|
(1) |
|
From time to time, we enter into purchase commitments with our suppliers and
third-party manufacturers under customary purchase order terms. Any significant losses
implicit in these contracts would be recognized in accordance with generally accepted
accounting principles. At December 31, 2010, no such losses existed. |
-23-
We also have a commercial line of credit as described below, which is more fully described under
the caption Liquidity and Capital Resources:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial |
|
Maximum Amount |
|
|
|
|
|
|
|
Commitment |
|
Committed |
|
|
Outstanding at 12/31/10 |
|
|
Date of Expiration |
|
Line of credit |
|
$ |
30,000,000 |
|
|
$ |
|
|
|
June 30, 2012 |
We believe that our existing resources, our commercial line of credit and our anticipated cash
flows from operations will be sufficient to satisfy our working capital needs for the foreseeable
future.
CRITICAL ACCOUNTING ESTIMATES
Our significant accounting policies and estimates are summarized in our annual consolidated
financial statements. Some of our accounting policies require management to exercise significant
judgment in selecting the appropriate assumptions for calculating financial estimates. Such
judgments are subject to an inherent degree of uncertainty. These judgments are based on our
historical experience, known trends in our industry, terms of existing contracts and other
information from outside sources, as appropriate.
Revenue Recognition, Allowances for Doubtful Accounts, Cash Discounts and Non-Defective Returns:
Ownership of our products transfers to the customer when the product is delivered to a third-party
carrier at one of our distribution facilities or upon receipt at our customers designated
facilities depending upon the applicable terms of the customer order. Significant judgment is
required when determining the allowances for doubtful accounts, cash discounts, and non-defective
returns, each of which reduces the amount of accounts receivable and operating income reported in
the accompanying consolidated financial statements.
Our historical experience of write-offs of uncollectible accounts has been insignificant. In
addition to an allowance for doubtful accounts, we maintain allowances for anticipated cash
discounts to be taken by customers and for non-defective returns. Cash discounts are provided
under certain customer service programs and are estimated based on available programs and
historical usage rates. Reserves for non-defective returns are estimated based on historical rates
of return.
Allowance for Slow-Moving Inventory: Provision for potentially slow-moving or excess inventories is
made based on our analysis of inventory levels, future sales forecasts and current estimated market
values. Actual customer requirements and market values in any future periods are inherently
uncertain and thus may differ from our estimates.
Product Warranty: We provide a limited warranty for the replacement of defective products for a
specified time period after sale. We estimate the costs that may be incurred under our limited
warranty and record a liability in the amount of such anticipated costs at the time product revenue
is recognized. Factors that affect our warranty liability include sales experience along with
historical and anticipated future rates of warranty claims. We also utilize information received
from customers to assist in determining the appropriate warranty accrual levels.
Valuation of Long-Lived and Intangible Assets: As a matter of policy, we review our major assets
for impairment at least annually, and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Our major long-lived and intangible assets are goodwill and
property and equipment. We depreciate our property and equipment over their estimated useful lives.
In assessing the recoverability of our goodwill of $10.8 million and the investments we have made
in property and equipment, we have analyzed our market capitalization together with assumptions
regarding estimated future cash flows and other factors to determine the fair value of the
respective assets. If these estimates or their related assumptions change in the future, we may be
required to record impairment charges for these assets not previously recorded.
-24-
Please refer to the Risk Factors in Part I, Item 1A for a discussion of factors that may have an
effect on our ability to attain future levels of product sales and cash flows.
Pension and Other Postretirement Benefit Plans: The determination of our obligation and expense
for pension and other postretirement benefits is dependent on our selection of certain assumptions
used by actuaries in calculating such amounts. Those assumptions are described in Note 8,
Compensation and Benefit Agreements to our annual consolidated financial statements and include,
among others, the 5.25% discount rate and the 8.0% expected long-term rate of return on plan
assets. Actual results that differ from our assumptions are accumulated and amortized over future
periods and therefore, generally affect our recognized expense and recorded obligation in future
periods. While we believe our assumptions are appropriate, significant differences in our actual
experience or material changes in our assumptions may affect our pension and other postretirement
obligations, our future expense and shareholders equity. See Quantitative and Qualitative
Disclosures About Market Risk in Item 7A in this annual report on Form 10-K for further
sensitivity analysis regarding our estimated pension obligation.
Deferred Tax Asset Valuation Allowance: Our deferred taxes are reduced by a valuation allowance
when, in our opinion, we believe that it is more likely than not that some portion or all of the
deferred tax assets will not be realized. We have recorded a valuation allowance related to the
State of Wisconsin net operating loss (NOL) carryforwards, as realization of NOL carryforwards is
dependent upon having taxable income in Wisconsin in future periods. The remaining balance of the
deferred taxes after such valuation allowance represents the portion of Wisconsin NOL carryforwards
which management believes is more likely than not to be realized.
Stock-Based Compensation: The Company estimates the fair value of share-based awards on the date of
grant using an option-pricing model. The value of the portion of the award that is ultimately
expected to vest is recognized as an expense in our consolidated statements of income on a
straight-line basis over the requisite service period for each separately vesting portion of the
award. Because share-based compensation expense is based on awards that are ultimately expected to
vest, share-based compensation expense is reduced for estimated forfeitures. Forfeitures are
estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
To calculate the share-based compensation expense, we use the Black-Scholes option-pricing model.
Our determination of fair value of option-based awards on the date of grant is impacted by our
stock price as well as assumptions regarding certain highly subjective variables. These variables
include, but are not limited to, our expected stock price volatility over the term of the awards,
the anticipated risk-free interest rate, anticipated future dividend yields and the expected life
of the options. The anticipated risk-free interest rate is based on a treasury instrument whose
term is consistent with the expected life of the stock options granted. The expected volatility,
life of options and dividend yield are based on historical experience.
Recently Issued Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued guidance to amend the
disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance
requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair
value measurement hierarchy, including the reasons for and the timing of the transfers and
information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation
of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. The
adoption of this guidance is effective for interim and annual reporting periods beginning after
December 15, 2009. We have adopted this guidance in the financial statements presented herein,
which did not impact our consolidated financial position or results of operations.
-25-
|
|
|
Item 7A. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Our primary market risk results from fluctuations in interest rates. Our line of credit interest
rate is the LIBOR rate plus 1.75%. Using an average floating rate borrowing of $10.0 million, a one percent change in the applicable rate
would impact the Companys annual interest expense by approximately $0.1 million.
We are also exposed to market risk related to the assumptions we make in estimating our pension
liability. The assumed discount rate used, in part, to calculate the pension plan obligation is
related to the prevailing long-term interest rates. At December 31, 2010, we used an estimated
discount rate of 5.25%. A one-percentage point reduction in the discount rate would result in an
increase in the actuarial present value of projected pension benefits of approximately $1.9 million
at December 31, 2010. At December 31, 2010, we used an expected rate of return on plan assets of
8.0%. The historical annualized ten-year rate of return on pension plan assets is approximately
4.0%. A one percent change in the actual rate of return on pension plan assets would affect
the charge to equity by approximately $0.1 million.
Our financial market risk arises from fluctuations in foreign currencies.
Our net investment exposure in
our foreign subsidiaries translated into U.S. dollars using the period-end exchange rates at
December 31, 2010, was approximately $1.7 million. The potential loss in recorded value resulting
from a hypothetical 10% adverse change in foreign exchange rates would be approximately $0.2
million at December 31, 2010. At December 31, 2010 we had no formal plans to liquidate any of our
operating foreign subsidiaries within the consolidated group, and therefore, foreign exchange rate
gains or losses on our foreign investments are reflected as a cumulative translation adjustment and
do not affect our results of operations.
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data |
The consolidated statements of income, shareholders equity and comprehensive income and cash flows
for each of the years in the three-year period ended December 31, 2010, and the related
consolidated balance sheets of the Company as of December 31, 2010 and 2009, together with the
related notes thereto and the Report of Independent Registered Public Accounting Firm appear on
pages F-1 through F-24 hereof and are incorporated by reference in this Item 8.
|
|
|
Item 9. |
|
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure |
None.
|
|
|
Item 9A. |
|
Controls and Procedures |
(a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) of
the Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by
this Annual Report on Form 10-K, the Companys management evaluated, with the participation of the
Companys President and Chief Executive Officer and Executive Vice President and Chief Financial
Officer, the effectiveness of the design and operation of the Companys disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon their evaluation of
these disclosure controls and procedures, the President and Chief Executive Officer and the
Executive Vice President and Chief Financial Officer have concluded that the disclosure controls
and procedures were effective as of the date of such evaluation.
-26-
(b) Changes in internal control. There was no change in the Companys internal control over
financial reporting that occurred during the fourth quarter of 2010 that has materially affected,
or is reasonably likely to materially affect, the Companys internal control over financial
reporting.
Managements Annual Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting. Our internal control system was designed to provide reasonable assurance
to management and the board of directors regarding the effectiveness of our internal control
processes over the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
We have assessed the effectiveness of our internal controls over financial reporting as of
December 31, 2010. In making this assessment, we used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control Integrated
Framework. Based on our assessment, we believe that, as of December 31, 2010, our internal control
over financial reporting is effective based on those criteria.
Our independent registered public accounting firm has issued an attestation report on the
effectiveness of our internal control over financial reporting as of December 31, 2010, which is
included herein.
-27-
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
LaCrosse Footwear, Inc.
We have audited LaCrosse Footwear, Inc. and Subsidiaries internal control over financial reporting
as of December 31, 2010, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. LaCrosse Footwear,
Inc. and Subsidiaries management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Report of Management. Our responsibility is to express an
opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that
(a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (b) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the
company; and (c) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, LaCrosse Footwear, Inc. and Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2010, based on criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of LaCrosse Footwear, Inc. and Subsidiaries
as of December 31, 2010 and 2009, and the related consolidated statements of income, shareholders
equity and comprehensive income and cash flows for each of the years in the three-year period ended
December 31, 2010 of LaCrosse Footwear, Inc. and Subsidiaries and our report dated March 4, 2011
expressed an unqualified opinion.
/s/ McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 4, 2011
-28-
|
|
|
Item 9B. |
|
Other Information |
None.
PART III
|
|
|
Item 10. |
|
Directors, Executive Officers of the Registrant, and Corporate Governance |
The information required by this Item with respect to executive officers, directors, Section 16
compliance and corporate governance will be set forth under the captions Proposal 1 Election of
Directors, Board of Directors, Executive Compensation, and Section 16(a) Beneficial Ownership
Reporting Compliance and Report of the Audit Committee, respectively, in the Companys
definitive Proxy Statement for its 2011 Annual Meeting of Shareholders to be filed with the SEC no
later than April 30, 2011 (Proxy Statement). If the Proxy Statement is not filed with the SEC by
April 30, 2011, such information will be included in an amendment to this Annual Report on Form
10-K filed by April 30, 2011.
We have adopted a Code of Ethics for Senior Financial Officers, Corporate Officers and Directors
that covers, among others, our principal executive officer, our principal financial officer and our
principal accounting officer. This Code of Ethics for Senior Financial Officers is posted on our
website at www.lacrossefootwearinc.com. If any substantive amendments are made to the Code
of Ethics for Senior Financial Officers or the Board of Directors grants any waiver from a
provision of the Code of Ethics to any of our officers, then we will disclose the nature of such
amendment or waiver on our website at the above address.
|
|
|
Item 11. |
|
Executive Compensation |
The information required by this Item will be set forth under the captions Director Compensation
and Executive Compensation in the Proxy Statement. If the Proxy Statement is not filed with the
SEC by April 30, 2011, such information will be included in an amendment to this Annual Report on
Form 10-K filed by April 30, 2011.
-29-
|
|
|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |
The information required by this Item with respect to Security Ownership of Certain Beneficial
Owners and Management will be set forth under the caption Principal Shareholders in the Proxy
Statement. If the Proxy Statement is not filed with the SEC by April 30, 2011, such information
will be included in an amendment to this Annual Report on Form 10-K filed by April 30, 2011.
The following table provides certain equity compensation information as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate number of |
|
|
|
|
|
|
|
|
|
|
|
securities remaining |
|
|
|
|
|
|
|
|
|
|
|
available for future |
|
|
|
Number of securities |
|
|
|
|
|
|
issuance under equity |
|
|
|
to be issued upon |
|
|
Weighted-average |
|
|
compensation plans |
|
|
|
exercise of outstanding |
|
|
exercise price of |
|
|
(excluding securities |
|
|
|
options, warrants and |
|
|
outstanding options, |
|
|
reflected in the first |
|
Plan Category |
|
rights (1) |
|
|
warrants and rights |
|
|
column) (2) |
|
Equity compensation
plans approved by
security holders |
|
|
799,237 |
|
|
$ |
11.99 |
|
|
|
589,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
799,237 |
|
|
$ |
11.99 |
|
|
|
589,000 |
|
|
|
|
|
|
|
(1) |
|
Represents options to purchase the Companys Common Stock granted under the
Companys 1993 Employee Stock Incentive Plan, 1997 Employee Stock Incentive Plan (the
1997 Plan), 2001 Stock Incentive Plan (the 2001 Plan), 2007 Long Term Incentive
Plan and 2001 Non-Employee Director Stock Option Plan, As Amended and Restated (the
Director Plan). |
|
(2) |
|
Includes 463,000 shares of the Companys Common Stock available for issuance under
the 2007 Long Term Incentive Plan and 126,000 shares of the Companys Common Stock
available for issuance under the Director Plan. |
|
|
|
Item 13. |
|
Certain Relationships, Related Transactions, and Director Independence |
The information required by this Item will be set forth under the captions Transactions with
Related Persons, Compensation Committee Interlocks and Insider Participation, and Board of
Directors in the Proxy Statement. If the Proxy Statement is not filed with the SEC by April 30,
2011, such information will be included in an amendment to this Annual Report on Form 10-K filed by
April 30, 2011.
|
|
|
Item 14. |
|
Principal Accountant Fees and Services |
The information required by this Item will be set forth under the caption Independent Registered
Public Accounting Firms Fees in the Proxy Statement. If the Proxy Statement is not filed with
the SEC by April 30, 2011, such information will be included in an amendment to this Annual Report
on Form 10-K filed by April 30, 2011.
-30-
PART IV
Item 15. Exhibits and Financial Statement Schedules
Financial Statements
1. |
|
The following financial statements are included in this Annual Report on Form 10-K beginning
on the pages indicated below: |
2. |
|
Financial Statement Schedule |
|
|
|
The financial statement schedule for the years ended December 31, 2010 and 2009 is
included in this Annual Report on Form 10-K and should be read in conjunction with the
Consolidated Financial Statements. |
|
|
All other financial statement schedules are omitted since the required information is
not present or is not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the consolidated
financial statements and notes thereto. |
3. |
|
See the Exhibit Index for a description of exhibits filed with or incorporated by reference
in this report. |
-31-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
LACROSSE FOOTWEAR, INC.
|
|
|
By |
/s/ Joseph P. Schneider
|
|
|
|
Joseph P. Schneider |
|
|
|
President and Chief Executive Officer |
|
|
Date: March 4, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Joseph P. Schneider
Joseph P. Schneider
|
|
President, Chief Executive Officer and
Director (Principal Executive Officer)
|
|
March 4, 2011 |
|
|
|
|
|
/s/ David P. Carlson
David P. Carlson
|
|
Executive Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
|
|
March 4, 2011 |
|
|
|
|
|
/s/ Richard A. Rosenthal
Richard A. Rosenthal
|
|
Chairman of the Board and Director
|
|
March 4, 2011 |
|
|
|
|
|
/s/ Stephen F. Loughlin
Stephen F. Loughlin
|
|
Director
|
|
March 4, 2011 |
|
|
|
|
|
/s/ Charles W. Smith
Charles W. Smith
|
|
Director
|
|
March 4, 2011 |
|
|
|
|
|
/s/ John D. Whitcombe
John D. Whitcombe
|
|
Director
|
|
March 4, 2011 |
|
|
|
|
|
/s/ William H. Williams
William H. Williams
|
|
Director
|
|
March 4, 2011 |
-32-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
LaCrosse Footwear, Inc.
Our audits of the consolidated financial statements and internal control over financial reporting
referred to in our report dated March 4, 2011 (included elsewhere in this Annual Report on Form
10-K) also included the financial statement schedule of LaCrosse Footwear, Inc. and Subsidiaries,
listed in Item 15(a) of this Form 10-K. This schedule is the responsibility of LaCrosse Footwear,
Inc.s management. Our responsibility is to express an opinion based on our audits of the
consolidated financial statements.
In our opinion, the financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ McGladrey & Pullen, LLP
Minneapolis, Minnesota
March 4, 2011
-33-
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
Beginning |
|
|
Charged to Costs |
|
|
Charged To |
|
|
|
|
|
|
at End |
|
|
|
of Year |
|
|
and Expenses |
|
|
Other Accounts |
|
|
Deductions |
|
|
of Year |
|
Year ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discounts |
|
$ |
198 |
|
|
$ |
829 |
|
|
$ |
|
|
|
$ |
862 |
|
|
$ |
165 |
|
Allowance for nondefective product |
|
|
171 |
|
|
|
1,701 |
|
|
|
|
|
|
|
1,653 |
|
|
|
219 |
|
Allowance for doubtful accounts |
|
|
294 |
|
|
|
51 |
|
|
|
|
|
|
|
212 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
663 |
|
|
$ |
2,581 |
|
|
$ |
|
|
|
$ |
2,727 |
|
|
$ |
517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for slow-moving inventory |
|
$ |
797 |
|
|
$ |
520 |
|
|
$ |
|
|
|
$ |
919 |
|
|
$ |
398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance |
|
$ |
1,017 |
|
|
$ |
5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discounts |
|
$ |
225 |
|
|
$ |
953 |
|
|
$ |
|
|
|
$ |
980 |
|
|
$ |
198 |
|
Allowance for nondefective product |
|
|
135 |
|
|
|
1,623 |
|
|
|
|
|
|
|
1,587 |
|
|
|
171 |
|
Allowance for doubtful accounts |
|
|
449 |
|
|
|
306 |
|
|
|
|
|
|
|
461 |
|
|
|
294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
809 |
|
|
$ |
2,882 |
|
|
$ |
|
|
|
$ |
3,028 |
|
|
$ |
663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for slow-moving inventory |
|
$ |
449 |
|
|
$ |
1,167 |
|
|
$ |
|
|
|
$ |
819 |
|
|
$ |
797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance |
|
$ |
1,070 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
53 |
|
|
$ |
1,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accounts receivable, inventory, and deferred tax asset allowances above are deducted from the applicable asset accounts
in the accompanying consolidated balance sheets. |
-34-
EXHIBIT INDEX
|
|
|
Exhibit Number |
|
Exhibit Description |
(3.1)
|
|
Restated Articles of Incorporation of LaCrosse Footwear, Inc. (Incorporated by
reference to Exhibit (3.0) to LaCrosse Footwear, Inc.s Form S-1 Registration
Statement (Registration No. 33-75534)) |
|
|
|
(3.2)
|
|
Amended and Restated By-Laws of LaCrosse Footwear, Inc. (Incorporated by reference
to Exhibit (3.1) to LaCrosse Footwear, Inc.s Current Report on Form 8-K filed with
the Commission on November 3, 2005) |
|
|
|
(3.3)
|
|
Amendment to Amended and Restated By-Laws of LaCrosse Footwear, Inc. (Incorporated
by reference to Exhibit (3.1) to LaCrosse Footwear, Inc.s Current Report on Form
8-K filed with the Commission on February 6, 2006) |
|
|
|
(10.1)*
|
|
LaCrosse Footwear, Inc. Retirement Plan (Incorporated by reference to Exhibit
(10.18) to LaCrosse Footwear, Inc.s Form S-1 Registration Statement (Registration
No. 33-75534)) |
|
|
|
(10.2)*
|
|
LaCrosse Footwear, Inc. Employees Retirement Savings Plan (Incorporated by
reference to Exhibit (10.19) to LaCrosse Footwear, Inc.s Form S-1 Registration
Statement (Registration No. 33-75534)) |
|
|
|
(10.3)*
|
|
LaCrosse Footwear, Inc. 1993 Employee Stock Incentive Plan (Incorporated by
reference to Exhibit (10.20) to LaCrosse Footwear, Inc.s Form S-1 Registration
Statement (Registration No. 33-75534)) |
|
|
|
(10.4)*
|
|
LaCrosse Footwear, Inc. 1997 Employee Stock Incentive Plan (Incorporated by
reference to Exhibit (10.17) to LaCrosse Footwear, Inc.s Annual Report on Form 10-K
for the year ended December 31, 1996) |
|
|
|
(10.5)*
|
|
LaCrosse Footwear, Inc. 2001 Stock Incentive Plan, as amended (Incorporated by
reference to Exhibit (10.1) of LaCrosse Footwear, Inc.s Current Report on Form 8-K
as filed with the Commission on May 9, 2005) |
|
|
|
(10.6)*
|
|
Amended and Restated LaCrosse Footwear, Inc. 2001 Non-Employee Director Stock Option
Plan, as amended (Incorporated by reference to Exhibit (4.1) of LaCrosse Footwear,
Inc.s Registration Statement on Form S-8 as filed with the Commission on May 3,
2007 (Registration No. 333-142598)) |
|
|
|
(10.7)*
|
|
LaCrosse Footwear, Inc. 2007 Long Term Incentive Plan (Incorporated by reference to
Exhibit (4.1) of LaCrosse Footwear, Inc.s Registration Statement on Form S-8 as filed
with the Commission on May 3, 2007 (Registration No. 333-142597)) |
|
|
|
(10.8)*
|
|
LaCrosse Footwear, Inc. 2010 Annual Incentive Compensation Plan Document
(Incorporated by reference to Exhibit (10.1) of LaCrosse Footwear, Inc.s Current
Report on Form 8-K as filed with the Commission on December 11, 2009) |
|
(10.9)*
|
|
LaCrosse Footwear, Inc. 2011 Annual Incentive Compensation Plan Document
(Incorporated by reference to Exhibit (10.1) of LaCrosse Footwear, Inc.s Current
Report on Form 8-K as filed with the Commission on December 21, 2010) |
|
|
|
* |
|
A management contract or
compensatory plan or arrangement. |
-35-
|
|
|
Exhibit Number |
|
Exhibit Description |
(10.10)
|
|
Single-Tenant Industrial Triple Net Lease, by and between LaCrosse Footwear, Inc.
and ProLogis, dated October 14, 2005 (Incorporated by reference to Exhibit (10.2) to
LaCrosse Footwear, Inc.s Current Report on Form 8-K as filed with the Commission on
October 20, 2005) |
|
|
|
(10.11)
|
|
Single Tenant Industrial Triple Net Lease, dated June 11, 2008, by and between
LaCrosse Footwear, Inc. and 267 Associates, L.L.C. (Incorporated by reference to
Exhibit (10.1) to LaCrosse Footwear, Inc.s Current Report on Form 8-K as filed with
the Commission on June 13, 2008) |
|
|
|
(10.12)
|
|
Multi-Tenant Industrial Triple Net Lease, dated February 9, 2010, by and among
LaCrosse Footwear, Inc., Danner, Inc., and DP Partners Portland I, LLC (Incorporated
by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.s Current Report on Form
8-K as filed with the Commission on February 10, 2010) |
|
|
|
(10.13)
|
|
Parking Lot Lease, dated February 9, 2010, by and among LaCrosse Footwear, Inc.,
Danner, Inc., and DP Partners Portland I, LLC (Incorporated by reference to Exhibit
(10.2) to LaCrosse Footwear, Inc.s Current Report on Form 8-K as filed with the
Commission on February 10, 2010) |
|
|
|
(10.14)
|
|
Certified Manufacturer Agreement, dated as of March 5, 2003, by and between W.L.
Gore & Associates, Inc. and LaCrosse Footwear, Inc. (Incorporated by reference to
Exhibit (10.14) to LaCrosse Footwear, Inc.s Annual Report on Form 10-K filed with
the Commission on March 7, 2008) [Confidential treatment has been granted with
respect to a portion of this Agreement] |
|
|
|
(10.15)
|
|
Trademark License, dated as of February 25, 2003, by and between W.L. Gore &
Associates, Inc. and LaCrosse Footwear, Inc. (Incorporated by reference to Exhibit
(10.15) to LaCrosse Footwear, Inc.s Annual Report on Form 10-K filed with the
Commission on March 7, 2008) [Confidential treatment has been granted with respect
to a portion of this Agreement] |
|
|
|
(10.16)
|
|
Amendment to Contractual Agreements, dated as of November 17, 2008, by and between
W.L. Gore & Associates, Inc. and LaCrosse Footwear, Inc. (Incorporated by reference
to Exhibit (10.18) to LaCrosse Footwear, Inc.s Annual Report on Form 10-K filed
with the Commission on March 7, 2008) [Confidential treatment has been granted with
respect to a portion of this Agreement] |
|
|
|
(10.17)
|
|
Amended and Restated Credit Agreement, dated September 8, 2006, by and between
LaCrosse Footwear, Inc. as borrower, and Wells Fargo Bank, National Association, as
lender. (Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.s
Quarterly Report on Form 10-Q as filed with the Commission on July 22, 2010) |
|
|
|
(10.18)
|
|
Revolving Credit Note, dated as of September 8, 2006, issued by LaCrosse Footwear,
Inc. in favor of Wells Fargo Bank, National Association (Incorporated by reference
to Exhibit 10.2 to LaCrosse Footwear, Inc.s Current Report on Form 8-K as filed
with the Commission on September 12, 2006) |
|
|
|
(10.19)
|
|
First Amendment To Credit Agreement and Waiver, dated February 25, 2008, by and
between LaCrosse Footwear, Inc. as borrower, and Wells Fargo Bank, National
Association, as lender. (Incorporated by reference to Exhibit (10.1) to LaCrosse
Footwear Inc.s Form 8-K as filed with the Commission on February 27, 2008) |
-36-
|
|
|
Exhibit Number |
|
Exhibit Description |
(10.20)
|
|
Second Amendment to Credit Agreement and Waiver, dated October 3, 2008, by and
between LaCrosse Footwear, Inc. as borrower, and Wells Fargo Bank, National
Association, as lender (Incorporated by reference to exhibit (10.1) to LaCrosse
Footwear, Inc.s Quarterly Report on Form 10-Q as filed with the Commission on
October 28, 2008) |
|
|
|
(10.21)
|
|
Second Amended and Restated Credit Agreement, dated March 1, 2009, by and between
LaCrosse Footwear, Inc. as borrower, and Wells Fargo Bank, National Association, as
lender (Incorporated by reference to exhibit (10.2) to LaCrosse Footwear, Inc.s
Quarterly Report on Form 10-Q as filed with the Commission on July 22, 2010) |
|
|
|
(10.22)
|
|
Revolving Line of Credit Note, dated as of March 9, 2009, issued by LaCrosse
Footwear, Inc. in favor of Wells Fargo Bank, National Association (Incorporated by
reference to exhibit (10.2) to LaCrosse Footwear, Inc.s Quarterly Report on Form
10-Q as filed with the Commission on April 24, 2009) |
|
|
|
(10.23)
|
|
Letter Amendment to Second Amended and Restated Credit Agreement, dated November 30,
2009, by and between LaCrosse Footwear, Inc. as borrower, and Wells Fargo Bank,
National Association, as lender (Incorporated by reference to exhibit (10.28) to
LaCrosse Footwear, Inc.s Annual Report on Form 10-K as filed with the Commission on
March 5, 2010) |
|
|
|
(10.24)
|
|
Letter Amendment to Second Amended and Restated Credit Agreement, dated January 26,
2010, by and between LaCrosse Footwear, Inc. as borrower, and Wells Fargo Bank,
National Association, as lender (Incorporated by reference to exhibit (10.29) to
LaCrosse Footwear, Inc.s Annual Report on Form 10-K as filed with the Commission on
March 5, 2010) |
|
|
|
(10.25)
|
|
Second Amendment to Third Party Security Agreement, dated January 26, 2010, by and
between LaCrosse Footwear, Inc. and Wells Fargo Bank, National Association
(Incorporated by reference to exhibit (10.30) to LaCrosse Footwear, Inc.s Annual
Report on Form 10-K as filed with the Commission on March 5, 2010) |
|
|
|
(10.26)
|
|
Second Amendment to Third Party Security Agreement, dated January 26, 2010, by and
between Danner, Inc. and Wells Fargo Bank, National Association (Incorporated by
reference to exhibit (10.31) to LaCrosse Footwear, Inc.s Annual Report on Form 10-K
as filed with the Commission on March 5, 2010) |
|
|
|
(10.27)
|
|
Letter Amendment to Second Amended and Restated Credit Agreement, dated September
30, 2010, by and between LaCrosse Footwear, Inc. as borrower, and Wells Fargo Bank,
National Association, as lender |
|
|
|
(10.28)
|
|
Letter Amendment to Second Amended and Restated Credit Agreement, dated January 31,
2011, by and between LaCrosse Footwear, Inc. as borrower, and Wells Fargo Bank,
National Association, as lender |
|
|
|
(21.1)
|
|
List of subsidiaries of LaCrosse Footwear, Inc. |
|
|
|
(23.1)
|
|
Consent of McGladrey & Pullen, LLP |
|
|
|
(31.1)
|
|
Certification of the President & Chief Executive Officer pursuant to Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934 |
|
|
|
(31.2)
|
|
Certification of the Executive Vice President & Chief Financial Officer pursuant to
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 |
|
|
|
(32.1)
|
|
Certification of the President & Chief Executive Officer pursuant to 18 U.S.C. § 1350 |
|
|
|
(32.2)
|
|
Certification of the Executive Vice President & Chief Financial Officer pursuant to
18 U.S.C. § 1350 |
-37-
INDEX
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
|
|
F-1 |
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
F-2 and F-3 |
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-7 F-24 |
|
F - INDEX
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
LaCrosse Footwear, Inc.
We have audited the accompanying consolidated balance sheets of LaCrosse Footwear, Inc. and
Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income,
shareholders equity and comprehensive income and cash flows for each of the years in the
three-year period ended December 31, 2010. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of LaCrosse Footwear, Inc. and Subsidiaries as of
December 31, 2010 and 2009, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2010, in conformity with U.S. generally
accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), LaCrosse Footwear, Inc. and Subsidiaries internal control over financial
reporting as of December 31, 2010, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 4, 2011 expressed an unqualified opinion on the
effectiveness of LaCrosse Footwear, Inc. and Subsidiaries internal control over financial
reporting.
/s/ McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 4, 2011
F - 1
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
ASSETS |
|
2010 |
|
|
2009 |
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents (Notes 2 and 9) |
|
$ |
4,274 |
|
|
$ |
17,739 |
|
Trade
accounts and other receivables, less allowances of $517 in 2010 and $663 in 2009 (Note 9) |
|
|
22,834 |
|
|
|
21,635 |
|
Inventories (Note 3) |
|
|
40,071 |
|
|
|
27,031 |
|
Prepaid expenses and other |
|
|
1,321 |
|
|
|
1,129 |
|
Deferred tax assets (Note 4) |
|
|
1,614 |
|
|
|
1,503 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
70,114 |
|
|
|
69,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
7,173 |
|
|
|
1,772 |
|
Machinery and equipment |
|
|
21,569 |
|
|
|
18,584 |
|
|
|
|
|
|
|
|
Gross property and equipment |
|
|
28,742 |
|
|
|
20,356 |
|
Less accumulated depreciation |
|
|
12,588 |
|
|
|
11,874 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
16,154 |
|
|
|
8,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
Goodwill |
|
|
10,753 |
|
|
|
10,753 |
|
Other assets |
|
|
249 |
|
|
|
313 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
11,002 |
|
|
|
11,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
97,270 |
|
|
$ |
88,585 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 2
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
2010 |
|
|
2009 |
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
16,477 |
|
|
$ |
8,036 |
|
Accrued compensation |
|
|
4,261 |
|
|
|
3,343 |
|
Other accruals |
|
|
3,356 |
|
|
|
3,755 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
24,094 |
|
|
|
15,134 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT (Note 5) |
|
|
263 |
|
|
|
|
|
DEFERRED REVENUE (Note 5) |
|
|
566 |
|
|
|
225 |
|
DEFERRED LEASE OBLIGATIONS |
|
|
782 |
|
|
|
614 |
|
COMPENSATION AND BENEFITS (Note 8) |
|
|
4,385 |
|
|
|
4,680 |
|
DEFERRED TAX LIABILITIES (Note 4) |
|
|
2,732 |
|
|
|
2,337 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
32,822 |
|
|
|
22,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Notes 6, 8, 9 and 15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY (Notes 7, 8, 13 and 15) |
|
|
|
|
|
|
|
|
Common
stock, par value $.01 per share; authorized 50,000,000 shares; issued 6,717,627 shares |
|
|
67 |
|
|
|
67 |
|
Additional paid-in capital |
|
|
30,536 |
|
|
|
29,041 |
|
Accumulated other comprehensive loss |
|
|
(3,731 |
) |
|
|
(3,348 |
) |
Retained earnings |
|
|
38,789 |
|
|
|
41,529 |
|
Less cost of 258,775 and 381,829 shares of treasury stock |
|
|
(1,213 |
) |
|
|
(1,694 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
64,448 |
|
|
|
65,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
97,270 |
|
|
$ |
88,585 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 3
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2010, 2009, and 2008
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
2009 |
|
|
|
2008 |
|
|
|
|
Net sales (Note 10) |
|
$ |
150,542 |
|
|
$ |
139,152 |
|
|
$ |
127,956 |
|
Cost of goods sold |
|
|
91,413 |
|
|
|
85,062 |
|
|
|
77,295 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
59,129 |
|
|
|
54,090 |
|
|
|
50,661 |
|
Selling and administrative expenses |
|
|
47,699 |
|
|
|
45,505 |
|
|
|
40,541 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
11,430 |
|
|
|
8,585 |
|
|
|
10,120 |
|
Non-operating expense |
|
|
(239 |
) |
|
|
(375 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
11,191 |
|
|
|
8,210 |
|
|
|
10,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (Note 4) |
|
|
4,310 |
|
|
|
2,700 |
|
|
|
3,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,881 |
|
|
$ |
5,510 |
|
|
$ |
6,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.07 |
|
|
$ |
0.87 |
|
|
$ |
0.99 |
|
Diluted |
|
$ |
1.04 |
|
|
$ |
0.86 |
|
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
6,428,625 |
|
|
|
6,303,473 |
|
|
|
6,215,049 |
|
Diluted |
|
|
6,590,009 |
|
|
|
6,374,936 |
|
|
|
6,416,731 |
|
See accompanying notes to consolidated financial statements.
F - 4
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
AND COMPREHENSIVE INCOME
Years Ended December 31, 2010, 2009, and 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Additional Paid-In |
|
|
Other Comprehensive |
|
|
Retained |
|
|
Treasury |
|
|
Total Shareholders |
|
|
Comprehensive |
|
|
|
Stock |
|
|
Capital |
|
|
Loss |
|
|
Earnings |
|
|
Stock |
|
|
Equity |
|
|
Income |
|
|
Balance, December 31, 2007 |
|
$ |
67 |
|
|
$ |
27,473 |
|
|
|
($1,011 |
) |
|
$ |
42,328 |
|
|
|
($2,872 |
) |
|
$ |
65,985 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,167 |
|
|
|
|
|
|
|
6,167 |
|
|
$ |
6,167 |
|
Employee benefit plan actuarial loss
net of deferred tax of $1,731 |
|
|
|
|
|
|
|
|
|
|
(2,709 |
) |
|
|
|
|
|
|
|
|
|
|
(2,709 |
) |
|
|
(2,709 |
) |
Stock based compensation expense |
|
|
|
|
|
|
577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
577 |
|
|
|
|
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,322 |
) |
|
|
|
|
|
|
(9,322 |
) |
|
|
|
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95 |
) |
|
|
(95 |
) |
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
197 |
|
|
|
|
|
|
|
|
|
|
|
921 |
|
|
|
1,118 |
|
|
|
|
|
Foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
(309 |
) |
|
|
|
|
|
|
|
|
|
|
(309 |
) |
|
|
(309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,149 |
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
67 |
|
|
|
28,247 |
|
|
|
(4,029 |
) |
|
|
39,173 |
|
|
|
(2,046 |
) |
|
|
61,412 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,510 |
|
|
|
|
|
|
|
5,510 |
|
|
|
5,510 |
|
Employee benefit plan actuarial gain
net of deferred tax of $411 |
|
|
|
|
|
|
|
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
641 |
|
|
|
641 |
|
Stock based compensation expense |
|
|
|
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
581 |
|
|
|
|
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,154 |
) |
|
|
|
|
|
|
(3,154 |
) |
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
352 |
|
|
|
565 |
|
|
|
|
|
Foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,191 |
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
67 |
|
|
|
29,041 |
|
|
|
(3,348 |
) |
|
|
41,529 |
|
|
|
(1,694 |
) |
|
|
65,595 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,881 |
|
|
|
|
|
|
|
6,881 |
|
|
|
6,881 |
|
Employee benefit plan actuarial loss
net of deferred tax of $146 |
|
|
|
|
|
|
|
|
|
|
(229 |
) |
|
|
|
|
|
|
|
|
|
|
(229 |
) |
|
|
(229 |
) |
Stock based compensation expense |
|
|
|
|
|
|
560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
560 |
|
|
|
|
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,621 |
) |
|
|
|
|
|
|
(9,621 |
) |
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
935 |
|
|
|
|
|
|
|
|
|
|
|
540 |
|
|
|
1,475 |
|
|
|
|
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59 |
) |
|
|
(59 |
) |
|
|
|
|
Foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
(154 |
) |
|
|
|
|
|
|
|
|
|
|
(154 |
) |
|
|
(154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,498 |
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
67 |
|
|
$ |
30,536 |
|
|
|
($3,731 |
) |
|
$ |
38,789 |
|
|
|
($1,213 |
) |
|
$ |
64,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 5
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2010, 2009, and 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,881 |
|
|
$ |
5,510 |
|
|
$ |
6,167 |
|
Adjustments to reconcile net income to net cash
provided by operating activities, net of effects of
acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,016 |
|
|
|
2,705 |
|
|
|
1,891 |
|
Loss on disposal of property and equipment |
|
|
64 |
|
|
|
225 |
|
|
|
5 |
|
Stock-based compensation expense |
|
|
560 |
|
|
|
581 |
|
|
|
577 |
|
Deferred income taxes |
|
|
433 |
|
|
|
1,011 |
|
|
|
64 |
|
Changes in current assets and liabilities, net of effects
of acquisitions in 2009 and 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts and other receivables |
|
|
(1,241 |
) |
|
|
814 |
|
|
|
144 |
|
Inventories |
|
|
(13,150 |
) |
|
|
1,740 |
|
|
|
1,682 |
|
Accounts payable |
|
|
8,120 |
|
|
|
(2,252 |
) |
|
|
3,022 |
|
Accrued expenses and other |
|
|
381 |
|
|
|
1,872 |
|
|
|
(301 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
5,064 |
|
|
|
12,206 |
|
|
|
13,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(10,604 |
) |
|
|
(5,254 |
) |
|
|
(3,176 |
) |
Proceeds from sales of property and equipment |
|
|
1 |
|
|
|
41 |
|
|
|
|
|
Acquisition payment (Note 11) |
|
|
|
|
|
|
(388 |
) |
|
|
(3,169 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(10,603 |
) |
|
|
(5,601 |
) |
|
|
(6,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
300 |
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(9,621 |
) |
|
|
(3,154 |
) |
|
|
(9,322 |
) |
Purchase of treasury stock |
|
|
(59 |
) |
|
|
|
|
|
|
(95 |
) |
Proceeds from exercise of stock options |
|
|
1,475 |
|
|
|
565 |
|
|
|
1,118 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(7,905 |
) |
|
|
(2,589 |
) |
|
|
(8,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash
and
cash equivalents |
|
|
(21 |
) |
|
|
40 |
|
|
|
(309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(13,465 |
) |
|
|
4,056 |
|
|
|
(1,702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
17,739 |
|
|
|
13,683 |
|
|
|
15,385 |
|
|
|
|
|
|
|
|
|
|
|
Ending |
|
$ |
4,274 |
|
|
$ |
17,739 |
|
|
$ |
13,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for income taxes |
|
$ |
4,451 |
|
|
$ |
438 |
|
|
$ |
3,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash actuarial pension liability adjustment
net of tax (Note 8) |
|
$ |
(229 |
) |
|
$ |
641 |
|
|
$ |
(2,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash deferred income tax expense (benefit) from
actuarial change to pension liability (Note 8) |
|
$ |
(146 |
) |
|
$ |
411 |
|
|
$ |
(1,731 |
) |
See accompanying notes to consolidated financial statements.
F - 6
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
LaCrosse Footwear, Inc. is a leading developer and marketer of branded, premium and innovative
footwear for expert work and outdoor consumers. The Companys Danner® and LaCrosse® brands are
distributed domestically through a nationwide network of specialty retailers and distributors,
and internationally through distributors and retailers in North America, Asia, and Europe.
The Company markets its two brands through four channels of distribution: (1) wholesale, (2)
government, (3) direct, and (4) international.
|
|
|
Within the wholesale channel, the LACROSSE® and DANNER® brands
are marketed through its employee field sales staff directly to sporting goods and
outdoor retailers, general merchandisers, industrial distributors, and independent shoe
stores. |
|
|
|
|
The government channel provides performance footwear built to meet the demands and
specific requirements for multiple branches of the U.S. military, retail outlets on
military bases, as well as federal, state and other governmental agencies. |
|
|
|
|
Through the direct channels of distribution, the Company operates four Internet
websites for use by consumers and its wholesale partners. The Company also has a factory
store in Portland, Oregon. |
|
|
|
|
International sales are derived through the Companys European subsidiary sales staff,
its Japanese distributor and through various independent distributor and dealer networks
in other countries outside the United States. |
Summary of significant accounting policies:
Principles of consolidation The consolidated financial statements include the accounts of
LaCrosse Footwear, Inc. and its wholly owned subsidiaries, Danner, Inc., LaCrosse International,
Inc., LaCrosse Europe, Inc., and LaCrosse Europe ApS (collectively the Company). All material
intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates in the preparation of financial statements The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying footnotes. Significant items subject to
estimates and assumptions include valuation allowances for trade accounts receivable,
inventories, and deferred tax assets, as well as pension obligations, product warranties,
stock-based compensation, and estimated future cash flows used together with the Companys market
capitalization in the annual impairment test of goodwill. Actual results could differ from those
estimates.
Cash and cash equivalents The Company maintains its cash in money market accounts and U.S.
Government money market accounts, which may, at times, exceed federally insured limits. The
Company has not experienced any losses in such accounts. The carrying amounts of such assets are
a reasonable estimate of their fair value due to the short term to maturity and readily available
market for the investments.
F - 7
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies, Continued
Revenue recognition Revenue is recognized when products are shipped, the customer takes title
and assumes risk of loss, collection of related receivables are probable, persuasive evidence of
an arrangement exists, and the sales price is fixed or determinable. Factory store revenues are
recorded at the time of sale. Allowances for estimated returns and discounts are provided when
the related revenue is recorded. Amounts billed for shipping and handling costs are recorded as a
component of net sales.
Foreign currency translation and foreign currency transactions - The assets and liabilities of
the Companys foreign subsidiaries have been translated into U.S. dollars using the exchange
rates in effect at period end, and the net sales and expenses have been translated into U.S.
dollars using average exchange rates in effect during the period. The foreign currency
translation adjustments are included as a separate component of accumulated other comprehensive
loss within shareholders equity.
Any gains or losses generated by foreign currency transactions are recorded in non-operating
expense in the consolidated statements of income in the period in which they occur.
Fair value of financial instruments The Companys financial instruments, including cash and
cash equivalents, trade accounts receivable, and accounts payable are estimated to approximate
their fair value due to their short maturities.
Trade accounts receivable and allowance for doubtful accounts Trade accounts receivable are
carried at the original invoice amount less estimated allowances for doubtful accounts, cash
discounts and non-defective returns. The Company maintains an allowance for doubtful accounts for
the uncertainty of its customers ability to make required payments. In determining the amount
of the allowance, the Company considers historical levels of credit losses and makes judgments
about the creditworthiness of customers based upon ongoing credit evaluations. The Company also
analyzes its cash discount programs and returns policies and future rates of non-defective
returns to assess the adequacy of allowance levels and adjusts such allowances as necessary.
Inventories Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method. Provision for potentially slow-moving or excess inventories
is made based on managements analysis of inventory levels, future sales forecasts, and current
estimated market values.
Property and equipment Property and equipment are carried at cost and are depreciated using the
straight-line method over their estimated useful lives or lease term, whichever is shorter.
Depreciable lives range from five to fifteen years for leasehold improvements and from two to
fifteen years for machinery and equipment.
Goodwill Goodwill represents the excess of the purchase price over the fair value of the net
tangible and identified intangible assets. Goodwill is not amortized, but is subject to annual
impairment tests. The Company reviews its goodwill for impairment annually, or more frequently if
there is a triggering event. The Company uses a two-step test to assess goodwill for impairment.
First, the fair value of the reporting unit is compared to its carrying value. If the fair value
exceeds the carrying value, goodwill is not impaired
and no further testing is required. The second step is performed if the carrying value exceeds
the fair value. The implied fair value of the reporting units goodwill must be determined and
compared to the carrying value of the goodwill. If the carrying value of a reporting units
goodwill exceeds its implied fair value, an impairment loss equal to the difference will be
recorded. The Company also reviews the carrying amount
F - 8
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies, Continued
of goodwill for impairment if an event occurs or circumstances change that would indicate the
carrying amount may be impaired. The Company tests for impairment at the end of the second
quarter each year. As of June 26, 2010, the Company determined there was no impairment of its
recorded goodwill and as of December 31, 2010, there has been no triggering event that would
require an updated impairment review.
Recoverability and impairment of intangible assets and other long-lived assets The Company
reviews long-lived assets and certain identifiable intangible assets for impairment whenever
events indicate that the carrying value may be impaired. In these cases, the Company estimates
the future undiscounted net cash flows to be derived from the assets to determine whether a
potential impairment exists. If the carrying value exceeds the estimate of future undiscounted
cash flows, the Company then calculates the impairment as the excess of the carrying value of the
asset over the estimate of its fair value. The Company has determined that there was no
impairment as of December 31, 2010.
Product warranties The Company provides a limited warranty for the replacement of defective
products for a specified time period after sale. The Company estimates the costs that may be
incurred under its limited warranty and records a liability in the amount of such anticipated
costs at the time product revenue is recognized. Factors that affect the Companys warranty
liability include sales experience along with historical and anticipated future rates of warranty
claims.
Accruals for product warranties are included in other accruals in the accompanying consolidated
balance sheets. Changes in the carrying amount of accrued product warranty cost for the years
ended December 31, 2010 and 2009 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Accrued product warranties, beginning |
|
$ |
1,409 |
|
|
$ |
1,266 |
|
Accruals for products sold |
|
|
3,181 |
|
|
|
2,890 |
|
Warranty claims |
|
|
(3,002 |
) |
|
|
(2,747 |
) |
|
|
|
|
|
|
|
Accrued product warranties, ending |
|
$ |
1,588 |
|
|
$ |
1,409 |
|
|
|
|
|
|
|
|
Stock-based compensation The Company uses the Black-Scholes model to estimate the fair value of
all share-based compensation awards on the date of grant. The Company recognizes compensation
expense for options on a straight-line basis over the requisite service period for each separately
vesting portion of the award. Stock-based compensation expense recognized was $0.6 million ($0.05
per diluted share) for 2010, $0.6 million ($0.06 per diluted share) for 2009, and $0.6 million
($0.05 per diluted share) for 2008. See Note 7, Stock Options for additional information.
Income taxes The provision for income taxes is based on earnings reported in the consolidated
statements of income. Deferred tax assets and liabilities are determined by applying anticipated
future tax rates to the cumulative temporary differences. Temporary differences are the
differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment. See Note 4, Income Tax Matters for additional
information.
F - 9
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies, Continued
Research and development costs Expenditures relating to the development of new products and
processes are expensed as incurred. These costs include expenditures for compensation, materials,
facilities, and other costs and do not represent a material portion of operating expenses.
Advertising and promotion The Company advertises and promotes its products through national and
regional media, displays, and catalogs and through cooperative advertising programs with
wholesalers. Costs for these advertising and promotional programs are charged to expense as
incurred. Advertising and promotional expenses included in the consolidated statements of income
for the years ended December 31, 2010, 2009, and 2008 were $3.7 million, $3.1 million, and $2.4
million, respectively.
Net income per common share The Company presents its net income on a per share basis for both
basic and diluted common shares. Basic earnings per common share excludes all dilutive stock
options and is computed using the weighted average number of common shares outstanding during the
period. The diluted earnings per common share calculation assumes that all stock options were
exercised and converted into common stock at the beginning of the period, unless their effect
would be anti-dilutive.
A reconciliation of the shares used in the basic and diluted earnings per common share is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Basic weighted average common shares outstanding |
|
|
6,428,625 |
|
|
|
6,303,473 |
|
|
|
6,215,049 |
|
Dilutive stock options |
|
|
161,384 |
|
|
|
71,463 |
|
|
|
201,682 |
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares
outstanding |
|
|
6,590,009 |
|
|
|
6,374,936 |
|
|
|
6,416,731 |
|
|
|
|
|
|
|
|
|
|
|
Segment reporting The Company is required to report selected segment information
quarterly and to report annually entity-wide disclosures about products, major customers and the
geographies in which the entity holds material assets and reports revenue. An operating segment
is defined as a component that engages in business activities whose operating results are
reviewed by the chief operating decision maker and for which discrete financial information is
available. The Company has determined that it operates as a single segment. The Company manages
its resources and assesses its performance on an enterprise-wide basis.
Note 2. Fair Value of Financial Instruments
Cash and cash equivalents at December 31, 2010 and 2009 were $4.3 million and $17.7 million,
respectively. The Company has categorized its cash and cash equivalents as a Level 1 financial
asset, measured at fair value based on quoted prices in active markets of identical assets. The
Company does not have any other financial assets or liabilities that are measured at fair value.
F - 10
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Inventories
A summary of inventories is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Raw materials |
|
$ |
8,186 |
|
|
$ |
4,094 |
|
Work in process |
|
|
637 |
|
|
|
388 |
|
Finished goods |
|
|
31,646 |
|
|
|
23,346 |
|
|
|
|
|
|
|
|
Subtotal |
|
|
40,469 |
|
|
|
27,828 |
|
Less: provision for obsolete and slow-moving inventories |
|
|
(398 |
) |
|
|
(797 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
40,071 |
|
|
$ |
27,031 |
|
|
|
|
|
|
|
|
Note 4. Income Tax Matters
Income before income taxes consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
10,935 |
|
|
$ |
7,983 |
|
|
$ |
11,536 |
|
Foreign |
|
|
256 |
|
|
|
227 |
|
|
|
(1,440 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,191 |
|
|
$ |
8,210 |
|
|
$ |
10,096 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and deferred tax liabilities consist of the following components (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Trade receivable allowances |
|
$ |
88 |
|
|
$ |
147 |
|
Inventories |
|
|
896 |
|
|
|
800 |
|
Compensation and benefits |
|
|
2,593 |
|
|
|
2,615 |
|
Warranty reserves and other |
|
|
1,344 |
|
|
|
849 |
|
Net operating loss carryforwards |
|
|
1,039 |
|
|
|
1,058 |
|
Valuation allowance |
|
|
(1,022 |
) |
|
|
(1,017 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
4,938 |
|
|
|
4,452 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Goodwill amortization |
|
|
4,194 |
|
|
|
4,194 |
|
Property and equipment |
|
|
1,859 |
|
|
|
1,012 |
|
Prepaid expenses and other |
|
|
3 |
|
|
|
80 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
6,056 |
|
|
|
5,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(1,118 |
) |
|
$ |
(834 |
) |
|
|
|
|
|
|
|
F - 11
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Income Tax Matters, Continued
The components giving rise to the deferred tax assets and deferred tax liabilities described
above have been included in the accompanying consolidated balance sheets as follows (in
thousands): |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Current assets |
|
$ |
1,614 |
|
|
$ |
1,503 |
|
Noncurrent liabilities |
|
|
(2,732 |
) |
|
|
(2,337 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(1,118 |
) |
|
$ |
(834 |
) |
|
|
|
|
|
|
|
As of December 31, 2010 and 2009, the Company recorded a valuation allowance of $1.0 million
related to the state of Wisconsin net operating loss (NOL) carryforwards, the realization of
which is dependent on having taxable income in Wisconsin in future periods. |
In future periods of earnings, the Company will report income tax expense offset by any further
reductions in the valuation allowance based on an ongoing assessment of the future realization of
the state NOL deferred tax assets. |
The total state NOLs as of December 31, 2010 are approximately $19.9 million, which will expire
as follows: $0.8 million in 2015, $5.3 million in 2016, $9.2 million in 2017, $2.5 million in
2018, $1.6 million in 2019, at $0.5 million in 2020. |
The components of the provision for income taxes are as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
2,949 |
|
|
$ |
1,714 |
|
|
$ |
3,542 |
|
State |
|
|
866 |
|
|
|
431 |
|
|
|
323 |
|
Foreign |
|
|
69 |
|
|
|
(372 |
) |
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
496 |
|
|
|
545 |
|
|
|
379 |
|
State |
|
|
(31 |
) |
|
|
(15 |
) |
|
|
43 |
|
Foreign |
|
|
(39 |
) |
|
|
397 |
|
|
|
(358 |
) |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
4,310 |
|
|
$ |
2,700 |
|
|
$ |
3,929 |
|
|
|
|
|
|
|
|
|
|
|
F - 12
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Income Tax Matters, Continued
The differences between statutory federal tax rates and the effective tax rates reflected in the
consolidated statements of income are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Statutory federal tax rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
State rate, net of federal tax effect |
|
|
5.0 |
% |
|
|
5.1 |
% |
|
|
3.2 |
% |
Federal & state research and experimentation credits |
|
|
(1.3 |
%) |
|
|
(2.0 |
%) |
|
|
(2.3 |
%) |
Liability for unrecognized tax benefits |
|
|
0.0 |
% |
|
|
(3.1 |
%) |
|
|
1.3 |
% |
Foreign rate differential |
|
|
0.0 |
% |
|
|
(1.8 |
%) |
|
|
1.8 |
% |
Other, net |
|
|
0.8 |
% |
|
|
0.7 |
% |
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
38.5 |
% |
|
|
32.9 |
% |
|
|
38.9 |
% |
|
|
|
|
|
|
|
|
|
|
A reconciliation of the beginning and ending liability for unrecognized income tax benefits
for 2010 and 2009 is shown below (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Balance, beginning of year |
|
$ |
17 |
|
|
$ |
349 |
|
Additions based on tax positions related to the current year |
|
|
6 |
|
|
|
8 |
|
Reductions for tax positions of prior years |
|
|
|
|
|
|
(265 |
) |
Settlements |
|
|
|
|
|
|
(75 |
) |
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
23 |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
As of December 31, 2010, the Companys balance of net uncertain tax benefit positions would
reduce the Companys effective income tax rate if recognized. |
The Companys policy is to accrue interest related to potential underpayment of income taxes
within the provision for income taxes. The liability for accrued interest as of December 31,
2010 and December 31,
2009 was insignificant. Interest is computed on the difference between the Companys uncertain
tax benefit positions and the amount deducted or expected to be deducted in the Companys tax
returns. |
The Company files a consolidated U.S. federal income tax return as well as foreign and state tax
returns on a consolidated, combined, or stand-alone basis (depending upon the jurisdiction). The
Company has concluded tax examinations for U.S. federal and Oregon state filings through the tax
year ended December 2007 and December 2006, respectively. Depending on the jurisdiction, the
Company is no longer subject to state examinations by tax authorities other than Oregon for years
prior to the December 2005 and 2006 tax years. The Company is not subject to foreign tax
examinations prior to the year ended December 2008. |
Note 5. Financing Arrangements
On March 9, 2009, the Company entered into a 3-year extension of the Companys previous line of
credit agreement with Wells Fargo Bank, N.A, which expires June 30, 2012. Amounts borrowed under
the agreement are secured by substantially all of the Companys assets. The maximum aggregate
principal amount of borrowings allowed from January 1 to May 31 is $17.5 million and from June 1
to December 31, the total available is $30 million. There are no borrowing base limitations
under the credit agreement. The credit agreement provides for an interest rate of LIBOR plus
1.75% and an annual commitment fee of |
F - 13
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Financing Arrangements, Continued
0.15% on the unused balance. At December 31, 2010 and 2009, the Company had no outstanding
balances due under this financing agreement. |
On January 26, 2010, the Company entered into a letter amendment to the line of credit agreement
with Wells Fargo Bank, N.A. which increased the allowable capital expenditures for the years
ended December 31, 2010 and 2009, and increased allowable cash dividends for the year ending
December 31, 2010. |
On September 30, 2010 the Company entered into an additional letter amendment to the line of
credit agreement with Wells Fargo Bank, N.A. which increased the allowable capital expenditures
for the remainder of 2010. |
See Note 15. Subsequent Events, for information regarding a January 31, 2011 amendment to the
line of credit agreement. |
In June 2006, the Company received a grant of $0.2 million and a non-interest bearing loan of
$0.6 million from the Portland Development Commission, which were used to finance certain
leasehold improvements at the Companys Portland distribution facility. The grant is recorded as
deferred revenue and is being amortized as a reduction of operating expenses on a straight-line
basis over five years, which is the estimated useful life of the associated leasehold
improvements. In the third quarter of 2008, the loan was forgiven by the Portland Development
Commission and accordingly, the Company reclassified the remaining unamortized long-term debt to
deferred revenue and will continue to amortize the balance until 2011. Deferred revenue was $0.1
million and $0.2 million at December 31, 2010 and 2009, respectively. |
In May 2010, the Company received a loan of $0.3 million from the State of Oregon to finance certain
equipment
purchases at its new Danner factory which began production in the third quarter of 2010. The
State of Oregon will forgive all, or a portion of the loan, along with all interest accruing on
any portion of the loan forgiven upon meeting employment criteria at the Danner factory. The
employment criteria require the Company to maintain a certain number of employees at the Danner factory
over a consecutive eight quarter period beginning July 1, 2010 and ending no later than September
30, 2014. At that time the remaining loan balance which has not been forgiven will bear interest
at 5.0% per annum and will mature on October 31, 2014. As the Company meets the specified employment
criteria at the Danner factory during a given period, beginning with the fourth quarter of 2010,
a corresponding portion of the loan will be reclassified to deferred revenue and amortized over
the life of the factory lease. |
Note 6. Lease Commitments and Contingencies
Lease Commitments The Company has real estate operating leases for offices, factory store, and
manufacturing and distribution centers under non-cancelable lease agreements expiring on various
dates through 2025. The total rental expense included in the consolidated statements of income
for the years ended December 31, 2010, 2009, and 2008 is $2.9 million, $2.9 million, and $2.2
million, respectively. The future minimum lease payments required under non-cancelable operating
leases at December 31, 2010 are: $2.6 million in each of years 2011 through 2013, $2.7 million
in 2014, $2.6 million in 2015, and $5.3 million thereafter.
|
F - 14
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Lease Commitments and Contingencies, Continued
Contingencies In the normal course of business, the Company is subject to various claims and
potential litigation. Although the ultimate resolution of legal proceedings cannot be predicted
with certainty, management believes that any such matters that are currently known will not have
a material adverse effect on the Companys results of operations, liquidity or financial
condition. |
Note 7. Stock Options
The Company has outstanding stock options under certain employee and director stock option plans.
Outstanding employee stock options are subject to the provisions of the 1993 Employee Stock
Incentive Plan, 1997 Employee Stock Incentive Plan, 2001 Stock Incentive Plan, and 2007 Long Term
Incentive Plan. The Board of Directors stock options are subject to the provisions of the 2001
Non-Employee Director Stock Option Plan, as Amended and Restated. Prior to 2006, employee stock
options vested over a period of five years and had a maximum term of ten years. Beginning in
2006, the employee stock option issuances vest over four years and have a maximum term of seven
years. Prior to 2008, the directors stock options vested over a period of five years and had a
maximum term of ten years. Beginning in 2008, the directors stock option issuances vest over
four years and have a maximum term of seven years. |
The Company is required to estimate the fair value of share-based awards on the date of grant
using an option-pricing model. The value of the portion of the award that is ultimately expected
to vest is recognized as expense in the Companys consolidated statements of income over the
requisite service
period for each separately vesting portion of an award. Because share-based compensation expense
is based on awards that are ultimately expected to vest, share-based compensation expense is
reduced for estimated forfeitures. Forfeitures are required to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates. |
To calculate the share-based compensation expense, the Company uses the Black-Scholes
option-pricing model. The Companys determination of fair value of option-based awards on the
date of grant is impacted by the Companys stock price as well as assumptions regarding certain
highly subjective variables. These variables include, but are not limited to, the Companys
expected stock price volatility over the term of the
awards, the anticipated risk-free interest rate, anticipated future dividend yields and the
expected life of the options. The anticipated risk-free interest rate is based on a treasury
instrument whose term is consistent with the expected life of the stock options granted. The
expected volatility, life of options and dividend yield are based on historical experience. |
The following table lists the assumptions used by the Company in determining the fair value of
stock options and the resulting fair value for the years ended December 31, 2010, 2009, and 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Expected dividend yield |
|
|
4.1 |
% |
|
|
3.7 |
% |
|
|
2.9 |
% |
Expected stock price volatility |
|
|
50 |
% |
|
|
46 |
% |
|
|
31 |
% |
Risk-free interest rate |
|
|
2.4 |
% |
|
|
1.4 |
% |
|
|
3.2 |
% |
Expected life of options |
|
4.7 years |
|
|
4.6 years |
|
|
4.4 years |
|
Weighted average fair value of options |
|
$ |
4.22 |
|
|
$ |
3.26 |
|
|
$ |
3.76 |
|
F - 15
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Stock Options, Continued
The following table represents stock option activity for the three years ended December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares Under Options |
|
|
Weighted Average Exercise Price |
|
|
Average Remaining Contract Life |
|
|
|
|
Options outstanding December 31, 2007 |
|
|
788,579 |
|
|
$ |
8.94 |
|
|
|
|
|
Granted |
|
|
193,175 |
|
|
|
16.72 |
|
|
|
|
|
Canceled |
|
|
(43,749 |
) |
|
|
13.83 |
|
|
|
|
|
Exercised |
|
|
(141,166 |
) |
|
|
5.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2008 |
|
|
796,839 |
|
|
|
11.12 |
|
|
|
|
|
Granted |
|
|
193,150 |
|
|
|
11.46 |
|
|
|
|
|
Canceled |
|
|
(97,799 |
) |
|
|
12.80 |
|
|
|
|
|
Exercised |
|
|
(82,667 |
) |
|
|
5.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2009 |
|
|
809,523 |
|
|
|
11.57 |
|
|
|
|
|
Granted |
|
|
172,975 |
|
|
|
13.32 |
|
|
|
|
|
Canceled |
|
|
(55,830 |
) |
|
|
13.63 |
|
|
|
|
|
Exercised |
|
|
(127,431 |
) |
|
|
10.43 |
|
|
|
|
|
|
|
|
Options outstanding December 31, 2010 |
|
|
799,237 |
|
|
$ |
11.99 |
|
|
4.1 years |
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding under the option plans on December 31, 2010 by price range are as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options |
|
|
Exercisable Options |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
Weighted |
|
|
Average |
|
|
Number of |
|
|
Weighted |
|
|
Average |
|
Range of |
|
Outstanding |
|
|
Average |
|
|
Remaining |
|
|
Outstanding |
|
|
Average |
|
|
Remaining |
|
Exercise Price |
|
Options |
|
|
Exercise Price |
|
|
Life |
|
|
Options |
|
|
Exercise Price |
|
|
Life |
|
|
|
|
|
|
|
|
< $7.70 |
|
|
35,890 |
|
|
$ |
2.58 |
|
|
|
2.0 |
|
|
|
35,890 |
|
|
$ |
2.58 |
|
|
|
2.0 |
|
$7.70 - $10.50 |
|
|
104,199 |
|
|
|
7.93 |
|
|
|
3.4 |
|
|
|
90,362 |
|
|
|
7.76 |
|
|
|
3.1 |
|
> $10.50 |
|
|
659,148 |
|
|
|
13.14 |
|
|
|
4.4 |
|
|
|
322,412 |
|
|
|
12.62 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
799,237 |
|
|
|
11.99 |
|
|
|
4.1 |
|
|
|
448,664 |
|
|
|
10.84 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys nonvested stock option activity for the year ended December 31, 2010 is as
follows: |
|
|
|
|
|
|
|
Number of |
|
|
|
Shares |
|
Nonvested stock options at beginning of year |
|
|
380,382 |
|
Vested |
|
|
(146,954 |
) |
Canceled |
|
|
(55,830 |
) |
Granted |
|
|
172,975 |
|
|
|
|
|
Nonvested stock options at end of year |
|
|
350,573 |
|
|
|
|
|
Shares available for future stock grants to employees and directors under existing plans
were approximately 589,000 at December 31, 2010. The aggregate intrinsic value of options
outstanding at December 31, 2010 was $3.7 million, and the aggregate intrinsic value of
exercisable options was $2.6 million. The total intrinsic value of options exercised during
2010, 2009, and 2008 was $0.8 million, $0.4 million, and $0.4 million, respectively. At December
31, 2010, there was approximately $0.4 million of unrecognized compensation cost related to
share-based payments to be recognized over a weighted-average period of approximately 1.1 years.
The total fair value of options vesting in 2010 and 2009 was approximately $0.6 |
F - 16
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Stock Options, Continued
million for each year. A tax benefit of $0.3 million, $0.1 million, and $0.3 million was
recognized in 2010, 2009, and 2008, respectively, from the exercise of stock options.
Note 8. Compensation and Benefit Agreements
The Company has a defined benefit pension plan covering eligible past employees and less than 1%
of its current employees. Eligible participants are entitled to monthly pension benefits
beginning at normal retirement age sixty-five (65). The monthly benefit payable at normal
retirement date under the plan is equal to a specified dollar amount or percentage of average
monthly compensation, as defined in the plan, multiplied by years of benefit service (maximum of
38 years). The Companys funding policy is to make not less than the minimum contribution
required by applicable regulations, plus such amounts as the Company may determine to be
appropriate from time to time. The Company froze the plan during 2003 and as a result,
participants do not accrue any additional years of service regardless of any increases in their
compensation or completion of additional years of credited service.
The Company also sponsors an unfunded defined benefit postretirement death benefit plan that
covers eligible past employees. The Company funds this postretirement benefit obligation as the
benefits are paid.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
Summary of pension and other postretirement |
|
December 31, |
|
|
December 31, |
|
benefit plans (in thousands): |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Changes in benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations at beginning of year |
|
$ |
16,337 |
|
|
$ |
15,586 |
|
|
$ |
275 |
|
|
$ |
279 |
|
Interest cost |
|
|
908 |
|
|
|
944 |
|
|
|
16 |
|
|
|
17 |
|
Benefits paid |
|
|
(1,137 |
) |
|
|
(1,088 |
) |
|
|
(22 |
) |
|
|
(21 |
) |
Actuarial losses |
|
|
877 |
|
|
|
895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations at end of year |
|
$ |
16,985 |
|
|
$ |
16,337 |
|
|
$ |
269 |
|
|
$ |
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at beginning of year |
|
$ |
11,932 |
|
|
$ |
10,021 |
|
|
$ |
|
|
|
$ |
|
|
Actual return on assets |
|
|
1,290 |
|
|
|
2,405 |
|
|
|
|
|
|
|
|
|
Company contributions |
|
|
784 |
|
|
|
594 |
|
|
|
22 |
|
|
|
21 |
|
Benefits paid |
|
|
(1,137 |
) |
|
|
(1,088 |
) |
|
|
(22 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at end of year |
|
$ |
12,869 |
|
|
$ |
11,932 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets less than obligations |
|
$ |
(4,116 |
) |
|
$ |
(4,405 |
) |
|
$ |
(297 |
) |
|
$ |
(290 |
) |
Unrecognized loss |
|
|
5,421 |
|
|
|
5,046 |
|
|
|
28 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit (cost) |
|
$ |
1,305 |
|
|
$ |
641 |
|
|
$ |
(269 |
) |
|
$ |
(275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation and benefits liabilities |
|
$ |
4,116 |
|
|
$ |
4,405 |
|
|
$ |
269 |
|
|
$ |
275 |
|
The following is a reconciliation to the compensation and benefits financial statement line item on the
accompanying balance sheets:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Pension benefits |
|
$ |
4,116 |
|
|
$ |
4,405 |
|
Other benefits |
|
|
269 |
|
|
|
275 |
|
|
|
|
|
|
|
|
Total compensation and benefits |
|
$ |
4,385 |
|
|
$ |
4,680 |
|
|
|
|
|
|
|
|
F - 17
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Compensation and Benefit Agreements, Continued
Changes to Accumulated Other Comprehensive Loss pertaining to the defined benefit pension plan
for the years ended December 31, 2010, 2009, and 2008 are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
Prior |
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
Other |
|
|
|
Service |
|
|
Unrecognized |
|
|
|
|
|
|
Tax |
|
|
Comprehensive |
|
|
|
Cost |
|
|
(Gains)/Losses |
|
|
Total |
|
|
Amount |
|
|
Loss |
|
|
|
|
Balance, December 31, 2007 |
|
$ |
108 |
|
|
$ |
1,550 |
|
|
$ |
1,658 |
|
|
$ |
(647 |
) |
|
$ |
1,011 |
|
Incurred in the current year |
|
|
|
|
|
|
4,454 |
|
|
|
4,454 |
|
|
|
(1,736 |
) |
|
|
2,718 |
|
Recognized as component of
net periodic income |
|
|
(14 |
) |
|
|
|
|
|
|
(14 |
) |
|
|
5 |
|
|
|
(9 |
) |
|
|
|
Balance, December 31, 2008 |
|
|
94 |
|
|
|
6,004 |
|
|
|
6,098 |
|
|
|
(2,378 |
) |
|
|
3,720 |
|
Incurred in the current year |
|
|
|
|
|
|
(764 |
) |
|
|
(764 |
) |
|
|
299 |
|
|
|
(465 |
) |
Recognized as component of
net periodic cost |
|
|
(94 |
) |
|
|
(194 |
) |
|
|
(288 |
) |
|
|
112 |
|
|
|
(176 |
) |
|
|
|
Balance, December 31, 2009 |
|
|
|
|
|
|
5,046 |
|
|
|
5,046 |
|
|
|
(1,967 |
) |
|
|
3,079 |
|
Incurred in the current year |
|
|
|
|
|
|
528 |
|
|
|
528 |
|
|
|
(206 |
) |
|
|
322 |
|
Recognized as component of
net periodic cost |
|
|
|
|
|
|
(153 |
) |
|
|
(153 |
) |
|
|
60 |
|
|
|
(93 |
) |
|
|
|
Balance, December 31, 2010 |
|
$ |
|
|
|
$ |
5,421 |
|
|
$ |
5,421 |
|
|
$ |
(2,113 |
) |
|
$ |
3,308 |
|
|
|
|
To be recognized as component of
net periodic cost in 2011 |
|
$ |
|
|
|
$ |
167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss reported on the Companys consolidated balance sheets
consists of adjustments related to foreign currency translation and the actuarial loss related to
pension benefits. The components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Pension actuarial loss, net of tax |
|
$ |
3,308 |
|
|
$ |
3,079 |
|
Foreign
currency translation adjustment |
|
|
423 |
|
|
|
269 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
3,731 |
|
|
$ |
3,348 |
|
|
|
|
|
|
|
|
F -18
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Compensation and Benefit Agreements, Continued
Components of net periodic cost (income) for the years ended December 31 are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits December 31, |
|
|
Other Benefits December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
Cost (income) recognized during the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
$ |
908 |
|
|
$ |
944 |
|
|
$ |
951 |
|
|
$ |
16 |
|
|
$ |
17 |
|
|
$ |
17 |
|
Expected return on plan assets |
|
|
(940 |
) |
|
|
(798 |
) |
|
|
(1,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of loss |
|
|
153 |
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment |
|
|
|
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost (income) |
|
$ |
121 |
|
|
$ |
486 |
|
|
$ |
(130 |
) |
|
$ |
16 |
|
|
$ |
17 |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits December 31, |
|
|
Other Benefits December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Assumptions used in determining net periodic cost (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.25 |
% |
|
|
5.75 |
% |
|
|
6.25 |
% |
|
|
5.25 |
% |
|
|
5.75 |
% |
|
|
6.25 |
% |
Expected return on plan assets |
|
|
8.0 |
% |
|
|
8.0 |
% |
|
|
8.0 |
% |
|
|
* |
|
|
|
* |
|
|
|
* |
|
* This plan does not have separate assets, as a result there is no actual or expected return on
plan assets.
The discount rate used is based on an assumed portfolio of high quality bonds with cash flows
matching the timing of expected benefit payments. The expected return on plan assets is based on the asset
allocation mix and historical returns, taking into account current and expected market
conditions. The actual returns on pension plan assets were approximately 12% in 2010, 26% in
2009, and (24%) in 2008. The historical annualized ten-year rate of return on pension plan
assets is approximately 4%.
The Companys pension plan asset allocation at December 31, 2010 and 2009 and target allocation
for 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target |
|
|
Percentage of Plan Assets |
|
|
|
Allocation |
|
|
December 31, |
|
Asset Category |
|
2011 |
|
|
2010 |
|
|
2009 |
|
Equity securities mutual funds |
|
|
50%-60 |
% |
|
|
57 |
% |
|
|
56 |
% |
Debt securities mutual funds |
|
|
40%-50 |
% |
|
|
43 |
% |
|
|
44 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
The pension plan investment strategy is to maintain a diversified portfolio designed to achieve
an average long-term rate of return of 8%. The assets of the plan are strategically allocated
between asset categories according to the target minimum and maximum allocations. Asset
allocation target ranges for each asset category are monitored and may be changed from time to
time based on asset allocation studies performed by the plans investment advisor, with
evaluations of the risk and return expectations for various weightings of the authorized asset
categories. Additional asset categories may also be added to the plan within the context of the
investment objectives.
F -19
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Compensation and Benefit Agreements, Continued
The Company expects to contribute approximately $1.0 million to the pension plan in 2011. The
following benefit payments are expected to be paid from the plan over the next ten years (in
thousands):
|
|
|
|
|
|
|
|
|
Year(s) |
|
Pension Benefits |
|
|
Other Benefits |
|
2011 |
|
$ |
1,090 |
|
|
$ |
23 |
|
2012 |
|
|
1,075 |
|
|
|
23 |
|
2013 |
|
|
1,070 |
|
|
|
24 |
|
2014 |
|
|
1,052 |
|
|
|
24 |
|
2015 |
|
|
1,094 |
|
|
|
25 |
|
2016-2020 |
|
|
5,675 |
|
|
|
120 |
|
The Company has adopted a framework for measuring the fair value of plan assets that prioritizes
the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (level
1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three
levels of the fair value hierarchy are described as follows:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets
in active markets that the plan has the ability to access.
Level 2 Inputs to the valuation methodology include:
|
|
Quoted prices for similar assets in active markets; |
|
|
|
Quoted prices for identical or similar assets in inactive markets; |
|
|
|
Inputs other than quoted prices that are observable for the asset; |
|
|
|
Inputs that are derived principally from or corroborated by observable market data by
correlation or other means. |
If the asset has a specified (contractual) term, the level 2 input must be observable for
substantially the full term of the asset.
Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
The assets fair value measurement level within the fair value hierarchy is based on the lowest
level of any input that is significant to the fair value measurement. Valuation techniques used
need to maximize the use of observable inputs and minimize the use of unobservable inputs.
F -20
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Compensation and Benefit Agreements, Continued
The following table sets forth by level, within the fair value hierarchy, the Plans assets at
fair value as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
Equity securities domestic mutual funds |
|
$ |
5,450 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,450 |
|
Equity securities international mutual funds |
|
|
1,924 |
|
|
|
|
|
|
|
|
|
|
|
1,924 |
|
Debt securities mutual funds |
|
|
5,495 |
|
|
|
|
|
|
|
|
|
|
|
5,495 |
|
|
|
|
Total |
|
$ |
12,869 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,869 |
|
|
|
|
The following table sets forth by level, within the fair value hierarchy, the Plans assets
at fair value as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
Equity securities domestic mutual funds |
|
$ |
4,830 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,830 |
|
Equity securities international mutual funds |
|
|
1,795 |
|
|
|
|
|
|
|
|
|
|
|
1,795 |
|
Debt securities mutual funds |
|
|
5,307 |
|
|
|
|
|
|
|
|
|
|
|
5,307 |
|
|
|
|
Total |
|
$ |
11,932 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11,932 |
|
|
|
|
The Company has an employee retirement savings plan, which is classified as a defined
contribution plan under Section 401(k) of the Internal Revenue Code. The plan allows employees
to defer a portion of their annual compensation through pre-tax contributions.
For this plan, the Company matches 100% of the first 3% and 50% of the next 2% of an employees
contributions, up to a maximum of 4% of the employees compensation. Matching contributions for
the years ended December 31, 2010, 2009, and 2008 were $0.6 million, $0.5 million, and $0.4
million, respectively. The Companys Board of Directors may also approve discretionary annual
contributions to employees 401(k) retirement accounts. The discretionary contributions for the
years ended December 31, 2010, 2009 and 2008 were $0.1 million for each year.
Note 9. Significant Risks and Uncertainties
Concentrations of Credit Risk Cash At December 31, 2010 and 2009, the Company had $4.3
million and $17.7 million, respectively, in cash, money market accounts, and U.S. Government
money market accounts at financial institutions, which included amounts in excess of the
federally insured limits.
Concentration of Credit Risk Accounts Receivable The Company has a relatively small number of
key wholesalers that comprise a relatively significant portion of its total accounts receivable
balance. Generally, the Company does not require collateral or other security to support customer
receivables. However, the Company continually monitors and evaluates customers creditworthiness
to minimize potential credit risks associated with its accounts receivable. The Company has
determined that there is no material accounts receivable credit risk exposure beyond the current
allowance for uncollectible accounts in the consolidated financial statements.
F - 21
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Enterprise-wide Disclosures
The Company sells its products to two market categories, work and outdoor. The following table
presents information about the Companys net sales attributed to these two market categories (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
Net sales: |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Work Market |
|
$ |
94,751 |
|
|
$ |
88,200 |
|
|
$ |
74,902 |
|
Outdoor Market |
|
|
55,791 |
|
|
|
50,952 |
|
|
|
53,054 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
150,542 |
|
|
$ |
139,152 |
|
|
$ |
127,956 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents information about the Companys net sales by geography based on the
location of the customer (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
Net sales: |
|
2010 |
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
141,987 |
|
|
$ |
131,897 |
|
|
$ |
120,039 |
|
Foreign Countries |
|
|
8,555 |
|
|
|
7,255 |
|
|
|
7,917 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
150,542 |
|
|
$ |
139,152 |
|
|
$ |
127,956 |
|
|
|
|
|
|
|
|
|
|
|
Included in the Companys consolidated balance sheets at December 31, 2010 and 2009 are the net
assets located outside of the United States of approximately $2.8 million and $2.7 million,
respectively. The net book value of long-lived assets located outside of the United States
totaled $0.7 million and $0.5 million at December 31, 2010 and 2009, respectively.
The Company sells its products to a large number of customers in different markets across
multiple product categories. One customer accounted for 21%, 20%, and 9%, respectively, of total
revenues for the years ended December 31, 2010, 2009, and 2008.
Note 11. Acquisitions
On May 8, 2009, the Company announced the formation of Environmentally Neutral Design Outdoor,
Inc. (END). END was formed in the second quarter of 2009 when the Company acquired
substantially all the assets of the predecessor company doing business as END Footwear for $0.4
million. The assets acquired included inventory, intellectual property, and property and
equipment. ENDs results of operations since the date of acquisition have been included in the
consolidated financial statements. On August 7, 2009, the Company announced its plans to
discontinue END as a standalone footwear brand and to integrate its platform of lightweight
footwear designs into the Danner brand.
On July 21, 2008, the Company announced the formation of LaCrosse Europe ApS, a subsidiary based
in Denmark. In establishing this company, LaCrosse Europe ApS purchased certain assets for $3.2
million in cash from the Companys former European distributor, Gateway Footgear. The acquired
assets included inventory and sales order backlog. The results of operations since the date of
acquisition have been included in the consolidated financial statements. Proforma results of
periods prior to the date of acquisition to include the acquired entity are not included since
management has determined they are not material to the consolidated financial statements.
F - 22
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Quarterly Selected Financial Data (Unaudited)
The following reflects the Companys unaudited quarterly results of operations for 2010 and 2009
(in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
Q1 |
|
|
Q2 |
|
|
Q3 |
|
|
Q4 |
|
|
|
|
Net sales |
|
$ |
34,227 |
|
|
$ |
26,553 |
|
|
$ |
37,682 |
|
|
$ |
52,081 |
|
Gross profit |
|
|
13,768 |
|
|
|
10,863 |
|
|
|
14,016 |
|
|
|
20,483 |
|
Operating income |
|
|
2,731 |
|
|
|
195 |
|
|
|
2,054 |
|
|
|
6,450 |
|
Income tax provision |
|
|
1,047 |
|
|
|
61 |
|
|
|
857 |
|
|
|
2,345 |
|
Net income |
|
|
1,662 |
|
|
|
101 |
|
|
|
1,146 |
|
|
|
3,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share |
|
$ |
0.26 |
|
|
$ |
0.02 |
|
|
$ |
0.18 |
|
|
$ |
0.62 |
|
Diluted income per common share |
|
$ |
0.25 |
|
|
$ |
0.02 |
|
|
$ |
0.17 |
|
|
$ |
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
Q1 |
|
|
Q2 |
|
|
Q3 |
|
|
Q4 |
|
|
|
|
Net sales |
|
$ |
25,910 |
|
|
$ |
29,976 |
|
|
$ |
40,761 |
|
|
$ |
42,505 |
|
Gross profit |
|
|
9,831 |
|
|
|
12,218 |
|
|
|
15,721 |
|
|
|
16,320 |
|
Operating income (loss) |
|
|
(1,038 |
) |
|
|
1,990 |
|
|
|
3,906 |
|
|
|
3,727 |
|
Income tax provision (benefit) |
|
|
(398 |
) |
|
|
315 |
|
|
|
1,450 |
|
|
|
1,333 |
|
Net income (loss) |
|
|
(692 |
) |
|
|
1,658 |
|
|
|
2,221 |
|
|
|
2,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share |
|
|
($0.11 |
) |
|
$ |
0.26 |
|
|
$ |
0.35 |
|
|
$ |
0.37 |
|
Diluted income (loss) per common share |
|
|
($0.11 |
) |
|
$ |
0.26 |
|
|
$ |
0.35 |
|
|
$ |
0.36 |
|
Note 13. Cash Dividends
During the first quarter of 2008, the Company paid a special dividend and a quarterly dividend
totaling $7.0 million, or $1.125 per common share. Quarterly dividends totaling $2.3 million, in
the amount of $0.125 per common share, were paid in the second, third and fourth quarters of
2008, respectively.
In 2009, the Company paid quarterly dividends of $0.8 million, or $0.125 per common share,
totaling $3.2 million.
During the first quarter of 2010, the Company paid a special dividend and a quarterly dividend
totaling $7.2 million or $1.125 per common share. Subsequently, quarterly dividends totaling
$2.4 million, in the amount of $0.125 per common share, were paid in the second, third and fourth
quarters, respectively.
Note 14. Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued guidance to amend the
disclosure requirements related to recurring and nonrecurring fair value measurements. The
guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2
of the fair value measurement hierarchy, including the reasons and the timing of the transfers
and information on purchases, sales, issuance, and settlements on a gross basis in the
reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement
hierarchy. The adoption of this guidance is effective for interim and annual reporting periods beginning after December 15, 2009. The Company has adopted this
guidance in the financial statements presented herein, which did not impact its consolidated
financial position or results of operations.
F - 23
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Subsequent Events
On February 1, 2011, the Company announced a first quarter cash dividend of twelve and one-half
cents ($0.125) per share of common stock. This first quarter dividend will be paid on March 18,
2011 to shareholders of record as of the close of business on February 22, 2011. The total cash
payment for this dividend will be approximately $0.8 million.
On January 31, 2011, the Company entered into an Amended and Restated Credit Agreement with Wells
Fargo Bank, N.A. which amends the allowable capital expenditures for the remainder of the credit
agreement term, which expires June 30, 2012.
F - 24