e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
or
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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: 0-23800
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:
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Title of Class:
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Exchange on which securities are registered: |
Common Stock, $.01 par value
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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 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. o
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 the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company þ |
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
Aggregate market value of the voting and non-voting common equity held by nonaffiliates of the
registrant at June 29, 2007: $74,088,349.
Number of shares of the registrants common stock outstanding at February 29, 2008: 6,209,339
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Companys 2008 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, 2007, the end of the Companys fiscal
year.
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
LaCrosse Footwear, Inc. (LaCrosse or the Company) is a leading developer and marketer of
branded, premium and innovative footwear for expert work and outdoor users. Our trusted Danner® and
LaCrosse® brands are distributed domestically through a nationwide network of specialty retailers
and distributors, and internationally through distributors and retailers in Asia, Europe and
Canada. Work customers include people in law enforcement, agriculture, firefighting, construction,
military services and other occupations that need high-performance and protective footwear as a
critical tool for the job. Outdoor customers 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. We have established a
highly loyal following among Midwestern laborers and outdoorsmen operating in severe cold or wet
environments. 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 Pacific Northwest loggers, shipyard workers and early
outdoor enthusiasts.
Since 2000, we have transitioned from being primarily a manufacturer to being primarily a developer
and marketer, increasing our outsourced production from approximately 50% to 80%. In 2005, we
opened our first international office in China to diversify our manufacturing capacity and ensure
our high quality standards.
Corporate strategy
Our corporate strategy is to continue to:
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Build, position and capitalize on the strengths of established brands |
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Develop innovative products and relevant technologies that will differentiate our
products, footwear and apparel |
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Offer superior customer service, and |
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Expand and enhance our strong distribution network of sales representatives and retail
and industrial customers |
Brand Positioning
Within the retail channel of distribution, we market footwear and apparel under the
DANNER® and LACROSSE® brands. We also sell products through the safety and
industrial distributor channel principally under the LACROSSE® brand. We believe each
brand is positioned uniquely in the marketplace to capitalize on differences in end user
expectations for performance, price, and function. The DANNER® brand represents the
highest level of performance, with a select line of high quality, feature-driven leather footwear
products at premium prices. The LACROSSE® brand has a broader product line across
multiple price points including rubber and leather footwear as well as a line of rainwear and
protective clothing.
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Products
Our branded product offerings for the work and outdoor markets include the following brands:
Danner
The Danner brand is known nationwide as the experts choice in premium outdoor footwear, with
rugged designs that exceed customer expectations for performance and quality, and with 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 (seam taped insert) in its leather boots. Danners product offerings include product
categories such as Uniform, Hunting, Work, Hiking and Accessories.
LaCrosse
The LaCrosse brand has a broad product line across multiple price points including rubber and
leather footwear as well as a line of rainwear and protective clothing. 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 or fire and other harsh environments.
LaCrosses product offerings includes product categories such as Hunting, Work, Cold Weather, Fire
and Apparel / Accessories.
Styles
During 2007, we offered approximately 470 styles of footwear and protective clothing. The
percentage of net sales into work markets in 2007, 2006 and 2005 were approximately 52%, 51% and
51%, respectively and sales to outdoor markets were approximately 48%, 49% and 49%, 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, rainwear 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 outside design consultants,
determine the final aesthetics of the product. Once a product design is approved for production,
responsibility may be shared with outside sourcing facilities for pattern development and
commercialization. Our presence in Portland, Oregon provides access to a broad talent pool of
footwear and apparel design professionals.
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Customers, Sales, and Distribution
We market our two brands through two primary channels of distribution: (1) retail and (2) safety
and industrial.
Within the retail channel, the LACROSSE® and DANNER® brands are marketed
through independent representative groups and our in-house sales staff. For both brands, some of
the independent agents are part of multi-line representative groups and some are dedicated solely
to our products. A national account sales team complements the sales activities for the brands.
Our products are sold directly to more than 3,500 accounts, including sporting goods and outdoor
retailers, general merchandise and independent shoe stores, wholesalers, distributors, and federal,
state, and local government agencies. Our domestic manufacturing capability provides us with an
opportunity to provide high-end products directly to our U.S. government and military customers.
Our customer base is also diversified as to size and location of customer and markets served. As a
result, we are less dependent upon a few customers. However, our retail customers have recently
shown a trend towards consolidation into regional, super regional, and national businesses, and
this trend has the effect of consolidating our customer base. As consolidation continues, our
dependency on fewer, larger customers may increase.
We currently operate four Internet websites for use by consumers and retailers. The primary
purpose of the consumer-oriented websites is to provide product and company information. In
addition, two of these sites sell products to consumers who choose to purchase directly from us.
The business-to-business website for the LACROSSE® and
DANNER® brands provides product ordering capability and critical information to dealers
about the status of pending orders, inventory levels, shipping and other data. Our corporate
website, www.lacrossefootwearinc.com, provides information about the company and its
brands to investors and the corporate community.
We operate a retail outlet store at the factory in Portland, Oregon. The factory outlet store
sells slow-moving merchandise, factory seconds, and first quality products for both
DANNER® and LACROSSE® brands.
International sales are primarily derived through our Japanese, European and Canadian independent
distribution and dealer networks.
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 advertising, public relations, point-of-sale displays, catalogs and packaging, product
licensing agreements and sponsorships, online promotion and co-promotion with dealers and
suppliers. Our largest initiatives include:
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Marketing development funds, which include advertising and local retail partner events,
are funds provided by the Company to help retail customers market and sell Danner and
LaCrosse products; |
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Marketing material updates, website upgrades, point-of-purchase and related advertising;
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Visual merchandising, which focuses on all branded point-of-sale development and
production. |
We believe that once a consumer understands the features and benefits of our products, they will be
more likely to become a loyal customer. 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 in which we send representatives
to train the sales associates of all key retailers.
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We coordinate with retail store managers to improve product positioning and point-of-sale information
displays. We also utilize experts such as S.W.A.T. team members, hunting and fishing professionals
and military officers to communicate product benefits and drive brand recognition.
Manufacturing and Sourcing
Manufacturing Overview
We source approximately 80% of the products we sell through a network of international contract
manufacturers, with the remaining 20% manufactured domestically in our 36,000 square foot facility
in Portland, Oregon. We only manufacture high-end leather goods domestically, while all other
products are manufactured internationally. Our domestic manufacturing facility provides a number
of benefits, including increased brand authenticity and compliance with government manufacturing
requirements, such as the Berry Amendment (legislation promoting domestic or home grown products
for government entities). We routinely take current and potential customers on tours through our
factory, showcasing the quality of our brands. This has historically translated into stronger
demand and shelf space for our footwear products.
Sourcing Overview
In 2005, we formed LaCrosse International, Inc., a wholly owned subsidiary with an office in China.
LaCrosse International has three primary tasks:
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Work with suppliers to maintain our standards for high quality products and labor
practices; |
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Locate and develop relationships with complementary sourcing alternatives; and |
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Increase speed to market for new products. |
We do not have any long-term contracts with our manufacturers, choosing instead to retain the
flexibility to re-evaluate our sourcing and manufacturing decisions. In addition, substantially
all of our transactions with our foreign contract manufacturers are in U.S. Dollars. We evaluate
our vendors primarily on the quality of their work, cost and ability to deliver on time.
Approximately 80% of our outsourced products are purchased from two foreign manufacturers located
in China. Alternate sources of capacity for these products are available worldwide.
The raw materials used in production of our products are leather, crude rubber and oil-based vinyl
compounds for protective clothing products. We have historically been able to recover any
significant increases in our raw material costs through price increases.
LaCrosse, or our contract manufacturers, purchase GORE-TEX® waterproof fabric directly
from W.L. Gore and Associates (Gore), for both the LaCrosse and Danner footwear. GORE-TEX® is a
registered trademark of Gore. Gore has traditionally been one of Danners largest suppliers in
terms of dollars spent on raw materials. Over 90% of Danner styles are GORE-TEX® lined.
We have contracts with Gore that are terminable by either party upon 180 days written notice. We
believe our relationship with Gore is good. In the event the relationship was to terminate, we
have identified other sources of products with similar characteristics.
Competition
The categories of the footwear and apparel 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. We have five to seven
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major competitors in each of our market segments which include hunting, work, hiking, uniform, cold
weather, apparel and uniform.
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 effectively compete with
other domestically produced products, but 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 attention to these factors, we believe that the DANNER® footwear line has
maintained a strong competitive position in our market niches.
Several rubber boot manufacturers with strong brand recognition in their respective markets are our
main competitors, though 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.
Employees
As of December 31, 2007, we had approximately 300 employees located in the United States and six
employees in our China office. Approximately twenty of our employees at the La Crosse, Wisconsin
distribution center are represented by the United Steel Workers of America under a three-year
collective bargaining agreement, which expires in September 2009. The United Food & Commercial
Workers Union (UFCW) represents approximately 130 of our employees at the Portland, Oregon facility
under a collective bargaining agreement, which will expire in January 2009. We consider our
employee relations to be good.
Trademarks and Trade Names; Patents
We own United States federal registrations for several of our marks, including
LACROSSE®, DANNER®, RED BALL®, RAINFAIR®, the stylized
Indianhead design that serves as our logo, FIRETECH®, ICE KING®,
ICEMAN®, AIRTHOTIC®, GAMEMASTER®, TERRA FORCETM,
HYPER-DRI®, CAMOHIDETM, ACADIA®, QUAD COMFORT®,
STRIKER®, PRONGHORN®, and RED BALL JETS®. We generally attempt to
register a trademark relating to a products name only when we intend to heavily promote the
product or where we expect to sell the product in large volumes. However, 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.
We also own several United States patents, including the DANNER BOB® outsole; TERRA
FORCETM, a three-shank cement and stitch-down manufacturing process; and our
AIRTHOTIC® ventilated arch support that fits under the heel. Our newest platform
outsole/midsole construction process, EXOTM, is patent-pending at this time.
Seasonality
Sales have been historically higher in 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 fixed operating expenses represents a larger percentage of 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.
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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 year.
Factors other than seasonality could have a significant impact on our sales backlog and therefore,
our backlog at any one point in time may not be indicative of future results.
Foreign Operations and Sales Outside of the United States
Other than LaCrosse International, Inc. (LaCrosse International), which is a wholly-owned
subsidiary located in China, we do not own a majority or controlling interest in any other
international company. LaCrosse International was established to work with our suppliers to
maintain our high quality standards, to identify complementary sourcing alternatives, and to
increase speed to market for new products.
Our net sales outside of the Unites States are through a focused set of independent distributors,
and such sales accounted for approximately 7%, 6% and 5% of our net sales in 2007, 2006 and 2005,
respectively. Substantially all of our fixed assets are located in the United States.
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 which have been enacted or adopted 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.
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Joseph P. Schneider |
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President, Chief Executive Officer and Director |
David P. Carlson |
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Executive Vice President, Chief Financial Officer, and Secretary |
Craig P. Cohen |
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Vice President of Demand Planning |
C. Kirk Layton |
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Vice President of Finance, Corporate Controller and Assistant Secretary |
Kirk S. Nichols |
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Vice President of Sales and Marketing |
J. Gary Rebello |
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Vice President of Human Resources |
Robert G. Rinehart, Jr. |
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Vice President of Product Development |
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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, free of charge 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.
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. 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, product development, market position,
future performance or results of current or anticipated products, interest rates, foreign exchange
rates, financial results, 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.
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Item 1A. Risk Factors
In evaluating the 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 the Companys business, operating results and/or financial
condition, as well as adversely affect the value of an investment in the Companys 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.
A decline in consumer spending due to unfavorable economic and consumer credit conditions could
hinder our product revenues 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, including economic conditions and
factors such as employment, 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. Our results of
operations and financial condition may be adversely affected by changes in consumer spending or
economic conditions.
Our business is substantially affected by the 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,
2007, 48% of our annual revenues were to the outdoor market. This market segment 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. 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 participation
in those activities 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.
We conduct a significant portion of our manufacturing activities and a certain portion of our net
sales occurs outside the U.S., and 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 the United States could disrupt our supply of product to
customers.
We use third party manufacturers located in foreign countries, primarily in China, to manufacture
the majority of our products, including all of our LACROSSE® branded products. We also
sell a growing percentage of our products to retailers outside of the U.S. 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;
increased transportation costs due to rising energy prices, more burdensome port
security procedures, or other factors;
delays in the transportation and delivery of goods due to increased security
concerns;
foreign currency fluctuations (particularly with respect to the Euro and Chinese
Renminbi), a risk for which we do not currently seek to mitigate through hedging
transactions;
restrictions on the transfer of funds;
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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;
expropriation and nationalization;
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. International distributors represented 7% of our net sales in
2007.
Additionally, although net sales outside of the U.S. did not constitute a significant portion of
our revenues in 2007, 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 the Company has
a limited number of foreign distributors, who may have inadequate capital to continue operations
over the long-term. Sales to the international markets are achieved through those foreign
distributors. The Companys sales and sales growth may be adversely affected if the relationship
with those distributors were to deteriorate and we are unable to engage suitable alternatives in a
timely manner.
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 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.
The continued consolidation of domestic retailers, and their capital requirements to fund growth,
increases and concentrates our credit risk.
Significant retailers in the work and outdoor retail industry continue to expand rapidly through
construction of additional stores and acquisitions. Further, the industry continues to experience
consolidation, resulting in a smaller number of primary retailers. The increased capital
requirement required to open and operate new stores concentrates the Companys credit risk in a
relatively small number of customers. If these retailers were to extinguish their capital and were
unable to replenish their liquidity, there is a risk that their outstanding payables to our Company
may not be paid.
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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 produce approximately 80% of our footwear products. Currently, we have
footwear manufacturing arrangements with third party manufacturers located in China, Thailand, and
Europe. 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 engagements 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 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 facilities 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.
Failure to efficiently import foreign sourced products could result in decreased margins, cancelled
orders and unanticipated inventory accumulation.
Our business depends on our ability to source and distribute products in a timely manner. As a
result, we rely on the free flow of goods through open and operational ports worldwide. Labor
disputes at various ports create significant risks for our business, particularly if these disputes
result in work slowdowns, lockouts, strikes, or other disruptions during our peak importing
seasons, and could have a material adverse effect on our business, potentially resulting in
cancelled orders by customers, unanticipated inventory accumulation, and reduced revenues and
earnings.
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 the United States or 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.
Labor disruptions or disruptions due to natural disasters or casualty losses at one of our three
distribution facilities or our domestic manufacturing facility could have a material adverse effect
on our operations.
We have distribution centers in Portland, Oregon and LaCrosse, Wisconsin and a domestic
manufacturing facility in Portland, Oregon. Some of the employees at each of these facilities are
organized in labor unions. Our inability to renew on favorable terms the collective bargaining
agreements between us and the unions that represent 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.
-10-
In addition, any natural disaster or other serious disruption at one of these facilities due to
fire, earthquake, 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 as a docking location for
product. 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 retail customers
and by the success of such retail customers.
Our financial success is significantly related to the willingness of our retail 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 retail customers, and sales to our retail customers
are generally on an order-by-order basis and are subject to rights of cancellation and rescheduling
by the customer. If we cannot fill our retail 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 product sales and ability to grow our product line.
Our five largest retail customers accounted for approximately 25% of our revenues. If any of our
major retail customers experiences a significant downturn in their business or fails to remain
committed to our products or brands, then these customers may reduce or discontinue purchases from
us. 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. Any
significant increase in our bad debt expense relative to revenues would adversely impact our net
income and cash flow and could affect our ability to pay our own obligations as they become due.
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. Recent growth in the market for outdoor and work
footwear has encouraged the entry of new competitors into the marketplace and has increased
competition from established companies. Some of our competitors have products with similar
characteristics, such as design and materials, to a number 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.
Our competitors include footwear manufacturers, fashion-oriented footwear marketers, vertically
integrated specialty stores and retailers of private label products. The principal competitive
differentiators in our industry include product design, product performance, quality, brand image,
price, marketing and promotion, customer support and service, the ability to meet delivery
commitments to retailers, obtaining access to retail outlets and sufficient floor space. A number
of our competitors:
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have significantly greater financial resources than we have; |
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have more comprehensive product lines than ours; |
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have broader market presence than we have in retail outlets, or have their own retail
outlets; |
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have longer-standing relationships with retailers than we have; |
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have greater distribution capabilities than we have; |
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have stronger brand recognition than we have; and |
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spend substantially more on product advertising than we do. |
Our competitors greater capabilities in these areas may enable them to better withstand periodic
downturns in the footwear industry, compete more effectively on the basis of price and production
and more quickly develop new products. In addition, a major marketing or promotional success or
technological innovation by one of our competitors could adversely impact our competitive position.
If we fail to compete successfully in the future,
-11-
our sales and profits may decline, our financial condition may deteriorate and the market price of
our common stock may fall.
In addition, a growing trend in the footwear industry is for dealers and distributors to source
product directly from overseas manufacturers in order to increase profitability by eliminating the
wholesale distributor or manufacturer. While dealers and distributors have not historically
manufactured and developed new and innovative products, if consumers largely accept the directly
sourced products, it could have an adverse effect on our results of operations.
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 at a pace, intensity, and price that is competitive with other brands in our market. In
addition, we must design and manufacture products that appeal to many consumer segments 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 may 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.
Changes in the price or availability of raw materials could disrupt our operations and adversely
affect our financial results. Also, our product costs are subject to risks associated with foreign
currency fluctuations (particularly with respect to the Euro and Chinese Renminbi), oil price
increases and higher foreign labor costs. If we are unable to increase our selling prices to
offset such product cost increases, our revenues and earnings would be negatively impacted.
We purchase raw materials and component parts from various suppliers to be used in the
manufacturing of our products. Changes in our relationships with suppliers or increases in the
costs of purchased raw materials or component parts could result in manufacturing interruptions,
delays, inefficiencies or our inability to successfully market our products. We also rely on
transport companies to deliver our products from abroad to our distribution centers, and in some
cases directly to our customers. If petroleum costs were to increase it could result in
significantly higher freight costs to our company. Increased petroleum costs also affect our
manufacturing costs, as rubber is a key component of our footwear. Our profit margins may decrease
if prices of purchased raw materials, component parts, finished goods, or petroleum increase and we
are unable to pass on those additional costs to our customers.
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 the Company is
unable to renew the agreements, and suitable replacements are not available in a timely manner,
this may reduce revenues.
-12-
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 90% of Danner styles are
GORE-TEX® lined. We have contracts with Gore that are terminable by either party upon 180 days
written notice.
While we consider our relationship with Gore to be good, if Gore were to terminate our agreements,
the time required to obtain substitute materials could interrupt our production cycle. Further,
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, including Joseph
P. Schneider, our President and Chief Executive Officer, and David P. Carlson, our Executive Vice
President and Chief Financial Officer. Our future success will also depend on our ability to
attract and retain key managers, product development engineers, sales people, and others. We face
intense 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 revenues and earnings.
If we fail to comply with the covenants contained in our revolving credit facility we may be unable
to secure additional financing and repayment obligations on our outstanding indebtedness may be
accelerated.
Our revolving credit facility contains financial and operating covenants with which we must comply.
As of December 31, 2007, we were in compliance with each of these covenants. However, among other
factors, 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, 2007, we had no outstanding balances due under this financial arrangement.
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:
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classify our board of directors so that only some of our directors are elected each
year; |
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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 |
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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 of us. Any
-13-
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
Not Applicable.
Item 2. Properties
The following table sets forth certain information, as of December 31, 2007, relating to our
principal facilities.
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PROPERTIES |
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Owned or |
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Approximate Floor |
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Location |
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Leased |
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Area in Square Feet |
|
Principal Uses |
Portland, OR
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Leased(1)
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145,000 |
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Principal sales,
marketing and
executive offices
and distribution
facility |
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Portland, OR
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Leased(2)
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36,000 |
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Manufacturing
operations and
retail outlet store |
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La Crosse, WI
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Leased(3)
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185,000 |
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Distribution facility |
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La Crosse, WI
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Leased(4)
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236,000 |
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Distribution facility |
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Zhongshan, China
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Leased
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1,400 |
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Office space |
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(1) |
|
In June 2006, we moved our corporate headquarters and distribution center for our
Danner line of footwear products to a newly constructed, 145,000 square foot building in
Portland, Oregon. The monthly base rent on the Single Tenant Industrial Lease is scheduled
for 120 months from August 1, 2006 and the Lease provides for potential term extensions of
up to 60 months after the original term. |
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(2) |
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The lease for this facility expires in March 2009; however, we have the option to
extend the term for an additional five years. |
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(3) |
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In August 2006, we signed a first amendment and extension of lease for this facility.
The amendment extends the term of the lease through May 2009 and removes all sublease
agreements. The previous sublessees now pay rent directly to the lessor. |
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(4) |
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In August 2006, we extended our lease on this facility through April 2009. |
With the exception of our La Crosse, WI distribution facilities, which we intend to consolidate in
early 2009 to one Midwest location, we believe that our current facilities, which are in good
operating condition, will be adequate to meet our anticipated needs for at least the next few
years.
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 of occurrence and the amount of such
loss can be reasonably estimated, a liability is recorded in our financial statements.
-14-
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year ended December 31, 2007, no matter was submitted to a
vote of security holders through the solicitation of proxies or otherwise.
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 29, 2008, the closing sale price of our common stock was $16.62 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:
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2007 |
|
2006 |
|
|
High |
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Low |
|
High |
|
Low |
|
|
|
|
|
First Quarter |
|
$ |
16.48 |
|
|
$ |
12.72 |
|
|
$ |
12.15 |
|
|
$ |
9.70 |
|
Second Quarter |
|
$ |
18.99 |
|
|
$ |
15.06 |
|
|
$ |
13.98 |
|
|
$ |
11.30 |
|
Third Quarter |
|
$ |
22.99 |
|
|
$ |
16.26 |
|
|
$ |
13.50 |
|
|
$ |
11.49 |
|
Fourth Quarter |
|
$ |
18.83 |
|
|
$ |
16.78 |
|
|
$ |
13.71 |
|
|
$ |
11.63 |
|
As of February 29, 2008, there were 253 shareholders of record and approximately 900 beneficial
owners of our common stock.
Dividends
We declared and paid a cash dividend of $0.15 per share of common stock during the second quarter
of 2007.
On February 4, 2008, we announced a special cash dividend of one dollar ($1.00) per share of common
stock and a first quarter cash dividend of twelve and one-half cents ($0.125) per share of our
common stock. These dividends will be paid together ($1.125 per share) on March 18, 2008 to
shareholders of record as of the close of business on February 22, 2008. The total cash payment
for this dividend will be approximately $7.1 million. The Board of Directors, while not declaring
future dividends to be paid, has established a quarterly dividend policy reflecting its intent to
declare and pay a quarterly dividend of $0.125 per share of common stock (approximately $0.8
million) for the balance of 2008. We have amended our credit agreement to provide for payment of
quarterly dividends in 2008, not to exceed $3.5 million annually.
Future dividend policy and dividend payments, if any, will depend upon earnings and the financial
condition of our company, our need for funds, any limitations on payments of dividends present in
our current or future debt agreements and other factors.
Sales of Unregistered Securities
We did not have any unregistered sales of equity securities in 2007.
-15-
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not make any purchases of our equity securities in 2007.
Equity Compensation Plan Information
The information required by this item with respect to our equity compensation plans is contained in
Part III, Item 12 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, 2002, 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 Hemscott Textile-Apparel Footwear/Accessories Industry Group
Index (the Hemscott 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, 2002 in LaCrosse Footwear, Inc. common stock, the NASDAQ Global Market
Index and the Hemscott Group Index.
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12/31/2002 |
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|
12/31/2003 |
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12/31/2004 |
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|
12/31/2005 |
|
|
12/31/2006 |
|
|
12/31/2007 |
|
|
LaCrosse Footwear, Inc. |
|
|
$ |
100 |
|
|
|
$ |
303 |
|
|
|
$ |
415 |
|
|
|
$ |
417 |
|
|
|
$ |
510 |
|
|
|
$ |
680 |
|
|
|
NASDAQ Global Market Index |
|
|
$ |
100 |
|
|
|
$ |
150 |
|
|
|
$ |
163 |
|
|
|
$ |
167 |
|
|
|
$ |
184 |
|
|
|
$ |
202 |
|
|
|
Hemscott Group Index |
|
|
$ |
100 |
|
|
|
$ |
146 |
|
|
|
$ |
195 |
|
|
|
$ |
210 |
|
|
|
$ |
258 |
|
|
|
$ |
257 |
|
|
|
-16-
Item 6. Selected Financial Data
Selected Income Statement Data
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|
Year Ended December 31 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
(in thousands, except per share data) |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
118,179 |
|
|
$ |
107,798 |
|
|
$ |
99,378 |
|
|
$ |
105,470 |
|
|
$ |
95,687 |
|
Operating income |
|
$ |
10,983 |
|
|
$ |
8,834 |
|
|
$ |
8,609 |
|
|
$ |
7,640 |
|
|
$ |
3,666 |
|
Net income |
|
$ |
7,300 |
|
|
$ |
6,344 |
|
|
$ |
5,234 |
|
|
$ |
6,973 |
|
|
$ |
2,630 |
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.20 |
|
|
$ |
1.05 |
|
|
$ |
0.88 |
|
|
$ |
1.18 |
|
|
$ |
0.45 |
|
Diluted |
|
$ |
1.15 |
|
|
$ |
1.02 |
|
|
$ |
0.85 |
|
|
$ |
1.15 |
|
|
$ |
0.44 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
6,087 |
|
|
|
6,022 |
|
|
|
5,954 |
|
|
|
5,891 |
|
|
|
5,874 |
|
Diluted |
|
|
6,357 |
|
|
|
6,213 |
|
|
|
6,166 |
|
|
|
6,070 |
|
|
|
5,939 |
|
Selected Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
27,131 |
|
|
$ |
22,038 |
|
|
$ |
24,865 |
|
|
$ |
16,962 |
|
|
$ |
24,042 |
|
Total assets |
|
$ |
83,547 |
|
|
$ |
73,533 |
|
|
$ |
64,583 |
|
|
$ |
57,788 |
|
|
$ |
55,241 |
|
Note payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,319 |
|
Long-term debt, including current maturities |
|
$ |
394 |
|
|
$ |
506 |
|
|
|
|
|
|
|
|
|
|
$ |
2,219 |
|
Shareholders equity |
|
$ |
65,985 |
|
|
$ |
57,344 |
|
|
$ |
50,477 |
|
|
$ |
45,151 |
|
|
$ |
37,876 |
|
Inventory turns |
|
|
2.7 |
|
|
|
2.8 |
|
|
|
3.0 |
|
|
|
3.4 |
|
|
|
2.8 |
|
Days sales outstanding |
|
|
62 |
|
|
|
56 |
|
|
|
50 |
|
|
|
49 |
|
|
|
44 |
|
We declared and paid a cash dividend of $0.15 per share of common stock during the second quarter
of 2007. We did not declare or pay a cash dividend in 2003 through 2006.
On February 4, 2008, we announced a special cash dividend one dollar ($1.00) per share of common
stock and a first quarter cash dividend of twelve and one-half cents ($0.125) per share of our
common stock. These dividends will be paid together ($1.125 per share) on March 18, 2008 to
shareholders of record as of the close of business on February 22, 2008. The total cash payment
for this dividend will be approximately $7.1 million. The Board of Directors, while not declaring
future dividends to be paid, has established a quarterly dividend policy reflecting its intent to
declare and pay a quarterly dividend of $0.125 per share of common stock (approximately $0.8
million) for the balance of 2008. We have amended our credit agreement to provide for payment of
quarterly dividends in 2008, not to exceed $3.5 million annually.
-17-
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 and apparel,
supported by compelling marketing and superior customer service.
Our products are primarily directed at both the retail consumer and the safety and industrial
channels of distribution. Economic indicators that are important to our business include consumer
confidence and unemployment rates. Increasing consumer confidence trends improve retail channel
product sales, and increasing employment trends improve safety and industrial channel and the
broader work market sales.
Our trusted Danner® and LaCrosse® brands are distributed domestically through a nationwide network
of specialty retailers and distributors, and internationally through distributors and retailers in
Asia, Europe and Canada. Additionally, we operate four websites for use by our consumers and
retailers, and we operate a retail outlet store at our manufacturing facility in Portland, Oregon.
We focus on two types of consumers for our footwear and apparel lines: work and outdoor. Work
consumers include people in law enforcement, transportation, firefighting, construction, military
services 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. 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.
We have achieved consistent growth in our core business in recent years, driven by our consumers
demand for our innovative footwear and apparel products. Our sales and earnings growth continue to
be driven by the success of our new product lines and our ability to meet at-once demand. During
2007, we achieved record annual gross margins and profits, and continued to improve our cash
position and leverage our operating expenses while investing in growing various aspects of our
business.
-18-
RESULTS OF OPERATIONS FISCAL 2007 COMPARED TO FISCAL 2006
Financial Summary 2007 versus 2006
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) |
|
2007 |
|
2006 |
|
$ Change |
|
% Change |
Net Sales |
|
$ |
118.2 |
|
|
$ |
107.8 |
|
|
$ |
10.4 |
|
|
|
10 |
% |
Gross Profit |
|
$ |
46.9 |
|
|
$ |
42.3 |
|
|
$ |
4.6 |
|
|
|
11 |
% |
Gross Margin % |
|
|
39.7 |
% |
|
|
39.2 |
% |
|
|
|
|
|
50 bps |
Operating Expenses |
|
$ |
35.9 |
|
|
$ |
33.5 |
|
|
$ |
2.4 |
|
|
|
7 |
% |
% of Net Sales |
|
|
30.4 |
% |
|
|
31.0 |
% |
|
|
|
|
|
(60 bps) |
Non-Operating Income |
|
$ |
0.3 |
|
|
$ |
0.1 |
|
|
$ |
0.2 |
|
|
|
190 |
% |
Income Before Income Taxes |
|
$ |
11.3 |
|
|
$ |
8.9 |
|
|
$ |
2.4 |
|
|
|
27 |
% |
Income Tax Provision |
|
$ |
4.0 |
|
|
$ |
2.6 |
|
|
$ |
1.4 |
|
|
|
53 |
% |
Net Income |
|
$ |
7.3 |
|
|
$ |
6.3 |
|
|
$ |
1.0 |
|
|
|
16 |
% |
Consolidated Net Sales: Consolidated net sales for 2007 increased 10%, to $118.2 million, from
$107.8 million in 2006. In the work market, net sales increased 11%, to $60.9 million, from $54.7
million in 2006. Year-over-year growth in work sales reflects the continued penetration into a
variety of general and specialized work boot markets. In the outdoor market, net sales increased
8%, to $57.3 million, from $53.1 million in 2006. Growth in the outdoor market sales reflects
increased penetration into the rugged outdoor boot markets.
Gross Profit: Gross profit for 2007 was 39.7% of consolidated net sales, compared to 39.2% in
2006. Margin improvement of 50 basis points was due to price increases in recent periods and
improvements in sales returns, discounts and allowances (130 basis points), partially offset by an
increase in markdown sales (80 basis points).
Operating Expenses: Operating expenses in 2007 increased $2.4 million, or 7%, to $35.9 million
from $33.5 million in 2006. Operating expenses as a % of net sales declined from 31.0% in 2006 to
30.4% in 2007. The $2.4 million growth in operating expenses included added sales, marketing, and
product development expenses of $1.7 million. The remaining $0.7 million included costs of our new
distribution center and offices ($0.3 million) and other general and administrative costs ($0.4
million).
Non-operating Income: Non-operating income in 2007 was $0.3 million, a $0.2 million increase from
2006. The increase was the result of greater cash balances generating higher interest income than
in the prior year.
Income Before Income Taxes: Income before income taxes increased to $11.3 million in 2007 from
$8.9 million in the prior year, an increase of 27%.
Income Taxes: We recognized income tax expense at an effective rate of 35.2% in 2007 compared to
an effective tax rate of 28.9% in 2006 due to research and development tax credits of approximately
$0.6 million in 2006.
Net Income: As a result of consolidated net sales growth, gross profit improvements and operating
expenses noted above, we realized net income for 2007 of $7.3 million, or $1.15 diluted earnings
per common share, compared to $6.3 million, or $1.02 diluted earnings per common share, in 2006.
-19-
RESULTS OF OPERATIONS FISCAL 2006 COMPARED TO FISCAL 2005
Financial Summary 2006 versus 2005
The following table sets forth selected financial information derived from our consolidated
financial statements. The discussion that follows the table should be read in conjunction with the
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
2006 |
|
2005 |
|
$ Change |
|
% Change |
Net Sales |
|
$ |
107.8 |
|
|
$ |
99.4 |
|
|
$ |
8.4 |
|
|
|
8 |
% |
Gross Profit |
|
$ |
42.3 |
|
|
$ |
36.3 |
|
|
$ |
6.0 |
|
|
|
17 |
% |
Gross Margin % |
|
|
39.2 |
% |
|
|
36.6 |
% |
|
|
|
|
|
260 bps |
Operating Expenses |
|
$ |
33.5 |
|
|
$ |
27.7 |
|
|
$ |
5.7 |
|
|
|
21 |
% |
% of Net Sales |
|
|
31.0 |
% |
|
|
27.9 |
% |
|
|
|
|
|
310 bps |
Non-Operating Income (Expense) |
|
$ |
0.1 |
|
|
|
($0.3 |
) |
|
$ |
0.4 |
|
|
|
(133 |
%) |
Income Before Income Taxes |
|
$ |
8.9 |
|
|
$ |
8.3 |
|
|
$ |
0.6 |
|
|
|
8 |
% |
Income Tax Provision |
|
$ |
2.6 |
|
|
$ |
3.1 |
|
|
|
($0.5 |
) |
|
|
(16 |
%) |
Net Income |
|
$ |
6.3 |
|
|
$ |
5.2 |
|
|
$ |
1.1 |
|
|
|
21 |
% |
Consolidated Net Sales: Consolidated net sales for 2006 increased 8%, to $107.8 million, from
$99.4 million in 2005. In the work market, net sales increased 8%, to $54.7 million, from $50.5
million in 2005. Year-over-year growth in work sales reflects the success of our fire boot
offerings along with continued penetration into the uniform market. In the outdoor market, net
sales increased 9%, to $53.1 million, from $48.9 million in 2005. The growth in the outdoor market
primarily resulted from the continued penetration into the hunting and hiking markets. In
addition, the introduction of socks into the work and outdoor markets contributed to our overall
sales growth.
Gross Profit: Gross profit for 2006 was 39.2% of consolidated net sales, compared to 36.6% in
2005. Margin improvement of 260 basis points was the result of improved margins of products
introduced in recent years with higher margins and a price increase in the fourth quarter (180
basis points), and fewer markdown sales (80 basis points).
Operating Expenses: Operating expenses in 2006 increased $5.7 million, or 21%, to $33.5 million
from $27.7 million in 2005. The increase reflects added compensation expenses of $3.6 million,
which primarily includes additional sales, product development, and sourcing staff ($1.7 million),
incentive compensation ($1.4 million) and stock-based compensation ($0.5 million). Additionally,
travel and training expenses increased $0.8 million and costs associated with the relocation of our
Portland distribution center and office were $0.5 million.
Non-operating Income: Non-operating income in 2006 increased $0.4 million, to $0.1 million from a
non-operating expense of $0.3 million in 2005. The increase was primarily the result of interest
income more than offsetting interest expense and bank fees. At the end of 2006 and 2005, we had no
outstanding borrowings under our line of credit.
Income Before Income Taxes: Income before income taxes increased by $0.6 million, or 8%, to $8.9
million from $8.3 million in 2005. The increase was due to an 8% increase in net sales and a 260
basis point improvement in gross margins, partially offset by a 21% increase in operating expenses.
Income Taxes: Income tax provision in 2006 decreased to $2.6 million, from $3.1 million in 2005.
Our effective tax rate was 28.9% in 2006 compared to an effective tax rate of 36.9% in 2005, the
reduction being primarily due to research and development tax credits of approximately $0.6 million
in 2006.
-20-
Net Income: As a result of net sales growth, gross profit improvements and operating expense
changes noted above, we realized 2006 net income of $6.3 million, or $1.02 net income per diluted
common share, compared to $5.2 million or $0.85 net income per diluted common share in 2005.
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.
We have a line of credit agreement with Wells Fargo Bank, N.A., which expires, if not renewed, on
June 30, 2009. Amounts borrowed under the agreement are secured by 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. At our option, the credit agreement provides for interest rate options
of prime rate minus 0.50% or LIBOR plus 1.50%. No amounts were outstanding under this agreement
during 2007.
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, the proceeds of which were used to finance certain
leasehold improvements at our new distribution facility. The loan will be forgiven over a two-year
period as long as certain employment and facility usage requirements are met. See Note 4,
Financing Arrangements to the accompanying consolidated financial statements.
Net cash provided by operating activities was $4.1 million in 2007, compared to net cash provided
by operating activities of $9.7 million for 2006. The 2007 amount consisted of net income of
$7.3 million, adjusted for non-cash items including depreciation and amortization totaling
$1.8 million and $0.5 million of stock-based compensation expense, and changes in working capital
components, consisting primarily of an increase in accounts receivable of $2.7 million, and an
increase in inventories of $5.1 million.
Net cash provided by operating activities was $9.7 million in 2006, compared to net cash used in
operating activities of $0.6 million for 2005. The 2006 amount consisted of net income of
$6.3 million, adjusted for non-cash items including depreciation and amortization totaling
$1.7 million and $0.5 million of stock-based compensation expense, and changes in working capital
components, consisting primarily of an increase in accounts receivable of $3.2 million, and a
decrease in inventories of $2.8 million.
Net cash used in investing activities was $1.5 million in 2007 compared to $4.1 million in 2006.
The majority of the cash used in both years was for capital expenditures. Capital expenditures
related to the new leased distribution facility and administrative offices in Portland, Oregon
accounted for the majority of the capital expenditures in 2006. We anticipate spending $2.0
million on capital expenditures in 2008.
Net cash provided by financing activities was $0.1 million in 2007 compared to $1.0 million in
2006. Proceeds from the exercise of stock options were $1.0 million in 2007, compared to $0.4
million for 2006. We paid a cash dividend of $0.9 million in June of 2007.
At December 31, 2007 and 2006, our pension plan had accumulated benefit obligations in excess of
the respective plan assets and accrued pension liabilities. This obligations in excess of plan
assets and accrued liabilities has resulted in a cumulative direct charge to equity net of tax of
$1.0 million and $1.7 million as of December 31, 2007 and 2006, respectively. We expect to
contribute $0.4 million to the pension plan in 2008.
-21-
On February 4, 2008, we announced a special cash dividend of one dollar ($1.00) per share of common
stock and a first quarter cash dividend of twelve and one-half cents ($0.125) per share of the
Companys common stock. These dividends will be paid together ($1.125 per share) on March 18, 2008
to shareholders of record as of the close of business on February 22, 2008. The total cash payment
for this dividend will be approximately $7.1 million. The Board of Directors, while not declaring
future dividends to be paid, has established a quarterly dividend policy reflecting its intent to
declare and pay a quarterly dividend of $0.125 per share of common stock (approximately $0.8
million) for the balance of 2008. We have amended our credit agreement to provide for payment of
quarterly dividends in 2008, not to exceed $3.5 million annually.
Our current plans are to consolidate our La Crosse, Wisconsin distribution facilities in early 2009
to one location for increased capacity and operating efficiencies. We anticipate spending
approximately $4.0 million for capital assets related to building out a new Midwest consolidated
distribution facility including racking, IT and other build-out costs. We are currently evaluating
whether to purchase or lease the new distribution facility, with the understanding that a purchase
will entail a greater commitment of our cash and capital resources.
OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We do not have any off-balance sheet financing arrangements, other than property operating leases
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, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
Payments due by period |
Contractual Obligations |
|
Total |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
|
Long-term debt (1) |
|
$ |
394 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
394 |
|
Operating leases (2) |
|
|
10,255 |
|
|
|
2,105 |
|
|
|
1,344 |
|
|
|
990 |
|
|
|
1,012 |
|
|
|
1,012 |
|
|
|
3,792 |
|
|
|
|
Total Contractual Obligations |
|
$ |
10,649 |
|
|
$ |
2,105 |
|
|
$ |
1,344 |
|
|
$ |
990 |
|
|
$ |
1,012 |
|
|
$ |
1,012 |
|
|
$ |
4,186 |
|
|
|
|
|
|
|
1) |
|
As long as we meet certain employment and facility usage requirements through July 1,
2008, this loan will be forgiven and will not result in a cash outflow. See Note 4,
Financing Arrangements to the accompanying consolidated financial statements for
additional information. |
|
2) |
|
See Part I, Item 2 Properties for a description of our leased facilities. |
From time to time, we enter into purchase commitments with our suppliers 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, 2007, no such losses existed.
We also have a commercial commitment as described below, which is more fully described under the
caption Liquidity and Capital Resources:
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial Commitment |
|
Maximum Amount Committed |
|
Outstanding at 12/31/07 |
|
Date of Expiration |
|
Line of credit |
|
$ |
30,000 |
|
|
$ |
|
|
|
June 2009 |
We believe that our existing resources and anticipated cash flows from operations will be
sufficient to satisfy our working capital needs for the foreseeable future.
-22-
CRITICAL ACCOUNTING POLICIES AND 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.
Allowances for Doubtful Accounts, Cash Discounts and Non-Defective Returns: According to our
standard sales agreement, ownership of our products transfers to the customer when the product is
delivered to a third-party carrier at one of our distribution facilities. Therefore, the amount of
revenue recognized does not require a material level of judgment or subjectivity. However,
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. However,
based on our assessments of payment histories and current creditworthiness of our customers, we
have recorded an allowance for doubtful accounts of $0.2 million at December 31, 2007 and $0.3
million at December 31, 2006.
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 returns. These combined reserves total $0.5 million at December 31, 2007 and $0.4 million at
December 31, 2006.
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 in any future periods are inherently uncertain and thus may
differ from our estimates. These reserves total $0.4 million and $0.5 million at December 31, 2007
and 2006, respectively.
Product Warranty: We provide a limited warranty for the replacement of defective products. Our
limited warranty requires us to repair or replace defective products at no cost to the consumer
within 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 costs at the time product revenue is
recognized. Factors that affect our warranty liability include the number of units sold and
historical and anticipated rates of warranty claims. We utilize historical trends and information
received from customers to assist in determining the appropriate loss reserve levels, which were
$0.9 million and $0.8 million at December 31, 2007 and 2006, respectively.
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 our other long-term investments,
primarily property and equipment, we have made 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.
Please refer to the Risk Factors in Part I, Item IA for a discussion of factors that may have an
effect on our ability to attain future levels of product sales and cash flows.
-23-
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 7,
Compensation and Benefit Agreements to our annual consolidated financial statements and include,
among others, the discount rate and the 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 such future periods.
While we believe that our assumptions are appropriate, significant differences in our actual
experience or significant changes in our assumptions may affect our pension and other
postretirement obligations, our future expense and 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. The valuation allowance at December 31, 2007 and 2006 is
related entirely to state net operating loss (NOL) carryforwards for which the realization is
dependent on having taxable income in a certain state well into the future. Currently, our
projected levels of taxable income in such state are not sufficient to reduce the valuation
allowance. On an ongoing basis, we will assess the future realization of the state NOL deferred
tax assets to determine if any reductions in the valuation allowance are needed. The valuation
reserve balance was $1.0 million at December 31, 2007 and 2006.
Stock-Based Compensation: We adopted the provisions of SFAS 123(R), Share-Based Payment (SFAS
123R) on January 1, 2006. SFAS 123R requires companies 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 our consolidated statements of
income over the requisite service periods. Because share-based compensation expense is based on
awards that are ultimately expected to vest, share-based compensation expense is reduced for
estimated forfeitures. SFAS 123R requires forfeitures 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 under SFAS 123R, 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 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.
-24-
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. This Statement applies
under other accounting pronouncements that require or permit fair value measurements, the FASB
having previously concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, this Statement does not require any new fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We are
currently assessing the impact that SFAS 157 will have on our results of operations and financial
position.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option For Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 expands the use of fair value accounting but does not
affect existing standards that require assets or liabilities to be carried at fair value. Under
SFAS 159, a company may elect to use fair value to measure accounts and loans receivable,
available-for-sale and held-to-maturity securities, accounts payable, and issued debt. If the use
of fair value is elected, any upfront costs and fees related to the item must be recognized in
earnings and cannot be deferred. The fair value election is irrevocable and generally made on an
instrument-by-instrument basis, even if a company has similar instruments that it elects not to
measure based on fair value. At the adoption date, unrealized gains and losses on existing items
for which fair value has been elected are reported as a cumulative adjustment to beginning retained
earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized in earnings.
SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently
assessing the impact that SFAS 159 will have on our results of operations and financial position.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141R), which replaces FASB Statement No. 141 and SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (SFAS 160). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the
acquiree and the goodwill acquired. The Statement also establishes disclosure requirements that
will enable users to evaluate the nature and financial effects of the business combination. SFAS
160 will change the accounting and reporting for minority interests, reporting them as equity
separate from the parent entitys equity, as well as requiring expanded disclosures. SFAS 141R and
SFAS 160 are effective as of the beginning of an entitys fiscal year beginning after December 15,
2008. We are currently assessing the impact that SFAS 141R and SFAS 160 will have on our results
of operations and financial position.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk results from fluctuations in interest rates. At our option, our line of
credit interest rate is either the prime rate minus 0.50% or the LIBOR rate plus 1.50%. We are
exposed to market risk related to interest rates. Based on an average floating rate borrowing of
$10.0 million, a one percent change in the applicable rate would impact the Companys 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, 2007, we used an estimated
discount rate of 6.25%. 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 $2.0 million
at December 31, 2007 with a similar charge to equity. Furthermore, a one percent change (increase
or decrease) in the actual rate of return on pension plan assets would affect the charge to
equity by approximately $0.1 million.
-25-
Item 8. Financial Statements and Supplementary Data
The consolidated statements of income, shareholders equity and cash flows for each of the years in
the three-year period ended December 31, 2007, and the related consolidated balance sheets of the
Company as of December 31, 2007 and 2006, together with the related notes thereto and the Report of
Independent Registered Public Accounting Firm appear on pages F-1 through F-21 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 in ensuring that information
required to be disclosed in the Companys Exchange Act reports is (1) recorded, processed,
summarized and reported in a timely manner, and (2) accumulated and communicated to management,
including the Companys President and Chief Executive Officer and Executive Vice President and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control. There was no change in the Companys internal control over
financial reporting that occurred during the period covered by this Annual Report on Form 10-K 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, 2007. 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, 2007, our internal control
over financial reporting is effective based on those criteria.
-26-
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to the rules of
the Securities and Exchange Commission that permit the Company to provide only managements report
in this annual report.
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 is included 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 2008 Annual Meeting of Shareholders (Proxy Statement) and when
the Proxy Statement is filed with the Securities and Exchange Commission will be incorporated
herein by reference.
We have adopted a Code of Ethics for Senior Financial Officers 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 is included under the captions Compensation Discussion and
Analysis, Director Compensation and Executive Compensation in the Proxy Statement and when the
Proxy Statement is filed with the Securities and Exchange Commission will be incorporated herein by
reference.
27
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 is included under the caption Principal Shareholders in the Proxy Statement
and when the Proxy Statement is filed with the Securities and Exchange Commission will be
incorporated herein by reference.
The following table provides certain equity compensation information as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate number of |
|
|
|
|
|
|
|
|
|
|
securities remaining |
|
|
|
|
|
|
|
|
|
|
available for future |
|
|
|
|
|
|
|
|
|
|
issuance under equity |
|
|
Number of securities to |
|
Weighted-average |
|
compensation plans |
|
|
be issued upon exercise |
|
exercise price of |
|
(excluding securities |
|
|
of outstanding options, |
|
outstanding options, |
|
reflected in the first |
Plan Category |
|
warrants and rights (1) |
|
warrants and rights |
|
column) (2) |
Equity compensation
plans approved by
security holders |
|
|
788,579 |
|
|
$ |
8.94 |
|
|
|
550,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
788,579 |
|
|
$ |
8.94 |
|
|
|
550,000 |
|
|
|
|
|
|
|
(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 439,000 shares of the Companys Common Stock available for issuance under
the 2007 Long Term Incentive Plan and 111,000 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 is included under the captions Transactions with Related
Persons, Compensation Committee Interlocks and Insider Participation, and Board of Directors
in the Proxy Statement and when the Proxy Statement is filed with the Securities and Exchange
Commission will be incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item is included under the caption Miscellaneous-Independent
Auditors Fees in the Proxy Statement and, when the Proxy Statement is filed, will be incorporated
herein by reference.
28
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, 2007, 2006 and 2005
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. |
29
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, on this 7th day of March, 2008.
|
|
|
|
|
|
LACROSSE FOOTWEAR, INC.
|
|
|
By |
/s/ Joseph P. Schneider
|
|
|
|
Joseph P. Schneider |
|
|
|
President and Chief Executive Officer |
|
|
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 7, 2008 |
|
|
|
|
|
/s/ David P. Carlson
David P. Carlson
|
|
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
|
|
March 7, 2008 |
|
|
|
|
|
/s/ Richard A. Rosenthal
Richard A. Rosenthal
|
|
Chairman of the Board and Director
|
|
March 7, 2008 |
|
|
|
|
|
/s/ Stephen F. Loughlin
Stephen F. Loughlin |
|
Director
|
|
March 7, 2008 |
|
|
|
|
|
/s/ Luke E. Sims
Luke E. Sims
|
|
Director
|
|
March 7, 2008 |
|
|
|
|
|
/s/ Charles W. Smith
Charles W. Smith
|
|
Director
|
|
March 7, 2008 |
|
|
|
|
|
/s/ John D. Whitcombe
John D. Whitcombe
|
|
Director
|
|
March 7, 2008 |
|
|
|
|
|
/s/ William H. Williams
William H. Williams
|
|
Director
|
|
March 7, 2008 |
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of LaCrosse Footwear, Inc.
Our audits were conducted in accordance with the standards of the Public Company Accounting
Oversight Board (United States) and were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated supplemental Schedule II is
presented for purposes of complying with the Securities and Exchange Commissions rules and is not
a part of the basic consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial statements for the
years ended December 31, 2007, 2006 and 2005 and, in our opinion, is fairly stated in all material
respects in relation to such basic consolidated financial statements taken as a whole.
|
|
|
|
|
|
|
|
|
/s/ McGladrey & Pullen, LLP
|
|
|
|
|
|
|
|
|
Minneapolis, Minnesota
March 7, 2008
31
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, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discounts |
|
$ |
187 |
|
|
$ |
2,335 |
|
|
$ |
|
|
|
$ |
2,178 |
|
|
$ |
344 |
|
Allowance for nondefective product |
|
|
|
|
|
|
1,923 |
|
|
|
|
|
|
|
1,845 |
|
|
|
78 |
|
Allowance for doubtful accounts |
|
|
333 |
|
|
|
75 |
|
|
|
|
|
|
|
55 |
|
|
|
353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
520 |
|
|
$ |
4,333 |
|
|
$ |
|
|
|
$ |
4,078 |
|
|
$ |
775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for slow-moving inventory |
|
$ |
1,698 |
|
|
$ |
302 |
|
|
$ |
|
|
|
$ |
1,282 |
|
|
$ |
718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance |
|
$ |
1,088 |
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for warranties |
|
$ |
846 |
|
|
$ |
1,494 |
|
|
$ |
|
|
|
$ |
1,578 |
|
|
$ |
762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discounts |
|
$ |
344 |
|
|
$ |
2,137 |
|
|
$ |
|
|
|
$ |
2,232 |
|
|
$ |
249 |
|
Allowance for nondefective product |
|
|
78 |
|
|
|
2,132 |
|
|
|
|
|
|
|
2,109 |
|
|
|
101 |
|
Allowance for doubtful accounts |
|
|
353 |
|
|
|
(63 |
) |
|
|
|
|
|
|
34 |
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
775 |
|
|
$ |
4,206 |
|
|
$ |
|
|
|
$ |
4,375 |
|
|
$ |
606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for slow-moving inventory |
|
$ |
718 |
|
|
$ |
601 |
|
|
$ |
|
|
|
$ |
829 |
|
|
$ |
490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance |
|
$ |
1,091 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
63 |
|
|
$ |
1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for warranties |
|
$ |
762 |
|
|
$ |
1,837 |
|
|
$ |
|
|
|
$ |
1,827 |
|
|
$ |
772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
SCHEDULE II continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for discounts |
|
$ |
249 |
|
|
$ |
2,687 |
|
|
$ |
|
|
|
$ |
2,633 |
|
|
$ |
303 |
|
Allowance for nondefective product |
|
|
101 |
|
|
|
2,752 |
|
|
|
|
|
|
|
2,697 |
|
|
|
156 |
|
Allowance for doubtful accounts |
|
|
256 |
|
|
|
(21 |
) |
|
|
|
|
|
|
24 |
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
606 |
|
|
$ |
5,418 |
|
|
$ |
|
|
|
$ |
5,354 |
|
|
$ |
670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for slow-moving inventory |
|
$ |
490 |
|
|
$ |
978 |
|
|
$ |
|
|
|
$ |
1,094 |
|
|
$ |
374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance |
|
$ |
1,028 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for warranties |
|
$ |
772 |
|
|
$ |
2,197 |
|
|
$ |
|
|
|
$ |
2,028 |
|
|
$ |
941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accounts receivable, inventory, and deferred tax asset allowances above were deducted from the applicable asset accounts.
33
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. 2008 Annual Incentive Compensation Plan Document
(Incorporated by reference to LaCrosse Footwear, Inc.s Current Report on Form 8-K
as filed with the Commission on December 27, 2007) |
|
|
|
(10.9)*
|
|
Summary of 2008 Compensation of Executive Officers (Incorporated by reference to
LaCrosse Footwear, Inc.s Current Report on Form 8-K as filed with the Commission on
December 27, 2007)) |
|
|
|
* |
|
A management contract or compensatory plan or arrangement. |
34
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
|
(10.10)*
|
|
Schedule of Fees for Non-Employee Directors (Incorporated by Reference to LaCrosse
Footwear, Inc.s Current Report on Form 8-K as filed with the Commission on January
6, 2005) |
|
|
|
(10.11)
|
|
Lease, dated as of March 14, 1994, between JEPCO Development Co. and LaCrosse
Footwear, Inc. (Incorporated by reference to Exhibit (10.22) to LaCrosse Footwear,
Inc.s Form S-1 Registration Statement (Registration No. 33-75534)) |
|
|
|
(10.12)
|
|
Amendment, dated as of March 17, 1998, to Lease between JEPCO Development Co., LLC
and LaCrosse Footwear, Inc. (Incorporated by reference to Exhibit (10.17) to
LaCrosse Footwear, Inc.s Annual Report on Form 10-K for the year ended December 31,
1998) |
|
|
|
(10.13)
|
|
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) |
|
|
|
(10.14)
|
|
Certified Manufacturer Agreement, dated as of March 5, 2003, between W.L. Gore
& Associates, Inc. and LaCrosse Footwear, Inc.
[Confidential treatment has been requested with respect to a portion of
this Agreement] |
|
|
|
(10.15)
|
|
Trademark License, dated as of February 25, 2003, between W.L. Gore & Associates,
Inc. and LaCrosse Footwear, Inc.
[Confidential treatment has been requested with respect to a portion of
this Agreement] |
|
|
|
(10.16)
|
|
Amended and Restated Credit Agreement, dated September 6, 2006, by and among
LaCrosse Footwear, Inc. as borrower, and Wells Fargo Bank, National Association, as
lender. (Incorporated by reference to Exhibit (4.1) to LaCrosse Footwear, Inc.s
Current Report on Form 8-K as filed with the Commission on September 12, 2006) |
|
|
|
(10.17)
|
|
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) |
|
|
|
(10.18)
|
|
First Amendment To Credit Agreement and Waiver, dated February 25, 2008, by and
among 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) |
|
|
|
(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 |
|
|
|
(99.1)
|
|
Proxy Statement for the 2008 Annual Meeting of Shareholders |
|
|
|
|
|
The Proxy Statement for the 2008 Annual Meeting of Shareholders will be filed with
the Securities and Exchange Commission under Regulation 14A within 120 days after
the end of the Companys fiscal year. Except to the extent specifically
incorporated by reference, the Proxy Statement for the 2008 Annual Meeting of
Shareholders shall not be deemed to be filed with the Securities and Exchange
Commission as part of this Annual Report on Form 10-K. |
35
INDEX
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
|
|
F-1 |
|
CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
|
Consolidated balance sheets |
|
F-2 and F-3 |
Consolidated statements of income |
|
|
F-4 |
|
Consolidated statements of shareholders equity and
comprehensive income |
|
|
F-5 |
|
Consolidated statements of cash flows |
|
|
F-6 |
|
Notes to consolidated financial statements |
|
|
F-7 F-22 |
|
F INDEX
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
LaCrosse Footwear, Inc.
We have audited the consolidated balance sheets of LaCrosse Footwear, Inc. and Subsidiaries as of
December 31, 2007 and 2006, 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, 2007. 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, 2007 and 2006, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2007, in conformity with U.S. generally
accepted accounting principles.
We were not engaged to examine managements assertion about the effectiveness of LaCrosse Footwear,
Inc. and Subsidiaries internal control over financial reporting as of December 31, 2007 included
in this Annual Report and titled Managements Annual Report on Internal Control over Financial
Reporting and, accordingly, we do not express an opinion thereon.
/s/ McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 7, 2008
F - 1
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
(In Thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
ASSETS |
|
2007 |
|
2006 |
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and
cash equivalents (Note 8) |
|
$ |
15,385 |
|
|
$ |
12,702 |
|
Trade accounts receivable, less allowances of
$0.7 million in 2007 and $0.6 million in 2006 (Note 8) |
|
|
22,593 |
|
|
|
19,912 |
|
Inventories (Note 2) |
|
|
27,131 |
|
|
|
22,038 |
|
Prepaid expenses and other |
|
|
1,068 |
|
|
|
987 |
|
Deferred tax assets (Note 3) |
|
|
1,201 |
|
|
|
1,223 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
67,378 |
|
|
|
56,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
2,042 |
|
|
|
2,018 |
|
Machinery and equipment |
|
|
13,800 |
|
|
|
14,210 |
|
|
|
|
|
|
|
|
|
|
|
15,842 |
|
|
|
16,228 |
|
Less accumulated depreciation |
|
|
10,879 |
|
|
|
10,786 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
4,963 |
|
|
|
5,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
Goodwill |
|
|
10,753 |
|
|
|
10,753 |
|
Other assets |
|
|
453 |
|
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
11,206 |
|
|
|
11,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
83,547 |
|
|
$ |
73,533 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 2
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
2007 |
|
2006 |
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
7,456 |
|
|
$ |
5,427 |
|
Accrued compensation |
|
|
3,324 |
|
|
|
3,183 |
|
Other accruals |
|
|
1,982 |
|
|
|
1,575 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
12,762 |
|
|
|
10,185 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT (Note 4) |
|
|
394 |
|
|
|
506 |
|
DEFERRED REVENUE (Note 4) |
|
|
131 |
|
|
|
169 |
|
COMPENSATION AND BENEFITS (Note 7) |
|
|
1,993 |
|
|
|
4,041 |
|
DEFERRED TAX LIABILITIES (Note 3) |
|
|
2,282 |
|
|
|
1,288 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
17,562 |
|
|
|
16,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY (Notes 6, 7 and 12) |
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued 6,717,627 shares |
|
|
67 |
|
|
|
67 |
|
Additional paid-in capital |
|
|
27,473 |
|
|
|
26,458 |
|
Accumulated other comprehensive loss |
|
|
(1,011 |
) |
|
|
(1,684 |
) |
Retained earnings |
|
|
42,328 |
|
|
|
35,952 |
|
Less cost of 600,362 and 675,104 shares of treasury stock |
|
|
(2,872 |
) |
|
|
(3,449 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
65,985 |
|
|
|
57,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
83,547 |
|
|
$ |
73,533 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 3
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2007, 2006, and 2005
(In Thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
Net sales (Note 9) |
|
$ |
118,179 |
|
|
$ |
107,798 |
|
|
$ |
99,378 |
|
Cost of goods sold |
|
|
71,273 |
|
|
|
65,502 |
|
|
|
63,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
46,906 |
|
|
|
42,296 |
|
|
|
36,346 |
|
Selling and administrative expenses |
|
|
35,923 |
|
|
|
33,462 |
|
|
|
27,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
10,983 |
|
|
|
8,834 |
|
|
|
8,609 |
|
Non-operating income (expense) |
|
|
289 |
|
|
|
88 |
|
|
|
(311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
11,272 |
|
|
|
8,922 |
|
|
|
8,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (Note 3) |
|
|
3,972 |
|
|
|
2,578 |
|
|
|
3,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,300 |
|
|
$ |
6,344 |
|
|
$ |
5,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.20 |
|
|
$ |
1.05 |
|
|
$ |
0.88 |
|
Diluted |
|
$ |
1.15 |
|
|
$ |
1.02 |
|
|
$ |
0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
6,087,224 |
|
|
|
6,022,349 |
|
|
|
5,954,119 |
|
Diluted |
|
|
6,357,235 |
|
|
|
6,213,016 |
|
|
|
6,165,547 |
|
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, 2007, 2006, and 2005
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
Other |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
Common |
|
Paid-In |
|
Comprehensive |
|
Retained |
|
Treasury |
|
Shareholders |
|
Comprehensive |
|
|
Stock |
|
Capital |
|
Loss |
|
Earnings |
|
Stock |
|
Equity |
|
Income |
|
Balance, December 31, 2004 |
|
$ |
67 |
|
|
$ |
26,255 |
|
|
$ |
(1,015 |
) |
|
$ |
24,374 |
|
|
$ |
(4,530 |
) |
|
$ |
45,151 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,234 |
|
|
|
|
|
|
|
5,234 |
|
|
$ |
5,234 |
|
Minimum pension liability,
net of tax benefit of $310 |
|
|
|
|
|
|
|
|
|
|
(291 |
) |
|
|
|
|
|
|
|
|
|
|
(291 |
) |
|
|
(291 |
) |
Exercise of stock options |
|
|
|
|
|
|
(268 |
) |
|
|
|
|
|
|
|
|
|
|
651 |
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,943 |
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
|
67 |
|
|
|
25,987 |
|
|
|
(1,306 |
) |
|
|
29,608 |
|
|
|
(3,879 |
) |
|
|
50,477 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,344 |
|
|
|
|
|
|
|
6,344 |
|
|
|
6,344 |
|
Minimum pension liability,
net of tax benefit of $317 |
|
|
|
|
|
|
|
|
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
|
(255 |
) |
|
|
(255 |
) |
Adoption of SFAS No. 158 |
|
|
|
|
|
|
|
|
|
|
(123 |
) |
|
|
|
|
|
|
|
|
|
|
(123 |
) |
|
|
|
|
Stock based compensation expense |
|
|
|
|
|
|
508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
508 |
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
430 |
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,089 |
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
67 |
|
|
|
26,458 |
|
|
|
(1,684 |
) |
|
|
35,952 |
|
|
|
(3,449 |
) |
|
|
57,344 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,300 |
|
|
|
|
|
|
|
7,300 |
|
|
|
7,300 |
|
Adoption of
FIN 48 (Note 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
Minimum pension liability net of tax
expense of $430 |
|
|
|
|
|
|
|
|
|
|
673 |
|
|
|
|
|
|
|
|
|
|
|
673 |
|
|
|
673 |
|
Stock based compensation expense |
|
|
|
|
|
|
549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
549 |
|
|
|
|
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(914 |
) |
|
|
|
|
|
|
(914 |
) |
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
577 |
|
|
|
1,043 |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,973 |
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
$ |
67 |
|
|
$ |
27,473 |
|
|
$ |
(1,011 |
) |
|
$ |
42,328 |
|
|
$ |
(2,872 |
) |
|
$ |
65,985 |
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 5
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2007, 2006, and 2005
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,300 |
|
|
$ |
6,344 |
|
|
$ |
5,234 |
|
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,761 |
|
|
|
1,662 |
|
|
|
1,500 |
|
(Gain) loss on disposal or impairment of property and equipment |
|
|
97 |
|
|
|
46 |
|
|
|
(30 |
) |
Stock-based compensation expense |
|
|
549 |
|
|
|
508 |
|
|
|
|
|
Deferred income taxes |
|
|
586 |
|
|
|
565 |
|
|
|
895 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
(2,681 |
) |
|
|
(3,228 |
) |
|
|
(1,071 |
) |
Inventories |
|
|
(5,093 |
) |
|
|
2,827 |
|
|
|
(7,903 |
) |
Accounts payable |
|
|
2,029 |
|
|
|
25 |
|
|
|
2,054 |
|
Accrued expenses and other |
|
|
(488 |
) |
|
|
974 |
|
|
|
(1,285 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
4,060 |
|
|
|
9,723 |
|
|
|
(606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(1,508 |
) |
|
|
(4,089 |
) |
|
|
(1,423 |
) |
Proceeds from sales of property and equipment |
|
|
2 |
|
|
|
|
|
|
|
610 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,506 |
) |
|
|
(4,089 |
) |
|
|
(813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
|
|
|
|
562 |
|
|
|
|
|
Cash dividends paid |
|
|
(914 |
) |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
1,043 |
|
|
|
393 |
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
129 |
|
|
|
955 |
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
2,683 |
|
|
|
6,589 |
|
|
|
(1,036 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
12,702 |
|
|
|
6,113 |
|
|
|
7,149 |
|
|
|
|
|
|
|
|
|
|
|
Ending |
|
$ |
15,385 |
|
|
$ |
12,702 |
|
|
$ |
6,113 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments of: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
$ |
323 |
|
Income taxes |
|
$ |
2,903 |
|
|
$ |
2,251 |
|
|
$ |
1,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash deferred income tax expense (benefit) benefit from
adjustment to pension liability (Note 7) |
|
$ |
430 |
|
|
$ |
(317 |
) |
|
$ |
(310 |
) |
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. designs, manufactures and markets premium quality footwear and apparel
for work and outdoor consumers through a network of specialty retailers and distributors
throughout the United States, Canada, Europe and Asia.
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., and LaCrosse
International, Inc. (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 in the annual impairment test of
goodwill. Actual results could differ from those estimates.
Reclassifications Certain amounts in the prior years consolidated financial statements have
been reclassified to conform with the 2007 presentation.
Cash and cash equivalents The Company considers all highly liquid debt instruments purchased
with maturities of three months or less to be cash equivalents. 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. The Company maintains its cash in money market
accounts, which may, at times, exceed federally insured limits. The Company has not experienced
any losses in such accounts.
Revenue recognition Revenue is recognized when products are shipped, the customer takes title
and assumes risk of loss, collection of related receivable is probable, persuasive evidence of an
arrangement exists, and the sales price is fixed or determinable. 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, while the related costs
paid to third-party shipping companies are recorded as a cost of goods sold.
Fair value of financial instruments Pursuant to Statement of Financial Accounting Standards
(SFAS) No. 107, Disclosures About Fair Value of Financial Instruments, the Company estimated
the fair value of all financial instruments included on its consolidated balance sheets as of
December 31, 2007 and 2006. The Companys financial instruments, including cash and cash
equivalents, trade accounts receivable, accounts payable, and accrued compensation are estimated
to approximate their fair value due to their short maturities. The carrying amount of long-term
debt approximates fair value based on the maturities and collateral requirements currently
available for similar financial instruments.
F - 7
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies, Continued
Trade accounts receivable and allowance for doubtful accounts Trade accounts receivable are
carried at 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
analyzes its cash discount programs and returns policies and ongoing 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
straight-line and accelerated methods over their estimated useful lives. Depreciable lives range
from five to ten years for leasehold improvements and from three to seven 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 of Danner, Inc. Goodwill is not amortized, but is
subject to impairment tests at least annually in accordance with Financial Accounting Standards
Board (FASB) Statement No. 142, Goodwill and Other Intangible Assets. The Company also reviews
the carrying amount of goodwill for impairment if an event occurs or circumstances change that
would indicate the carrying amount may be impaired. An impairment loss would generally be
recognized when the carrying amount of Danner, Inc.s net assets exceeds the estimated fair value
of its net assets, which is established based upon a projection of profitability. Using these
procedures, the Company determined that the fair value of Danner, Inc.s net assets exceeded its
carrying value at December 31, 2007 and 2006, and therefore goodwill was not impaired. The net
carrying amount of goodwill for Danner was $10.8 million for each year.
Recoverability and impairment of
intangible assets and other long-lived assets Pursuant to SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews
long-lived assets and certain identifiable intangibles for impairment whenever events or changes
indicate 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 determined that its long-lived assets at December 31,
2007 and 2006 were not impaired.
F - 8
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies, Continued
Product warranties The Company provides a limited warranty for the replacement of defective
products. The Companys limited warranty requires the Company to repair or replace defective
products at no cost to the consumer within 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 costs at the time product revenue is recognized. Factors that affect the
Companys warranty liability include the number of units sold, and historical and anticipated
rates of warranty claims. The Company utilizes historical trends and information received from
its customers to assist in determining the appropriate warranty accrual levels.
Changes in the carrying amount of accrued product warranty cost for the years ended December 31,
2007 and 2006 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2006 |
Balance, beginning |
|
$ |
772 |
|
|
$ |
762 |
|
Accruals for products sold |
|
|
2,197 |
|
|
|
1,837 |
|
Costs incurred |
|
|
(2,028 |
) |
|
|
(1,827 |
) |
|
|
|
|
|
|
|
|
|
Balance, ending |
|
$ |
941 |
|
|
$ |
772 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation The Companys consolidated financial statements reflect the impact of
SFAS No. 123(R), Share-Based Payment (SFAS 123R) which was adopted in 2006. In accordance with
the modified prospective transition method, the Companys consolidated financial statements for
periods prior to 2006 have not been restated to reflect, and do not include, the impact of
SFAS 123R. Stock-based compensation expense recognized under SFAS 123R was $0.5 million ($0.06
per diluted share) for 2007 and $.5 million ($0.05 per diluted share) for 2006. See Note 6,
Stock Options for additional information.
Income taxes The provision for income taxes is based on earnings reported in the consolidated
financial statements. 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.
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.
Advertising and promotion The Company advertises and promotes its products through national and
regional media, displays, and catalogs and through cooperative advertising programs with
retailers. Costs for these advertising and promotional programs are generally charged to expense
as incurred. Advertising and promotional expense included in the consolidated statements of
income for the years ended December 31, 2007, 2006, and 2005 were approximately $2.9 million,
$2.4 million, and $2.3 million, respectively.
F - 9
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
Note 1. Nature of Business and Significant Accounting Policies, Continued
Net income per common share Pursuant to SFAS No. 128, Earnings per Share, and SFAS 123R,
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 instruments 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 or other
arrangements to issue common stock (common stock equivalents) 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, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Basic weighted average shares outstanding |
|
|
6,087,224 |
|
|
|
6,022,349 |
|
|
|
5,954,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities: stock options |
|
|
270,011 |
|
|
|
190,667 |
|
|
|
211,428 |
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
6,357,235 |
|
|
|
6,213,016 |
|
|
|
6,165,547 |
|
|
|
|
|
|
|
|
|
|
|
Note 2. Inventories
A summary of inventories is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Raw materials |
|
$ |
1,691 |
|
|
$ |
1,433 |
|
Work in process |
|
|
183 |
|
|
|
182 |
|
Finished goods |
|
|
25,631 |
|
|
|
20,913 |
|
|
|
|
|
|
|
|
Subtotal |
|
|
27,505 |
|
|
|
22,528 |
|
Less: provision for obsolete and slow-moving inventory |
|
|
(374 |
) |
|
|
(490 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
27,131 |
|
|
$ |
22,038 |
|
|
|
|
|
|
|
|
Note 3. Income Tax Matters
As of December 31, 2007 and 2006, the Company maintained a valuation allowance against
deferred tax items in each year of $1.0 million, related entirely to certain state net
operating loss (NOL) carryforwards of which the realization is dependent on yet to be
developed tax strategies as well as having taxable income in certain states in future
periods. In subsequent years, the Company will report income tax expense offset by any
changes in the valuation allowance based on ongoing assessments of the future realization of
the state NOL deferred tax assets.
F -10
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Income Tax Matters, Continued
Total state NOLs as of December 31, 2007 are approximately $21.9 million, which will expire
as follows: $0.1 million in 2014, $2.7 million in 2015, $5.3 million in 2016, $9.2 million in
2017, $2.5 million in 2018, $1.6 million in 2019, and $.5 million in 2020.
Net deferred tax assets and liabilities consist of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Trade receivable allowances |
|
$ |
201 |
|
|
$ |
197 |
|
Inventory differences |
|
|
677 |
|
|
|
728 |
|
Compensation and benefits |
|
|
811 |
|
|
|
1,613 |
|
Warranty reserves and other |
|
|
1,094 |
|
|
|
849 |
|
Net operating loss carryforwards |
|
|
1,140 |
|
|
|
1,182 |
|
Valuation allowance |
|
|
(1,028 |
) |
|
|
(1,028 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
2,895 |
|
|
|
3,541 |
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Goodwill amortization |
|
|
3,754 |
|
|
|
3,377 |
|
Property and equipment |
|
|
42 |
|
|
|
59 |
|
Prepaid expenses and other |
|
|
180 |
|
|
|
170 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
3,976 |
|
|
|
3,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(1,081 |
) |
|
$ |
(65 |
) |
|
|
|
|
|
|
|
The net deferred tax liabilities described above are included in the accompanying consolidated
balance sheets as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Current assets |
|
$ |
1,201 |
|
|
$ |
1,223 |
|
Noncurrent liabilities |
|
|
(2,282 |
) |
|
|
(1,288 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(1,081 |
) |
|
$ |
(65 |
) |
|
|
|
|
|
|
|
The components of the provision for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
3,071 |
|
|
$ |
1,898 |
|
|
$ |
2,141 |
|
State |
|
|
315 |
|
|
|
115 |
|
|
|
28 |
|
Deferred |
|
|
586 |
|
|
|
565 |
|
|
|
895 |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
3,972 |
|
|
$ |
2,578 |
|
|
$ |
3,064 |
|
|
|
|
|
|
|
|
|
|
|
F -11
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. 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, |
|
|
2007 |
|
2006 |
|
2005 |
Statutory federal tax rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
State rate, net of federal tax effect |
|
|
3.2 |
% |
|
|
3.1 |
% |
|
|
2.3 |
% |
Federal & state research and experimentation credits |
|
|
(1.7 |
%) |
|
|
(7.7 |
%) |
|
|
0.0 |
% |
Other, net |
|
|
(0.3 |
%) |
|
|
(0.5 |
%) |
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
35.2 |
% |
|
|
28.9 |
% |
|
|
36.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company completed its analysis of federal research and development tax credits for the
2000 to 2006 tax years in 2006 and concluded that it met the necessary criteria to record a
$0.6 million income tax benefit. The effect of this discrete item resulted in a lower
effective tax rate for the year ended December 31, 2006 compared to the effective tax rate
for the years ended December 31, 2007 and 2005. For 2007, a $0.2 million income tax benefit
was recognized related to research and development tax credits.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes-an Interpretation of FASB Statement 109 (FIN 48), on January 1, 2007. On
adoption, the Company recognized a reduction in its reserve for unrecognized tax benefits
(less than $0.1 million), which was accounted for as an adjustment to the January 1, 2007
retained earnings balance. This reduction resulted in the Company having $0.2 million of net
uncertain tax benefit positions that would reduce the Companys effective income tax rate if
recognized.
A reconciliation of the beginning and ending amount of unrecognized income tax benefits is
shown below (in thousands):
|
|
|
|
|
Balance at January 1, 2007 |
|
$ |
163 |
|
Additions for tax positions of prior years |
|
|
9 |
|
Additions based on tax positions related to the current year |
|
|
43 |
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
215 |
|
|
|
|
|
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,
2007 and as of the adoption of FIN 48 was less than $0.1 million. Interest is computed on the
difference between the Companys uncertain tax benefit positions under FIN 48 and the amount
deducted or expected to be deducted in the Companys tax returns.
Due to statute expiration, a decrease could occur with respect to the Companys FIN 48
reserve of less than $0.1 million in the next twelve months. This reserve, including
associated interest, relates to federal research and experimentation tax credits.
The Company files a consolidated U.S. federal income tax return as well as state tax returns
on a consolidated, combined, or stand-alone basis, depending upon the jurisdiction. The
Company is no longer subject to U.S. federal income tax examinations by tax authorities for
years prior to the tax year ended December 2003. Depending on the jurisdiction, the Company
is no longer subject to state examinations by tax authorities for years prior to the December
2002 and December 2003 tax years.
F -12
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Financing Arrangements
In September 2006, the Company entered into an amended and restated line of credit agreement
which is effective through June 30, 2009. It provides for an interest rate at the Companys
option of the prime rate minus 0.50%, or LIBOR plus 1.50%. 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 is $30 million. Amounts borrowed under the agreement are secured by substantially
all of the Companys assets and there are no borrowing base limitations. The agreement contains
certain restrictive covenants, which among other things, require the Company to meet certain
tangible net worth and earnings requirements as well as limitations on dividend payments. At
December 31, 2007 and 2006, the Company had no outstanding balances due under this financing
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 new 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. The grant balance was $0.1 million and
$0.2 million at
December 31, 2007 and 2006,
respectively.
The loan is recorded as long-term debt and will be forgiven by the Portland Development
Commission ratably over two years as the Company meets certain facility usage requirements and
employment criteria, including maintaining a minimum number of employees in the city of
Portland, Oregon and paying those employees a competitive specified wage and benefits package.
The loan, which is secured by certain leasehold improvements at the new distribution facility,
is being amortized over the life of the related leasehold improvements, as a reduction of
operating expenses on a straight-line basis over five years. At July 1, 2008, when the loan is
forgiven in total, the Company will reclassify the remaining unamortized long-term debt to
deferred revenue and continue to amortize the balance until 2011. If the Company fails to meet
the required employment criteria, the remaining loan balance at that time will bear interest at
8.5% and will mature in 2013. The loan balance was $0.4 million and $0.5 million at December 31,
2007 and 2006, respectively.
Note 5. Lease Commitments and Contingencies
Lease Commitments The Company has real estate operating leases for office space, retail
stores, and manufacturing and distribution space under non-cancelable lease agreements expiring
on various dates through 2016. The total rental expense included in the consolidated statements
of income for the years ended December 31, 2007, 2006, and 2005 is approximately $2.1 million,
$1.8 million, and $1.4 million, respectively. The future minimum lease payments required under
non-cancelable operating leases at December 31, 2007 are: $2.1 million in 2008, $1.3 million in
2009, $1.0 million in 2010, $1.0 million in 2011, $1.0 million in 2012 and $3.8 million
thereafter.
Contingencies In the normal course of business, the Company is subject to claims and
litigation. Management believes that such matters will not have a material adverse effect on the
Companys results of operations, liquidity or financial condition.
F -13
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Stock Options
The Company has outstanding stock options under certain employee 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, 2007 Long Term Incentive Plan and
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. The
directors stock options vest over a period of five years and
have a maximum term of ten years.
Beginning in 2008, the directors stock option issuances will vest over four years and have a
maximum term of seven years.
In December 2004, the FASB issued SFAS No. 123R, which requires companies to recognize in the
statements of income the grant-date fair value of stock options and other equity-based
compensation issued to employees. In adopting SFAS No. 123R as of January 1, 2006, the Company
used the modified prospective transition method. Under the modified prospective transition
method, awards that are granted, modified or settled after the date of adoption will be measured
and accounted for in accordance with SFAS 123R. Compensation cost for awards granted prior to,
but not vested, as of the date SFAS 123R was adopted are based on the grant date attributes
originally used to value those awards for pro forma purposes under SFAS 123, Accounting for
Stock-Based Compensation (SFAS 123).
SFAS 123R requires companies 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 periods. Because share-based compensation expense is based on awards
that are ultimately expected to vest, share-based compensation expense is reduced for estimated
forfeitures. SFAS 123R requires forfeitures 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 under SFAS 123R, 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.
F -14
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Stock Options, Continued
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, 2007, 2006, and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2006 |
|
2005 |
Expected dividend yield * |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected stock price volatility |
|
|
42 |
% |
|
|
42 |
% |
|
|
40 |
% |
Risk-free interest rate |
|
|
4.7 |
% |
|
|
4.8 |
% |
|
|
4.1 |
% |
Expected life of options |
|
3.2 |
years |
|
3.75 |
years |
|
4 |
years |
Weighted average fair value of options |
|
$ |
4.57 |
|
|
$ |
4.06 |
|
|
$ |
4.07 |
|
|
|
|
* |
|
see Note 12 which will impact future assumptions regarding dividend yields |
The
following table represents stock option activity for the three years ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
|
Weighted Average |
|
|
Average Remaining |
|
|
|
Under Options |
|
|
Exercise Price |
|
|
Contract Life |
|
|
|
|
Options outstanding December 31, 2004 |
|
|
591,191 |
|
|
$ |
5.23 |
|
|
|
|
|
Granted |
|
|
207,050 |
|
|
|
11.03 |
|
|
|
|
|
Canceled |
|
|
(64,562 |
) |
|
|
6.87 |
|
|
|
|
|
Exercised |
|
|
(82,881 |
) |
|
|
4.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2005 |
|
|
650,798 |
|
|
|
7.01 |
|
|
|
|
|
Granted |
|
|
212,700 |
|
|
|
11.01 |
|
|
|
|
|
Canceled |
|
|
(60,510 |
) |
|
|
10.08 |
|
|
|
|
|
Exercised |
|
|
(53,266 |
) |
|
|
4.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2006 |
|
|
749,722 |
|
|
|
8.04 |
|
|
|
|
|
Granted |
|
|
167,650 |
|
|
|
13.52 |
|
|
|
|
|
Canceled |
|
|
(54,051 |
) |
|
|
11.81 |
|
|
|
|
|
Exercised |
|
|
(74,742 |
) |
|
|
8.17 |
|
|
|
|
|
|
|
|
Options outstanding December 31, 2007 |
|
|
788,579 |
|
|
$ |
8.94 |
|
|
5.7 years |
|
|
|
|
|
|
|
|
|
|
|
|
F -15
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Stock Options, Continued
Options
outstanding under the option plans on December 31, 2007 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
|
|
|
189,308 |
|
|
$ |
3.03 |
|
|
|
4.2 |
|
|
|
166,238 |
|
|
$ |
3.09 |
|
|
|
4.1 |
|
$7.70 - $10.50
|
|
|
152,335 |
|
|
|
7.81 |
|
|
|
5.6 |
|
|
|
84,495 |
|
|
|
7.85 |
|
|
|
5.3 |
|
>$10.50
|
|
|
446,936 |
|
|
|
11.83 |
|
|
|
6.3 |
|
|
|
92,664 |
|
|
|
11.07 |
|
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
788,579 |
|
|
|
8.94 |
|
|
|
5.7 |
|
|
|
343,397 |
|
|
|
6.42 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys nonvested stock option activity for the year ended December 31, 2007 is as follows:
|
|
|
|
|
|
|
Number of |
|
|
Shares |
Nonvested stock options at beginning of year |
|
|
487,307 |
|
Vested |
|
|
(155,724 |
) |
Canceled |
|
|
(54,051 |
) |
Granted |
|
|
167,650 |
|
|
|
|
|
|
Nonvested stock options at end of year |
|
|
445,182 |
|
|
|
|
|
|
Shares available for future stock grants to employees and directors under existing plans
were approximately 550,000 at December 31, 2007. The aggregate intrinsic value of options
outstanding at December 31, 2007 was $6.8 million, and the aggregate intrinsic value of
exercisable options was $3.8 million. Total intrinsic value of options exercised during
2007 was $0.6 million. At December 31, 2007, there was approximately $0.5 million of
unrecognized compensation cost related to share-based payments to be recognized over a
weighted-average period of approximately 1.5 years. The total fair value of options
vesting in 2007 was approximately $0.5 million. A tax benefit of $0.4 million was
recognized in 2007 from the exercise of stock options.
Note 7. Compensation and Benefit Agreements
The Company has a defined benefit pension plan covering eligible past employees and
approximately 10% of its current employees. Eligible participants are entitled to monthly
pension benefits beginning at normal retirement age (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 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.
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
F -16
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Compensation and Benefit Agreements, Continued
their annual compensation through pre-tax contributions.
For the employee 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, 2007, 2006, and 2005 were approximately $0.4
million, $0.2 million, and $0.1 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, 2007, 2006 and 2005 were
$0.2 million, $0.1 million and $0.1 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
Summary of pension and other postretirement |
|
December 31, |
|
|
December 31, |
|
benefit plans (in thousands): |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Changes in benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations at beginning of year |
|
$ |
16,778 |
|
|
$ |
16,002 |
|
|
$ |
294 |
|
|
$ |
282 |
|
Interest cost |
|
|
934 |
|
|
|
963 |
|
|
|
17 |
|
|
|
17 |
|
Benefits paid |
|
|
(1,050 |
) |
|
|
(1,050 |
) |
|
|
(17 |
) |
|
|
(17 |
) |
Actuarial (gains) losses |
|
|
(942 |
) |
|
|
863 |
|
|
|
(12 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations at end of year |
|
$ |
15,720 |
|
|
$ |
16,778 |
|
|
$ |
282 |
|
|
$ |
294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at beginning of year |
|
$ |
13,020 |
|
|
$ |
12,270 |
|
|
$ |
|
|
|
$ |
|
|
Actual return on assets |
|
|
1,064 |
|
|
|
1,191 |
|
|
|
|
|
|
|
|
|
Company contributions |
|
|
975 |
|
|
|
609 |
|
|
|
17 |
|
|
|
17 |
|
Benefits paid |
|
|
(1,050 |
) |
|
|
(1,050 |
) |
|
|
(17 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at end of year |
|
$ |
14,009 |
|
|
$ |
13,020 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets less than obligations |
|
$ |
(1,711 |
) |
|
$ |
(3,758 |
) |
|
$ |
(283 |
) |
|
$ |
(294 |
) |
Unrecognized loss |
|
|
1,550 |
|
|
|
2,638 |
|
|
|
1 |
|
|
|
11 |
|
Unrecognized prior service cost |
|
|
108 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost |
|
$ |
(53 |
) |
|
$ |
(997 |
) |
|
$ |
(282 |
) |
|
$ |
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation and benefits liabilities |
|
$ |
1,711 |
|
|
$ |
3,758 |
|
|
$ |
282 |
|
|
$ |
283 |
|
F -17
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Compensation and Benefit Agreements, Continued
Changes to Accumulated Other Comprehensive Loss for the years ended December 31, 2007, 2006,
and 2005 are shown below
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded in |
|
|
|
Prior |
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
Accumulated |
|
|
|
Service |
|
|
Unrecognized |
|
|
|
|
|
|
Tax |
|
|
Other Comp. |
|
|
|
Cost |
|
|
Losses |
|
|
Total |
|
|
Amount |
|
|
Loss |
|
|
|
|
Balance, December 31, 2004 |
|
$ |
153 |
|
|
$ |
1,312 |
|
|
$ |
1,465 |
|
|
$ |
(450 |
) |
|
$ |
1,015 |
|
Incurred in the current year |
|
|
|
|
|
|
619 |
|
|
|
619 |
|
|
|
(317 |
) |
|
|
302 |
|
Recognized as component of
net period (cost) |
|
|
(15 |
) |
|
|
(3 |
) |
|
|
(18 |
) |
|
|
7 |
|
|
|
(11 |
) |
|
|
|
Balance, December 31, 2005 |
|
|
138 |
|
|
|
1,928 |
|
|
|
2,066 |
|
|
|
(760 |
) |
|
|
1,306 |
|
Incurred in the current year |
|
|
|
|
|
|
751 |
|
|
|
751 |
|
|
|
(337 |
) |
|
|
414 |
|
Recognized as component of
net period (cost) |
|
|
(15 |
) |
|
|
(41 |
) |
|
|
(56 |
) |
|
|
20 |
|
|
|
(36 |
) |
|
|
|
Balance, December 31, 2006 |
|
|
123 |
|
|
|
2,638 |
|
|
|
2,761 |
|
|
|
(1,077 |
) |
|
|
1,684 |
|
Incurred in the current year |
|
|
|
|
|
|
(981 |
) |
|
|
(981 |
) |
|
|
382 |
|
|
|
(599 |
) |
Recognized as component of
net period (cost) |
|
|
(15 |
) |
|
|
(107 |
) |
|
|
(122 |
) |
|
|
48 |
|
|
|
(74 |
) |
|
|
|
Balance, December 31, 2007 |
|
$ |
108 |
|
|
$ |
1,550 |
|
|
$ |
1,658 |
|
|
$ |
(647 |
) |
|
$ |
1,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be recognized as component of
net period (cost) in 2008 |
|
$ |
(15 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of Net Period Cost for the years ended December 31 are shown below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Benefits |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
Cost recognized during the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
$ |
934 |
|
|
$ |
963 |
|
|
$ |
972 |
|
|
$ |
17 |
|
|
$ |
17 |
|
|
$ |
16 |
|
Expected return on plan assets |
|
|
(1,024 |
) |
|
|
(940 |
) |
|
|
(976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of loss |
|
|
107 |
|
|
|
41 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
15 |
|
|
|
15 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net period cost |
|
$ |
32 |
|
|
$ |
79 |
|
|
$ |
14 |
|
|
$ |
17 |
|
|
$ |
17 |
|
|
$ |
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Benefits |
|
|
December 31, |
|
December 31, |
|
|
2007 |
|
2006 |
|
2005 |
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
Assumptions used in computations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.25 |
% |
|
|
5.75 |
% |
|
|
6.25 |
% |
|
|
6.25 |
% |
|
|
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. |
F -18
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Compensation and Benefit Agreements, Continued
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 return on pension plan assets was approximately 8% in 2007, compared to
11% in 2006. The historical annualized ten-year rate of return on pension plan assets is
approximately 6%.
The Companys pension plan asset allocation at December 31, 2007 and 2006 and target allocation
for 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target |
|
Percentage of Plan Assets |
|
|
Allocation |
|
December 31, |
Asset Category |
|
2008 |
|
2007 |
|
2006 |
Equity securities |
|
|
50% - 60 |
% |
|
|
53 |
% |
|
|
57 |
% |
Debt securities |
|
|
40% - 50 |
% |
|
|
47 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The Company expects to contribute $0.4 million to the pension plan in 2008. 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 |
2008 |
|
$1,015 |
|
$19 |
2009 |
|
1,003 |
|
20 |
2010 |
|
989 |
|
21 |
2011 |
|
1,006 |
|
22 |
2012 |
|
1,013 |
|
23 |
2013-2017 |
|
5,484 |
|
120 |
F -19
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Significant Risks and Uncertainties
Concentrations of Credit Risk Cash At December 31, 2007 and 2006, the Company had
approximately $15.4 million and $12.7 million, respectively, in cash and money market
accounts at financial institutions, which were in excess of the federally insured limits.
Concentration of Credit Risk Accounts Receivable The industry in which the Company
operates continues to experience consolidation, resulting in a smaller number of primary
retailers. The Company has a relatively small number of key retailers that comprise a
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. Any accounts receivable credit risk exposure
beyond the current allowance for uncollectible accounts is not material to the consolidated
financial statements.
Note 9. Enterprise-wide Disclosures
The Company
operates as two brands in the marketplace, LaCrosse and Danner. For financial
reporting purposes, these two brands have been aggregated into a single reportable segment
due to their similar economic characteristics.
The Company focuses on two market categories, work and outdoor. The following table presents
information about the Companys revenue attributed to these two market categories (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
Net sales: |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
Work Market |
|
$ |
60,893 |
|
|
$ |
54,660 |
|
|
$ |
50,436 |
|
Outdoor Market |
|
|
57,286 |
|
|
|
53,138 |
|
|
|
48,942 |
|
|
|
|
Total |
|
$ |
118,179 |
|
|
$ |
107,798 |
|
|
$ |
99,378 |
|
|
|
|
The following table presents information about the Companys revenue attributed to countries
based on the location of the customer (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
Net sales: |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
United States |
|
$ |
109,989 |
|
|
$ |
101,041 |
|
|
$ |
94,149 |
|
Foreign Countries |
|
|
8,190 |
|
|
|
6,757 |
|
|
|
5,229 |
|
|
|
|
Total |
|
$ |
118,179 |
|
|
$ |
107,798 |
|
|
$ |
99,378 |
|
|
|
|
The above presentation for 2005 and 2006 includes reclassifications between United States and
foreign revenues for consistency with the 2007 presentation.
Long-lived assets located outside of the United States totaled approximately $0.3 million at
December 31, 2007 and 2006, respectively.
F -20
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or permit fair value measurements,
the FASB having previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any new fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The
Company is currently assessing the impact that SFAS 157 will have on its results of operations
and financial position.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option For Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 expands the use of fair value accounting but does
not affect existing standards that require assets or liabilities to be carried at fair value.
Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable,
available-for-sale and held-to-maturity securities, accounts payable, and issued debt. If the
use of fair value is elected, any upfront costs and fees related to the item must be recognized
in earnings and cannot be deferred. The fair value election is irrevocable and generally made on
an instrument-by-instrument basis, even if a company has similar instruments that it elects not
to measure based on fair value. At the adoption date, unrealized gains and losses on existing
items for which fair value has been elected are reported as a cumulative adjustment to beginning
retained earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized
in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The
Company is currently assessing the impact that SFAS 159 will have on its results of operations
and financial position.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141R), which replaces FASB Statement No. 141 and SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (SFAS 160). SFAS 141R
establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. The Statement also
establishes disclosure requirements that will enable users to evaluate the nature and financial
effects of the business combination. SFAS 160 will change the accounting and reporting for
minority interests, reporting them as equity separate from the parent entitys equity, as well
as requiring expanded disclosures. SFAS 141R and SFAS 160 are effective as of the beginning of
an entitys fiscal year beginning after December 15, 2008. The Company is currently assessing
the impact that SFAS 141R and SFAS 160 will have on its results of operations and financial position.
F -21
LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Quarterly Selected Financial Data (Unaudited)
The following reflects the Companys unaudited quarterly results of operations for 2007 and
2006 (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
|
|
Net sales |
|
$ |
23,691 |
|
|
$ |
24,929 |
|
|
$ |
36,876 |
|
|
$ |
32,683 |
|
Gross profit |
|
|
9,610 |
|
|
|
9,769 |
|
|
|
14,412 |
|
|
|
13,115 |
|
Operating income |
|
|
830 |
|
|
|
1,434 |
|
|
|
4,947 |
|
|
|
3,772 |
|
Income tax provision |
|
|
347 |
|
|
|
551 |
|
|
|
1,684 |
|
|
|
1,390 |
|
Net income |
|
|
604 |
|
|
|
976 |
|
|
|
3,311 |
|
|
|
2,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share |
|
$ |
0.10 |
|
|
$ |
0.16 |
|
|
$ |
0.54 |
|
|
$ |
0.39 |
|
Diluted income per common share |
|
$ |
0.10 |
|
|
$ |
0.15 |
|
|
$ |
0.52 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
|
|
Net sales |
|
$ |
21,401 |
|
|
$ |
21,822 |
|
|
$ |
32,840 |
|
|
$ |
31,735 |
|
Gross profit |
|
|
8,384 |
|
|
|
8,684 |
|
|
|
12,669 |
|
|
|
12,559 |
|
Operating income |
|
|
563 |
|
|
|
996 |
|
|
|
3,933 |
|
|
|
3,342 |
|
Income tax provision (benefit) |
|
|
221 |
|
|
|
(98 |
) |
|
|
1,365 |
|
|
|
1,090 |
|
Net income |
|
|
392 |
|
|
|
1,179 |
|
|
|
2,548 |
|
|
|
2,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share |
|
$ |
0.07 |
|
|
$ |
0.20 |
|
|
$ |
0.42 |
|
|
$ |
0.37 |
|
Diluted income per common share |
|
$ |
0.06 |
|
|
$ |
0.19 |
|
|
$ |
0.41 |
|
|
$ |
0.36 |
|
Note 12. Subsequent Event
On February 4, 2008, the Company announced a special cash dividend of one dollar ($1.00) per
share of common stock and a first quarter cash dividend of twelve and one-half cents ($0.125)
per share of the Companys common stock. These dividends will be paid together ($1.125 per
share) on March 18, 2008 to shareholders of record as of the close of business on February 22,
2008. The cash payment for this dividend will be approximately $7.1 million. The Company has
also amended its credit agreement to allow for the payment of these dividends. The Board of
Directors, while not declaring future dividends to be paid, has established a quarterly
dividend policy reflecting its intent to declare and pay a quarterly dividend of $0.125 per
share of common stock (approximately $0.8 million) for the balance of 2008. We have amended
our credit agreement to provide for payment of quarterly dividends in 2008, not to exceed $3.5
million annually.
F -22