e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 25, 2010
or
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o |
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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 000-23800
LaCrosse Footwear, Inc.
(Exact name of Registrant as specified in its charter)
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Wisconsin
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39-1446816 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
17634 NE Airport Way
Portland, Oregon 97230
(Address, zip code of principal executive offices)
(503) 262-0110
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
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
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Common Stock, $.01 par value, outstanding as of October 19, 2010: 6,454,272 shares
LACROSSE FOOTWEAR, INC.
Form 10-Q Index
-2-
PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
LACROSSE FOOTWEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September 25, |
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December 31, |
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September 26, |
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(in thousands, except share and per share data) |
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2010 |
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2009 |
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2009 |
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Assets: |
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Current Assets: |
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Cash and cash equivalents |
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$ |
3,618 |
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$ |
17,739 |
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$ |
3,495 |
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Trade and other accounts receivable, net |
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26,694 |
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21,635 |
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27,931 |
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Inventories, net (Note 3) |
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34,678 |
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27,031 |
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34,549 |
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Prepaid expenses and other |
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1,063 |
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1,129 |
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1,017 |
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Deferred tax assets |
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1,364 |
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1,503 |
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1,302 |
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Total current assets |
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67,417 |
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69,037 |
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68,294 |
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Property and equipment, net |
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15,607 |
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8,482 |
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8,685 |
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Goodwill |
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10,753 |
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10,753 |
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10,753 |
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Other assets |
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256 |
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313 |
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298 |
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Total assets |
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$ |
94,033 |
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$ |
88,585 |
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$ |
88,030 |
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Liabilities and Shareholders Equity: |
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Current Liabilities: |
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Accounts payable |
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$ |
19,472 |
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$ |
8,036 |
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$ |
11,688 |
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Accrued compensation |
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2,897 |
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3,343 |
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2,546 |
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Product warranty and other accruals (Note 4) |
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2,213 |
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3,755 |
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1,893 |
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Total current liabilities |
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24,582 |
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15,134 |
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16,127 |
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Long-term debt (Note 6) |
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300 |
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Deferred revenue |
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588 |
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225 |
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263 |
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Deferred lease obligations |
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750 |
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614 |
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599 |
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Compensation and benefits (Note 8) |
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4,119 |
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4,680 |
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5,424 |
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Deferred tax liabilities |
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2,360 |
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2,337 |
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2,174 |
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Total liabilities |
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32,699 |
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22,990 |
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24,587 |
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Shareholders Equity: |
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Common stock, par value $.01 per share;
authorized 50,000,000 shares; issued 6,717,627 shares |
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67 |
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67 |
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67 |
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Additional paid-in capital |
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30,364 |
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29,041 |
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28,857 |
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Accumulated other comprehensive loss (Note 10) |
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(3,488 |
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(3,348 |
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(3,703 |
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Retained earnings (Notes 9 and 12) |
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35,624 |
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41,529 |
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39,997 |
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Less cost of 263,355, 381,829 and 400,591 shares of
treasury stock, respectively |
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(1,233 |
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(1,694 |
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(1,775 |
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Total shareholders equity |
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61,334 |
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65,595 |
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63,443 |
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Total liabilities and shareholders equity |
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$ |
94,033 |
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$ |
88,585 |
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$ |
88,030 |
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See notes to interim unaudited condensed consolidated financial statements.
-3-
LACROSSE FOOTWEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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Quarter Ended |
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Three Quarters Ended |
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September 25, |
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September 26, |
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September 25, |
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September 26, |
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(in thousands, except per share data) |
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2010 |
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2009 |
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2010 |
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2009 |
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Net sales |
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$ |
37,682 |
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$ |
40,761 |
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$ |
98,462 |
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$ |
96,647 |
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Cost of goods sold |
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23,666 |
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25,040 |
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59,815 |
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58,877 |
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Gross profit |
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14,016 |
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15,721 |
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38,647 |
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37,770 |
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Selling and administrative expenses |
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11,962 |
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11,815 |
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33,667 |
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32,912 |
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Operating income |
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2,054 |
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3,906 |
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4,980 |
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4,858 |
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Non-operating expense, net |
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(51 |
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(235 |
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(106 |
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(304 |
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Income before income taxes |
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2,003 |
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3,671 |
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4,874 |
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4,554 |
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Income tax provision (Note 5) |
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857 |
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1,450 |
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1,965 |
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1,367 |
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Net income |
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$ |
1,146 |
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$ |
2,221 |
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$ |
2,909 |
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$ |
3,187 |
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Net income per common share (Note 1): |
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Basic |
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$ |
0.18 |
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$ |
0.35 |
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$ |
0.45 |
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$ |
0.51 |
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Diluted |
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$ |
0.17 |
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$ |
0.35 |
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$ |
0.44 |
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$ |
0.50 |
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Weighted average number of common
shares outstanding: |
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Basic |
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6,453 |
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6,307 |
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6,419 |
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6,293 |
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Diluted |
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6,598 |
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6,403 |
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6,584 |
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6,364 |
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See notes to interim unaudited condensed consolidated financial statements.
-4-
LACROSSE FOOTWEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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(in thousands) |
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Three Quarters Ended |
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September 25, |
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September 26, |
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2010 |
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2009 |
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Cash flows from operating activities: |
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Net income |
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$ |
2,909 |
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$ |
3,187 |
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Adjustments to reconcile net income to net cash provided by
(used in) operating activities, net of effects of acquisition in 2009: |
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Depreciation and amortization |
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2,205 |
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2,041 |
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Stock-based compensation expense (Note 7) |
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455 |
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448 |
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Deferred income taxes |
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165 |
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1,366 |
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Loss on disposal of property and equipment |
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7 |
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194 |
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Changes in operating assets and liabilities, net of effects of
acquisition in 2009: |
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Trade and other accounts receivable |
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(4,621 |
) |
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(5,482 |
) |
Inventories |
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(7,743 |
) |
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(5,778 |
) |
Accounts payable |
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9,764 |
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1,400 |
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Accrued expenses and other |
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(2,297 |
) |
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(735 |
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Net cash provided by (used in) operating activities |
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844 |
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(3,359 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(7,773 |
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(4,723 |
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Proceeds from sale of property and equipment |
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1 |
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33 |
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Acquisition |
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(388 |
) |
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Net cash used in investing activities |
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(7,772 |
) |
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(5,078 |
) |
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Cash flows from financing activities: |
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Proceeds from long-term debt (Note 6) |
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300 |
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Cash dividends paid (Note 9) |
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(8,813 |
) |
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(2,362 |
) |
Purchase of treasury stock |
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(59 |
) |
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Proceeds from exercise of stock options |
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1,393 |
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432 |
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Net cash used in financing activities |
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(7,179 |
) |
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(1,930 |
) |
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Effect of foreign currency exchange rate changes on cash and
cash equivalents |
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(14 |
) |
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179 |
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Net decrease in cash and cash equivalents |
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(14,121 |
) |
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(10,188 |
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Cash and cash equivalents: |
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Beginning of period |
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17,739 |
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13,683 |
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End of period |
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$ |
3,618 |
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$ |
3,495 |
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Supplemental information: |
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Cash payments for income taxes |
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$ |
4,219 |
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$ |
322 |
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See notes to interim unaudited condensed consolidated financial statements.
-5-
LACROSSE FOOTWEAR, INC.
Notes to Interim Unaudited Condensed Consolidated Financial Statements
NOTE 1. INTERIM FINANCIAL REPORTING
Basis of Presentation LaCrosse Footwear, Inc. (NASDAQ: BOOT) is referred to as we,
us, or our in this report. The accompanying condensed consolidated financial statements
were prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information, and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, we have condensed or omitted certain
information and footnote disclosures that are included in our annual financial statements.
These condensed unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and the related notes included in our
Annual Report on Form 10-K for the year ended December 31, 2009. These condensed
consolidated financial statements reflect, in the opinion of management, all adjustments
(which consist of normal, recurring adjustments) necessary for a fair presentation of the
financial position and results of operations and cash flows for the periods presented.
These condensed consolidated financial statements include the accounts of LaCrosse Footwear,
Inc., and our wholly owned subsidiaries. All material inter-company accounts and
transactions have been eliminated in consolidation.
We report our quarterly interim financial information based on 13-week periods. The nature
of the 13-week calendar requires that the first three quarters end on a Saturday, and that
the year end on December 31. As a result, every first quarter and every fourth quarter have
a unique number of days. The results of the interim periods are not necessarily indicative
of the results for the full year. Historically, our net sales and operating income have
been more heavily weighted to the second half of the year.
Use of Estimates We are required to make certain estimates and assumptions which affect
the amounts of assets, liabilities, revenues and expenses we have reported, and our
disclosure of any contingent assets and liabilities at the date of the financial statements.
Actual results could differ materially from these estimates and assumptions.
Net Income per Common Share We present our net income on a per share basis for both basic
and diluted common shares. Basic net income per common share is computed using the weighted
average number of common shares outstanding during the period. The diluted net income per
common share calculation assumes that all stock options were exercised and converted into
common stock at the beginning of the period, unless their effect would be anti-dilutive. A
reconciliation of the shares used in the basic and diluted net income per common share is as
follows (in thousands):
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Quarter Ended |
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Three Quarters Ended |
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September 25, |
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September 26, |
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September 25, |
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September 26, |
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2010 |
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2009 |
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2010 |
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2009 |
|
Basic weighted average shares outstanding |
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6,453 |
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|
6,307 |
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|
6,419 |
|
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|
6,293 |
|
Dilutive stock options |
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|
145 |
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|
96 |
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|
165 |
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|
71 |
|
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Diluted weighted average shares outstanding |
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6,598 |
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|
6,403 |
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|
6,584 |
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|
6,364 |
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-6-
NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents at September 25, 2010, December 31, 2009, and September 26, 2009
were $3.6 million, $17.7 million, and $3.5 million respectively. We have categorized our
cash and cash equivalents as a Level 1 financial asset, measured at fair value based on
quoted prices in active markets of identical assets. We did not have any transfers between
the fair value hierarchy during the third quarter of 2010. We do not have any additional
financial assets or liabilities that were measured at fair value on a recurring basis at
September 25, 2010.
NOTE 3. INVENTORIES
A summary of inventories is presented below (in thousands):
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September 25, |
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|
December 31, |
|
|
September 26, |
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|
|
2010 |
|
|
2009 |
|
|
2009 |
|
Raw materials |
|
$ |
6,511 |
|
|
$ |
4,094 |
|
|
$ |
4,530 |
|
Work in process |
|
|
443 |
|
|
|
388 |
|
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|
351 |
|
Finished goods |
|
|
28,111 |
|
|
|
23,346 |
|
|
|
30,297 |
|
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Subtotal |
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35,065 |
|
|
|
27,828 |
|
|
|
35,178 |
|
Less: provision for obsolete and slow-moving inventories |
|
|
(387 |
) |
|
|
(797 |
) |
|
|
(629 |
) |
|
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|
|
|
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|
|
|
|
Total |
|
$ |
34,678 |
|
|
$ |
27,031 |
|
|
$ |
34,549 |
|
|
|
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|
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|
NOTE 4. PRODUCT WARRANTY
We provide a limited warranty for the replacement of defective products sold for a specified
time period after sale. We estimate the costs forecasted to 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 sales by warranty
categories, and historical and anticipated future rates of warranty claims. We also utilize
historical trends and information received from our customers to assist in determining the
appropriate warranty accrual levels.
Changes in the accrued product warranty costs during the quarters and three quarters ended
September 25, 2010 and September 26, 2009 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Three Quarters Ended |
|
|
|
September 25, |
|
|
September 26, |
|
|
September 25, |
|
|
September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Balance, beginning of period |
|
$ |
1,338 |
|
|
$ |
1,234 |
|
|
$ |
1,409 |
|
|
$ |
1,266 |
|
Accruals for products sold |
|
|
637 |
|
|
|
527 |
|
|
|
2,196 |
|
|
|
1,906 |
|
Warranty claims |
|
|
(502 |
) |
|
|
(465 |
) |
|
|
(2,132 |
) |
|
|
(1,876 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
1,473 |
|
|
$ |
1,296 |
|
|
$ |
1,473 |
|
|
$ |
1,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5. INCOME TAXES
On a quarterly basis, we estimate what our effective tax rate will be for the full fiscal
year and record a quarterly income tax provision based on the anticipated rate. As the year
progresses, we refine our estimate based on the facts and circumstances by each tax
jurisdiction. The effective tax rate for the quarters ended September 25, 2010 and
September 26, 2009 were 42.8% and 39.5%, respectively. The year to date effective tax
rates for the first three quarters ended September 25, 2010 and September 26, 2009 were
40.3% and 30.0%, respectively. The difference in the blended effective federal and state
tax rates for the first three quarters of 2010 and our federal statutory tax rate of 34.0%
is primarily due to state tax and the impact of discrete items arising from the completion
of our 2009 tax returns relative to our year to date income before taxes.
We file 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). We have
concluded tax examinations for U.S. federal and Oregon state filings through the tax years
ended December, 2007 and December, 2006, respectively. Depending on the jurisdiction, we
are no longer subject to state examinations by tax authorities other than Oregon for years
prior to
-7-
the December 2004 and 2005 tax years. We are not subject to foreign tax
examinations prior to the year ended December 2008.
NOTE 6. FINANCING ARRANGEMENTS
We have a line of credit agreement with Wells Fargo Bank, N.A., which expires June 30, 2012,
if not renewed. Amounts borrowed under the agreement are secured by substantially all of
our assets. The maximum amount of borrowings available from January 1 to May 31 is $17.5
million, and $30.0 million from June 1 to December 31. There are no borrowing base
limitations under the credit agreement. The credit agreement provides for an interest rate
of LIBOR plus 1.75% and an annual commitment fee of 0.15% on the unused balance. At
September 25, 2010, December 31, 2009 and September 26, 2009, we had no outstanding balances
under our line of credit agreement.
On January 26, 2010, we entered into a letter amendment to our line of credit agreement with
Wells Fargo Bank, N.A. which increased the allowable capital expenditures for the years
ended December 31, 2009 and 2010, and increased allowable cash dividends for the year ending
December 31, 2010.
In May 2010, we received a loan of $0.3 million from the State of Oregon to finance certain
leasehold improvements at our new Danner factory which began production in the third quarter
of 2010. The State of Oregon will forgive all, or a portion of the loan, along with all
interest accruing on any portion of the loan forgiven upon meeting employment criteria at
the Danner factory. The employment criteria requires a certain number of employees at the
Danner factory over a consecutive eight quarter period beginning July 1, 2010 and ending no
later than June 30, 2014. The remaining loan balance at that time which has not been
forgiven will bear interest at 5.0% per annum and will mature on July 31, 2014. As we meet
the specified employment criteria at the Danner factory during a given period, beginning
with the fourth quarter of 2010, a corresponding portion of the loan will be reclassified to
deferred revenue and amortized over the life of the factory lease.
NOTE 7. STOCK-BASED COMPENSATION
We recognized $0.1 million and $0.5 million of stock-based compensation expense in the
quarter and three quarters ended September 25, 2010 as compared to $0.1 million and $0.4
million in the quarter and three quarters ended September 26, 2009. We use the
Black-Scholes option-pricing model to calculate stock-based compensation expense. Our
determination of fair value of option-based awards on the date of grant is affected by
subjective assumptions regarding certain variables. These variables include, but are not
limited to, our expected dividend yield, our expected stock price volatility over the
expected term of the awards, the risk-free interest rates, the estimated forfeiture rates,
and the expected life of the options. The anticipated risk-free interest rate is based on
treasury instruments whose terms are consistent with the expected life of the stock options
granted. The expected volatility, life of options and dividend yield are based on
historical experience.
The following table includes the assumptions we used in determining the fair value of
stock options and the resulting weighted average fair value of options granted during the
periods presented below:
|
|
|
|
|
|
|
|
|
|
|
Three Quarters Ended |
|
|
September 25, 2010 |
|
September 26, 2009 |
Expected dividend yield |
|
|
4.1 |
% |
|
|
3.7 |
% |
Expected stock price volatility |
|
|
50 |
% |
|
|
46 |
% |
Risk-free interest rate |
|
|
2.4 |
% |
|
|
1.4 |
% |
Expected life of options |
|
4.7 years |
|
4.6 years |
Estimated forfeiture rate |
|
|
15 |
% |
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted |
|
$ |
4.19 |
|
|
$ |
3.25 |
|
-8-
The following table represents stock option activity for the quarter ended September
25, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
Average |
|
Average |
|
|
Number of |
|
Exercise |
|
Remaining |
|
|
Shares |
|
Price |
|
Contract Life |
Outstanding options at beginning of period |
|
|
845,498 |
|
|
$ |
12.05 |
|
|
|
|
|
Granted |
|
|
2,500 |
|
|
|
12.90 |
|
|
|
|
|
Exercised |
|
|
(1,963 |
) |
|
|
11.54 |
|
|
|
|
|
Canceled |
|
|
(35,993 |
) |
|
|
13.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at end of period |
|
|
810,042 |
|
|
|
11.99 |
|
|
4.5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding exercisable at end of period |
|
|
450,133 |
|
|
|
10.86 |
|
|
3.7 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 25, 2010, the aggregate intrinsic value of options outstanding was $1.9
million, and the aggregate intrinsic value of exercisable options was $1.5 million. The
intrinsic value of options exercised during the quarter ended September 25, 2010 was $0.01
million.
NOTE 8. COMPENSATION AND BENEFIT PLANS
We have a defined benefit pension plan covering eligible past employees and less than 1% of
current employees. We also sponsor an unfunded defined benefit postretirement death benefit
plan that covers eligible past employees. Information regarding these two plans is presented
below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan |
|
|
Other Plan |
|
|
|
Quarter Ended |
|
|
Quarter Ended |
|
|
|
September 25, |
|
|
September 26, |
|
|
September 25, |
|
|
September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Cost (income) recognized
during the quarter: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
$ |
227 |
|
|
$ |
236 |
|
|
$ |
4 |
|
|
$ |
4 |
|
Expected return on plan assets |
|
|
(235 |
) |
|
|
(199 |
) |
|
|
|
|
|
|
|
|
Amortization of prior loss |
|
|
38 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net period cost |
|
$ |
30 |
|
|
$ |
85 |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan |
|
|
Other Plan |
|
|
|
Three Quarters Ended |
|
|
Three Quarters Ended |
|
|
|
September 25, |
|
|
September 26, |
|
|
September 25, |
|
|
September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Cost (income) recognized
during the first three
quarters: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
$ |
681 |
|
|
$ |
708 |
|
|
$ |
12 |
|
|
$ |
12 |
|
Expected return on plan assets |
|
|
(705 |
) |
|
|
(597 |
) |
|
|
|
|
|
|
|
|
Amortization of prior loss |
|
|
114 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net period cost |
|
$ |
90 |
|
|
$ |
255 |
|
|
$ |
12 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-9-
The following is a reconciliation to the compensation and benefits financial statement
line item on the accompanying condensed consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25, |
|
|
December 31, |
|
|
September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
Pension Plan |
|
$ |
3,832 |
|
|
$ |
4,405 |
|
|
$ |
5,132 |
|
Other Plan |
|
|
287 |
|
|
|
275 |
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
Total compensation and benefits |
|
$ |
4,119 |
|
|
$ |
4,680 |
|
|
$ |
5,424 |
|
|
|
|
|
|
|
|
|
|
|
We contributed $0.7 million to our defined benefit pension plan during the first three
quarters of 2010 and anticipate contributing an additional $0.1 million during the remainder
of 2010.
NOTE 9. CASH DIVIDENDS
On July 22, 2010, we announced a quarterly cash dividend of twelve and one-half cents
($0.125) per share of our common stock. The aggregate dividend of $0.8 million was paid on
September 18, 2010 to shareholders of record as of the close of business on August 22, 2010.
NOTE 10. COMPREHENSIVE INCOME
Comprehensive Income:
Comprehensive income represents net income plus revenue, expenses, gains and losses that are
specifically excluded from net income and recognized directly as a component of
shareholders equity.
The reconciliation from net income to comprehensive income is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Three Quarters Year Ended |
|
|
September 25, |
|
September 26, |
|
September 25, |
|
September 26, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Net income |
|
$ |
1,146 |
|
|
$ |
2,221 |
|
|
$ |
2,909 |
|
|
$ |
3,187 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability, net of tax |
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
147 |
|
Foreign currency translation
adjustment |
|
|
157 |
|
|
|
125 |
|
|
|
(140 |
) |
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
1,303 |
|
|
$ |
2,376 |
|
|
$ |
2,769 |
|
|
$ |
3,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss:
Accumulated other comprehensive loss reported on our condensed consolidated balance sheets
consists of adjustments related to foreign currency translation and minimum liabilities for
pension benefits. The components of accumulated other comprehensive loss are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25, |
|
|
December 31, |
|
|
September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
Minimum pension liability, net of tax |
|
$ |
(3,079 |
) |
|
$ |
(3,079 |
) |
|
$ |
(3,573 |
) |
Accumulated foreign currency
translation adjustment |
|
|
(409 |
) |
|
|
(269 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(3,488 |
) |
|
$ |
(3,348 |
) |
|
$ |
(3,703 |
) |
|
|
|
|
|
|
|
|
|
|
NOTE 11. RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2010, the Financial Accounting Standards Board (FASB) issued guidance to amend
the disclosure requirements related to recurring and nonrecurring fair value measurements.
The guidance requires disclosure of transfers of assets and liabilities between Level 1 and
Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the
transfers and information on purchases, sales, issuance, and settlements on a gross
-10-
basis in the reconciliation of the assets and liabilities measured under Level 3 of the
fair value measurement hierarchy. The adoption of this guidance is effective for interim and
annual reporting periods beginning after December 15, 2009. We have adopted this guidance in
the financial statements presented herein, which did not impact our consolidated financial
position or results of operations.
NOTE 12. SUBSEQUENT EVENTS
On October 21, 2010, we announced a fourth quarter cash dividend of twelve and one-half
cents ($0.125) per share of our common stock. This dividend will be paid on December 18,
2010 to shareholders of record as of the close of business on November 22, 2010. The total
cash payment for this dividend will be approximately $0.8 million.
On September 30, 2010 we entered into an additional letter amendment to our line of credit
agreement with Wells Fargo Bank, N.A. which increased the allowable capital expenditures for
the remainder of 2010.
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the following Managements Discussion and Analysis
of Financial Condition and Results of Operations, contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
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. The Company assumes no
obligation to update or revise any forward-looking statements to reflect the occurrence or
non-occurrence of future events or circumstances.
The forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation,
statements of our expectations related to our seasonal demand being stronger in the second half of
the year, our future sales performance with the U.S. government, the impact of our decision to
discontinue product offerings in the apparel business, our ability to mitigate the impact of supply
constraints in our third-party manufacturing base, our successful implementation of increases in
our selling prices to offset increases in product costs from our third-party manufacturers, future
cash dividend policies, capital expenditure plans for the balance of 2010, and the adequacy of our
existing resources and anticipated cash flows from operations to satisfy our future working capital
needs. 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, including without limitation, economic, competitive and
governmental factors outside of our control. For more information concerning these factors and
other risks and uncertainties that could materially affect our results of operations, please refer
to Part I, Item 1ARisk Factors, of our 2009 Annual Report on Form 10-K, as may be supplemented or
amended in our 2010 quarterly reports on Form 10-Q, which information is incorporated herein by
reference.
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 support our
product offerings with compelling marketing and superior customer service. Our trusted Danner® and
LaCrosse® brands are sold through four channels of distribution: 1) wholesale 2) government 3)
direct and 4) international. We focus on two types of consumers for our footwear lines: work and
outdoor. Work consumers include people in military services, law enforcement, transportation,
mining, oil and gas exploration and extraction, construction and other occupations that require
high-performance and protective footwear as a critical tool for the job. Outdoor consumers include
people active in hunting, outdoor cross-training, hiking and other outdoor recreational activities.
Weather, especially in the fall and winter, has been, and will likely continue to be, a significant
contributing factor impacting our financial performance. Our sales are typically higher in the
second half of the year due to stronger demand for our cold and wet weather outdoor product
offerings. We augment these offerings by infusing innovative technology into all product categories
with the intent to create additional demand in all four quarters of the year.
Our sales performance continues to be driven by the success of our new product lines, our ability
to meet at-once demand, and our ability to diversify and strengthen our portfolio of sales
channels. We have experienced, and may continue to experience significant fluctuations in our
quarterly revenue performance due to the timing of orders and requested shipment
-11-
dates for U.S. government contract orders. Future U.S. government sales are dependent upon a wide
range of factors, some of which are outside of our ability to control. Such factors include the
U.S. governments policies regarding troop deployments in global regions requiring our specialized
footwear, our ability to meet aggressive delivery schedules and increased competition from other
footwear suppliers.
We continually evaluate our portfolio of product offerings to ensure we are providing innovative
and high-performance products to the marketplace. As a part of this evaluation process, during the
first quarter of 2010 we decided to discontinue specific offerings in the commodity apparel
business, which has historically represented approximately $3.0 million of annual net sales. We
sold all remaining inventories related to this product line in the third quarter of 2010.
Additionally, we made a strategic decision to discontinue our remaining product offerings in the
apparel business during the third quarter of 2010, which comprised $1.0 million of net sales during
that quarter and has historically represented approximately $2.0 million of annual net sales. We
believe that our remaining apparel inventories will be sold by the end of the first quarter of
2011, with a negligible impact on our gross margins during that period.
One of our key contract manufacturers has experienced capacity constraints during the
first three quarters of 2010, which negatively affected our supply of certain leather footwear
products during the third quarter of 2010. We anticipate a smaller impact on our product
availability during the fourth quarter and we are currently pursuing various alternatives to
improve capacity and product availability to meet forecasted demand for the long term.
Our third-party manufacturers and our Danner factory purchase raw materials and component
parts from various suppliers to be used in manufacturing our products. We have experienced an
increase in the commodity price of raw materials that are essential to our products (primarily
leather and rubber), as well as labor cost increases in our third-party manufacturing facilities.
Based on these increases, the cost to manufacture our products has increased. Historically, as we
have experienced similar increases in manufacturing costs, we have been successful in increasing
the selling price of our products to mitigate the long term impact, and we expect to be able to
adjust our pricing in response to these increases.
Results of Operations
The following table sets forth selected financial information derived from our interim unaudited
condensed consolidated financial statements. The discussion that follows the table should be read
in conjunction with the interim unaudited condensed consolidated financial statements. In addition,
please see Managements Discussion and Analysis of Financial Condition and Results of Operations,
our consolidated annual financial statements and related notes included in our Annual Report on
Form 10-K for the year ended December 31, 2009 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Three Quarters Year Ended |
|
|
September 25, |
|
September 26, |
|
|
|
|
|
September 25, |
|
September 26, |
|
|
|
|
2010 |
|
2009 |
|
% Change |
|
2010 |
|
2009 |
|
% Change |
Net Sales |
|
$ |
37,682 |
|
|
$ |
40,761 |
|
|
|
(8 |
%) |
|
$ |
98,462 |
|
|
$ |
96,647 |
|
|
|
2 |
% |
Gross Profit |
|
|
14,016 |
|
|
|
15,721 |
|
|
|
(11 |
%) |
|
|
38,647 |
|
|
|
37,770 |
|
|
|
2 |
% |
Gross Margin % |
|
|
37.2 |
% |
|
|
38.6 |
% |
|
(140 bps) |
|
|
39.3 |
% |
|
|
39.1 |
% |
|
20 bps |
Selling and Administrative Expenses |
|
|
11,962 |
|
|
|
11,815 |
|
|
|
1 |
% |
|
|
33,667 |
|
|
|
32,912 |
|
|
|
2 |
% |
% of Net Sales |
|
|
31.7 |
% |
|
|
29.0 |
% |
|
270 bps |
|
|
34.2 |
% |
|
|
34.1 |
% |
|
10 bps |
Non-Operating Expense, net |
|
|
(51 |
) |
|
|
(235 |
) |
|
|
(78 |
%) |
|
|
(106 |
) |
|
|
(304 |
) |
|
|
(65 |
%) |
Income Before Income Taxes |
|
|
2,003 |
|
|
|
3,671 |
|
|
|
(45 |
%) |
|
|
4,874 |
|
|
|
4,554 |
|
|
|
7 |
% |
Income Tax Provision |
|
|
857 |
|
|
|
1,450 |
|
|
|
(41 |
%) |
|
|
1,965 |
|
|
|
1,367 |
|
|
|
44 |
% |
Net Income |
|
|
1,146 |
|
|
|
2,221 |
|
|
|
(48 |
%) |
|
|
2,909 |
|
|
|
3,187 |
|
|
|
(9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other accounts
receivable, net |
|
|
26,694 |
|
|
|
27,931 |
|
|
|
(4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
|
34,678 |
|
|
|
34,549 |
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 25, 2010 Compared to Quarter Ended September 26, 2009:
Net Sales: Net sales for the third quarter of 2010 decreased 8% to $37.7 million, from $40.8
million in the same period of 2009. Both work and outdoor sales continued to be significantly
impacted by the supply of finished products caused by capacity limitations of our third party
manufacturing partners in China.
Sales to the work market were $18.7 million for the third quarter of 2010, down 16% from $22.1
million in the same period of 2009. In addition to supply constraints, the decline in work market
sales is due to decreased sales to the U.S. government,
-12-
partially offset by increases in other work product categories. Sales to the outdoor market
were $19.0 million for the third quarter of 2010, up 2% from $18.7 million in the same period of
2009. The increase in sales to the outdoor market is attributable to increased demand for hunting
boots, partially offset by the impact of supply constraints.
Gross Margin: Gross margin for the third quarter of 2010 was 37.2% of net sales, compared to 38.6%
in the same period of 2009. The decrease in gross margin of 140 basis points is primarily
attributable to one-time costs related to the transition into our new Portland factory (90 basis
points), write-offs associated with our decision to exit the apparel market (40 basis points) and
other items (10 basis points).
Selling and Administrative Expenses: Selling and administrative expenses in the third quarter of
2010 increased 1%, to $12.0 million from $11.8 million in the same period of 2009. The increase in
selling and administrative expenses primarily relates to one-time costs associated with opening our
new Portland factory and factory store ($0.4 million), increased marketing activities ($0.2
million) and other increases ($0.2 million), partially offset by lower costs associated with our
European operations ($0.3 million) and our discontinued subsidiary, Environmentally Neutral Design
Outdoor, Inc. which was discontinued in the third quarter of 2009 ($0.3 million).
Income Tax Provision: We recognized income tax expense at an effective rate of 42.8% for the third
quarter of 2010 compared to 39.5% in the same period of 2009. The increase in the effective tax
rate in 2010 is due primarily to an increased state income tax rate, federal research and
experimentation credits which have not been extended beyond December 31, 2009, and the impact of
certain discrete items arising from the completion of our 2009 tax returns in the third quarter.
Net Income: Net income for the third quarter of 2010 was $1.1 million, or $0.17 diluted net income
per common share, compared to net income of $2.2 million, or $0.35 diluted net income per common
share in the same period of 2009. The decrease in net income is attributable to the changes in net
sales, gross profit, selling and administrative expenses and our effective tax rate, as discussed
above.
Trade and Other Accounts Receivable, Net: Trade and other accounts receivable decreased $1.2
million, or 4%, from the third quarter of 2009 due to lower quarterly net sales as well as
improvements in our collections performance with our key wholesale accounts.
Inventories: Inventories increased $0.1 million from the third quarter of 2009. Year-over-year
changes affecting the inventory balance included increased domestic raw materials purchased for
anticipated near-term demand ($2.0 million), partially offset by decreased finished goods
inventories resulting from ongoing factory capacity constraints experienced by our third-party
manufacturers ($0.7 million) and decreased inventory in Europe ($1.2 million).
First Three Quarters of 2010 Compared to the First Three Quarters of 2009:
Net Sales: Net sales for the first three quarters of 2010 increased 2%, to $98.5 million, from
$96.6 million in the same period of 2009. Sales to the work market were $63.6 million for the first
three quarters of 2010, up 1% from $63.0 million for the same period of 2009. The growth in work
market sales reflects increased sales in niche markets, partially offset by lower sales to the U.S.
government. Sales to the outdoor market were $34.9 million during the first three quarters of 2010,
up 4% from $33.6 million for the same period of 2009. The growth in outdoor market sales primarily
reflects gains in our hunting product lines.
Gross Margin: Gross margin for the first three quarters of 2010 was 39.3% of net sales, compared to
39.1% in the same period of 2009. The increase in gross margin of 20 basis points is primarily the
result of improved margins on key rubber products related to changes in our third party
manufacturing base which occurred during 2009.
Selling and Administrative Expenses: Selling and administrative expenses in the first three
quarters of 2010 increased $0.8 million, or 2%, to $33.7 million from $32.9 million in the same
period of 2009. The increase in selling and administrative expenses primarily relates to
investments in our new Portland factory and factory store ($0.7 million), investments in our
domestic sales, marketing and product development functions ($1.3 million), increased marketing
expenditures ($0.7 million) and certain other items in 2009 ($0.7 million). These items were
partially offset by lower costs in our midwest distribution center ($1.1 million), our European
operations ($1.0 million) and our subsidiary, Environmentally Neutral Design Outdoor, Inc., which
was discontinued in the third quarter of 2009 ($0.5 million).
Income Tax Provision: We recognized an income tax provision at an effective rate of 40.3% for the
first three quarters of 2010 compared to an effective tax rate of 30.0% in the same period of 2009.
The increase in the effective tax rate in 2010
of 10.3% is due to a lower net favorable impact of certain discrete
items in the second and third quarters of 2010 as compared to 2009
(7.9%), lower federal research and experimentation credits in 2010 as
such credits have not been extended beyond December 31, 2009 (1.5%)
and an increased state income tax rate (0.9%).
-13-
Net Income: Net income for the first three quarters of 2010 was $2.9 million, or $0.44 diluted net
income per common share, compared to net income of $3.2 million, or $0.50 diluted net income per
common share in the same period of 2009. The decrease in net income is attributable to the changes
in net sales, gross profit, selling and administrative expenses and our effective tax rate, as
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Summary
We ended the third quarter of 2010 with cash and cash equivalents of $3.6 million compared to $3.5
million in the same period in 2009. In recent years, we have funded working capital requirements,
capital expenditures, and dividends principally with cash generated from operations. In addition,
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 believe that our anticipated future cash flows
from operations and our existing credit facility will be sufficient to satisfy our working capital
needs for the foreseeable future.
Operating Activities: Cash provided by operating activities was $0.8 million for the first three
quarters of 2010 compared to cash used of $3.4 million during the same period of 2009. The increase
in operating cash flows of $4.2 million was primarily related to an increase in our accounts
payable partially offset by a greater inventory build-up in the first three quarters of 2010 as
compared to 2009. The increase in accounts payable is primarily related to the timing of payments
to our third-party manufacturers for inventories and to our construction partners in connection
with our new Danner factory. The higher inventory build-up in the first three quarters of 2010 is
primarily attributable to increased domestic raw materials purchased for anticipated near-term
demand.
Investing Activities: Cash used in investing activities was $7.8 million and $5.1 million in the
first three quarters of 2010 and 2009, respectively. Capital expenditures during the first three
quarters of 2010 primarily represent investments in our new factory store and Danner factory which
opened during the second and third quarters of 2010, respectively. We expect total 2010 capital
expenditures to be approximately $11.0 million.
Financing Activities: Cash used in financing activities was $7.2 million for the first three
quarters of 2010 compared to $1.9 million during the same period of 2009. The increase of $5.3
million was attributable to higher dividends of $6.5 million, which represents a special dividend
of $1.00 per share paid in the first quarter of 2010, partially offset by higher proceeds from the
exercise of stock options ($0.9 million) and proceeds from a long term debt agreement with the
State of Oregon for the factory facility ($0.3 million).
A summary of our contractual cash obligations at September 25, 2010 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by year: |
|
|
|
|
|
|
Remaining in |
|
|
|
|
|
|
|
|
|
|
Contractual Obligations |
|
Total |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
Thereafter |
|
Operating leases (1) |
|
$ |
18,962 |
|
|
$ |
645 |
|
|
$ |
2,574 |
|
|
$ |
2,585 |
|
|
$ |
2,596 |
|
|
$ |
2,686 |
|
|
$ |
7,876 |
|
Product purchase obligations (2) |
|
|
19,654 |
|
|
|
19,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Part I, Item 2 Properties in our Annual Report on Form 10-K for the year
ended December 31, 2009 for a description of our leased facilities. In January 2010,
we signed a lease to move our Danner factory store to a new facility in Portland,
Oregon. On February 10, 2010, we announced our plans to move into a new Danner factory
in Portland, Oregon. These new facilities lease schedules began during the first and
second quarters of 2010, respectively, for terms of approximately five years, with
options to extend the leases for up to fifteen more years. The lease for our previous
manufacturing facility and factory store expired on September 30, 2010. We began
production in the new factory facility in the third quarter of 2010. |
|
(2) |
|
From time to time, we enter into purchase commitments with our suppliers and
third party manufacturers under customary purchase order terms. Any significant losses
implicit in these contracts would be recognized in accordance with generally accepted
accounting principles. At September 25, 2010, no such losses existed. |
At September 25, 2010 and September 26, 2009, our pension plan had accumulated benefit obligations
in excess of the respective plan assets and accrued pension liabilities. These obligations in
excess of plan assets and accrued pension liabilities have resulted in cumulative direct charges to
shareholders equity (accumulated other comprehensive loss) net of
-14-
tax of $3.1 million and $3.6
million as of September 25, 2010 and September 26, 2009, respectively. We contributed $0.7
million to our pension plan during the first three quarters of 2010 and anticipate contributing an
additional $0.1 million during the remainder of 2010.
On January 26, 2010, we entered into a letter amendment to our line of credit agreement with Wells
Fargo Bank, N.A. which increased the allowable capital expenditures for the years ended December
31, 2009 and 2010, and increased allowable cash dividends for the year ending December 31, 2010.
The amount of allowable capital expenditures under the line of credit agreement was further
increased for the year ending December 31, 2010 by letter agreement dated September 30, 2010.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies and estimates are summarized in Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the
year ended December 31, 2009. There have been no significant changes in these critical accounting
policies since December 31, 2009. Some of our accounting policies require us 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. Actual results could differ from these estimates.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our disclosures regarding market risk since December 31,
2009. See also Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2009 for
further sensitivity analysis regarding our market risk related to interest rates, pension liability
and foreign currencies.
ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15 of the
Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by this
Quarterly Report on Form 10-Q, our management evaluated, with the participation of our President
and Chief Executive Officer and Executive Vice President and Chief Financial Officer, the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Rule 13a- 15(e) and Rule 15d-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 end of the period covered by this report.
(b) Changes in internal control over financial reporting. There was no change in our
internal control over financial reporting that occurred during the period covered by this Quarterly
Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
-15-
PART II
ITEM 1. Legal Proceedings
From time to time, we become involved in regulatory or legal proceedings incidental or routine to
our business. When a loss is deemed probable to occur and the amount of such loss can be
reasonably estimated, a liability is recorded in our financial statements.
ITEM 1A. Risk Factors
Other than the modification to the risk factors set forth below, there has not been a material
change to the risk factors as set forth in our Annual Report on Form 10-K for the year ended
December 31, 2009.
Sales to the U.S. government, which represent an increasingly significant portion of our net sales,
may not continue at current levels. Additionally, we may continue to experience significant
fluctuations in our quarterly revenue performance due to the timing of orders and requested
shipment dates for U.S. government contract orders.
Our ability to continue to generate sales growth in the government channel is dependent upon a wide
range of factors, some of which are outside of our ability to control. Such factors include future
levels of troop deployments in global regions requiring our specialized footwear and our ability to
meet aggressive delivery schedules and increased competition from other footwear suppliers who may
compete more effectively on the basis of price.
Because we depend on third party manufacturers, primarily in China, 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 two-thirds of our footwear products. Currently, we
source footwear with third party manufacturers primarily located in China. 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 factors outside of our control, one or more of our third party manufacturers may be
unable to continue meeting our production requirements. In the first three quarters of 2010, one
of our key manufacturers experienced capacity constraints which negatively affected our supply of
certain leather footwear products during the second and third quarters of 2010. In the third
quarter of 2010, we worked with this key manufacturer to improve capacity and product availability
to meet forecasted demand for the long term, but there can be no assurance that future product
availability will be improved, or will be adequate to meet demand. If additional capacity
constraints arise and are not remedied, this may further negatively affect our supply of products
and our results of operations. Also, certain of our third party manufacturers have manufacturing
arrangements with companies that are much larger than we are and whose production needs are much
greater than ours. As a result, such manufacturers may choose to devote additional resources to the
production of products other than ours if capacity is limited.
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 at acceptable cost levels by increasing
production in our company-operated manufacturing facility due to capacity constraints and/or
greater manufacturing costs, and we may be unable to substitute suitable alternative third party
manufacturers in a timely manner or at acceptable prices. Any fluctuation 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.
Finally, we have initiated a program to broaden our portfolio of third party manufacturers. While
the goal of this initiative is to reduce our business risks associated with our supply chain over
the long term, we may experience interruptions in product delivery schedules or increased costs
during future periods of factory transitions.
-16-
Current changes in the price of raw materials and labor in the global market, as well as currency
fluctuation and other risks associated with international operations could adversely affect our
financial results, particularly our gross margins.
Our third party manufacturers and our domestic manufacturing facility purchase raw materials and
component parts from various suppliers to be used in manufacturing our products. We have
experienced increases in the commodity price of raw materials that are essential to our products
(primarily leather and rubber), as well as labor cost increases in our third party manufacturing
facilities. Based on these increases, the cost to manufacture our products has increased and our
margins may be adversely impacted. Additionally, the cost of our products is affected by foreign
currency fluctuations (particularly with respect to the Chinese Renminbi) and other variable costs
associated with our operations including commodity raw material costs, labor inflation, trade laws,
duties and taxes, and other product sourcing costs. Historically, as we have experienced increases
in manufacturing costs, we have been successful in increasing the selling price of our products to
mitigate the long term impact, and we expect to be able to adjust our pricing in response to these
increases. If we are unable to increase our selling prices to offset such cost increases, or if
increases in our selling prices have a negative impact on sales of our products, our revenues and
earnings would be negatively impacted.
-17-
ITEM 6. Exhibits
The following exhibits are filed herewith and this list is intended to constitute the exhibit
index:
|
|
|
(10.1)
|
|
Letter Amendment to Second Amended and Restated Credit
Agreement, dated September 30, 2010, by and between LaCrosse Footwear, Inc. as
borrower, and Wells Fargo Bank, National Association, as lender. |
|
|
|
(31.1)
|
|
Certification of President and Chief Executive Officer pursuant to
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. |
|
|
|
(31.2)
|
|
Certification of Executive Vice President and 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 and Chief Executive Officer pursuant to
18 U.S.C. Section 1350. |
|
|
|
(32.2)
|
|
Certification of the Executive Vice President and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350. |
-18-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
LACROSSE FOOTWEAR, INC.
(Registrant)
|
|
Date: October 21, 2010 |
By: |
/s/ Joseph P. Schneider
|
|
|
|
Joseph P. Schneider |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Date: October 21, 2010 |
By: |
/s/ David P. Carlson
|
|
|
|
David P. Carlson |
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
-19-