-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BiNRsJfSDk56VVRCsdknK99mnTaN/tAoUFB/KWdEP4HPHVk7jlOHU3lkIfoe5VQH RJOkCy0IHZ8pQaV1efOvZQ== 0000897069-97-000153.txt : 19970329 0000897069-97-000153.hdr.sgml : 19970329 ACCESSION NUMBER: 0000897069-97-000153 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LACROSSE FOOTWEAR INC CENTRAL INDEX KEY: 0000919443 STANDARD INDUSTRIAL CLASSIFICATION: RUBBER & PLASTICS FOOTWEAR [3021] IRS NUMBER: 391446816 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23800 FILM NUMBER: 97566706 BUSINESS ADDRESS: STREET 1: 1319 ST ANDREW ST CITY: LACROSSE STATE: WI ZIP: 54603 BUSINESS PHONE: 6087823020 MAIL ADDRESS: STREET 1: 1319 ST ANDREW ST CITY: LA CROSSE STATE: WI ZIP: 54603 10-K 1 LACROSSE FOOTWEAR, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to _______________ Commission file number: 0-238001 LACROSSE FOOTWEAR, INC. (Exact name of registrant as specified in its charter) Wisconsin 39-1446816 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 11319 St. Andrew Street La Crosse, Wisconsin 54603 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (608) 782-3020 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class Common Stock, $.01 par value 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 X No __ 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 registrant's 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. [_] Aggregate market value of the voting stock held by nonaffiliates of the registrant at February 28, 1997: $34,343,988. Number of shares of the registrant's common stock outstanding at February 28, 1997: 6,667,627 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1996 (incorporated by reference into Parts I, II and IV) Portions of the Proxy Statement for 1997 Annual Meeting of Shareholders (to be filed with the Commission under Regulation 14A within 120 days after the end of the registrant's fiscal year and, upon such filing, to be incorporated by reference into Part III) PART I Item 1. Business General LaCrosse Footwear, Inc. ("LaCrosse" or the "Company") is a leader in the design, development, marketing and manufacturing of premium quality protective footwear and rainwear for the sporting, occupational and recreational markets. The Company markets its products primarily under the LACROSSE/R/, RED BALL/R/, RAINFAIR/R/ and DANNER/R/ brands through an employee sales force and, to a lesser extent, through selected distributors and independent representatives. It also manufactures private label footwear, footwear components and rainwear. LaCrosse's products are characterized by innovative design, performance features and durability, and are relatively unaffected by changing fashion trends. Historically, LaCrosse has produced footwear primarily of rubber or vinyl, some of which includes leather or fabric uppers. In March 1994, the Company acquired the business of Danner Shoe Manufacturing Co. ("Danner"), a producer of premium quality leather footwear for the sporting and occupational markets, which is sold primarily under the DANNER/R/ brand. To broaden the base of business in the protective clothing area, in May 1996, a 50%-owned subsidiary of the Company purchased the assets of Rainfair, Inc. ("Rainfair") of Racine, Wisconsin. Rainfair designs and markets rainwear and other protective clothing generally for the occupational markets, which are sold primarily under the RAINFAIR/R/ brand. Operations of Rainfair have been included in the Company's financial statements since the date of acquisition. Also in May 1996, the Company acquired certain operating assets and trademarks of Red Ball, Inc. ("Red Ball"). Red Ball historically sold products which competed in many of the same product categories as the LACROSSE/R/ brand. The Company was incorporated in Wisconsin in 1983 but traces its history to 1897 when La Crosse Rubber Mills Company was founded. Current management purchased LaCrosse's predecessor from the heirs of the founding family and other shareholders in 1982. Strategy The Company's business strategy is to continue to (i) build, position and capitalize on the strength of established brands, (ii) extend its offerings of footwear, rainwear and other complementary products under the established brands and (iii) expand and enhance its strong distribution network of sales representatives, customer service and retail and industrial customers. Brand Positioning Within the retail channels of distribution, the Company markets footwear and rainwear under the well-established DANNER/R/, LACROSSE/R/ and RED BALL/R/ brands. Each brand is positioned differently in the marketplace in order to capitalize on differences in end user expectations for performance. The DANNER/R/ brand represents the highest level of performance, with a select line of high quality, feature driven leather footwear products at premium prices. The LACROSSE/R/ brand has a more extensive product line including rubber, vinyl and leather footwear and rainwear, distributed to a broad base of independent retailers. The RED BALL/R/ brand offers a more narrow line of lower priced rubber/vinyl footwear directed to the brand conscious, mass merchant market. The Company sells products through the industrial distributor channel principally under the LACROSSE/R/ and RAINFAIR/R/ brands. The brands are positioned as complementary, with the LACROSSE/R/ brand including a full performance range of rubber and vinyl footwear, while the RAINFAIR/R/ brand includes a full line of rainwear and protective clothing. Products The Company's brand product offering includes these major categories: Rubber/Vinyl Footwear The Company's rubber/vinyl footwear line is the most extensive of the product categories with product offerings covering the sporting, recreational and occupational markets. The Company markets rubber/vinyl footwear mainly under the LACROSSE/R/ and RED BALL/R/ brands. The product line ranges from low cost vinyl-molded products to high performance, hand- crafted rubber products directed to specific occupational market niches. In addition, the Company is a leader in rubber/vinyl bottom, leather/fabric upper footwear for extreme cold and other high performance applications. A rubber bottom boot with a leather or fabric upper combines the waterproofness and flexibility of rubber footwear with the fit and support of a laced leather boot. Leather Footwear The Company markets leather footwear under two brand names, DANNER/R/ and LACROSSE/R/. The DANNER/R/ products consist of premium quality sporting, occupational and recreational boots available in numerous styles and usually featuring the stitch-down manufacturing process which provides outstanding built-in comfort for the owner. Danner was the first footwear manufacturer to include a waterproof, breathable GORE-TEX/R/ bootie in leather boots, and it continues to include that bootie in over 80% of its products. The LACROSSE/R/ brand markets a focused line of indoor and outdoor work boots appealing to consumers who desire durability and comfort. Rainwear and Protective Clothing Rainwear and footwear are complementary products in many occupational and outdoor environments. Rainfair offers a broad line of quality rainwear and protective clothing appealing to those workers in utility, construction, chemical processing, law enforcement and other groups traditionally purchasing through industrial distributors. While most of the garments are developed for general workwear, a number are constructed for specific applications such as acid environments and flame environments. The RAINFAIR/R/ brand is recognized in the industry for its durability, quality and heritage. In recent years, the brand name has been extended to include other protective garments such as aprons and extreme cold weather clothing. Recently, a limited line of occupational and sporting rainwear was introduced under the LACROSSE/R/ brand. LaCrosse also sells footwear accessories such as liners, wader suspenders and socks. During 1996, the Company offered approximately 400 styles of footwear and rainwear. Product Design and Development The Company's product design and development ideas originate within the Company and through communication with its customers and suppliers based upon perceived customer or consumer needs or new technological developments in footwear, rainwear and materials. Sales personnel and suppliers provide information to the Company's marketing division, which oversees the development and testing of new product. New product needs generally can be related to functional or technical characteristics which are addressed by the Company's pattern, design and chemistry lab staffs. The final aesthetics of the product are determined by marketing personnel, at times in conjunction with outside design consultants. Once a product design is approved for production, responsibility shifts to manufacturing for pattern development and commercialization. Customers, Sales and Distribution The Company markets its brands and associated products through two separate channels of distribution: retail and industrial. Within the retail market, the LACROSSE/R/ brand is marketed through a sales force comprised of 17 Company-employed sales people and four independent sales representative groups. The Company's preference is toward employee sales persons who are generally more focused and productive. Unless a territory can support a single brand sales person, the Company's strategy is to use the LaCrosse sales force to represent the brand providing cost leverage and better service levels. The LaCrosse sales force currently represents the DANNER/R/ brand in all but one territory and the RED BALL/R/ brand in all but four territories. The Company's industrial products are distributed through both independent representatives and, where the territory justifies it, through Company employed sales persons. With the addition of Rainfair during 1996, sales representation for territories covering approximately 50% of the industrial sales for Rainfair have been combined with the LaCrosse representation. The Company's products are sold directly to more than 5,500 accounts, including sporting goods/outdoor retailers, general merchandise and independent shoe stores, wholesalers, industrial distributors, catalog operations and the United States government. The Company's customer base is also diversified as to size and location of customer and markets served. As a result, the Company is not dependent upon a few customers, and adverse economic conditions or mild or dry weather conditions in a specific region are less likely to have a material effect on the Company's results of operations. The Company operates three factory outlet stores whose primary purpose is disposal of slow moving, factory seconds and obsolete merchandise. Two of these stores are located at the manufacturing facilities in La Crosse, Wisconsin and Portland, Oregon. The Company also derives royalty income from Danner Japan Ltd., a Japanese joint venture in which the Company has a 10% ownership interest, on Danner Japan Ltd.'s distribution of products in Japan under the DANNER/R/ brand that are manufactured by others overseas. Advertising and Promotion Because a majority of the Company's marketing expenditures are for promotional materials, cooperative advertising and point-of-sale advertising designed to assist dealers and distributors in the sale of the Company's products, the Company is able to customize advertising and marketing in each of its distribution channels. The Company's marketing strategy allows it to emphasize those features of its products that have special appeal to the applicable distribution channel. The Company advertises and promotes its products through a variety of methods including national and regional print advertising, public relations, point-of-sale displays, catalogs and packaging. Manufacturing Traditionally, the Company has produced substantially all of its rubber, leather and vinyl products in its United States manufacturing facilities in La Crosse, Wisconsin, Portland, Oregon and Claremont, New Hampshire. Liners are produced at the Company's Hillsboro, Wisconsin facility. The Hillsboro facility also manufactures a line of waders with nylon uppers and rubber or vinyl boot bottoms, using a heat-sealing process. Leather tops for the LACROSSE/R/ brand rubber bottom/leather top pac boots are produced at the Company's Clintonville, Wisconsin facility. The Company manufactures a majority of its footwear in the United States because the Company believes it is able to maintain better control over quality, inventory production scheduling and inventory levels. "Made in the USA" is prominently displayed in the Company's advertising, promotion and marketing materials for the LACROSSE/R/ and DANNER/R/ brands. Both the RAINFAIR/R/ and RED BALL/R/ brands, which the Company started distributing during 1996, source a substantial portion of their product offshore, primarily in the Dominican Republic and Pacific Rim. The Company intends to continue to outsource these products. The Company believes that there are adequate sources of supply for these imported products. Suppliers The Company's three principal raw materials used in the production of the Company's products, based upon dollar value, are leather, crude rubber and oil-based vinyl compounds for vinyl footwear and rainwear products. While the Company saw price increases during 1995 for all three of these raw materials, prices have since stabilized at lower levels and the Company has no reason to believe that all three of these raw materials will not continue to be available at competitive prices. The Company also uses technical components in the Company's products including THINSULATE/R/, GORE-TEX/R/, CORDURA/R/, DRI-LEX/R/, POLARTEC/R/ and VIBRAM/R/. No interruption in the supply of any of these components is anticipated. The Company purchases GORE-TEX/R/ waterproof fabric directly from W.L. Gore & Associates ("Gore"), for both LaCrosse and Danner footwear. Gore has traditionally been Danner's single largest supplier, in terms of dollars spent on raw materials. Approximately 80% of Danner's footwear, in terms of number of pairs produced, incorporates GORE-TEX/R/ waterproof fabric. Agreements with Gore prohibit the Company, directly and through Danner, from manufacturing any products containing any taped waterproof, breathable products other than GORE-TEX/R/ products during the term of the agreements. These agreements with Gore may be terminated by either party upon 90 days' written notice. The Company considers its relationships with Gore to be good. Effective January 1, 1997, the majority of Danner's GORE-TEX/R/ footwear is guaranteed to be waterproof for one year from the date of purchase compared to two years previously. Quality Assurance The Company's quality control programs are important to its reputation for manufacturing superior footwear. In 1991, the Company initiated a formal continuous quality improvement program at the La Crosse plant. This total quality management (TQM) program is directed at involving employees to participate in assuring the highest practicable level of efficiency in production and product quality. The Company's La Crosse plant has a chemistry lab which is responsible for incoming raw material and in-process quality testing. All crude rubber is tested to assure that each batch meets the high values specified by the Company for range of plasticity and rate of cure, both of which have a direct relationship to the ultimate quality of the product. Fabrics are sample tested to meet LaCrosse's requirements for strength and weight. Incoming leather skins are inspected for color, brand and weight. The Company's Danner operation tests 100% of all GORE-TEX/R/ bootie liners for leaks prior to sewing them into boots. At least 18% of all completed waterproof boots are filled with water for testing. Leather is tested for lasting ability, tear strength, finish and thickness. Backlog At December 31, 1996, the Company had unfilled orders from its customers in the amount of approximately $15.8 million compared to $7.9 million at December 31, 1995. Approximately $6.0 million of the increase was due to the addition of the Rainfair and Red Ball product lines. All orders at December 31, 1996 are expected to be filled during 1997. Because a major portion of the Company's orders are placed in January through July for delivery in June through October, the Company's backlog is lowest during the fourth quarter and peaks during the second quarter. Factors other than seasonality, such as pending large national account orders or United States government orders, could have a significant impact on the Company's backlog. Therefore, backlog at any one point in time may not be indicative of future results. Generally, orders may be cancelled by customers prior to shipment without penalty. Competition The various categories of the protective footwear, rainwear and protective clothing markets in which the Company operates are highly competitive. The Company competes with numerous other manufacturers, many of whom have substantially greater financial, distribution and marketing resources than the Company. Because the Company has a broad product line, its competition varies by product category. The Company has two to three major domestic competitors in most of its rubber and vinyl product lines, at least four major competitors in connection with the Company's sporting footwear, at least six major competitors in connection with hiking boots and at least four major competitors in connection with its occupational footwear, rainwear and protective clothing. The Company also faces competition from offshore manufacturers, particularly in the occupational and children's markets. LaCrosse believes it maintains a competitive position compared to its competitors who sell rubber and vinyl footwear through its attention to quality and the delivery of value, its position as an innovator in common product segments, its above-average record of delivering products on a timely basis, its strong customer relationships and, in some cases, the breadth of its product line. Some of the Company's competitors compete mainly on the basis of price. Offshore manufacturers face significantly lower labor costs to produce rubber and vinyl products. However, shipping costs and times, requirements for short runs on some items, and unpredictable weather patterns that would force offshore manufacturers or their distributors to store large inventories in the United States to be able to meet sudden increases in demand are some disadvantages the offshore manufacturers face. Further, because the manufacturing process for vinyl footwear products is much less labor intensive than for rubber footwear, lower offshore labor rates are less of a competitive advantage in the production of vinyl footwear. Moreover, the Company's vinyl footwear products enable the Company to compete more effectively against offshore manufacturers of rubber footwear. Leather boot manufacturers and suppliers, some of which have strong brand name recognition in the markets they serve, are the major competitors of the Company's Danner product line. These competitors manufacture domestically and/or import products from offshore. Danner products effectively compete with domestically produced products, but are generally at a price disadvantage against lower cost imported products, because offshore manufacturers generally pay significantly lower labor costs. The Company focuses on the premium quality, premium price segment of the market in which product function, design, comfort and quality, continued technological improvements, brand awareness, timeliness of product delivery and product pricing are all important. The Company believes, by attention to these factors, the Danner protective footwear line has maintained a strong competitive position in its current market niches. Employees As of December 31, 1996, the Company had approximately 1,400 employees, all located in the United States. Approximately 550 of the Company's employees at the La Crosse, Wisconsin facility are represented by the United Steel Workers of America under a three-year collective bargaining agreement which expires in October 1998, approximately 180 of the Company's employees at the Portland, Oregon facility are represented by the United Food & Commercial Workers Union under a collective bargaining agreement which expires in January 1999 and approximately 60 of the Company's employees at the Racine, Wisconsin facility are represented by the International Ladies Garment Workers Union under a collective bargaining agreement which expires in July 1997. The Company has approximately 350 employees at manufacturing facilities located outside of La Crosse, Wisconsin, Portland, Oregon and Racine, Wisconsin. None of these employees are represented by a union. The Company considers its employee relations to be good. Trademarks and Trade Names; Patents The Company owns United States federal registrations for several of its marks, including LACROSSE/R/, DANNER/R/, RED BALL/R/, LACROSSE and stylized Indianhead design that serve as the Company's logo, ALLTEMP/R/, DURALITE/R/, FIRETECH/R/, FLY-LITE/R/, ICE KING/R/, ICECUBE/R/, ICEMAN/R/, AIRTHOTIC/R/, CROSS-HIKER/R/and RED BALL JETS/R/. LaCrosse also has registrations for the "L" shape design associated with the lacing system on the Alltemp Boot Systems, and the stylized Indianhead design associated with the Company's logo. In addition, the Company owns registrations in Canada for its marks ALLTEMP/R/, ICEMAN/R/ and stylized Indianhead design and in Mexico for its mark LACROSSE and stylized Indianhead design. The Company's 50%-owned subsidiary, Rainfair, also owns United States federal registrations for certain of its marks, including RAINFAIR/R/ and RAINFAIR and stylized horse design that serve as Rainfair's logo, and owns a registration in Canada for its mark AIRBOB/R/. The Company generally attempts to register a trademark relating to a product's name only where the Company intends to heavily promote the product or where the Company expects to sell the product in large volumes. The Company defends its trademarks and trade names against infringement to the fullest extent practicable under the law. Other than registrations relating to the LACROSSE/R/, DANNER/R/, RED BALL/R/ and RAINFAIR/R/ names, the Company does not believe any trademark is material to its business. The Company pays a royalty on sales of products carrying the DANNER/R/ name equal to 0.5% of the price of products sold that applies to net sales in excess of $4.0 million annually. The royalty agreement expires December 31, 1998. The Company is not aware of any material conflicts concerning its marks or its use of marks owned by other companies. The Company owns several patents that improve its competitive position in the marketplace, including patents for a cold cement process for affixing varying outsole compositions to a rubber upper; a method of manufacture for attaching a nylon upper to a rubber bottom; a rubber footwear product in which a heel counter is trapped or embedded within the rubber boot to improve the support provided to the wearer's foot; the DANNER BOB/R/ outsole; and a patent for its AIRTHOTIC/R/, which is a ventilated arch support that fits under the heel. Seasonality As has traditionally been the case, the Company's sales in 1996 were higher in the last two quarters of the year than in the first two quarters. The Company expects this sales trend to continue. Additional information about the seasonality of the Company's business is contained under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Overview" on page 13 of the Company's 1996 Annual Report to Shareholders and such information is hereby incorporated herein by reference. Foreign Operations and Export Sales Other than the Company's 10% equity interest in Danner Japan, Ltd., the Company does not have any foreign operations. International sales accounted for less than 5% of the Company's net sales in 1996. Environmental Matters The Company and the industry in which it competes 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. The Company's policy is to comply with all applicable environmental, health and safety laws and regulations. These laws and regulations are constantly evolving and it is difficult to predict accurately the effect they will have on the Company in the future. Compliance with applicable environmental regulations and controls has not had, nor are they expected to have in 1997, any material impact on the capital expenditures, earnings or competitive position of the Company. During 1995 and 1996, the Company spent approximately $250,000 to cure an air emission problem cited by the Wisconsin Department of Natural Resources. During 1996, the Company received a letter from the Wisconsin Department of Natural Resources indicating that the Company was in compliance. While changes in manufacturing procedures required as a result of the citation increased ongoing costs approximately $150,000 per year, the Company believes it has the potential to reduce these ongoing costs through changes in manufacturing procedures. Executive Officers of the Registrant The following table sets forth certain information, as of March 15, 1997, regarding the executive officers of the Company. Name Age Position George W. Schneider 74 Chairman of the Board and Director Frank J. Uhler, Jr. 66 Vice Chairman of the Board and Director Patrick K. Gantert 47 President, Chief Executive Officer and Director Eric E. Merk, Sr. 54 Vice President - Danner and Director Wayne L. Berger 50 Vice President - Purchasing Stephen F. Bonner 43 Vice President - Claremont Operations Kenneth F. Ducke 53 Treasurer and Assistant Secretary Joseph F. Fahey 42 Vice President - Retail Sales and Marketing D. Keith Fell 45 Vice President - Operations Peter V. Fiorini 59 Vice President - Industrial Sales David R. Flaschberger 38 Vice President - Human Resources David R. Llewellyn 59 Vice President - Marketing and Business Development Robert G. Rinehart, Jr. 44 Vice President - Product Development Joseph P. Schneider 37 Vice President of the Company and Executive Vice President and Chief Operating Officer of Danner Robert J. Sullivan 50 Vice President - Finance and Administration and Chief Financial Officer John A. Tadewald 58 Vice President - Engineering George W. Schneider was elected to the Board of Directors of the Company's predecessor in 1968 and was the principal investor and motivating force behind the management buyout of the Company's predecessor in 1982. Since 1982, Mr. Schneider also has served as Chairman of the Board of the Company. Frank J. Uhler, Jr., has served as Vice Chairman of the Board of the Company since December 31, 1994 and as a director since he joined the Company in June 1978. From June 1978 until 1982, Mr. Uhler served as President and from 1982 until December 31, 1994 he served as President and Chief Executive Officer of the Company. Along with Mr. George W. Schneider, Mr. Uhler was the other principal member of the management group that acquired the Company's predecessor in 1982. Patrick K. Gantert has served as President, Chief Executive Officer and as a director of the Company since December 31, 1994. Prior thereto, Mr. Gantert served as Executive Vice President and Chief Operating Officer of the Company since August 1993 and as Executive Vice President since June 1992. From March 1985, when he joined the Company, until June 1992, Mr. Gantert was Vice President-Finance. Eric E. Merk, Sr. has served as Vice President - Danner and as a director of the Company since the March 1994 completion of the Danner acquisition. Prior to joining the Company, Mr. Merk was a significant shareholder and President of Danner since purchasing Danner in 1983. Wayne L. Berger joined the Company in 1974 and has held various positions in finance and administration since that time. In June 1988, Mr. Berger was elected Vice President - Purchasing. Stephen F. Bonner joined the Company in 1983 and has held various positions in manufacturing since that time. In June 1991, Mr. Bonner was elected Vice President - Claremont Operations. Kenneth F. Ducke joined the Company in 1974 and has held various positions in finance and administration since that time. In 1982, Mr. Ducke was elected Treasurer and Assistant Secretary. Joseph F. Fahey has served as Vice President - Retail Sales and Marketing since he joined the Company in October 1996. From 1993 until 1996, Mr. Fahey served as Vice President of Sales and Marketing for Stihl, Incorporated, a manufacturer of premium hand-held power equipment and from 1988 through 1993, Mr. Fahey was the Manager of Dealer Development and Research for the Power Equipment Division of American Honda Motor Company. D. Keith Fell has served as Vice President - Operations since he joined the Company in March 1996. From May 1994 until August 1995, Mr. Fell was Vice President of Manufacturing for Traco, Inc., a manufacturer of commercial windows and doors, from October 1993 until May 1994, he was Vice President of Manufacturing for Hedstrom Corporation, a manufacturer of outdoor play equipment, and from September 1990 until October 1993, Mr. Fell was Director of Manufacturing for Hedstrom. Peter V. Fiorini has served as Vice President - Industrial Sales since he joined the Company in July 1991. From 1975 until joining the Company, Mr. Fiorini was general manager of the Ranger Rubber Company division of Endicott Johnson Shoe Company, Inc. David R. Flaschberger joined the Company in May 1993 as Human Resources Manager. He served in such capacity until November 1995, when he was elected Vice President - Human Resources. From 1990 until joining the Company, Mr. Flaschberger was the Director of Human Resources of The Company Store, Inc., a direct mail marketer and manufacturer of down- filled bedding products. David R. Llewellyn has served as Vice President - Marketing and Business Development since he joined the Company in April 1994. From 1989 until joining the Company, Mr. Llewellyn was an independent marketing and business consultant. Robert G. Rinehart, Jr. joined the Company in January 1990 as a territory salesperson. In July 1991, Mr. Rinehart was appointed as the National Accounts Manager. He served in such capacity until October 1992, when he was appointed Senior Marketing Manager, and in March 1994 he was elected Vice President - Product Development. Joseph P. Schneider joined the Company in 1986 as a territory sales manager and in January 1990 was appointed as the National Accounts Manager. From May 1991 until January 1993, Mr. Schneider served as the National Sales Manager and from January 1993 until June 1996 he was Vice President - Retail Sales. In June 1996, Mr. Schneider was elected as a Vice President of the Company and as Executive Vice President and Chief Operating Officer of Danner. Robert J. Sullivan joined the Company in November 1992 as Manager of Finance and Administration, was elected Vice President - Finance and Administration in March 1994 and was given the additional title of Chief Financial Officer in March 1997. From 1987 until joining the Company, Mr. Sullivan was Vice President-Finance of Skipperliner Industries, Inc., a manufacturer of houseboats. John A. Tadewald has served as Vice President - Engineering since he joined the Company in October 1987. From 1963 until joining the Company, Mr. Tadewald held engineering positions with several industrial companies. Joseph P. Schneider is the son of George W. Schneider. None of the other directors or executive officers are related to each other. The term of office of each of the executive officers expires at the annual meeting of directors. Item 2. Properties The following table sets forth certain information, as of December 31, 1996, relating to the Company's principal facilities. Properties Owned Approximate or Floor Area in Principal Location Leased Square Feet Uses La Crosse, WI Leased(1) 6,600 Principal sales, marketing and executive offices La Crosse, WI Owned 400,000 Manufacture rubber boots La Crosse, WI Leased(2) 290,000 Main warehouse and distribution facility La Crosse, WI Owned 11,000 Retail outlet store La Crosse, WI Leased(3) 42,000 Warehouse and raw material storage Clintonville, WI Owned 42,500 Manufacture leather components and construct rubber boots Clintonville, WI Leased 11,000 Manufacture component parts Clintonville, WI Leased 4,000 Warehouse and raw material storage Hillsboro, WI Leased(4) 40,000 Manufacture component parts Kenosha, WI Leased 3,000 Retail outlet store Claremont, NH Owned 150,000 Manufacture vinyl injection-molded products Claremont, NH Leased(5) 53,000 Warehouse and distribution facility Portland, OR Leased(6) 36,000 Manufacture DANNER/R/ products, offices, retail outlet store and warehouse space Portland, OR Leased(7) 16,000 Warehouse and distribution facility Racine, WI Leased(8) 104,700 Manufacturing, warehousing and offices for Rainfair _________________________ (1) This space is leased in a 212,000 square foot building adjacent to the Company's manufacturing plant in La Crosse, Wisconsin. The lease expires in 1997 but management anticipates entering into a long-term lease for the entire facility during 1997. The additional space will be utilized to replace warehouse space which is currently leased and/or to provide additional manufacturing capacity. (2) The lease for 183,000 square feet of this facility expires in 2000. The Company leases the balance of the space on short-term leases. (3) This facility is leased by the Company in La Crosse, Wisconsin on a short-term lease. (4) There are two facilities leased by the Company in Hillsboro, Wisconsin with approximately 40,000 square feet. (5) The lease of this facility expires in 1998. This space is leased in a facility adjacent to the Company's manufacturing plant in Claremont, New Hampshire. (6) The lease for this facility expires in March 2004, but the Company has the option to extend the term for up to an additional ten years. The lease includes approximately one acre of adjacent vacant property that could be used for expansion. Eric E. Merk, Sr., a director, executive officer and shareholder of the Company, is affiliated with the lessor of this facility. (7) The lease for this facility expires in December 1997. (8) The lease for this facility was entered into in May 1996 and expires in May 2001. Based on present plans, management believes that the Company's current facilities will be adequate to meet the Company's anticipated needs for production of LaCrosse products for at least the next two years. Once the manufacturing facilities have reached capacity, the Company can expand further by leasing or purchasing facilities or by outsourcing some components. Item 3. Legal Proceedings In November 1993, the Company, in order to preserve its legal rights, instituted litigation against the United States Government in the United States Court of Federal Claims ("USCFC") seeking a refund of amounts previously paid to the Internal Revenue Service ("IRS") relating to the Company's treatment of its LIFO inventory stemming from the Company's 1982 leveraged buyout. If the Government prevails in this litigation, the IRS has indicated an intention to assess the Company for additional tax, penalties, interest and other amounts for prior periods as a result of recalculating the Company's LIFO inventory reserve. The Company is not currently in a position to predict the outcome of the USCFC litigation. However, a recent decision of the USCFC in another case (Kohler Co. vs. United States, Case No. 94-628T, November 3, 1995) supports the principal positions taken by the IRS and the Government in the USCFC litigation. The Company believes that its total current exposure to the IRS with respect to this matter is not material to the Company's financial position or results of operations. From time to time, the Company, in the normal course of business, is also involved in various other claims and legal actions arising out of its operations. The Company does not believe that the ultimate disposition of any currently pending claims or actions would have a material adverse effect on the Company or its financial condition. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of shareholders during the quarter ended December 31, 1996. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The portions of page 28 which describe the market for and dividends declared on the Company's Common Stock and Note 5 of Notes to Consolidated Financial Statements which describe restrictions on dividends and which are contained in the Company's 1996 Annual Report to Shareholders are hereby incorporated herein by reference in response to this Item. Item 6. Selected Financial Data The information set forth in the table on page 12 of the Company's 1996 Annual Report to Shareholders under the caption "Five Year Summary of Selected Financial Data" is hereby incorporated herein by reference in response to this Item. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information set forth on pages 13 through 16 in the Company's 1996 Annual Report to Shareholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" is hereby incorporated herein by reference in response to this Item. Item 8. Financial Statements and Supplementary Data The consolidated statements of income, common shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, and the related consolidated balance sheets of the Company as of December 31, 1996 and 1995, together with the related notes thereto and the independent auditor's report, and the Company's unaudited quarterly results of operations for the two-year period ended December 31, 1996, all set forth on pages 17 through 28 of the Company's 1996 Annual Report to Shareholders, are hereby incorporated herein by reference in response to this Item. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The information required by this Item with respect to directors and Section 16 compliance is included under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance", respectively, in the Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders ("Proxy Statement") and is hereby incorporated herein by reference. Information with respect to the executive officers of the Company appears in Part I, pages 9 through 12, of this Annual Report on Form 10-K. Item 11. Executive Compensation The information required by this Item is included under the captions "Board of Directors-Director Compensation" and "Executive Compensation" in the Proxy Statement and is hereby incorporated herein by reference; provided, however, that the subsection entitled "Executive Compensation- Report on Executive Compensation" shall not be deemed to be incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item is included under the caption "Principal Shareholders" in the Proxy Statement and is hereby incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information required by this Item is included under the captions "Certain Transactions" and "Executive Compensation-Compensation Committee Interlocks and Insider Participation" in the Proxy Statement and is hereby incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial statements - The financial statements listed in the accompanying index to financial statements and financial statement schedules are incorporated by reference in this Annual Report on Form 10-K. 2. Financial statement schedules - The financial statement schedules listed in the accompanying index to financial statements and financial statement schedules are filed as part of this Annual Report on Form 10-K. 3. Exhibits - The exhibits listed in the accompanying index to exhibits are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1996. 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 27th day of March, 1997. LACROSSE FOOTWEAR, INC. By /s/ Patrick K. Gantert Patrick K. Gantert 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/ George W. Schneider Chairman of the Board and March 27, 1997 George W. Schneider Director /s/ Patrick K. Gantert President, Chief Executive March 27, 1997 Patrick K. Gantert Officer and Director (Principal Executive Officer) /s/ Robert J. Sullivan Vice President-Finance and March 27, 1997 Robert J. Sullivan Administration (Principal Financial Officer) /s/ Frank J. Uhler, Jr. Vice Chairman of the Board March 27, 1997 Frank J. Uhler, Jr. and Director /s/ Eric E. Merk, Sr. Vice President-Danner and March 27, 1997 Eric E. Merk, Sr. Director /s/ Richard A. Rosenthal Director March 27, 1997 Richard A. Rosenthal /s/ Virginia F. Schneider Director March 27, 1997 Virginia F. Schneider /s/ Luke E. Sims Director March 27, 1997 Luke E. Sims INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page Annual Report Form 10-K to Shareholders Consolidated Balance Sheets at December 31, 1996 and 1995 - 17 Consolidated Statements of Income for each of the three years in the period ended December 31, 1996 - 18 Consolidated Statements of Common Shareholders' Equity for each of the three years in the period ended December 31, 1996 - 19 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1996 - 20 Notes to Consolidated Financial Statements - 21-26 Independent Auditor's Report - 27 Independent Auditor's Report on Financial Statement Schedule 21 - Financial Statement Schedule: II - Valuation and Qualifying Accounts 22-23 - 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. INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders LaCrosse Footwear, Inc. La Crosse, Wisconsin Our audits 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 Commission's rules and is 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 and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. McGLADREY & PULLEN, LLP La Crosse, Wisconsin February 3, 1997 LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions Balance at Balance Beginning Charged To Costs Charged To at End Description of Period and Expenses Other Accounts Deductions of Period Year ended December 31, 1994: Accounts receivable allowances: Allowance for returns $ 249,000 $ 915,141 $ -- $ 925,141 $ 239,000 Allowance for cash discounts 96,000 811,603 -- 795,603 112,000 Allowance for doubtful accounts 294,000 137,440 45,000 139,440 337,000 Allowance for uncollectible interest 30,438 86,397 -- 86,461 30,374 ---------- ------------- ------------ ----------- ---------- Total $ 669,438 $ 1,950,581 $ 45,000 $ 1,946,645 $ 718,374 ========== ============= ============ =========== ========== Inventory allowances: Allowance for obsolescence $ 420,000 $ 9,500 $ -- $ 29,500 $ 400,000 ========== ============= ============ =========== ========== Warranty allowance: Allowance for warranties $ -- $ 585,137 $ 555,437 $ 353,574 $ 787,000 ========== ============= ============ =========== ========== Year ended December 31, 1995: Accounts receivable allowances: Allowance for returns $ 239,000 $ 762,470 $ -- $ 721,470 $ 280,000 Allowance for cash discounts 112,000 644,486 -- 642,486 114,000 Allowance for doubtful accounts 337,000 168,068 -- 123,368 381,700 Allowance for uncollectible interest 30,374 85,729 -- 78,543 37,560 ---------- ------------ ------------ ---------- --------- Total $ 718,374 $ 1,660,753 $ -- $ 1,565,867 $ 813,260 ========== ============ ============ ========== ========= Inventory allowances: Allowance for obsolescence $ 400,000 $ 718,224 $ -- $ 304,796 $ 813,428 ========== ============ ============ ========== ========= Warranty allowance: Allowance for warranties $ 787,000 $ 856,706 $ -- $ 803,706 $ 840,000 ========== ============ ============ ========== ========= Year ended December 31, 1996: Accounts receivable allowances: Allowance for returns $ 280,000 $ 1,234,556 $ -- $ 947,556 $ 567,000 Allowance for cash discounts 114,000 90,496 -- 15,496 189,000 Allowance for doubtful accounts 381,700 167,655 335,000 178,855 705,500 Allowance for uncollectible interest 37,560 92,268 -- 84,026 45,802 ---------- ----------- ---------- ---------- ---------- Total $ 813,260 $ 1,584,975 $ 335,000 $ 1,225,933 $1,507,302 ========== =========== ========== ========== ========== Inventory allowances: Allowance for obsolescence $ 813,428 $ 272,904 350,000 $ 235,332 $1,201,000 ========== =========== ========== ========== ========== Warranty allowance: Allowance for warranties $ 840,000 $ 1,057,730 $ -- $ 972,730 $ 925,000 ========== =========== ========== ========== ========== The accounts receivable and inventory allowances above were deducted from the applicable asset account.
EXHIBIT INDEX Sequential Exhibit Page Number Exhibit Description Number (2.1) Asset Purchase Agreement, dated as of -- February 11, 1994, between LaCrosse Footwear, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (2) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33- 75534)] (2.2) Asset Purchase Agreement, dated May 16, 1996, -- by and among Rainco, Inc., LaCrosse Footwear, Inc., Rainfair, Inc. and Craig L. Leipold [Incorporated by reference to Exhibit (2.1) to LaCrosse Footwear, Inc.'s Current Report on Form 8-K dated May 31, 1996 and filed June 14, 1996] (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) By-Laws of LaCrosse Footwear, Inc., as -- amended to date [Incorporated by reference to Exhibit (3.2) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (4.1) Credit Agreement, dated as of May 31, 1996, -- by and among LaCrosse Footwear, Inc., Firstar Bank Milwaukee, N.A., The Northern Trust Company, Harris Trust and Savings Bank and Firstar Bank Milwaukee, N.A., as Agent for the Banks [Incorporated by reference to Exhibit (4.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 29, 1996] (4.2) Note Purchase Agreement, dated as of June 1, -- 1990, between LaCrosse Footwear, Inc. and Teachers Insurance and Annuity Association of America [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (4.3) Assignment and Assumption Agreement, dated as -- of October 7, 1994, between LaCrosse Footwear, Inc. and LaCrosse Products, Inc. [Incorporated by reference to Exhibit (10.2) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended October 1, 1994] (4.4) Amendment to Note Purchase Agreement, dated -- as of October 7, 1994, between LaCrosse Footwear, Inc. and Teachers Insurance and Annuity Association of America [Incorporated by reference to Exhibit (10.3) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10- Q for the quarter ended October 1, 1994] (9) Voting Trust Agreement, dated as of June 21, -- 1982, as amended [Incorporated by reference to Exhibit (9) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.1) Lease, dated as of January 7, 1991, between -- LaCrosse Footwear, Inc. and Central States Warehouse, Inc. [Incorporated by reference to Exhibit (10.2) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.2) Amendment, dated as of June 29, 1995, to -- Lease between LaCrosse Footwear, Inc. and Central States Warehouse, Inc. [Incorporated by reference to Exhibit (10.2) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995] (10.3) Lease, dated as of December 19, 1994, between -- Danner Shoe Manufacturing Co. and Specht Development, Inc. [Incorporated by reference to Exhibit (10.2) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (10.4)* Employment and Consulting Agreement, dated as -- of October 1, 1990 and as amended as of October 31, 1992, between Frank J. Uhler, Jr. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.4) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.5)* Amendment No. 1, dated as of December 31, -- 1994, to Employment and Consulting Agreement between Frank J. Uhler, Jr. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.5) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (10.6)* Phantom Stock Agreement, dated as of -- October 31, 1992, and amended as of December 20, 1993, between Frank J. Uhler, Jr. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.5) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.7)* Amendment No. 1, dated as of December 31, -- 1994, to Phantom Stock Agreement between Frank J. Uhler, Jr. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.7) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (10.8)* Employment Agreement, dated as of July 1, -- 1992, and amended as of May 28, 1993, between Patrick K. Gantert and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.8) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (10.9)* Employment Agreement, dated as of March 14, -- 1994, between LaCrosse Footwear, Inc. and Eric E. Merk, Sr. [Incorporated by reference to Exhibit (10.12) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.10)* Amendment No. 1, dated as of June 1, 1995, to -- Employment Agreement between LaCrosse Footwear, Inc. and Eric E. Merk, Sr. [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1995] (10.11)* Employment Agreement, dated as of June 9, -- 1994, between David Llewellyn and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 2, 1994] (10.12)* LaCrosse Footwear, Inc. Deferred Compensation -- Plan for Key Employees [Incorporated by reference to Exhibit (10.14) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.13)* LaCrosse Footwear, Inc. Deferred Compensation -- Plan for Directors [Incorporated by reference to Exhibit (10.15) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.14)* 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)] (10.15)* 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)] (10.16)* 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)] (10.17)* LaCrosse Footwear, Inc. 1997 Employee Stock Incentive Plan (10.18) Agreement, dated as of October 2, 1995, -- between Local No. 14, United Steel Workers of America (AFL-CIO-CLC) and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.20) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995] (10.19) Lease, dated as of March 14, 1994, between -- Jepco Development Company 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)] (10.20) Manufacturing Certification Agreement, dated -- as of October 19, 1993, between W.L. Gore & Associates, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.23) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.21) Trademark License, dated as of October 19, -- 1993, between W.L. Gore & Associates, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.24) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33- 75534)] (10.22) Registration Rights Agreement, dated as of -- March 14, 1994, between LaCrosse Footwear, Inc., Danner Shoe Manufacturing Co. and the shareholders of Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.25) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33- 75534)] (10.23) Guarantee Agreement, dated as of March 14, -- 1994, between LaCrosse Footwear, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.26) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.24) Form of Indemnification and Investment -- Agreement to be entered into between LaCrosse Footwear, Inc. and the shareholders of Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.27) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.25) Shareholders' Agreement dated as of May 31, -- 1996 by and between Craig L. Leipold, LaCrosse Footwear, Inc. and Rainco, Inc. [Incorporated by reference to Exhibit (2.2) to LaCrosse Footwear, Inc.'s Current Report on Form 8-K dated May 31, 1996 and filed June 14, 1996] (13) Portions of the 1996 Annual Report to Shareholders that are incorporated by reference herein (21) List of subsidiaries of LaCrosse Footwear, Inc. (23) Consent of McGladrey & Pullen, LLP (27) Financial Data Schedule (EDGAR version only) (99) Proxy Statement for the 1997 Annual Meeting -- of Shareholders [The Proxy Statement for the 1997 Annual Meeting of Shareholders will be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the Company's fiscal year. Except to the extent specifically incorporated by reference, the Proxy Statement for the 1997 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.] * A management contract or compensatory plan or arrangement. EX-10.17 2 1997 EMPLOYEE STOCK INCENTIVE PLAN EXHIBIT (10.17) LACROSSE FOOTWEAR, INC. 1997 EMPLOYEE STOCK INCENTIVE PLAN (1) Establishment. LACROSSE FOOTWEAR, INC. (the "Company") hereby establishes a stock incentive plan for certain officers and other key employees, as described herein, which shall be known as the "LACROSSE FOOTWEAR, INC. 1997 EMPLOYEE STOCK INCENTIVE PLAN" (the "Plan"). It is intended that stock options (including both incentive stock options and nonstatutory stock options) may be granted under the Plan. (2) Purpose. The purpose of the Plan is to induce certain officers and other key employees to remain in the employ of the Company or its subsidiaries and to encourage such employees to secure or increase on reasonable terms their stock ownership in the Company. The Board of Directors of the Company (the "Board") believes that the Plan will promote continuity of management and increased incentive and personal interest in the welfare of the Company by those who are primarily responsible for shaping and carrying out the long-range plans of the Company and securing its continued growth and financial success. (3) Effective Date of the Plan. The effective date of the Plan is the date of its adoption by the Board, November 22, 1996, subject to the approval and ratification of the Plan by the shareholders of the Company within twelve months of the effective date, and any and all awards made under the Plan prior to such approval shall be subject to such approval. (4) Stock Subject to Plan. Subject to adjustment in accordance with the provisions of Section 8, common stock, $.01 par value per share, not to exceed 300,000 shares, may be issued pursuant to the Plan. Such shares may be authorized and unissued or treasury shares. If any options expire, are canceled, or terminate for any reason without having been exercised in full, the shares subject to the unexercised portion thereof shall again be available for the purposes of the Plan. (5) Administration. The Plan shall be administered by the Board and/or the Compensation Committee (the "Committee") of the Board consisting of not less than two directors, each of whom shall qualify as a "non-employee director" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor rule or regulation, and an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulation Section 1.162-27 promulgated thereunder. If at any time the Committee shall not be in existence or not consist of directors who are qualified as"non-employee directors" and "outside directors" as defined above, the Board shall administer the Plan. To the extent permitted by applicable law, the Board may, in its discretion, delegate to another committee of the Board or to one or more senior officers of the Company any or all of the authority and responsibility of the Committee with respect to options to participants other than participants who are subject to the provisions of Section 16 of the Exchange Act ("Section 16 Participants"). To the extent that the Board has delegated to such other committee or one or more officers the authority and responsibility of the Committee, all references to the Committee herein shall include such other committee or one or more officers. The Committee and the Board each shall have authority to grant stock options ("Awards") to eligible employees of the Company and its present and future subsidiaries under the Plan. Subject to the express provisions of the Plan, the Committee and the Board each shall have authority to establish such rules and regulations as they deem necessary or advisable for the proper administration of the Plan, and, in their discretion, to determine the individuals to whom, and the time or times at which Awards shall be granted, the type of Awards, the exercise periods, limitations on exercise, the number of shares to be subject to each Award and any other terms, limitations, conditions and restrictions on Awards as the Committee or the Board, in its discretion, deems appropriate; provided, however, that the maximum number of shares, subject to adjustment in accordance with the provisions of Section 8, subject to Award that any one Participant (as hereinafter defined in Section 6 hereof) can be granted under the Plan during its term is 125,000. In making such determinations, the Committee and the Board may take into account the nature of the services rendered by the respective employees, their present and potential contributions to the success of the Company or its subsidiaries, and such other factors as the Committee or the Board in its discretion shall deem relevant. Subject to the express provisions of the Plan, the Committee and the Board each shall also have authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective Award agreements (which need not be identical), to waive any conditions or restrictions with respect to any Award and to make all other determinations necessary or advisable for the administration of the Plan. The Committee and Board determinations on the matters referred to in this Section 5 shall be conclusive. (6) Eligibility. Awards may be granted to officers and other key employees of the Company and of any of its present and future subsidiaries ("Participants") under the Plan. A director or an officer of the Company or of a subsidiary who is not also an employee of the Company or of a subsidiary shall not be eligible to receive an Award. (7) Grants of Options. (a) Grant. Subject to the provisions of the Plan, the Committee and the Board each may grant stock options to Participants in such amounts as they shall determine. The Committee and the Board each shall have full discretion to determine the terms and conditions (including vesting) of all options. The Committee or Board shall determine whether an option is to be an incentive stock option within the meaning of Section 422 of the Code or a nonstatutory stock option and shall enter into option agreements with Participants accordingly. (b) Option Price. The per share option price, as determined by the Committee or Board, shall be an amount not less than 100% of the fair market value of the stock on the date such option is granted (110% in the case of incentive stock options granted pursuant to Section 422(c)(5) of the Code), as such fair market value is determined by such methods or procedures as shall be established from time to time by the Committee or Board ("Fair Market Value"). (c) Option Period. The term of each option shall be as determined by the Committee or Board, but in no event shall the term of an incentive stock option exceed a period of ten (10) years from the date of its grant. (d) Maximum Per Participant. The aggregate Fair Market Value of the stock for which an incentive stock option is exercisable by a Participant for the first time during any calendar year under the Plan and any other plans of the Company or its subsidiaries shall not exceed $100,000. (e) Exercise of Option. The Committee or Board shall prescribe the manner in which a Participant may exercise an option which is not inconsistent with the provisions of this Plan. An option may be exercised, subject to limitations on its exercise and the provisions of subparagraph (g), from time to time, only by (i) providing written notice of intent to exercise the option with respect to a specified number of shares, and (ii) payment in full to the Company of the option price at the time of exercise. Payment of the option price may be made (i) by delivery of cash and/or securities of the Company having a then Fair Market Value equal to the option price, or (ii) by delivery (including by fax) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the shares and deliver the sale or margin loan proceeds directly to the Company to pay for the option price. (f) Transferability of Option. The options are not transferable otherwise than by will or the laws of descent and distribution, and may be exercised during the life of the Participant only by the Participant, except that a Participant may, to the extent allowed by the Committee or Board and in a manner specified by the Committee or Board, (a) designate in writing a beneficiary to exercise the option after the Participant's death, and (b) transfer any option. (g) Termination of Employment. In the event a Participant leaves the employ of the Company and/or its subsidiaries whether voluntarily or by reason of dismissal, disability or retirement, all rights to exercise an option shall terminate immediately unless otherwise determined by the Committee or Board or provided in the option agreement granted to such Participant. (8) Capital Adjustment Provisions. In the event of any change in the shares of common stock of the Company by reason of a declaration of a stock dividend (other than a stock dividend declared in lieu of an ordinary cash dividend), stock split, reorganization, merger, consolidation, spin-off, recapitalization, split-up, combination or exchange of shares, or otherwise, the aggregate number and class of shares available under this Plan, the number and class of shares subject to each outstanding Award, and the exercise price for shares subject to each outstanding option, shall be appropriately adjusted by the Committee or Board, whose determination shall be conclusive. (9) Termination and Amendment of Plan. The Plan shall terminate on November 22, 2006, unless sooner terminated as hereinafter provided. The Board may at any time terminate the Plan, or amend the Plan as it shall deem advisable including (without limiting the generality of the foregoing) any amendments deemed by the Board to be necessary or advisable to assure the Company's deduction under Section 162(m) of the Code for all Awards granted under the Plan, to assure conformity of the Plan and any incentive stock options granted thereunder to the requirements of Section 422 of the Code and to assure conformity with any requirements of other state or federal laws or regulations; provided, however, that shareholder approval of any amendment of the Plan shall also be obtained if otherwise required by (i) the Code or any rules promulgated thereunder (in order to allow for incentive stock options to be granted under the Plan or to enable the Company to comply with the provisions of Section 162(m) of the Code) or (ii) the listing requirements of any principal securities exchange or market on which the shares are then traded (in order to maintain the listing or quotation of the shares thereon). No termination or amendment of the Plan may, without the consent of the Participant, adversely affect the rights of such Participant under any Award previously granted. (10) Rights of Employees. Nothing in this Plan or in any Awards shall interfere with or limit in any way the right of the Company and any of its subsidiaries to terminate any Participant's or employee's employment at any time, nor confer upon any Participant or employee any right to continue in the employ of the Company or any of its subsidiaries. (11) Rights as a Shareholder. A Participant shall have no rights as a shareholder with respect to shares covered by any option until the date of issuance of the stock certificate to such Participant and only after such shares are fully paid. No adjustment will be made for dividends or other rights for which the record date is prior to the date such stock is issued. (12) Tax Withholding. The Company may deduct and withhold from any cash otherwise payable to a Participant such amount as may be required for the purpose of satisfying the Company's obligation to withhold Federal, state or local taxes in connection with any Award. Further, in the event the amount so withheld is insufficient for such purpose, the Company may require that the Participant pay to the Company upon its demand or otherwise make arrangements satisfactory to the Company for payment of such amount as may be requested by the Company in order to satisfy its obligation to withhold any such taxes. A Participant may be permitted to satisfy the Company's withholding tax requirements by electing to have the Company withhold shares of stock otherwise issuable to the Participant. The election shall be made in writing and shall be made according to such rules and in such form as the Committee or Board may determine. (13) Miscellaneous. The grant of any Award under the Plan may also be subject to other provisions as the Committee or Board determines appropriate, including, without limitation, provisions for (a) one or more means to enable Participants to defer recognition of taxable income relating to Awards, which means may provide for a return to a Participant on amounts deferred as determined by the Committee or Board; (b) the purchase of stock under options in installments; and (c) compliance with federal or state securities laws and stock exchange or Nasdaq National Market requirements. (14) Agreements. Awards granted pursuant to the Plan shall be evidenced by written agreements in such form as the Committee or Board shall from time to time adopt. (15) Governing Law. The Plan and all determinations made and actions taken pursuant thereto shall be governed by and construed in accordance with the internal laws of the State of Wisconsin. EX-13 3 PORTIONS OF 1996 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT (13) [Pages 12-28 of 1996 Annual Report to Shareholders] [Page 12] Five Year Summary of Selected Financial Data
Selected Income Statement Data In Thousands - Year Ended December 31 1996 1995 1994 1993 1992 Net sales $121,997 $98,571 $108,319 $82,422 $68,831 Operating income 10,088 6,662 11,230 7,250 5,771 Net income 5,386 3,328 6,152 3,700 2,707 Selected Balance Sheet Data In Thousands - Year Ended December 31 1996 1995 1994 1993 1992 Working capital $ 46,811 $34,537 $ 35,382 $26,725 $26,099 Total assets 92,286 74,862 74,822 46,488 37,849 Long-term obligations 16,002 4,893 7,340 10,751 12,693 Redeemable preferred stock - 1,957 1,957 1,957 1,957 Shareholders' equity 55,936 51,322 49,154 19,658 15,953 Selected Share Data Year Ended December 31 1996 1995 1994 1993 1992 Net income per share $ .80 $ .48 $ .98 $ .76 $ .53 Dividends per share $ .11 $ .09 $ .09 $ .08 $ .07 Shares used in per share calculation (000) 6,674 6,680 6,158 4,694 4,979
[Pages 13-16] Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Net sales generated during the last five months of the year can account for over 55% of the Company's net sales and have a significant impact on the Company's results of operations. Because consumers generally purchase a large percentage of the Company's products from September through January, retail dealers generally want delivery of products from June through October for advance orders and from October through December for restocking (or "fill-in") orders. Generally, mild or dry weather during the late fall and early winter has a negative impact on the Company's net sales for the current year, while cold or wet weather during such time has a favorable impact. Further, weather conditions in one season can affect future net sales, particularly where weather contributes to high or low dealer inventory levels at the season's end. To satisfy demands for its products and to provide for uniform production levels, the Company generally manufactures its footwear products year- round. To assist in production scheduling, the Company's sales force calls on retail dealers from January to June to present the product line, review inventory levels and prepare an advance order. The Company offers price discounts for orders placed prior to July, although advance orders may be canceled at any time. To attempt to balance the flow of shipments and the need for warehouse space, the Company offers extended terms on receivables relating to advance orders to induce retail dealers to allow some shipments of seasonal products prior to the peak shipment period. The advance order terms provide for payment by December 1 (January 1 in the case of Southern dealers). Because of seasonal fluctuations, inventory levels are highest at mid-year and accounts receivable levels are highest during the fourth quarter. Each year, the Company introduces a number of new products. A new product, if successful, often generates growing amounts of net sales during the first three to five years. In some cases, net sales of new products will help to offset adverse factors, such as mild or dry weather or adverse economic conditions. In addition, the Company's Rainfair, Inc. subsidiary, which is primarily in the rainwear business, provides products which react differently to the weather elements than the footwear business. In May 1996, a Company subsidiary, which is 50% owned by the Company, purchased the assets of Rainfair, Inc. and then was renamed Rainfair, Inc. (Rainfair). Rainfair designs, manufacturers and distributes rainwear, protective clothing and boots. If the acquisition had occurred on January 1, 1996, net sales and net income reported by the Company would have been $128.1 million and $5.5 million, respectively. In May 1996, the Company also acquired certain of the operating assets and trademarks of Red Ball, Inc. (Red Ball). The Company accounted for this transaction as a purchase of assets rather than the acquisition of a business since there is limited continuity of the sale of Red Ball products, no facility leases were assumed and there is no continuity of the Red Ball cost structure. During 1996, Red Ball products added $.5 million and $3.0 million to the Company's net sales for the third and fourth quarters, respectively. The Company does not anticipate the future seasonality of sales will be significantly impacted by the net sales of Rainfair and Red Ball. Results of Operations The following table shows the percentage relationship to net sales of items derived from the Consolidated Statements of Income and the percentage change from year to year.
Percentage of Net Sales Percentage of Increase (Decrease) Year Ended December 31 1996 1995 1994 1996 vs. 1995 1995 vs. 1994 Net sales 100.0% 100.0% 100.0% 24% (9)% Cost of goods sold 72.3 73.1 71.4 22 (7) Gross profit 27.7 26.9 28.6 27 (14) Selling and administrative expenses (19.4) (20.2) (18.2) 19 1 Operating income 8.3 6.7 10.4 51 (41) Interest expense (1.4) (1.5) (1.4) 15 (5) Other income .3 .3 .3 36 (19) Income before income taxes 7.2 5.5 9.3 60 (45) Income taxes (2.8) (2.1) (3.6) 61 (45) Net income 4.4% 3.4% 5.7% 62% (46)%
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Net Sales. Net sales in 1996 increased $23.4 million, or 24.0%, to $122.0 million from $98.6 million in 1995. The increase in net sales was largely attributable to the May 1996 acquisitions of Rainfair and certain assets of Red Ball. These acquisitions added $11.1 million and $3.5 million, respectively, of net sales in 1996. Net sales of LaCrosse products increased $7.3 million in 1996 as compared to 1995, as a result of a $4.7 million increase in sales through the retail channel of distribution due to (i) more favorable weather conditions, (ii) an improved retail climate and (iii) new product offerings, and a $3.0 million improvement in sales through the industrial channel of distribution, mainly as a result of new products. Danner product sales increased $1.5 million in 1996 compared to 1995 resulting mainly from the introduction of the Dri-Foot boot series. Gross Profit. Gross profit as a percentage of net sales increased to 27.7% in 1996 from 26.9% in 1995. Gross profit margins as a percentage of net sales on LaCrosse products were up 1.5%, primarily the result of a $.4 million reduction in the LIFO reserve, more favorable pricing on key raw materials and improved productivity at the La Crosse, Wisconsin factory. This was partially offset by the lower margin rainwear business and lower margins on Red Ball brand sales, which were impacted by start-up inefficiencies. Selling and Administrative Expenses. Selling and administrative expenses increased $3.8 million, or 19%, in 1996 as compared to 1995, primarily resulting from the acquisitions of Rainfair and Red Ball, which added $.6 million and $2.2 million, respectively, to operating expenses in 1996. As a percent of net sales, operating expenses decreased from 20.2% of net sales in 1995 to 19.4% of net sales in 1996. The ability to leverage the LaCrosse operating expenses across a greater sales base was the primary reason for the reduction in operating expenses as a percent of net sales. This allowed for a planned increase in advertising expenses. Interest Expense. Interest expense increased $223,000, or 15%, in 1996 as compared to 1995. The increase was the result of a $12.5 million increase in long-term debt to finance the Rainfair acquisition and the purchase of Red Ball assets, which was partially offset by lower short-term borrowings resulting from the reduced inventory levels of LaCrosse products during the year. Income Tax Expense. The Company's effective income tax rate in 1996 was 39.2%, the same as the 1995 income tax rate. Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Net Sales. Net sales in 1995 decreased $9.7 million, or 9%, to $98.6 million from $108.3 million in 1994 despite a $2.9 million increase in reported sales of Danner products due to including Danner results for the entire year of 1995. The decrease in net sales was primarily due to the mild winter weather conditions during the 1994/95 winter which reduced the demand for LaCrosse protective footwear and left dealers with carryover inventory. The primary products affected were rubber or vinyl bottom/leather top cold weather boots. Net sales under government contracts were down $2.4 million, as a result of the completion of a government contract in 1994. Gross Profit. Gross profit as a percentage of net sales decreased to 26.9% in 1995 from 28.6% in 1994. Margins on LaCrosse products were down primarily as a result of lower production levels and increases in raw material costs (primarily crude rubber) in excess of plan. Margins on Danner products were down due to lower than planned production levels and start-up costs associated with new products. Selling and Administrative Expenses. Selling and administrative expenses increased $.2 million, or 1%, in 1995 as compared to 1994, primarily due to a $900,000 increase in expenses reported for Danner in 1995 as compared to 1994 when expenses were included from the date of acquisition, March 14, 1994. This increase was partially offset by a $493,000 reduction in phantom stock compensation, primarily due to the lower level of profitability in 1995 as compared to 1994. As a percent of net sales, operating expenses increased from 18.2% in 1994 to 20.2% in 1995 primarily due to the reduced sales volume of LaCrosse products coupled with an additional $300,000 of planned marketing and advertising expense in support of our dealers. Interest Expense. Interest expense decreased $72,000, or 5% in 1995 as compared to 1994. The decrease was primarily the result of lower short- term interest rates. Income Tax Expense. The Company's effective income tax rate in 1995 increased to 39.2% from 38.7% in 1994 primarily due to a slight increase in non-deductible expenses and a higher effective state income tax rate. Liquidity and Capital Resources The Company has historically financed its operations with cash generated from operations, long-term lending arrangements and short-term borrowings under its line of credit. The Company requires working capital primarily to support fluctuating accounts receivable and inventory levels caused by the Company's seasonal business cycle. The Company's working capital needs are lowest in the first quarter and highest in the third quarter. The Company invests excess cash balances in short-term investment grade securities or money market investments. In May 1996, the Company invested $10.9 million in Rainfair. Of this investment, approximately $8.0 million was for a secured loan to the subsidiary to support working capital requirements, consistent with the Company's intention to fund the working capital requirements of Rainfair through intercompany loans. It is not anticipated that these loans will increase substantially during the next two years. Rainfair is a designer, light manufacturer and distributor of industrial and consumer rainwear, protective clothing and boots. In May 1996, the Company also acquired certain of the operating assets and trademarks of Red Ball for approximately $5.5 million, including $.3 million paid for equipment leased from a third party and $.5 million for relocation costs. Red Ball was a designer, manufacturer and distributor of waders, pac boots and children's footwear. In May 1996, the Company renegotiated its unsecured credit agreement with Firstar Bank Milwaukee, N.A. as the lead bank. Under the terms of the revised agreement, the maximum amount of borrowings were increased to $62.5 million, including a $12.5 million term loan, from the previous maximum level of $30.0 million. The $12.5 million term loan, which is outstanding at December 31, 1996, was primarily used to fund the investment in Rainfair and the acquisition of assets of Red Ball. The term loan requires quarterly payments of $.4 million commencing in March 1998. Cash generated by operations amounted to $9.7 million in 1996, an increase from the $5.7 million and $1.6 million generated in 1995 and 1994, respectively. The improved operating cash flow in 1996 is primarily attributable to a $2.0 million increase in net income and a $2.1 million reduction in inventories (excluding the effect of the Rainfair inventories purchased). The inventory reduction was the result of improved production planning and accurate sales forecasts. The improvement in inventory levels was achieved despite adding over $3.0 million of inventory to support the Red Ball brand. Due to sales growth anticipated in 1997, further inventory reductions are not anticipated. A $2.1 million increase in accounts receivable, due to the increased fourth quarter sales volume, was largely offset by an increase in accrued expenses and depreciation. Net cash used in investing activities during 1996 was $14.2 million, up significantly from $3.8 million in 1995. The Rainfair acquisition and the purchase of the Red Ball trademarks, coupled with $3.1 million of capital spending, accounted for the spending during 1996. The $3.1 million of capital spending was $.7 million below the 1995 level, however, it is anticipated 1997 capital spending will increase above the $4.0 million level. Net cash provided by financing activities amounted to $8.1 million during 1996. The $12.5 million of long-term debt incurred to finance the Rainfair and Red Ball acquisitions was partially offset by a $1.7 million principal payment on long-term debt and the repurchase of 100% of the outstanding preferred stock for $2.0 million. In addition, the Company paid cash dividends of $668,000, including $68,000 on the preferred stock, during 1996. The March 1994 acquisition agreement for the purchase of the assets of Danner Shoe Manufacturing, Co. provides that in the event the cash and aggregate market value of the Company's common stock (valued as of March 1, 1999) delivered in the Danner acquisition is less than $18.0 million, the Company will be obligated to make an additional cash payment equal to the difference. To the extent the aggregate market value of the 277,778 shares of the Company's common stock delivered as part of the purchase agreement equals or exceeds $4.5 million at or prior to March 1, 1999, the Company's obligation to make such payment can be reduced or eliminated. This obligation can be reduced or eliminated by the sale of those shares by the former Danner shareholders under a Company-filed registration statement or under Rule 144 promulgated under the Securities Act of 1933, as amended, prior to March 31, 1999. The Company's debt to total capital ratio was 24.2% at December 31, 1996, 11.5% at December 31, 1995 and 15.6% at December 31, 1994. Currently available funds, including the line of credit, together with the anticipated cash flows generated from future operations, are believed to be adequate to cover the Company's anticipated capital and working capital needs for 1997 and 1998. From time to time, the Company evaluates acquisitions of businesses or product lines that could complement the Company's business, such as the Rainfair acquisition. The Company has no present understandings, commitments or agreements with respect to any acquisition. However, if the Company makes significant future acquisitions, it may be required to raise funds through additional bank financing or the issuance of debt or equity securities. [Pages 17-27] Consolidated Balance Sheets December 31, 1996 and 1995 (In Thousands) Assets 1996 1995 Current Assets Cash and cash equivalents $ 6,716 $ 3,036 Trade accounts receivable, less allowances of $1.5 and $.8 million 20,705 15,563 Inventories (Note 3) 31,549 26,007 Prepaid expenses and deferred tax assets (Note 4) 4,016 3,281 ------- ------- Total current assets 62,986 47,887 ------- ------- Property and Equipment Land and land improvements and buildings 6,501 5,818 Machinery and equipment 23,391 20,994 -------- ------- 29,892 26,812 Less accumulated depreciation 17,262 14,964 -------- ------- 12,630 11,848 -------- ------- Other Assets Goodwill, net of amortization of $1.4 and $.9 million 13,823 13,653 Deferred tax and other assets (Note 4) 2,847 1,474 ------- ------- 16,670 15,127 ------- ------- $92,286 $74,862 ======= ======= Liabilities and Common Shareholders' Equity Current Liabilities Current maturities of long-term obligations (Note 5) $ 1,851 $ 1,761 Accounts payable 5,755 4,812 Accrued expenses (Note 7) 8,569 6,777 ------- ------- Total current liabilities 16,175 13,350 ------- ------- Long-Term Obligations (Note 5) 16,002 4,893 Compensation and Benefits (Note 9) 2,980 3,340 ------- ------- Total liabilities 35,157 21,583 ------- ------- Commitments and Contingencies (Notes 6, 8, 9 and 10) Minority Interest in Subsidiary 1,193 - Redeemable Preferred Stock, at redemption price - 1,957 Common Shareholders' Equity Common stock, par value $.01 per share; authorized 50,000,000 shares; issued and outstanding, 6,667,627 shares, respectively (Notes 8 and 10) 67 67 Additional paid-in capital 27,579 27,579 Retained earnings (Note 5) 28,733 24,119 Less cost of 50,000 shares of treasury stock (443) (443) -------- -------- Total common shareholders' equity 55,936 51,322 -------- -------- $92,286 $74,862 ======== ======== See Notes to Consolidated Financial Statements. Consolidated Statements of Income Years Ended December 31, 1996, 1995 and 1994 (In Thousands, except for share and per share data) 1996 1995 1994 Net sales $121,997 $98,571 $108,319 Cost of goods sold 88,176 72,011 77,386 ------- ------- ------- Gross profit 33,821 26,560 30,933 Selling and administrative expenses 23,733 19,898 19,703 ------- ------- ------- Operating income 10,088 6,662 11,230 Non-operating income (expense): Interest expense (1,680) (1,457) (1,529) Miscellaneous 361 266 330 ------- ------- ------ (1,319) (1,191) (1,199) ------- ------- ------ Income before income taxes 8,769 5,471 10,031 Provision for income taxes (Note 4) 3,440 2,143 3,879 ------- ------- ------ Net income before minority interest 5,329 3,328 6,152 Minority interest in net loss of subsidiary 57 - - ======= ======= ======= Net income $ 5,386 $ 3,328 $ 6,152 Earnings per common and common equivalent share $.80 $.48 $.98 ======= ======= ======= Weighted average common and common equivalent shares outstanding 6,673,539 6,679,545 6,158,175 ========= ========= ========= See Notes to Consolidated Financial Statements. Consolidated Statements of Common Shareholders' Equity Years Ended December 31, 1996, 1995 and 1994
(In Thousands, except for share and per share data) Common Total Additional Stock Common Common Paid-In Retained Acquisition Treasury Shareholders' Stock Capital Earnings Notes Stock Equity Balance, December 31, 1993 $47 $3,723 $16,078 $(190) $- $19,658 Net income - - 6,152 - - 6,152 Issuance of common stock, including 1,725,000 shares issued to the public at $13 per share, net of offering costs 20 23,856 - - - 23,876 Common stock dividends ($.09 per share) - - (605) - - (605) 6% preferred stock dividends - - (117) - - (117) Payment received on stock subscription note - - - 190 - 190 ---- -------- -------- -------- -------- -------- Balance, December 31, 1994 67 27,579 21,508 - - 49,154 Net income - - 3,328 - - 3,328 Common stock dividends ($.09 per share) - - (600) - - (600) 6% preferred stock dividends - - (117) - - (117) Purchase of 50,000 shares of treasury stock - - - - (443) (443) ---- -------- -------- -------- -------- -------- Balance, December 31, 1995 67 27,579 24,119 - (443) 51,322 Net income - - 5,386 - - 5,386 Common stock dividends ($.11 per share) - - (733) - - (733) 6% preferred stock dividends - - (39) - - (39) ---- -------- -------- -------- -------- -------- Balance, December 31, 1996 $67 $27,579 $28,733 $0 $(443) $55,936 ==== ======== ======== ======== ======== ======== See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows Years Ended December 31, 1996, 1995 and 1994 (In Thousands) 1996 1995 1994 Cash Flows from Operating Activities Net income $ 5,386 $3,328 $ 6,152 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,925 2,523 2,274 Amortization 513 484 362 Other (34) 21 46 Deferred income taxes (62) (62) (239) Change in assets and liabilities, net of effects from acquisition of Danner Shoe Manufacturing Co. and Rainfair, Inc.: Trade accounts receivable (2,145) 93 (1,117) Inventories 2,136 (936) (4,268) Accounts payable 279 382 (2,492) Other 712 (139) 923 ------- ------- ------- Net cash provided by operating activities 9,710 5,694 1,641 Cash Flows from Investing Activities Acquisition of Rainfair, Inc., net of cash acquired (9,597) - - Purchase of property and equipment (3,060) (3,779) (4,942) Purchase of trademarks (1,439) - - Acquisition of Danner Shoe Manufacturing Co., net of cash acquired - - (13,569) Other (67) (13) (35) ------- ------- ------- Net cash (used in) investing activities (14,163) (3,792) (18,546) Cash Flows from Financing Activities Proceeds from long-term obligations 12,500 - - Principal payments on long-term obligations (1,742) (2,444) (3,457) Cash dividends paid (668) (722) (494) Purchase of redeemable preferred stock (1,957) - - Purchase of treasury stock - (443) - Net proceeds from issuance of common stock - - 20,265 Proceeds from common stock acquisition notes - - 190 Other - - (47) ------- ------- ------- Net cash provided by (used in) financing activities 8,133 (3,609) 16,457 ------- ------- ------- Increase (decrease) in cash and cash equivalents 3,680 (1,707) (448) Cash and cash equivalents: Beginning 3,036 4,743 5,191 ------- ------- ------- Ending $ 6,716 $ 3,036 $ 4,743 ======= ======= ======= Supplemental Information Cash payments for: Interest $ 1,594 $ 1,396 $ 1,542 Income taxes $ 2,939 $ 1,762 $ 3,985 Supplemental Schedule of Noncash Investing Activity Issuance of 277,778 shares of common stock for Danner acquisition $ - $ - $ 3,611 ------- ------- ------- See Notes to Consolidated Financial Statements. Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies Nature of business: The Company designs, manufactures, and markets premium quality protective footwear and rainwear for sale principally throughout the United States. Significant accounting policies: Principles of consolidation: The consolidated financial statements include the accounts of LaCrosse Footwear, Inc. and its wholly owned and 50% owned subsidiaries (the "Company"). The Company consolidates 50% owned subsidiaries where it has board, operating and financial control. 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 generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair value of financial instruments: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those investments. The carrying amount of long-term debt approximates fair value based on the interest rates, maturities and collateral requirements currently available for similar financial instruments. Concentrations of credit risk: The Company grants credit to its customers, who are primarily domestic retail stores, direct mail catalog merchants, wholesalers, industrial and private label customers, based on an evaluation of the customer's financial condition. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains an allowance for anticipated losses. Cash and cash equivalents: The Company considers all highly liquid debt instruments (including short- term investment grade securities and money market instruments) purchased with maturities of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts. Inventories: Inventories are stated at the lower of cost or market. All inventories, except for vinyl products, boot liners, leather boots, leather boot components and rainwear are valued using the last-in, first-out (LIFO) method. Vinyl products, boot liners, leather boots, leather boot components and rainwear are valued using the first-in, first-out (FIFO) method. Property and equipment: Property and equipment are carried at cost and are being depreciated using straight-line and accelerated methods over their estimated useful lives as follows: land improvements, 15 years; buildings and improvements, 20 to 39 years; and machinery and equipment, 3 to 7 years. Intangible assets: Goodwill, representing the excess of cost over net assets acquired, is being amortized on a straight-line basis over 30 years for the Danner acquisition and 15 years for the Rainfair acquisition. The Red Ball trademarks are being amortized on a straight-line basis over 15 years. Impairment of long-lived assets: The Company was required to adopt SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of", effective January 1, 1996. SFAS No. 121 requires that long-lived assets and certain identified intangibles held and used by a company be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company reviews its long-lived assets and intangibles periodically to determine potential impairment by comparing the carrying value of these assets with expected future net cash flows provided by operating activities of the business. Should the sum of the expected future net cash flows be less than the carrying value, the Company would determine whether an impairment loss should be recognized. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangible based on appraised market value. Revenue recognition and product warranty: Revenue is recognized at the time products are shipped to customers. Revenue is recorded net of freight, estimated discounts and returns. The Company warrants its products against defects in design, materials and workmanship generally for one year. A provision for estimated future warranty costs is recorded when products are shipped. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets and liabilities are recognized for 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. Stock-based compensation: SFAS No. 123 "Accounting for Stock-Based Compensation" which the Company adopted in 1996 encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has continued to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related interpretations. Accordingly, since the exercise price is equal to the market price at the date of the grant, no compensation costs have been recognized. Earnings per common and common equivalent share: Per share earnings are based on the weighted average number of common and common equivalent shares outstanding during each year, after reducing net income by dividends on preferred stock. Common equivalent shares consist of the dilutive effect of common stock options. Note 2. Acquisitions In May 1996, the Company and the former principal owner of Rainfair, Inc. established a new corporation and each purchased one-half of the new corporation's common stock for $1,250,000. The Company also purchased all of the new corporation's outstanding preferred stock for $500,000. On May 31, 1996, this 50% owned subsidiary of the Company purchased substantially all of the assets of Rainfair, Inc. for approximately $10.9 million in cash and approximately $1.4 million in assumed liabilities for an aggregate purchase price of approximately $12.3 million. The name of the subsidiary was changed to Rainfair, Inc. (Rainfair) in June 1996 after completion of the acquisition. The Company loaned Rainfair approximately $8.0 million (secured by all assets of Rainfair) to fund the portion of the purchase price which was not funded by the initial capital contributions. The acquisition has been accounted for as a purchase. Accordingly, the purchase price was allocated to assets and liabilities based on 50% of their estimated fair values and 50% of the predecessor's historical cost as of the date of acquisition. The cost in excess of net assets acquired of approximately $.7 million is being amortized on a straight-line basis over a 15-year term. The value of assets acquired (net of cash of $64,617) and liabilities assumed is as follows (in thousands): Current assets $10,774 Leasehold improvements and equipment 659 Deferred taxes 151 Goodwill 683 Current liabilities (965) Long-term liabilities (455) ------- 10,847 Less minority interest contribution (1,250) ------- $9,597 ======= In connection with the purchase, the Company entered into a shareholders' agreement with the former principal owner which prohibits (1) the declaration or payment of dividends on Rainfair common stock and (2) the disposal or transfer of Rainfair stock by either party. The shareholders' agreement contains a put and call provision which may be exercised after 3 years with the purchase price determined based upon the provision in the shareholders' agreement. The Company's consolidated statement of income for the year ended December 31, 1996 includes Rainfair's results of operations since its acquisition in May, 1996. The following unaudited pro forma information presents the consolidated results of operations as if the acquisition had occurred as of the beginning of 1995 and does not purport to be indicative of what would have occurred had the acquisition been made as of that date or of results which may occur in the future. (In Thousands, Except For Earnings Per Share) Years Ending December 31, 1996 1995 (Unaudited) Net sales $128,147 $114,947 Net income 5,465 3,377 Earnings per common and common equivalent share .81 .49 In May 1996, the Company also acquired trade accounts receivable, inventories, machinery and equipment and trademarks from Red Ball, Inc. for a cash price of approximately $5.5 million. The Company has accounted for the transaction as a purchase of assets rather than the acquisition of a business. The primary purpose of the transaction was to purchase the Red Ball trademarks and there is limited continuity of the sale of Red Ball products, no facility leases were assumed and there is no continuity of Red Ball's sales, production or cost structure. The purchase price is being allocated to the assets based on their fair values as of the date of acquisition. The Company's consolidated statement of income for the year ended December 31, 1996 includes net sales of Red Ball products of approximately $3.5 million and the effect on net income is immaterial. Note 3. Inventories A summary of inventories is as follows: (In Thousands) December 31, 1996 1995 Finished goods $22,188 $18,371 Work-in process 2,222 1,922 Raw materials 7,139 5,714 ------- ------- Total inventories $31,549 $26,007 ======= ======= If all inventories were valued on the FIFO method, total inventories for 1996 and 1995 would have been $35.3 and $30.1 million, respectively. Note 4. Income Tax Matters Net deferred tax assets and liabilities consist of the following components: (In Thousands) December 31, 1996 1995 Deferred tax assets: Receivable allowances $523 $366 Inventory differences 525 493 Compensation and benefits 1,752 1,661 Insurance reserves and other 500 497 ------- ------- 3,300 3,017 Deferred tax liabilities, principally intangibles 597 527 ------- ------- $2,703 $2,490 ======= ======= The components giving rise to the net deferred tax assets described above have been included in the accompanying consolidated balance sheets as follows: (In Thousands) December 31, 1996 1995 Current assets $2,017 $1,621 Noncurrent assets 686 869 ------- ------- $2,703 $2,490 ======= ======= No valuation allowance is required on the deferred tax assets as of December 31, 1996 and 1995. The provision for income taxes consists of the following: (In Thousands) Years Ended December 31, 1996 1995 1994 Current: Federal $2,947 $1,723 $3,539 State 555 482 579 Deferred (62) (62) (239) ------- ------- ------- $3,440 $2,143 $3,879 ======= ======= ======= The differences between statutory federal tax rates and the effective tax rates are as follows: Years Ending December 31, 1996 1995 1994 Statutory federal tax rate 35.0% 35.0% 35.0% State taxes, net of federal tax benefit and other 4.2 4.2 3.7 ------- ------- ------- Effective tax rate 39.20% 39.2% 38.7% ======= ======= ======= Note 5. Long-Term Obligations Credit agreement: The Company has a $62.5 million unsecured credit agreement. Under the agreement, the Company has (1) a $50 million revolving line of credit which expires on December 31, 1999 ($10 million of which can be used to support letters of credit) and (2) a $12.5 million term loan due December 31, 2001. At the Company's option, the interest rate is either the bank's prime rate or LIBOR plus .75% or 1% for the revolving line of credit and LIBOR plus 1% or 1.25% for the term loan, depending upon the Company's leverage ratio. (LIBOR plus .75% and LIBOR plus 1% for the revolving line of credit and term loan, respectively, as of December 31, 1996). The credit agreement contains various covenants, including minimum consolidated tangible net worth, sale of assets, indebtedness, current ratio, interest coverage ratio and leverage ratio. The revolving line of credit is used to finance peak inventory and accounts receivable levels and commitments for letters of credit. At December 31, 1996 and 1995, there were no amounts outstanding under the revolving line of credit but there were letter of credit commitments outstanding of $1.0 and $2.7 million, respectively. Long-term obligations: (In Thousands) December 31, 1996 1995 Term loan under credit agreement, due in quarterly installments of $.4 million commencing in March 1998, interest payable monthly $12,500 $- 10.26% unsecured note payable, due in annual installments of $1.4 million excluding interest, interest payable semi-annually (a) 3,714 5,143 10.73% unsecured note payable, due in annual installments of $.3 million excluding interest, interest payable semi-annually (a) 743 1,028 Other 896 483 ------- ------- 17,853 6,654 Less current maturities 1,851 1,761 ------- ------- $16,002 $4,893 ======= ======= (a) The loan agreement contains various covenants, including minimum tangible net worth, working capital, current ratio, permitted indebtedness, net income before income taxes to interest expense and total permitted investments and restricted payments. Retained earnings available for dividends under these agreements amount to approximately $10.2 million at December 31, 1996. Maturities of long-term obligations for the next five years are as follows (in millions): 1997, $1.9; 1998, $3.4; 1999, $2.7; 2000, $1.7; 2001, $7.8 and $.4 thereafter. Note 6. Lease Commitments and Total Rental Expense The Company leases office space, retail stores, a manufacturing facility, equipment and warehouse space under non-cancelable agreements, which expire on various dates through 2004, and are recorded as operating leases. The total rental expense included in the consolidated statements of income for the years ended December 31, 1996, 1995 and 1994 is approximately $1.6, $1.2 and $1.0 million, respectively. Approximate future minimum lease payments, estimated utilities and real estate taxes are as follows (in millions): 1997, $1.6; 1998, $1.4; 1999, $1.4; 2000, $1.3; 2001, $.5 and $.7 thereafter. Note 7. Accrued Expenses Accrued expenses are comprised of the following: (In Thousands) December 31, 1996 1995 Compensation $4,423 $3,301 Workers' compensation insurance 889 1,174 Income taxes payable 1,066 504 Other, including dividends 2,191 1,798 ------- ------- Total accrued expenses $8,569 $6,777 ======= ======= Note 8. Stock Options In December 1993, the Board of Directors adopted a 1993 Employee Stock Incentive Plan pursuant to which options for up to 250,000 shares of common stock may be granted to officers and key employees of the Company, of which no more than 125,000 shares may be granted to any one employee. The option price per share shall not be less than 100% of the fair market value at the date of grant and the options expire 10 years after grant or such shorter period as the compensation committee of the Board so determines. The options vest in equal increments over a five-year period. The following summarizes all stock options granted under the above plan: Common Per Share Shares Option Price December 31, 1994 87,500 $13.00 Granted 41,500 10.25-11.25 ------- December 31, 1995 129,000 10.25-13.00 Granted 89,125 9.06-10.38 Canceled (10,000) 9.06-13.00 ------- December 31, 1996 208,125 9.06-13.00 Options for 41,100 shares were exercisable at December 31, 1996. Grants under the plan are accounted for following the provisions of APB Opinion No. 25 and its related interpretations. Accordingly, no compensation cost has been recognized for grants made to date. If the Company had elected to recognize compensation cost based on the fair value of the options granted at the grant date as prescribed by SFAS No. 123, pro forma net income would have been reduced by less than $.1 million and the pro forma earnings per share would have been $.79 and $.48 for the years ended December 31, 1996 and 1995, respectively. The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions: Expected dividend yield 1% Expected stock price volatility 25% Risk-free interest rate 7.0% Expected life of options 8 years The weighted average exercise price of the options granted during 1996 is $9.29 per share. Note 9. Compensation and Benefit Agreements The Company has defined benefit pension plans covering a majority of its employees. Eligible employees are entitled to monthly pension benefits beginning at normal retirement age (65). The monthly benefit payable at the normal retirement date under the Company's pension plans is equal to a specified dollar amount or percentage of average monthly compensation, as defined in the plans, multiplied by years of benefit service (maximum of 38 years). The Company's funding policy is to make not less than the minimum contribution that is required by applicable regulations, plus such amounts as the Company may determine to be appropriate from time to time. The following table sets forth the funded status of the plans and the amount recognized in the Company's consolidated balance sheets: (In Thousands) December 31, 1996 1995 Actuarial present value of benefit obligations: Vested benefits $10,543 $8,479 ======= ======= Accumulated benefits $11,103 $9,046 ======= ======= Projected benefits ($12,574) ($10,757) Plan assets at fair value (equity securities and pooled funds) 12,948 10,469 ------- ------- Plan assets in excess of (less than) projected benefit obligation 374 (288) Unrecognized net gain (1,362) (414) Unrecognized transition obligation 214 264 Unrecognized prior service costs 383 415 ------- ------- (Accrued) pension cost ($391) ($23) ======= ======= Actuarial assumptions used at December 31, 1996 and 1995 were as follows: discount rate of 7%, rate of increase in compensation levels of 5.25% and expected long-term rate of return on plan assets of 8%. Net pension expense for these plans for each of the years ended December 31, 1996, 1995 and 1994 approximates $.4 million. The Company sponsors an unfunded defined benefit postretirement medical and life insurance plan that covers a majority of its employees until they qualify for Medicare. The plan is contributory for retirees with contributions established annually as a specified dollar amount. The Company funds the postretirement benefit obligation as the costs are incurred. The accrued postretirement benefit cost is approximately $1.4 million and $1.3 million at December 31, 1996 and 1995, respectively and the related expense is approximately $.2, $.2 and $.4 million for the years ended December 31, 1996, 1995 and 1994, respectively. The assumed discount rate and annual rate of increase in cost of covered health care benefits used by the Company in the determination of postretirement benefit information was 7.0% as of December 31, 1996 and 1995 and 8% as of December 31, 1994. Note 10. Commitments In March 1994, the Company acquired substantially all of the assets of Danner Shoe Manufacturing Co. for an aggregate purchase price of approximately $21.5 million. The acquisition has been accounted for as a purchase. The acquisition agreement provides that in the event the cash and aggregate market value of the common stock (valued as of March 1, 1999) delivered in the Danner acquisition is less than $18.0 million, the Company will make an additional cash payment on March 1, 1999 equal to the difference. If the Danner shareholders have the opportunity to sell their common stock under a Company-filed registration statement or under Rule 144 promulgated under the Securities Act of 1933, as amended, and choose not to sell after receiving a Company request to sell, then the Company's obligation can be reduced or eliminated to the extent of the number of shares permitted to be sold based upon the then prevailing market price for the common stock. The Company has also guaranteed that Danner's shareholders will realize, by March 31, 1999, after-tax proceeds from this transaction of not less than $10.0 million. Independent Auditor's Report To the Board of Directors and Shareholders of LaCrosse Footwear, Inc. We have audited the accompanying consolidated balance sheets of LaCrosse Footwear, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, common shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. McGLADREY & PULLEN, LLP La Crosse, Wisconsin February 3, 1997 [Page 28] Quarterly Results of Operations - Unaudited The Company reports its quarterly results of operations on the basis of 13-week periods for each of the first three quarters with the year ending on December 31st. The following tabulation presents the Company's unaudited quarterly results of operations for 1996 and 1995. Thousands of dollars except per share data - 1996 First Second Third Fourth Quarter Quarter Quarter Quarter Net sales $22,131 $23,054 $35,714 $41,098 Gross profit 5,807 6,107 10,315 11,592 Operating income 554 651 3,965 4,918 Net income 297 276 2,125 2,688 Net income per share $.04 $.04 $.32 $.40 Thousands of dollars except per share data - 1995 First Second Third Fourth Quarter Quarter Quarter Quarter Net sales $19,676 $20,486 $31,092 $27,317 Gross profit 5,092 5,055 8,854 7,559 Operating income 34 389 3,595 2,644 Net income (52) 106 1,958 1,316 Net income per share $(.01) $.01 $.29 $.19 Market Information The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol BOOT. The following table shows the high and low transaction prices by calendar quarter since the stock started trading publicly in April 1994. The approximate number of holders of record of common stock on March 20, 1997 was 400.
1st 2nd 3rd 4th Year end 1994 $ - $10 7/8-14 3/4 $11 -14 3/16 $10 3/4-14 1/4 $ 11 1995 $ 8-12 $ 8 3/4-11 1/4 $10 1/4-11 3/4 $ 8 1/2-12 $ 8 3/4 1996 $8 3/4-12 $ 9 1/4-11 3/4 $ 9 1/2-10 3/4 $10 -12 1/4 $10 3/4
Cash Dividends Declared Per Share It is the Company's policy to pay annual cash dividends. The chart below shows annual cash dividends declared per share for the past five years: 1996 1995 1994 1993 1992 Dividends declared per share $.11 $.09 $.09 $.08 $.07 EX-21 4 SUBSIDIARIES EXHIBIT (21) SUBSIDIARIES OF LACROSSE FOOTWEAR, INC. Jurisdiction Name of Incorporation Percent Ownership Clintonville Products, Inc. Wisconsin 100% Hillsboro Footwear, Inc. Wisconsin 100% Danner Shoe Manufacturing Co. Wisconsin 100% Rainfair, Inc. Wisconsin 50% EX-23 5 CONSENT EXHIBIT (23) CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in this Annual Report on Form 10-K of LaCrosse Footwear, Inc. of our report dated February 3, 1997, included in the 1996 Annual Report of Shareholders of LaCrosse Footwear, Inc. We also consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-77516, 33-77518 and 333-2702) pertaining to the LaCrosse Footwear, Inc. Employees' Retirement Savings Plan, the LaCrosse Footwear, Inc. Union Employees' Retirement Savings Plan and the LaCrosse Footwear, Inc. 1993 Employee Stock Incentive Plan of our report dated February 3, 1997, with respect to the consolidated financial statements incorporated herein by reference, and our report dated February 3, 1997, with respect to the financial statement schedule included in this Annual Report on Form 10-K of LaCrosse Footwear, Inc. for the year ended December 31, 1996. McGLADREY & PULLEN, LLP La Crosse, Wisconsin March 27, 1997 EX-27 6 ARTICLE 5
5 1 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 6,716,183 0 22,212,302 705,500 31,549,091 62,986,338 29,891,962 17,262,328 92,286,019 16,175,699 16,002,200 0 0 67,176 55,868,071 92,286,019 121,827,105 121,996,686 88,176,308 23,564,931 0 167,655 1,679,994 8,769,741 3,440,000 5,386,437 0 0 0 5,386,437 .80 .80
-----END PRIVACY-ENHANCED MESSAGE-----