-----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, VB9pGrhAkG8d/K4btj1+ja0aF4TmU+Cp/TU+eKXbDvUV2ceqKAn/BnQIfe4ex8tN 0anRENxDsU6lvwWk0sFlww== 0000897069-02-000254.txt : 20020415 0000897069-02-000254.hdr.sgml : 20020415 ACCESSION NUMBER: 0000897069-02-000254 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-23800 FILM NUMBER: 02596757 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-K405 1 slp263.txt FORM 10-K 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, 2001 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.) 18550 N.E. Riverside Parkway Portland, Oregon 97230 ------------------------------- ----- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (503) 766-1010 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. |X| Aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant at February 28, 2002: $9,397,152. Number of shares of the registrant's common stock outstanding at February 28, 2002: 5,874,449 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 2001 (incorporated by reference into Parts I, II and IV) Portions of the Proxy Statement for 2002 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 clothing for the sporting and outdoor, farm and agriculture, general utility and occupational markets. The Company markets its products primarily under the LACROSSE(R), RAINFAIR(R) and DANNER(R) brands through selected distributors and independent representatives. LaCrosse's products are characterized by innovative, functional design; durability; performance features; and quality materials. Product styling is 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, footwear 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. In January 1998, the Company acquired the remaining 50% of Rainfair that it did not own, thereby making it a 100%-owned subsidiary (and, subsequently, it was merged into the Company). In 1997, the Company acquired the LAKE OF THE WOODS(R) trade name. LAKE OF THE WOODS(R) was a designer, manufacturer and marketer of branded leather footwear for both the outdoor and occupational markets. From 1997 to 1999, the Company transitioned the LAKE OF THE WOODS(R) product offerings to the LACROSSE(R) brand where leather boots have become a significant product offering for 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 (i) to build, position and capitalize on the strength of established brands, (ii) to target its offerings of footwear, rainwear and other complementary products under the established brands, (iii) to offer superior customer service and (iv) to expand and enhance its strong distribution network of sales representatives and retail and industrial customers. -2- Brand Positioning Within the retail channels of distribution, the Company markets footwear and rainwear under the well-established DANNER(R) and LACROSSE(R) brands. Each brand is positioned differently in the marketplace in order to capitalize on differences in end user expectations for performance, price and end-use. 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, distributed to a broad base of independent retailers. 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 an extensive 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 and outdoor and occupational markets. The Company markets rubber/vinyl footwear mainly under the LACROSSE(R) brand. The product line ranges from low cost vinyl-molded products to high performance, hand-crafted rubber products directed to specific recreational and occupational market niches. In addition, the Company is a leader in rubber 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, many of which feature the stitch-down manufacturing process which provides outstanding support and built-in comfort for the owner. Danner was the first footwear manufacturer to include a waterproof, breathable GORE-TEX(R) liner (seam taped insert) in leather boots, and it continues to include that liner in over 90% of its products. The LACROSSE(R) brand markets a line of indoor and outdoor work boots and hikers appealing to consumers who desire durability and comfort. -3- 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. Products bearing the RAINFAIR(R) brand are recognized in the industry for their 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. LaCrosse also sells footwear accessories such as liners, wader suspenders and socks. During 2001, the Company offered approximately 500 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. Consumers, sales personnel and suppliers provide information to the Company's marketing and product development personnel during the concept, development and testing of new product. New product needs generally can be related to functional or technical characteristics. The final aesthetics of the product are determined by marketing and product development personnel, at times in conjunction with outside design consultants. Once a product design is approved for production, responsibility shifts to manufacturing or outside sourcing facilities 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) and DANNER(R) brands are marketed through independent representative groups. For both brands, some of the independent agents are multi-line representative groups and some are dedicated to the Company's products. A national account sales team complements the sales activities for the brands. The Company's industrial products are distributed through the Rainfair Industrial Division using independent representatives and a national account team. The Company's products are sold directly to more than 4,800 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 -4- economic conditions or mild or dry weather conditions in a specific region are less likely to have as material of an effect on the Company's results of operations. The Company currently operates five internet websites for use by consumers and customers. The primary purpose of the three consumer-oriented websites at this time is to provide product and Company information, and in the case of the DANNER(R) website, to sell product to consumers who choose to purchase direct from the manufacturer at suggested retail pricing. The Company also operates two business-to-business websites, for the Danner(R) and LACROSSE(R) brands respectively, that provide critical information to dealers about the status or pending orders, inventory levels, shipping and other data. The Company will continue to develop its internet strategy during the next twelve months. The Company operates three factory outlet stores whose primary purpose is disposal of slow moving, factory seconds and obsolete merchandise. One of these stores is located at the manufacturing facility in Portland, Oregon. The Company also derives royalty income from Danner Japan Ltd., a Japanese joint venture in which the Company has a 19% 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 for each of its brands 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 targeted consumer. The Company advertises and promotes its products through a variety of methods including national and regional print advertising, national television advertising, public relations, point-of-sale displays, catalogs and packaging, product licensing agreements and sponsorships and through co-promotion with dealers. Manufacturing and Sourcing Traditionally, the Company manufactured the majority of its rubber, leather and vinyl products in its United States manufacturing facilities. During the last few years, the quality and timeliness of product provided by offshore sources has improved substantially. This has resulted in the consumer shifting its allegiance from domestically produced product to product that offers the best value, regardless of origin of manufacture. As a result of this shift, the Company now outsources products unless value can be added in the domestic manufacturing process. This shift to outsourcing resulted in the closing of three U.S. manufacturing plants in 2001. As a result of closing the La Crosse, Wisconsin -5- manufacturing facility, the Company recorded a $4.3 million sourcing realignment and impairment charge in the second quarter of 2001. The Company outsourced over 60% of the product it sold in 2001 compared to 50% in 2000 and expects that number to increase over the next couple of years. The Company sources a majority of its footwear and protective clothing from a variety of foreign manufacturing facilities, primarily located in the Asian-Pacific region. The Company maintains a presence in their facilities in order to facilitate the sourcing and importation of quality footwear. The Company has established criteria for its third party manufacturers in order to monitor product quality and labor practices. The raw materials used in production of the Company's products are quality leather, crude rubber and oil-based vinyl compounds for vinyl footwear and protective clothing products. Since these products are all available on a global basis, the Company has no reason to believe these raw materials will not continue to be available at competitive prices. The Company, or its contract manufacturers, purchases GORE-TEX(R) waterproof fabric directly from W.L. Gore and Associates ("Gore"), for both the LaCrosse and Danner footwear. Gore has traditionally been Danner's single largest supplier, in terms of dollars spent on raw materials. Approximately 90% of Danner's footwear, in terms of number of pairs produced, incorporate GORE-TEX(R) waterproof fabric. Agreements with Gore may be terminated by either party upon 90 days written notice. The Company considers its relationship with Gore to be good. Backlog At December 31, 2001, the Company had unfilled orders from its customers in the amount of approximately $9.4 million compared to $13.9 million at December 31, 2000. The decrease in backlog is primarily the result of reduced orders for cold weather products due to the warm winter and lower orders in the industrial and retail markets due to economic conditions. All orders at December 31, 2001 are expected to be filled during 2002. Because a major portion of the Company's orders are placed in January through June 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 competitors in most of its rubber and vinyl product lines, at least four major competitors in connection with -6- 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, sporting and children's markets. LaCrosse believes it maintains a competitive position compared to its competitors 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. 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(R) and LACROSSE(R) leather product line. These competitors manufacture domestically and/or import products from offshore. Domestically manufactured DANNER(R) brand products effectively compete with other domestically produced products, but are generally at a price disadvantage against lower-cost imported products, because offshore manufacturers generally pay significantly lower labor costs. Danner 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, that the DANNER(R) footwear line has maintained a strong competitive position in its current market niches. In leather boots, the LACROSSE(R) brand, because of its market position, sources product from offshore. Therefore, it competes with other distributors with products sourced from offshore locations. Employees As of December 31, 2001, the Company had approximately 590 employees, all located in the United States. Approximately 35 of the Company's employees at the La Crosse, Wisconsin facility are represented by the United Steel Workers of America under a two-year collective bargaining agreement which expires in September 2003, approximately 116 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 2006 and approximately 55 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 August 2003. The Company has approximately 160 employees at manufacturing facilities located outside of La Crosse, Wisconsin, Portland, -7- 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), RAINFAIR(R), LACROSSE and stylized Indianhead design that serve as the Company's logo, RAINFAIR and stylized horse design that serve as Rainfair's logo, ALLTEMP(R), DURALITE(R), FIRETECH(R), FLY-LITE(R), ICE KING(R), ICECUBE(R), ICEMAN(R), TERRAIN KING(R), AIRTHOTIC(R), CROSS-HIKER(R), THERMONATOR(R), GAMEMASTER(R), GENESYS(R), TERRA FORCE(R), HYPER-DRI(R), CAMOHIDE(R) and RED BALL JETS(R). The Company 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), AIRBOB(R) and stylized Indianhead design and in Mexico for its mark LACROSSE(R) and stylized Indianhead design. 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) and RAINFAIR(R) names, the Company does not believe any trademark is material to its business. 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; a neoprene wader upper with an expandable chest; a three-shank cement and stitch-down manufacturing process; and a patent for its AIRTHOTIC(R), which is a ventilated arch support that fits under the heel. Seasonality/Working Capital As has traditionally been the case, the Company's sales in 2001 were higher in the last two quarters of the year than in the first two quarters and, in order to satisfy shipping requirements, the Company places orders for product during the first quarter with delivery to the Company starting in the second quarter. As a result, inventories generally peak early in the third quarter. The Company expects these trends to continue. Additional information about the seasonality and working capital requirements of the Company's business is contained under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" in the Company's 2001 Annual Report to Shareholders and such information is hereby incorporated herein by reference. -8- Foreign Operations and Export Sales Other than the Company's 19% 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 2001. 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 2002, any material impact on the capital expenditures, earnings or competitive position of the Company. Executive Officers of the Registrant The following table sets forth certain information, as of March 15, 2002, regarding the executive officers of the Company. Name Age Position ---- --- -------- George W. Schneider 79 Chairman of the Board and Director Joseph P. Schneider 42 President, Chief Executive Officer and Director Robert J. Sullivan 55 Vice President--Finance and Administration and Chief Financial Officer David P. Carlson 46 Executive Vice President and President and Chief Operating Officer of Danner John M. McGinnis 62 President and Chief Operating Officer of the Rainfair Industrial Division 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. Joseph P. Schneider has served as a director of the Company since March 1999 and as President and Chief Executive Officer since August 4, 2000. Prior thereto, Mr. Schneider served as Executive Vice President-Danner of the Company since May 1999, as President and Chief Executive Officer of Danner since October 1998, as Vice President of the Company since June 1996, as President and Chief Operating Officer of Danner since December 1997, as -9- Executive Vice President and Chief Operating Officer of Danner since June 1996 and as Vice President - Retail Sales of the Company from January 1993 until June 1996. From 1985, when he joined the Company, until January 1993, Mr. Schneider held various sales management positions. 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. David P. Carlson was named Executive Vice President of the Company in August 2001. Mr. Carlson has also served as President and Chief Operating Officer of Danner since August 2000. Prior thereto, he served as Vice President-Finance and Chief Financial Officer of Danner from March 1998, when he joined Danner, until August 2000. Prior to joining Danner, Mr. Carlson was the Vice President-Finance of The Palace Inc., an internet software company, from 1996 to 1998. Prior thereto, he was the Vice President-Controller of Cadre Technologies Inc., a global provider of software development tools, from 1983 to 1996. John M. McGinnis joined the Company in January 2002 as the President and Chief Operating Officer of the Rainfair Industrial Division. Prior to joining the Company, Mr. McGinnis was Chief Operating Officer of National Graphics, a printing company, from August 2001 to January 2002. Prior thereto, he was Vice President--General Manager of Northstar Print, a litho printing company, from May 1999 to April 2001 and President of Form House, a finishing company, from September 1994 to May 1999. 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. -10- Item 2. Properties The following table sets forth certain information, as of December 31, 2001, relating to the Company's principal facilities. Properties Owned Approximate or Floor Area in Location Leased Square Feet Principal Uses -------- ------ ----------- -------------- Portland, OR Leased(1) 55,000 Principal sales, marketing and executive offices and warehouse space Portland, OR Leased(2) 36,000 Manufacturing operations and retail outlet store La Crosse, WI Leased(3) 212,000(1) Warehouse space La Crosse, WI Leased(4) 283,500 Warehouse and distribution facility La Crosse, WI Leased 11,000 Retail outlet store Kenosha, WI Leased 3,000 Retail outlet store Claremont, NH Owned 150,000 Manufacture vinyl injection- molded products Claremont, NH Leased(5) 68,000 Warehouse and distribution facility Racine, WI Leased(6) 104,700 Manufacturing, warehousing and offices for Rainfair - ------------------------- (1) The lease for this facility expires in 2007. (2) The lease for this facility expires in March 2009, but the Company has the option to extend the term for an additional five years. (3) The lease for this 212,000 square foot building in La Crosse, Wisconsin expires in 2007. Approximately 50% of this building is currently sublet to the former owner through February 2002 and approximately 9% is sublet to a third party through April 2007. The balance of the facility is used by the Company for warehouse space. (4) The lease for space in this facility expires in 2003. -11- (5) The lease of this facility expires in 2003. This space is leased in a facility adjacent to the Company's manufacturing plant in Claremont, New Hampshire. (6) The lease for this facility was entered into in May 1996 and expires in May 2006. Based on present plans, management believes that the Company's current facilities will be adequate to meet the Company's anticipated needs for at least the next two years. Item 3. Legal Proceedings From time to time, the Company, in the normal course of business, is 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, 2001. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The information set forth in the Company's 2001 Annual Report to Shareholders under the captions "Market Information" and "Cash Dividends Declared Per Share" is hereby incorporated herein by reference in response to this Item. Item 6. Selected Financial Data The information set forth in the Company's 2001 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 in the Company's 2001 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 7A. Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risk results from fluctuations in interest rates. The Company enters into interest rate swap agreements ("Swap Agreements") to reduce its exposure to interest rate fluctuations on its floating rate debt. The Swap Agreements exchange -12- floating rate for fixed rate interest payments periodically over the life of the agreements without exchange of the underlying notional amounts. The notional amounts of interest rate agreements are used to measure interest to be paid or received and do not represent an amount of exposure to credit loss. For interest rate instruments that effectively hedge interest rate exposures, the net cash amounts paid or received on the agreements are accrued and recognized as an adjustment to interest expense. In addition, effective January 1, 2001, the Company began recording the fair value of the Swap Agreements each month as an adjustment to interest expense. As of December 31, 2001, the Company had Swap Agreements in effect totaling $11.0 million notional amount, of which $7.0 million will mature in January 2003 with another $4.0 million maturing in October 2003. The variable rate borrowings not offset by Swap Agreements at December 31, 2001 totaled $12.4 million. Swap Agreement rates are based on the three-month LIBOR rate. Based on average floating rate borrowings outstanding throughout fiscal year 2001, a 100-basis point change in LIBOR would have caused the Company's monthly interest expense to change by approximately $21,000. The Company believes that these amounts are not material to the earnings of the Company. Item 8. Financial Statements and Supplementary Data The consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2001, and the related consolidated balance sheets of the Company as of December 31, 2001 and 2000, 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, 2001, all set forth in the Company's 2001 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. -13- 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 2002 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 10, 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. -14- 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 schedule are incorporated by reference in this Annual Report on Form 10-K. 2. Financial statement schedule - The financial statement schedule listed in the accompanying index to financial statements and financial statement schedule is 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, 2001. -15- 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 29th day of March, 2002. LACROSSE FOOTWEAR, INC. By /s/ Joseph P. Schneider ------------------------------------- Joseph P. Schneider President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ George W. Schneider Chairman of the Board March 29, 2002 - --------------------------- and Director George W. Schneider /s/ Joseph P. Schneider President, Chief Executive March 29, 2002 - --------------------------- Officer and Director (Principal Joseph P. Schneider Executive Officer) /s/ Robert J. Sullivan Vice President-Finance and March 29, 2002 - --------------------------- Administration and Chief Robert J. Sullivan Financial Officer (Principal Financial and Accounting Officer) /s/ Richard A. Rosenthal Vice Chairman of the Board March 29, 2002 - --------------------------- and Director Richard A. Rosenthal -16- Signature Title Date --------- ----- ---- /s/ Craig L. Leipold Director March 29, 2002 - --------------------------- Craig L. Leipold /s/ Luke E. Sims Director March 29, 2002 - --------------------------- Luke E. Sims /s/ Frank J. Uhler, Jr. Director March 29, 2002 - --------------------------- Frank J. Uhler, Jr. /s/ John D. Whitcombe Director March 29, 2002 - --------------------------- John D. Whitcombe -17- INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page -------------------------------------- Annual Report Form 10-K to Shareholders Consolidated Balance Sheets at December 31, 2001 and 2000 - 7 Consolidated Statements of Operations for each of the three years in the period ended December 31, 2001 - 8 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 2001 - 8 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2001 - 9 Notes to Consolidated Financial Statements - 10-19 Independent Auditor's Report - 19 Independent Auditor's Report on Financial Statement Schedule 19 - Financial Statement Schedule: II - Valuation and Qualifying Accounts 20-21 - 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. -18- 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. /s/ McGladrey & Pullen, LLP McGLADREY & PULLEN, LLP La Crosse, Wisconsin February 13, 2002 -19- LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions -------------------------------- Balance at Charged To Balance Beginning Costs Charged To at End Description Of Period And Expenses Other Accounts Deductions of Period ----------- --------- ------------ -------------- ---------- --------- Year ended December 31, 1999: Accounts receivable allowances: Allowance for returns $ 508,000 $1,082,033 $ -- $1,122,033 $ 468,000 Allowance for cash discounts 88,000 340,354 -- 398,354 30,000 Allowance for doubtful accounts 377,000 165,679 -- 173,679 369,000 Allowance for uncollectible interest 59,649 117,074 -- 112,930 63,793 ---------- ---------- --------------- ---------- ---------- Total $1,032,649 $1,705,140 $ -- $1,806,996 $ 930,793 ========== ========== =============== ========== ========== Inventory allowance: Allowance for obsolescence $1,300,000 $2,113,950 $ -- $ 564,847 $2,849,103 ========== ========== =============== ========== ========== Property and equipment allowance: Reserve for excess equipment $ -- $ 200,000 $ -- $ -- $ 200,000 ========== ========== =============== ========== ========== Warranty allowance: Allowance for warranties $ 471,441 $1,004,010 $ -- $1,004,323 $ 471,128 ========== ========== =============== ========== ========== Year ended December 31, 2000: Accounts receivable allowances: Allowance for returns $ 468,000 $1,790,136 $ -- $1,667,136 $ 591,000 Allowance for cash discounts 30,000 124,573 -- 124,573 30,000 Allowance for doubtful accounts 369,000 248,673 -- 317,679 299,994 Allowance for uncollectible interest 63,793 75,065 -- 70,609 68,249 ---------- ---------- --------------- ---------- ---------- Total $ 930,793 $2,238,447 $ -- $2,179,997 $ 989,243 ========== ========== =============== ========== ========== Inventory allowance: Allowance for obsolescence $2,849,103 $2,163,891 $ -- $2,851,465 $2,161,529 ========== ========== =============== ========== ========== Property and equipment allowance: Reserve for excess equipment $ 200,000 $ 447,795 $ -- $ 306,795 $ 341,000 ========== ========== =============== ========== ========== Deferred income taxes: Deferred tax asset valuation allowance $ -- $1,290,000 $ -- $ -- $1,290,000 ========== ========== =============== ========== ========== Warranty allowance: Allowance for warranties $ 471,128 $1,151,567 $ -- $1,121,741 $ 500,954 ========== ========== =============== ========== ==========
-20- SCHEDULE II - continued
Additions -------------------------------- Balance at Charged To Balance Beginning Costs Charged To at End Description Of Period And Expenses Other Accounts Deductions of Period ----------- --------- ------------ -------------- ---------- --------- Year ended December 31, 2001: Accounts receivable allowances: Allowance for returns $ 591,000 $1,378,696 $ -- $1,360,696 $ 609,000 Allowance for cash discounts 30,000 -- -- 30,000 -- Allowance for doubtful accounts 299,994 654,283 -- 565,277 389,000 Allowance for uncollectible interest 68,249 125,930 -- 160,929 33,250 ---------- ---------- --------------- ---------- ---------- Total $ 989,243 $2,158,909 $ -- $2,116,902 $1,031,250 ========== ========== =============== ========== ========== Inventory allowance: Allowance for obsolescence $2,161,529 $2,243,494 $ -- $ 559,023 $3,846,000 ========== ========== =============== ========== ========== Property and equipment allowance: Reserve for excess property and equipment $ 341,000 $ 142,629 $ -- $ -- $ 483,629 ========== ========== =============== ========== ========== Deferred income taxes: Deferred tax asset valuation allowance $1,290,000 $2,339,000 $ -- $ -- $3,629,000 ========== ========== =============== ========== ========== Warranty allowance: Allowance for warranties $ 500,954 $1,052,565 $ -- $1,050,421 $ 503,098 ========== ========== =============== ========== ==========
The accounts receivable, inventory, property and equipment and deferred tax asset allowances above were deducted from the applicable asset accounts. -21- EXHIBIT INDEX Sequential Exhibit Page Number Exhibit Description Number - ------ ------------------- ------ (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 (3.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001] (4.1) Credit Agreement, dated as of June 15, 2001, by and among -- LaCrosse Footwear, Inc., Danner Shoe Manufacturing Co., as borrowers, and General Electric Capital Corporation and the CIT Group/Commercial Services, Inc., as lenders. [Incorporated by reference to Exhibit (4.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001] (4.2) Credit Agreement, dated as of June 15, 2001, by and -- between LaCrosse Footwear, Inc., as borrower, and Firstar Bank, N.A., as lender [Incorporated by reference to Exhibit (4.2) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001] (9.1) 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)] (9.2) Amendment No. 9 to Voting Trust Agreement, dated June 30, -- 1997. [Incorporated by reference to Exhibit (9.2) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997] (9.3) Extension of Term, dated as of March 31, 1999, of the -- Voting Trust Agreement, dated as of June 12, 1982, as amended. [Incorporated by reference to Exhibit (4) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended April 3, 1999] -22- Sequential Exhibit Page Number Exhibit Description Number - ------ ------------------- ------ (10.1) * Employment Agreement, dated as of June 1, 1999, between -- Patrick K. Gantert and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended October 2, 1999] (10.2)* Severance Agreement and Release, effective August 3, 2000, -- between Patrick K. Gantert and LaCrosse Footwear, 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, 2000] (10.3)* 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)] (10.4) * 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)] (10.5)* 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)] (10.6)* LaCrosse Footwear, Inc. 1997 Employee Stock Incentive Plan -- [Incorporated by reference to Exhibit (10.17) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996] (10.7)* LaCrosse Footwear, Inc. 2001 Stock Incentive Plan -- [Incorporated by reference to Appendix B of LaCrosse Footwear, Inc.'s Definitive Proxy Statement on Schedule 14A for the 2001 Annual Meeting of Shareholders] (10.8)* LaCrosse Footwear, Inc. 2001 Non-Employee Director Stock Option Plan [Incorporated by reference to Appendix C of LaCrosse Footwear, Inc.'s Definitive Proxy Statement on Schedule 14A for the 2001 Annual Meeting of Shareholders] (10.9) Lease, dated as of March 14, 1994, between JEPCO -- Development Co. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.22) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] - -------- * A management contract or compensatory plan or arrangement. -23- Sequential Exhibit Page Number Exhibit Description Number - ------ ------------------- ------ (10.10) Amendment, dated as of March 17, 1998, to Lease between -- JEPCO Development Co., LLC and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.17) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998] (10.11) 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)] (10.12) 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)] (13) Portions of the 2001 Annual Report to Shareholders that are incorporated by reference herein (21) List of subsidiaries of LaCrosse Footwear, Inc. (23) Consent of McGladrey & Pullen, LLP (99) Proxy Statement for the 2002 Annual Meeting of Shareholders -- [The Proxy Statement for the 2002 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 2002 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.] -24- EX-13 3 slp263a.txt ANNUAL REPORT
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA - ------------------------------------------------------------------------------------------------------------------- Selected Income Statement Data Year Ended December 31 (In Thousands) 2001 2000 1999 1998 1997 Net sales $ 125,301 $ 138,161 $ 124,328 $ 133,405 $ 145,503 Operating income (loss) (5,308) (2,126) (2,208) 5,598 13,156 Net income (loss) (7,949) (4,769) (2,637) 2,260 6,779 Selected Balance Sheet Data Year Ended December 31 (In Thousands) 2001 2000 1999 1998 1997 Working capital $ 27,853 $ 27,760 $ 40,792 $ 44,801 $ 48,413 Total assets 79,316 97,598 98,020 98,615 101,920 Notes payable, bank 17,645 20,840 14,088 9,500 4,000 Long-term obligations (including current portion) 6,031 10,406 12,414 12,496 15,848 Shareholders' equity 41,545 49,494 56,388 63,035 61,848 Selected Share Data Year Ended December 31 2001 2000 1999 1998 1997 Basic earnings (loss) per share $ (1.35) $ (.80) $ (.41) $ .34 $ 1.02 Diluted earnings (loss) per share $ (1.35) $ (.80) $ (.41) $ .34 $ 1.01 Dividends per share $ -- $ -- $ .13 $ .13 $ .13 Shares used in basic per share calculation (000's) 5,874 5,974 6,465 6,662 6,668 Shares used in diluted per share calculation (000's) 5,874 5,974 6,465 6,676 6,713
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements Certain matters discussed below in this 2001 Annual Report (and, thereby, the 2001 Form 10-K) are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as the Company "believes," "expects" or other words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include, without limitation: o Weather conditions o Dealer inventory levels o Inventory levels required for sourced product and emphasis on forecasting capabilities o Lead times (or delays) for sourced product and dependence on independent manufacturers or suppliers o Limited ability to resupply customer for fill-in orders for sourced product o Trading policies or import and export regulations and foreign regulation of manufacturers or suppliers o Actions of Company competitors o Changes in consumer buying patterns o Loss of a material customer o Increases in interest rates Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included are made only as of the date of this 2001 Annual Report. The Company is not obligated to publicly update such forward-looking statements to reflect subsequent events or circumstances. Overview The Company markets and distributes its products through both the industrial and retail channels of distribution. The less weather-dependent industrial channel of distribution accounts for approximately 30% of total net sales and serves the food processing, mining, construction and industrial end use markets with protective footwear and clothing. To build the less weather dependent Industrial business, the Company in 1996 acquired Rainfair, Inc., a manufacturer and marketer of rainwear and protective clothing. In addition, the Company is gradually shifting its retail product mix to become less dependent on winter weather. This is being accomplished through the faster growth of the Danner leather product line and the addition of leather product offerings under the LaCrosse brand. 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 during the fourth quarter, 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 assist in product sourcing and 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 advance orders. The Company may offer price discounts and extended terms for orders placed prior to June, although advance orders may be canceled at any time. In an 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 November 15 (December 15 in the case of Southern dealers). Because of seasonal fluctuations, inventory levels are highest at mid-year and accounts receivable levels peak during the fourth quarter. Over the past two years, the Company has shifted all of its rubber footwear production and a significant portion of its leather footwear production from its domestic manufacturing facilities to contract offshore facilities primarily. In 2001, the Company outsourced approximately 62.0% of the product it sold, up from 50% in 2000. This shift in production has resulted in the closing of three domestic manufacturing facilities during 2001 and thereby lowered investments in plant and equipment. The outsourced product will provide a more competitively priced product in the marketplace. However, the use of offshore sourcing facilities will require the Company to place orders four to six months in advance of the date the customer requires delivery, thus increasing the emphasis on forecasting capabilities. Each year, the Company introduces the Companny to place a number of new products. A new product, if successful, can generate growing amounts of net sales during the first two to four 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. 3 Results of Operations The following table shows the percentage relationship to net sales of items derived from the Consolidated Statements of Operations and the percentage change from year to year.
Percentage of Net Sales Percentage of Increase (Decrease) Year Ended December 31 2001 2000 1999 2001 vs. 2000 2000 vs. 1999 Net sales 100.0% 100.0% 100.0% (9)% 11% Cost of goods sold 75.9 75.6 76.5 (9) 10 Gross profit 24.1 24.4 23.5 (11) 16 Selling and administrative expenses (28.3) (25.9) (25.3) (1) 14 Operating loss (4.2) (1.5) (1.8) (150) 4 Interest expense (2.2) (2.4) (1.8) (13) 48 Other income (expense) .1 (.2) .1 -- -- Loss before income taxes (6.3) (4.1) (3.5) (40) (31) Income taxes -- .6 1.4 -- (46) Net loss (6.3)% (3.5)% (2.1)% (67)% (81)%
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 Net Sales. Net sales in 2001 decreased $12.9 million, or 9.0%, to $125.3 million from $138.2 million in 2000. While net sales of Danner brand boots increased approximately 5.0%, this increase was more than offset by decreases in net sales of LaCrosse brand products through the retail channel of distribution and weakness in the industrial channel of distribution. The increase in sales of the Danner brand product was the result of acceptance of new product offerings, strength in the duty footwear business and favorable weather in the primary markets served. Sales through the LaCrosse retail channel of distribution and the industrial channel of distribution were both negatively impacted by unfavorable weather conditions during the fourth quarter of 2001, the weakness in the industrial and retail sectors of the economy, spot product outages (which occurred as a result of the shift of the Company's rubber boots from a domestically produced product to a sourced product), as well as a reduction in the offerings in the LaCrosse brand product line. Gross Profit. Gross profit as a percentage of net sales decreased to 24.1% in 2001 from 24.4% in 2000. The Company has been going through a period of transition since 1999 and, as a result, has incurred costs in both 2001 and 2000 which impacted margins. The Company experienced increased selling margins on current line products over the past two years as a result of the outsourcing effort. However, these improvements were impacted in both years by the switch from domestic sourcing to outsourcing. In 2001, the Company announced the closing of its La Crosse, Clintonville and Hillsboro, Wisconsin manufacturing facilities. As a result, the Company incurred charges for severance expenses, labor inefficiencies, raw material and component part write-downs, and the closing of the facilities. During the second quarter of 2001, the Company incurred an impairment charge of $1.9 million and a sourcing realignment charge of $ 1.8 million. In addition, the Company narrowed its product offering in several areas of the LaCrosse brand product offering, which resulted in establishing reserves related to the disposal of the discontinued products. In 2000, the Company incurred charges for labor inefficiencies, severance costs and a $1.0 million charge for partial curtailment of the union pension plan as the Company reduced employment at its La Crosse manufacturing facility. In addition, costs were incurred related to raw materials and component parts which were no longer required for domestic manufacturing. Both 2001 and 2000 were impacted favorably by a $1.8 million and $1.3 million, respectively, reduction in the LIFO inventory reserve as the manufactured pool of inventory was reduced. Selling and Administrative Expenses. Selling and administrative expenses decreased $.4 million, or 1.0%, in 2001 as compared to 2000. The reduction in selling and administrative expenses was driven by the Company's strategy to outsource its rubber footwear (which resulted in substantial reductions in employment), a reduction in marketing programs supporting the LaCrosse brand and a favorable impact from a partial curtailment of the non-union pension plan. These reductions were largely offset by an acceleration of the write-off of goodwill and other intangibles due to a change in useful lives, severance expenses related to the closing of three of the Company's manufacturing facilities, the relocation of the Company's headquarters from La Crosse, Wisconsin to Portland, Oregon and costs incurred to implement the conversion of all of the Company's systems to the enterprise resource planning system (which was already in use at the Portland, Oregon location). Interest Expense. Interest expense decreased $.4 million, or 13.0%, in 2001 as compared to 2000. The decrease in interest expense was the result of lower average borrowings (primarily due to lower inventories and receivables) coupled with a lower interest rate on the outstanding debt. The lower interest rate was a result of the lower market rates which was partially offset by an increase in rates under the new credit agreement entered into in June 2001. 4 Income Tax Expense. The Company recorded no income tax benefit in 2001. The expected income tax benefit was offset by an increase in the deferred tax valuation allowance since the Company has had three consecutive loss years. In 2000, the Company recorded income tax benefits to the extent tax loss carrybacks were available. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Net Sales. Net sales in 2000 increased $13.9 million, or 11.0%, to $138.2 million from $124.3 million in 1999. The increase in net sales was driven by increases in Danner brand sales, LaCrosse brand sales and sales into the industrial channel of distribution, with successful new product introductions and more favorable weather conditions contributing to the increase. Sales of Danner products were up 14.0% for the year, due largely to the success of the new Radical outdoor cross training product. Sales through the retail channel of distribution were up 6.0% during the year with increased sales of LaCrosse brand leather boots and children's boots partially offset by a decline in shipments of traditional rubber footwear. Increased shipments of closeout merchandise also contributed to the increase. Sales through the industrial channel of distribution were up 17.0% for the year with newly introduced products and increased placement of products at existing national accounts driving the increase. Gross Profit. Gross profit as a percentage of net sales increased to 24.4% in 2000 from 23.5% in 1999. The increase in gross margin as a percentage of net sales was driven by an increase in margin percentages for Danner brand shipments (driven by improved margins on sourced products), higher margins for product distributed in the retail channel of distribution (largely due to improved margins on sourced items), and a net positive impact of $1.3 million due to a reduction in the LIFO inventory reserve. Offsetting the margin increases in the retail channel, the Company incurred charges in 2000 for labor inefficiencies, severance costs and a $1.0 million charge for partial curtailment of the union pension plan as the Company reduced employment at its La Crosse, Wisconsin manufacturing facility. In addition, costs were incurred related to raw materials and component parts which were no longer required for domestic manufacturing. In 1999, the Company incurred a $1.8 million charge related to product line reductions. Selling and Administrative Expenses. Selling and administrative expenses increased $4.5 million, or 14.0%, in 2000 as compared to 1999. The increase in selling and administrative expenses was driven by the continued commitment to brand marketing for the LaCrosse and Danner brands, increased product development spending in support of the transition of products to an outsourced status, increased distribution expenses (partially as a result of increased volume and systems inefficiencies), increased information technology spending in support of the installation of an enterprise resource planning system, increased selling expenses primarily due to the increased volume and an increase in severance-related expenses (including amounts related to the downsizing of domestic manufacturing). Interest Expense. Interest expense increased $1.0 million, or 48.0%, in 2000 as compared to 1999. The increase in interest expense was the result of higher interest rates (driven by higher market rates and higher rates pursuant to an amended credit agreement entered into in March 2000) and higher average borrowings, primarily due to stock repurchases during 1999 and 2000 and higher levels of finished goods inventory. Income Tax Expense. The Company's effective income tax rate in 2000 was 16.0%, compared to 39.0% in 1999. 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 from August through October. On June 15, 2001, the Company entered into a three-year credit agreement with General Electric Capital Corporation (GECC) serving as the lead lender. Amounts borrowed under the agreement are secured primarily by all of the assets of the Company. The Company is entitled to borrow under this line of credit based upon a collateral formula that keys off of qualified accounts receivable and inventory, except that borrowings under this line of credit cannot exceed $52.5 million. At the Company's option, the interest rate is either the prime rate plus .5% or LIBOR plus 2.75%. In conjunction with the refinancing of the line of credit on June 15, 2001, the Company also refinanced its term loan with Firstar Bank, N.A., the lead lender on the previous term loan. The amount of the refinanced term loan was $7.5 million. The term loan expires May 28, 2004 and calls for semi-annual payments of $.75 million which commenced in November 2001 with a final payment due on May 28, 2004. The term loan is secured by, among other things, certain properties and equipment of the Company and a personal guarantee from the Company's principal shareholder. In the event of a sale of any of the secured properties and equipment, a portion of the net proceeds will be applied to the term loan. At the Company's option, the interest rate on the term loan is either the bank's prime rate or LIBOR plus 2.0%. The credit agreements contain certain restrictive covenants which, among other things, require the Company to maintain certain levels of net availability (depending on the time of the year), to meet certain tangible net worth requirements on a quarterly basis and to limit capital spending to less than $3.5 million per year. At December 31, 2001, the Company had unused borrowing availability of $4.8 million under the revolving credit agreement. At December 31, 2001, the Company did not comply with the tangible net worth covenant, however the Company has obtained waivers from the lenders with respect to this violation. The Company believes that the availability under the line of credit and anticipated cash flows from operations will be adequate to fund the cash requirements for 2002 and that the Company will be in compliance with all of the covenants under the credit agreements during 2002. 5 Cash provided by operations in 2001 amounted to $9.7 million compared to cash used in operations of $1.8 million in 2000. Cash of $10.8 million was provided by reductions in working capital in 2001, whereas $1.7 million was used to fund working capital requirements in 2000, a net improvement of $12.5 million. Accounts receivable of $18.9 million at December 31, 2001 reflected a $7.9 million (29.7%) decrease from the $26.8 million balance at December 31, 2000. Inventories of $34.4 million at December 31, 2001 decreased $4.2 million (10.9%) from $38.6 million at December 31, 2000. The decline in accounts receivable was the result of reduced sales in the fourth quarter of 2001 as compared to 2000, while the decline in inventories was the result of a focused inventory reduction program during 2001 (which included a substantial reduction in manufacturing activity and the related raw material and work-in-process inventories) and reductions associated with reserves established. The decrease in accrued expenses was attributed to the decline in employment and domestic manufacturing. The net loss in 2001 was $7.9 million, $3.1 million more than the $4.8 million net loss reported in 2000. Non cash items (a $.3 million increase in amortization expense, a $1.5 million increase in the loss on disposal/impairment of property and equipment and a $1.3 million intangible impairment charge) accounted for the increase in the net loss. Net cash used in investing activities during 2001 was $.8 million, down from $2.3 million in 2000. During 2001, the Company spent $2.2 million on capital spending as compared to $3.3 million in 2000. The decrease was the result of a reduction in capital spending to support manufacturing activities. In addition, the Company realized proceeds of $1.4 million from the sale of assets in 2001 as compared to $1.0 million in 2000. The Company has now sold substantially all of the property and equipment that will be disposed of in connection with the strategy to reduce domestic manufacturing. Net cash used in financing activities was $8.6 million in 2001 as compared to $2.1 million provided by financing activities in 2000. During 2001, cash was used to repay long-term obligations ($4.5 million), reduce short-term borrowings ($3.2 million) and pay deferred financing costs ($.9 million). In 2000, $6.7 million of short-term borrowings were used to purchase treasury stock ($2.1 million), repay long-term debt ($1.7 million) and pay cash dividends ($.8 million). In March 2000, the Company repurchased, at the current market price, 500,000 shares of common stock for a total cost of $2,125,000. The Company's debt to total capital ratio was 36.3% at December 31, 2001, 38.7% at December 31, 2000 and 32.0% at December 31, 1999. Critical Accounting Policies The Company's significant accounting policies are summarized in the notes to the consolidated financial statements. Some of the most critical policies are also discussed below. As a matter of policy, the Company reviews its major assets for impairment (during 2001, the Company recognized an impairment loss). The Company's major operating assets are accounts receivable and inventories. The Company has not experienced significant bad debt expense and its reserve for doubtful accounts of $.4 million should be adequate for any exposure to loss in the December 31, 2001 accounts receivable. The Company has also established reserves for slow moving and obsolete inventories and believes the reserve of $3.8 million is adequate. Recently Issued Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations to be accounted for using the purchase method of accounting and requires that intangible assets that meet certain criteria be reported separately from goodwill. This statement is effective for all business combinations initiated after June 30, 2001. SFAS 142 eliminates the amortization of goodwill and other intangibles that are determined to have an indefinite life and requires, at a minimum, annual impairment tests for goodwill and other intangible assets that are determined to have an indefinite life. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 141 did not have a material impact on the Company's operating results or financial condition. Upon the adoption of SFAS 142 during the first quarter of 2002, the Company is required to re-evaluate goodwill and other intangible assets that arose from business combinations entered into before July 1, 2001 and reassess the useful lives of intangible assets and adjust the remaining amortization periods accordingly. The Company has not yet completed its full assessment of the effect of SFAS 142 on its financial statements and so is uncertain as to the impact. In September 2001, the FASB issued SFAS No. 143, "Asset Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS 143 will be effective for the Company's fiscal year ending December 2003. The Company has not yet completed its full assessment of the effect of SFAS 143 on its financial statements and so is uncertain as to the impact. In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 will be effective for the Company's fiscal year ending December 2002. The Company has not yet completed its full assessment of the effects of SFAS 144 on its financial statements and so is uncertain as to the impact. 6
LACROSSE FOOTWEAR FINANCIAL STATEMENTS Consolidated Balance Sheets December 31, 2001 and 2000 (In Thousands, except for share data) Assets (Note 4) 2001 2000 ---- ---- Current Assets Cash and cash equivalents $ 271 $ 11 Trade accounts receivable, less allowances of $1.0 million 18,865 26,820 Inventories (Note 2) 34,371 38,564 Prepaid expenses, deferred tax assets and other (Note 3) 2,880 4,852 Total current assets 56,387 70,247 Property and Equipment (Note 8) Land, land improvements and buildings 3,634 6,998 Machinery and equipment 23,378 33,138 -------- -------- 27,012 40,136 Less accumulated depreciation 19,790 28,849 -------- -------- 7,222 11,287 Other Assets (Note 8) Goodwill, net of amortization of $5.0 and $4.0 million 11,781 12,765 Deferred tax and other assets (Note 3) 3,926 3,299 -------- -------- 15,707 16,064 -------- -------- $ 79,316 $ 97,598 Liabilities and Shareholders' Equity 2001 2000 -------- -------- Current Liabilities Current maturities of long-term obligations (Note 4) $ 1,599 $ 10,217 Notes payable, bank (Note 4) 17,645 20,840 Accounts payable 6,205 6,313 Accrued compensation 1,899 3,081 Accrued other 1,186 2,036 Total current liabilities 28,534 42,487 Long-Term Obligations (Note 4) 4,432 189 Compensation and Benefits (Note 7) 4,805 5,428 Commitments (Notes 5, 6 and 7) Shareholders' Equity (Note 6) Common stock, par value $.01 per share; authorized 50,000,000 shares; issued 6,717,627 shares 67 67 Additional paid-in capital 26,434 26,434 Retained earnings 19,857 27,806 Less cost of 843,178 shares of treasury stock (4,813) (4,813) Total shareholders' equity 41,545 49,494 -------- -------- $ 79,316 $ 97,598
See Notes to Consolidated Financial Statements. 7
Consolidated Statements of Operations Years Ended December 31, 2001, 2000 and 1999 (In Thousands, except for share and per share data) 2001 2000 1999 ---- ---- ---- Net sales $ 125,301 $ 138,161 $ 124,328 Cost of goods sold (Note 8) 95,158 104,413 95,129 ----------- ----------- ----------- Gross profit 30,143 33,748 29,199 Selling and administrative expenses (Note 8) 35,451 35,874 31,407 ----------- ----------- ----------- Operating (loss) (5,308) (2,126) (2,208) Non-operating income (expense): Interest expense (2,812) (3,246) (2,208) Miscellaneous 171 (303) 92 ----------- ----------- ----------- (2,641) (3,549) (2,116) (Loss) before income tax benefit (7,949) (5,675) (4,324) Provision for income tax benefit (Note 3) -- (906) (1,687) ----------- ----------- ----------- Net (loss) $ (7,949) $ (4,769) $ (2,637) Basic (loss) per share $ (1.35) $ (.80) $ (.41) Diluted (loss) per share $ (1.35) $ (.80) $ (.41) Weighted average shares outstanding: Basic (loss) per share 5,874,449 5,974,176 6,464,685 Diluted (loss) per share 5,874,449 5,974,176 6,464,685 Consolidated Statements of Shareholders' Equity Years Ended December 31, 2001, 2000 and 1999 (In Thousands, except for share and per share data) Total Additional Retained Shareholders' Common Stock Paid-In Capital Earnings Treasury Stock Equity ------------ --------------- -------- -------------- ------ Balance, December 31, 1998 $ 67 $ 27,582 $ 36,041 $ (655) $ 63,035 Net (loss) -- -- (2,637) -- (2,637) Dividends ($.13 per share) -- -- (829) -- (829) Purchase of 269,978 shares of treasury stock -- -- -- (2,033) (2,033) Settlement of Danner acquisition contingency -- (1,148) -- -- (1,148) ----------------------------------------------------------------- Balance, December 31, 1999 67 26,434 32,575 (2,688) 56,388 Net (loss) -- -- (4,769) -- (4,769) Purchase of 500,000 shares of treasury stock -- -- -- (2,125) (2,125) ----------------------------------------------------------------- Balance, December 31, 2000 67 26,434 27,806 (4,813) 49,494 Net (loss) -- -- (7,949) -- (7,949) ----------------------------------------------------------------- Balance, December 31, 2001 $ 67 $ 26,434 $ 19,857 $ (4,813) $ 41,545
See Notes to Consolidated Financial Statements. 8 Consolidated Statements of Cash Flows Years Ended December 31, 2001, 2000 and 1999 (In Thousands)
2001 2000 1999 ---- ---- ---- Cash Flows from Operating Activities Net (loss) $ (7,949) $ (4,769) $ (2,637) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation 3,210 3,310 3,660 Amortization 1,024 681 679 Loss on disposal/impairment of property and equipment 1,790 307 -- Intangibles impairment charge 1,282 -- -- Other 98 385 154 Deferred income taxes (560) -- (725) Changes in assets and liabilities: Trade accounts receivable 7,955 (6,375) 2,706 Inventories 4,193 1,773 (639) Accounts payable (108) 403 2,441 Accrued expenses and other (1,225) 2,518 (1,405) Net cash provided by (used in) operating activities 9,710 (1,767) 4,234 Cash Flows from Investing Activities Settlement of Danner acquisition contingency -- -- (1,148) Purchase of property and equipment (2,207) (3,269) (2,513) Proceeds from sale of property and equipment 1,383 1,035 31 Other (20) (96) (538) Net cash (used in) investing activities (844) (2,330) (4,168) Cash Flows from Financing Activities Proceeds from long-term obligations -- -- 12,755 Principal payments on long-term obligations (4,487) (1,712) (12,837) Net proceeds from (payments on) short-term borrowings (3,195) 6,752 4,588 Payment of deferred financing costs (924) -- -- Cash dividends paid -- (829) (864) Purchase of treasury stock -- (2,125) (2,033) Other -- -- (17) Net cash provided by (used in) financing activities (8,606) 2,086 1,592 Increase (decrease) in cash and cash equivalents 260 (2,011) 1,658 Cash and cash equivalents: Beginning 11 2,022 364 -------- -------- -------- Ending $ 271 $ 11 $ 2,022 Supplemental Information Cash payments (refunds) for: Interest $ 3,005 $ 3,141 $ 2,032 Income taxes $ (342) $ (913) $ 610
See Notes to Consolidated Financial Statements. 9 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 clothing 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 subsidiaries (the "Company"). All material intercompany accounts and transactions have been eliminated in consolidation. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the 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. Significant items subject to estimates and assumptions include valuation allowances for inventories and deferred tax assets. 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. The fair value of the interest rate swap agreements is recognized at the end of each quarter by recording the estimated market value of the swap agreement. Concentrations of credit risk The Company grants credit to its customers, who are primarily domestic retail stores, direct mail catalog merchants and wholesalers, 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. Concentrations of suppliers A significant portion of the Company's products are outsourced to foreign suppliers. Approximately 60% of the Company's sales in 2001 were of outsourced products. The Company is not aware of any matters that would affect its ability to outsource its products and does not believe it is dependent on any single supplier. 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, leather boots, leather boot components and rainwear, are valued using the last-in, first-out (LIFO) method. Vinyl products, leather boots, leather boot components and rainwear are valued using the first-in, first-out (FIFO) method. Provision for potentially obsolete or slow-moving inventory is made based on management's analysis of inventory levels and future sales forecasts. At December 31, 2001 and 2000, inventories have been reduced by reserves for obsolete or slow-moving inventory of approximately $3.8 and $2.2 million, respectively. 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 25 years; and machinery and equipment, 3 to 7 years. 10 Note 1. Nature of Business and Significant Accounting Policies (continued) Intangible assets Goodwill, representing the excess of cost over net assets acquired of Danner Shoe Manufacturing Co. and Rainfair, is being amortized on a straight-line basis over periods of 15 to 30 years. Impairment of long-lived assets 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 intangibles based on appraised market value. During 2001, the Company recognized an impairment loss (See Note 8). Interest rate swap agreements The Company uses interest rate swap agreements to manage its exposure to certain interest rate changes. In the first quarter of 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established accounting and reporting standards for derivative instruments and hedging activities and requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. As interest rates change, the differential paid or received is recognized in interest expense for the period. In addition, the change in the fair value of the swap is recognized as interest expense during each reporting period. The adoption of SFAS 133 resulted in an increase in interest expense of approximately $.4 million during 2001. 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. Amounts billed to customers relating to shipping and handling are classified as revenue. Costs incurred by the Company for shipping and handling are classified as cost of goods sold. 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. Advertising and promotion The Company advertises and promotes its products through national and regional media, displays, and catalogs and through cooperative advertising programs with retailers. Costs for these advertising and promotional programs are generally charged to expense as incurred. Advertising and promotional expense included in the consolidated statements of operations for the years ended December 31, 2001, 2000 and 1999 is approximately $2.1, $3.3 and $2.8 million, respectively. Stock-based compensation The Company accounts 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 Company grants options where the exercise price is equal to the market price at the date of the grant, no compensation costs have been recognized. Earnings per share Because the Company has potential common stock outstanding, as discussed in Note 6, the Company is required to present basic and diluted earnings per share. Diluted per share amounts assume the conversion, exercise or issuance of all potential common stock instruments unless the effect is to reduce the loss or increase the income per common share from continuing operations. The numerators and denominators are the same for the basic and diluted earnings per share computations for all years presented. Options to purchase shares of common stock were not included in the computation of diluted earnings per share in 2001, 2000 and 1999 because to do so would be antidilutive. 11 Note 1. Nature of Business and Significant Accounting Policies (continued) Recent accounting pronouncements In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations to be accounted for using the purchase method of accounting and requires that intangible assets that meet certain criteria be reported separately from goodwill. This statement is effective for all business combinations initiated after June 30, 2001. SFAS 142 eliminates the amortization of goodwill and other intangibles that are determined to have an indefinite life and requires, at a minimum, annual impairment test for goodwill and other intangible assets that are determined to have an indefinite life. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 141 did not have a material impact on the Company's operating results or financial condition. Upon the adoption of SFAS 142 during the first quarter of 2002, the Company is required to re-evaluate goodwill and other intangible assets that arose from business combinations entered into before July 1, 2001 and reassess the useful lives of intangible assets and adjust the remaining amortization periods accordingly. The Company has not yet completed its full assessment of the effect of SFAS 142 on its financial statements and so is uncertain as to the impact. In September 2001, the FASB issued SFAS No. 143, "Asset Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS 143 will be effective for the Company's fiscal year ending December 2003. The Company has not yet completed its full assessment of the effect of SFAS 143 on its financial statements and so is uncertain as to the impact. In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 will be effective for the Company's fiscal year ending December 2002. The Company has not yet completed its full assessment of the effects of SFAS 144 on its financial statements and so is uncertain as to the impact. Note 2. Inventories A summary of inventories is as follows: (In Thousands) December 31, 2001 2000 ----------------------------------------- Finished goods $32,169 $33,638 Work in process 289 1,046 Raw materials 1,913 3,880 Total inventories $34,371 $38,564 If all inventories were valued on the FIFO method, total inventories for 2001 and 2000 would have been $35.0 and $40.7 million, respectively. During 2001 and 2000, certain inventory quantity reductions resulted in liquidation of LIFO inventory layers carried at lower costs which prevailed in prior years. The net impact from these reductions and price changes decreased the net loss by $1.8 million ($.31 per share) in 2001 and $1.3 million ($.22 per share) in 2000. There was no significant liquidation of LIFO inventories in 1999. 12 Note 3. Income Tax Matters Net deferred tax assets and liabilities consist of the following components: (In Thousands) December 31, 2001 2000 - ------------------------------------------------------------------------------- Deferred tax assets: Receivable allowances $ 402 $ 387 Inventory differences 2,030 953 Compensation and benefits 2,223 2,598 Insurance reserves and other 1,040 777 Net operating loss carryforwards 2,807 878 Valuation allowance (3,629) (1,290) --------------------------- 4,873 4,303 Deferred tax liabilities, principally intangibles 1,178 1,168 $3,695 $3,135 At December 31, 2001 the Company has a valuation allowance of approximately $3.6 million to reduce its deferred tax assets to estimated realizable value. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are anticipated to reverse, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowance at December 31, 2001. However, the amount of the deferred tax assets considered realizable could be adjusted in the future if estimates of taxable income are revised. 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, 2001 2000 ---------------------------------------------------- Current assets $1,917 $2,460 Noncurrent assets 1,778 675 $3,695 $3,135 13 Note 3. Income Tax Matters (continued) The provision for income taxes (benefit) consists of the following: (In Thousands) Years Ending December 31, 2001 2000 1999 ------------------------------------------------- Current: Federal $ 360 $ (957) $ (820) State 200 51 (142) Deferred (560) -- (725) $ -- $ (906) $(1,687) The differences between statutory federal tax rates and the effective tax rates are as follows: Years Ending December 31, 2001 2000 1999 - -------------------------------------------------------------------------------- Statutory federal tax rate (35.0)% (35.0)% (35.0)% State taxes, net of federal tax benefit and other 2.7 (3.7) (4.0) Valuation allowance 32.3 22.7 -- Effective tax rate (0.0)% (16.0) (39.0)% At December 31, 2001, the Company has a federal net operating loss carryforward of approximately $6.5 million which will expire in the year 2021. In addition, the Company has state net operating loss carryforwards of approximately $11.1 million which will expire as follows: $2.0 million in the year 2014, $2.7 million in the year 2015 and $6.4 million in the year 2016. Note 4. Financing Arrangements Revolving credit agreement: On June 15, 2001, the Company entered into a three-year credit agreement with General Electric Capital Corporation (GECC) serving as the lead lender to refinance its previous bank revolving line of credit. Amounts borrowed under the agreement are secured primarily by all of the assets of the Company. Borrowing limits against the line of credit are the lesser of $57.5 million (reduced to $52.5 million in January 2002) or agreed upon percentages of qualified receivables and inventory. At the Company's option, the interest rate is either the prime rate plus .5% or LIBOR plus 2.75%. Interest is payable monthly on prime rate loans and at maturity on LIBOR based loans. The weighted average interest rate for the outstanding balance at December 31, 2001 was 4.78%. At December 31, 2001 and 2000, there was $17.6 million and $20.8 million, respectively, outstanding under the revolving line of credit. In addition, at December 31, 2001 and 2000, there were letter of credit commitments outstanding of $.6 million and $2.3 million, respectively. In 1998, the Company entered into interest rate swap agreements to manage its exposure to interest rate fluctuations on its floating rate debt. As of December 31, 2001, the Company had swap agreements in effect totaling $11.0 million, of which $7.0 million will mature in January of 2003 with the remaining $4.0 million maturing in October 2003. The Company is exposed to credit loss in the event of nonperformance by the counterparty to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparty. The variable rate borrowings not offset by swap agreements at December 31, 2001 and 2000 totaled $12.4 million and $19.9 million, respectively. 14 Note 4. Financing Arrangements (continued) Long-term obligations: In conjunction with the refinancing of the line of credit on June 15, 2001, the Company also refinanced its term loan with Firstar Bank, N.A., the lead lender on the previous term loan. The amount of the refinanced term loan was $7.5 million. The term loan expires May 28, 2004 and calls for semi-annual payments of $.75 million which commenced in November of 2001 with a final payment due on May 28, 2004. The term loan is secured by, among other things, certain properties and equipment of the Company and a personal guarantee from the Company's principal shareholder. In the event of a sale of any of the secured properties and equipment, a portion of the net proceeds will be applied to the term loan. At the Company's option, the interest rate on the term loan is either the bank's prime rate or LIBOR plus 2.0%. (In Thousands) December 31, 2001 2000 - -------------------------------------------------------------------------------- Term loan under credit agreement, due in semi-annual payments of $.75 million with a final principal payment due on May 28, 2004 $ 5,791 $10,100 Other 240 306 ------- ------- 6,031 10,406 Less current maturities 1,599 10,217 $ 4,432 $ 189 Maturities of long-term obligations for the next five years are as follows (in millions): 2002, $1.6: 2003, $1.6; and 2004, $2.8. The credit agreements contain certain restrictive covenants, which among other things, require the Company to maintain certain levels of net availability (depending on the time of the year), to meet certain tangible net worth requirements on a quarterly basis and to limit capital spending to less than $3.5 million per year. At December 31, 2001, the Company had unused borrowing availability of $4.8 million, however, the Company was in violation of the tangible net worth requirement at December 31, 2001. On February 28, 2002, the lenders waived this violation. In consideration for the waiver, the interest rate on the revolving line of credit was increased to prime plus .75% or LIBOR plus 3.0%. Note 5. Lease Commitments and Total Rental Expense The Company leases office space, retail stores, manufacturing facilities, equipment and warehouse space under non-cancelable agreements expiring on various dates through 2009 and are recorded as operating leases. The total rental expense included in the consolidated statements of operations for the years ended December 31, 2001, 2000 and 1999 is approximately $2.1, $1.9, and $1.8 million, respectively. Approximate future minimum lease payments of $8.1 million are due as follows (in millions): 2002, $2.0; 2003, $1.9; 2004, $1.1; 2005, $1.2; 2006, $1.0; and $.9 thereafter. Note 6. Stock Options The Company has granted stock options to officers, directors and key employees under its 1993, 1997 and 2001 stock option plans pursuant to which options for up to 950,000 shares of common stock may be granted. 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. Substantially all of the options vest in equal increments over a five-year period. 15 Note 6. Stock Options (continued) The following summarizes all stock options granted under the plans: Common Weighted Average Shares Exercise Price ---------------------------------- December 31, 1998 301,813 $ 11.70 Granted 116,750 8.54 Canceled (2,700) 9.78 ------------------------------- December 31, 1999 415,863 10.83 Granted 104,950 4.43 Canceled (149,613) 9.72 ------------------------------- December 31, 2000 371,200 9.46 Granted 135,317 3.13 Canceled (185,914) 8.11 December 31, 2001 320,603 $ 7.57 The weighted average remaining life of outstanding options is 6.5 years as of December 31, 2001. Options exercisable as of December 31 were approximately 149,000 shares in 2001, 191,000 shares in 2000 and 189,000 shares in 1999 at a weighted average exercise price of $10.67, $11.26 and $11.63, respectively. Compensation expense under the plans is 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 provided by SFAS No. 123, the Company's net (loss) for the years ended December 31, 2001, 2000 and 1999 would have been $(8.1 million), $(4.9 million) and $(2.8 million), respectively. Pro forma basic/diluted (loss) per share for the years ended December 31, 2001, 2000 and 1999 would have been $(1.38), $(.83) and $(.44), respectively. The weighted-average fair value at date of grant for options granted during 2001, 2000 and 1999 was $1.25, $2.44 and $3.87 per share, 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: 2001 2000 1999 -------------------------------------------------------------- Expected dividend yield 0% 0% 1% Expected stock price volatility 25% 25% 25% Risk-free interest rate 6.5% 6.5% 6.5% Expected life of options 6 years 7 years 7 years Note 7. Compensation and Benefit Agreements The Company has defined benefit pension plans covering eligible past employees and approximately 20% of its current employees. Eligible participants 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 Company sponsors an unfunded defined benefit postretirement medical and life insurance plan that covers eligible past employees and approximately 20% of its current 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. In 2001, the Company amended the plan which resulted in a decrease in the projected benefit obligation of approximately $3.1 million. As a result of workforce reductions in 2001 and 2000, the Company incurred curtailment losses for the postretirement plan of approximately $.3 million and $.2 million during 2001 and 2000, respectively. For the defined benefit pension plan, the Company incurred a curtailment gain of $.2 million in 2001 and a curtailment loss of $.8 million in 2000. 16 Note 7. Compensation and Benefit Agreements (continued) Information relative to the Company's defined pension and other postretirement benefit plans is presented below.
Pension Benefits Other Benefits (In Thousands) (In Thousands) December 31, December 31, 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------- Changes in benefit obligations: Obligations at beginning of year $ 16,555 $ 15,779 $ 1,016 $ 1,118 Service cost 289 542 27 72 Interest cost 1,110 1,082 110 94 Plan amendments - -- (3,078) -- Benefits paid (874) (737) (398) (166) Curtailment (733) (141) 830 (363) Actuarial (gains) losses (268) 30 2,578 261 Obligations at end of year $ 16,079 $ 16,555 $ 1,085 $ 1,016 Changes in plan assets: Fair value of assets at beginning of year $ 16,583 $ 16,193 $ -- $ -- Actual return on assets (887) 1,127 -- -- Company contributions 42 -- 398 166 Participant contributions -- -- 56 32 Benefits paid (874) (737) (454) (198) Fair value of assets at end of year $ 14,864 $ 16,583 $ -- $ -- Funded status at end of year: Plan assets in excess of (less than) obligations $ (1,215) $ 28 $ (1,085) $ (1,016) Unrecognized (gains) losses (1,033) (3,047) 2,236 (1,204) Unrecognized prior service cost 153 737 (2,968) 95 Unrecognized transition obligation -- 8 -- 331 Accrued benefit cost $ (2,095) $ (2,274) $ (1,817) $ (1,794) Pension Benefits Other Benefits (In Thousands) (In Thousands) Years Ending December 31, Years Ending December 31, 2001 2000 1999 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------- Cost recognized during the year: Service cost $ 289 $ 542 $ 558 $ 27 $ 72 $ 65 Interest cost 1,110 1,082 1,017 110 94 70 Expected return on plan assets (1,295) (1,267) (1,264) -- -- -- Amortization of prior gains (100) (99) (159) (51) (85) (111) Amortization of prior service cost 57 137 137 13 53 53 Amortization of transition obligation 8 45 51 21 70 70 Curtailment (207) 809 -- 301 183 -- Net periodic benefit cost $ (138) $ 1,249 $ 340 $ 421 $ 387 $ 147 Pension Benefits Other Benefits December 31, December 31, 2001 2000 1999 2001 2000 1999 - -------------------------------------------------------------------------------- Assumptions used in computations: Discount rate 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% Rate of compensation increase 4.5% 4.5% 4.5% N/A N/A N/A Expected return on plan assets 8.0% 8.0% 8.0% * * * *This plan does not have separate assets, so there is no actual or expected return on plan assets.
17 Note 7. Compensation and Benefit Agreements (continued) For measurement purposes of other benefits, an 8.5% annual rate of increase in the cost of covered healthcare benefits was assumed for 2001. The rate was assumed to decrease gradually to 5.0% at 2008 and remain at that level thereafter. A one-percentage-point change in the assumed healthcare cost trend rates would have the following effects for the year ended December 31, 2001 (in thousands): Increase Decrease Effect on total of service and interest cost components $ 8 $ (7) Effect on postretirement benefit obligation 35 (32) Note 8. Sourcing Realignment and Impairment Charge On May 11, 2001, the Company announced a strategic realignment of its sourcing for rubber footwear. In connection with this realignment, the Company closed and sold its manufacturing facility located in La Crosse, Wisconsin. The Company eliminated certain footwear product offerings and related raw materials, reduced administrative support services and incurred other expenses in connection with this strategic realignment. Workforce reduction of 134 production, supervisory and support personnel employees were implemented, primarily in manufacturing. It is expected that the realignment actions will reduce fixed costs and lower the total cost of rubber footwear products. The realignment activities were primarily completed in the second and third quarters of 2001, with final completion expected by the second quarter of 2002. The following table summarizes the sourcing realignment and impairment charges recorded in the consolidated statement of operations (cost of goods sold $3.7 million; selling and administrative expense $1.9 million) for 2001 (in thousands of dollars). Sourcing realignment charges: Severance and related costs $ 490 Inventories 1,019 Other exit costs 943 -------------------------------------------------- 2,452 Impairment charges: Property and equipment 1,867 Goodwill and other intangibles 1,282 -------------------------------------------------- 3,149 Total sourcing realignment and impairment $5,601 Severance and related costs associated with the sourcing realignment include voluntary and involuntary employee termination expenses. Inventory charges represent the write-down to net realizable value of raw materials that are no longer used in production and certain finished footwear products that were discontinued as part of the realignment plan. Other exit costs represent expenses that were incurred as a result of closing the manufacturing facility. Impairment charges consist of write-downs of property and equipment to their fair values, the write-down of intangibles associated with the purchase of Red Ball and Lake of the Woods and a write-down of other intangibles. The Company has decided that Red Ball and Lake of the Woods are not core brands and thus will not be investing in these brands in the future. The following table summarizes the activity and remaining liabilities associated with the sourcing realignment as of December 31, 2001 (in thousands of dollars):
Severance and Other Exit Related Costs Inventories Costs Total ------------- ----------- ----- ----- Amount recognized as charges in the consolidated statement of operations $ 490 $ 1,019 $ 943 $ 2,452 Disposal of inventories -- (640) -- (640) Payments and other adjustments (490) -- (943) (1,433) Balance at December 31, 2001 $ -- $ 379 $ -- $ 379
18 Note 9. Enterprise-wide Disclosures Segment information is not presented since all of the Company's revenue is attributed to a single reportable segment. Information about the Company's groups of products within its one segment is presented below. (In Thousands) Years Ending December 31, 2001 2000 1999 ---------------------------------------------------------- Footwear $108,943 $119,064 $108,314 Protective clothing 16,358 19,097 16,014 $125,301 $138,161 $124,328 The following table presents information about the Company's revenue attributed to countries based on the location of the customer. (In Thousands) Years Ending December 31, 2001 2000 1999 -------------------------------------------------------- United States $120,794 $132,139 $119,981 Foreign Countries 4,507 6,022 4,347 $125,301 $138,161 $124,328 Long-lived assets located outside of the United States totaled approximately $.2 million and $.5 million at December 31, 2001 and 2000. No single customer provided revenue of 10.0% or more of consolidated revenues in any of the years presented. INDEPENDENT AUDITORS' 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, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States of America. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ McGladrey & Pullen, LLP McGLADREY & PULLEN, LLP La Crosse, Wisconsin February 13, 2002, except for the last paragraph of Note 4, as to which the date is February 28, 2002 19 QUARTERLY RESULTS OF OPERATIONS (Unaudited) - -------------------------------------------------------------------------------- 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 December 31. The following tabulation presents the Company's unaudited quarterly results of operations for 2001 and 2000.
Thousands of dollars except per share data - 2001 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 29,148 $ 26,075 $ 39,617 $ 30,461 Gross profit 7,456 3,353 11,492 7,842 Operating income (loss) (838) (5,196) 2,759 (2,033) Net income (loss) (1,488) (5,910) 1,689 (2,240) Basic and diluted earnings (loss) per share (.25) (1.01) .29 (.38) Thousands of dollars except per share data - 2000 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 31,029 $ 31,385 $ 37,239 $ 38,508 Gross profit 7,876 8,075 9,295 8,502 Operating income (loss) (117) 9 (318) (1,700) Net income (loss) (323) (461) (836) (3,149) Basic and diluted earnings (loss) per share (.05) (.08) (.14) (.54)
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 for the past three years. On March 12, 2002 there were approximately 330 shareholders of record and approximately 1,500 beneficial owners of the Company's common stock.
1st 2nd 3rd 4th Year-end 1999 $6.25 - 9.50 $6.625 - 9.00 $4.563 - 8.25 $4.25 - 6.719 $4.438 2000 $3.688 - 5.75 $3.813 - 5.00 $2.25 - 5.75 $2.50 - 4.00 $3.125 2001 $2.50 - 3.938 $2.00 - 3.30 $2.04 - 3.27 $2.15 - 4.81 $3.20
Cash Dividends Declared Per Share The Company did not declare a cash dividend in 2001 because of operating results. The Company will reconsider the payment of cash dividends in the future when the profitability of the Company has improved. The chart below shows annual cash dividends declared per share for the past three years: 2001 2000 1999 - --------------------------------------------------------------------- Dividends declared per share $ -- $ -- $.13 Market Risk Management The Company's primary market risk results from fluctuation in interest rates. The Company enters into interest rate swap agreements ("Swap Agreements") to reduce its exposure to interest rate fluctuations on its floating rate debt. The Swap Agreements exchange floating rate for fixed rate interest payments periodically over the life of the agreements without exchange of the underlying notional amounts. The notional amounts of interest rate agreements are used to measure interest to be paid or received and do not represent an amount of exposure to credit loss. For interest rate instruments that effectively hedge interest rate exposures, the net cash amounts paid or received on the agreements are accrued and recognized as an adjustment to interest expense. In addition, effective January 1, 2001, the Company records the fair value of the Swap Agreements each month as an adjustment to interest expense. As of December 31, 2001, the Company had Swap Agreements in effect totaling $11.0 million notional amount, of which $7.0 million will mature in January 2003 with another $4.0 million maturing in October 2003. The variable rate borrowings not offset by Swap Agreements at December 31, 2001, totaled $12.4 million. Swap Agreement rates are based on the three-month LIBOR rate. Based on average floating rate borrowings outstanding throughout fiscal year 2001, a 100-basis point change in LIBOR would have caused the Company's monthly interest expense to change by approximately $21,000. The Company believes that these amounts are not material to the earnings of the Company. 20 EX-21 4 slp263b.txt LIST OF SUBSIDIARIES EXHIBIT (21) SUBSIDIARIES OF LACROSSE FOOTWEAR, INC. as of January 1, 2002 Jurisdiction Name of Incorporation Percent Ownership Direct Danner Shoe Manufacturing Co. Wisconsin 100% EX-23 5 slp263c.txt 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 13, 2002, included in the 2001 Annual Report to 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 13, 2002, with respect to the consolidated financial statements incorporated herein by reference, and our report dated February 13, 2002, 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, 2001. /s/ McGladrey & Pullen, LLP McGLADREY & PULLEN, LLP La Crosse, Wisconsin March 29, 2002 -----END PRIVACY-ENHANCED MESSAGE-----