-----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, Ka3k12rDUT5S+7rm5SByEbmvd9fY1+uyT7QC6OLSzzONWgI8nUoS8Q2Q2dpSuwRG CWcv5B2AvLXlFZoM/hkSUQ== 0000897069-98-000170.txt : 19980331 0000897069-98-000170.hdr.sgml : 19980331 ACCESSION NUMBER: 0000897069-98-000170 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LACROSSE FOOTWEAR INC CENTRAL INDEX KEY: 0000919443 STANDARD INDUSTRIAL CLASSIFICATION: RUBBER & PLASTICS FOOTWEAR [3021] IRS NUMBER: 391446816 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23800 FILM NUMBER: 98577893 BUSINESS ADDRESS: STREET 1: 1319 ST ANDREW ST CITY: LACROSSE STATE: WI ZIP: 54603 BUSINESS PHONE: 6087823020 MAIL ADDRESS: STREET 1: 1319 ST ANDREW ST CITY: LA CROSSE STATE: WI ZIP: 54603 10-K 1 LACROSSE FOOTWEAR, INC. 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, 1997 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.) 1319 St. Andrew Street La Crosse, Wisconsin 54603 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (608) 782-3020 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] Aggregate market value of the voting stock held by nonaffiliates of the registrant at February 27, 1998: $37,634,668. Number of shares of the registrant's common stock outstanding at February 27, 1998: 6,669,427 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1997 (incorporated by reference into Parts I, II and IV) Portions of the Proxy Statement for 1998 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, occupational and recreational markets. The Company markets its products primarily under the LACROSSE/R/, RED BALL/R/, LAKE OF THE WOODS/R/, RAINFAIR/R/ and DANNER/R/ brands through an employee sales force and, to a lesser extent, through selected distributors and independent representatives. It also manufactures private label footwear, footwear components and protective clothing. LaCrosse's products are characterized by innovative design, performance features and durability, and are relatively unaffected by changing fashion trends. Historically, LaCrosse has produced footwear primarily of rubber or vinyl, some of which includes leather or fabric uppers. In March 1994, the Company acquired the business of Danner Shoe Manufacturing Co. ("Danner"), a producer of premium quality leather footwear for the sporting and occupational markets, which is sold primarily under the DANNER/R/ brand. To broaden the base of business in the protective clothing area, in May 1996, a 50%-owned subsidiary of the Company purchased the assets of Rainfair, Inc. ("Rainfair") of Racine, Wisconsin. Rainfair designs and markets rainwear and other protective clothing generally for the occupational markets, which are sold primarily under the RAINFAIR/R/ brand. Operations of Rainfair have been included in the Company's financial statements since the date of acquisition. In January 1998, the Company acquired the remaining 50% of Rainfair that it did not own, thereby making it a 100%-owned subsidiary. Also in May 1996, the Company acquired certain operating assets and trademarks of Red Ball, Inc. ("Red Ball"). Red Ball historically sold products which competed in many of the same product categories as the LACROSSE/R/ brand. In July 1997, the Company acquired all of the outstanding shares of Pro-Trak Corporation, the company that operated under the Lake of the Woods tradename. Lake of the Woods is a designer, manufacturer and marketer of branded leather footwear for both the outdoor and occupational segments of the market. The Company was incorporated in Wisconsin in 1983 but traces its history to 1897 when La Crosse Rubber Mills Company was founded. Current management purchased LaCrosse's predecessor from the heirs of the founding family and other shareholders in 1982. Strategy The Company's business strategy is to continue to (i) build, position and capitalize on the strength of established brands, (ii) extend its offerings of footwear, rainwear and other complementary products under the established brands and (iii) expand and enhance its strong distribution network of sales representatives, customer service and retail and industrial customers. Brand Positioning Within the retail channels of distribution, the Company markets footwear and rainwear under the well-established DANNER/R/, LACROSSE/R/, RED BALL/R/ and LAKE OF THE WOODS/R/ brands. Each brand is positioned differently in the marketplace in order to capitalize on differences in end user expectations for performance. The DANNER/R/ brand represents the highest level of performance, with a select line of high quality, feature driven leather footwear products at premium prices. The LACROSSE/R/ brand has a more extensive product line including rubber, vinyl and leather footwear and rainwear, distributed to a broad base of independent retailers. The RED BALL/R/ and LAKE OF THE WOODS/R/ brands offer a more narrow line of lower price and performance footwear directed to a broad consumer market. The Company sells products through the industrial distributor channel principally under the LACROSSE/R/ and RAINFAIR/R/ brands. The brands are positioned as complementary, with the LACROSSE/R/ brand including a full performance range of rubber and vinyl footwear, while the RAINFAIR/R/ brand includes 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, recreational and occupational markets. The Company markets rubber/vinyl footwear mainly under the LACROSSE/R/ and RED BALL/R/ brands. The product line ranges from low cost vinyl-molded products to high performance, hand- crafted rubber products directed to specific occupational market niches. In addition, the Company is a leader in rubber/vinyl bottom, leather/fabric upper footwear for extreme cold and other high performance applications. A rubber bottom boot with a leather or fabric upper combines the waterproofness and flexibility of rubber footwear with the fit and support of a laced leather boot. Leather Footwear The Company markets leather footwear under three brand names, DANNER/R/, LACROSSE/R/ and LAKE OF THE WOODS/R/. The DANNER/R/ products consist of premium quality sporting, occupational and recreational boots available in numerous styles and usually featuring the stitch-down manufacturing process which provides outstanding built-in comfort for the owner. Danner was the first footwear manufacturer to include a waterproof, breathable GORE-TEX/R/ bootie in leather boots, and it continues to include that bootie in over 90% of its products. The LACROSSE/R/ brand markets a focused line of indoor and outdoor work boots appealing to consumers who desire durability and comfort. The LAKE OF THE WOODS/R/ brand markets a broad line of utility, steel toe and sporting boots and recreational hikers. Rainwear and Protective Clothing Rainwear and footwear are complementary products in many occupational and outdoor environments. Rainfair offers a broad line of quality rainwear and protective clothing appealing to those workers in utility, construction, chemical processing, law enforcement and other groups traditionally purchasing through industrial distributors. While most of the garments are developed for general workwear, a number are constructed for specific applications such as acid environments and flame environments. The RAINFAIR/R/ brand is recognized in the industry for its durability, quality and heritage. In recent years, the brand name has been extended to include other protective garments such as aprons and extreme cold weather clothing. Recently, a limited line of occupational and sporting rainwear was introduced under the LACROSSE/R/ brand. LaCrosse also sells footwear accessories such as liners, wader suspenders and socks. During 1997, the Company offered approximately 450 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 division, which interacts with product development during the development and testing of new product. New product needs generally can be related to functional or technical characteristics which are addressed by the Company's pattern, design and chemistry lab staffs. The final aesthetics of the product are determined by marketing personnel, at times in conjunction with outside design consultants. Once a product design is approved for production, responsibility shifts to manufacturing for pattern development and commercialization. Customers, Sales and Distribution The Company markets its brands and associated products through two separate channels of distribution: retail and industrial. Within the retail market, the LACROSSE/R/ brand is marketed through a sales force comprised of 17 Company-employed sales people and four independent sales representative groups. The LaCrosse sales force currently represents the DANNER/R/ brand in all but six territories, which are handled by two Danner sales people and independent sales representatives. The RED BALL/R/ and LAKE OF THE WOODS/R/ brands are marketed jointly through independent sales representatives. A national account sales team complements the sales activities for the brands. The Company's industrial products are distributed through the LaCrosse Rainfair Safety Products Division using a combination of Company employed field sales persons, independent representatives and a national account team. The Company's products are sold directly to more than 6,000 accounts, including sporting goods/outdoor retailers, general merchandise and independent shoe stores, wholesalers, industrial distributors, catalog operations and the United States government. The Company's customer base is also diversified as to size and location of customer and markets served. As a result, the Company is not dependent upon a few customers, and adverse economic conditions or mild or dry weather conditions in a specific region are less likely to have a material effect on the Company's results of operations. The Company operates three factory outlet stores whose primary purpose is disposal of slow moving, factory seconds and obsolete merchandise. Two of these stores are located at the manufacturing facilities in La Crosse, Wisconsin and Portland, Oregon. The Company also derives royalty income from Danner Japan Ltd., a Japanese joint venture in which the Company has a 10% ownership interest, on Danner Japan Ltd.'s distribution of products in Japan under the DANNER/R/ brand that are manufactured by others overseas. Advertising and Promotion Because a majority of the Company's marketing expenditures are for promotional materials, cooperative advertising and point-of-sale advertising designed to assist dealers and distributors in the sale of the Company's products, the Company is able to customize advertising and marketing 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, public relations, point-of-sale displays, catalogs and packaging. Manufacturing The Company produces the majority of its rubber, leather and vinyl products in its United States manufacturing facilities in La Crosse, Wisconsin, Portland, Oregon, Victoria, Virginia and Claremont, New Hampshire. Liners are produced at the Company's Hillsboro, Wisconsin facility. The Hillsboro facility also manufactures a line of waders with nylon uppers and rubber or vinyl boot bottoms, using a heat-sealing process. Leather tops for the LACROSSE/R/ brand rubber bottom/leather top pac boots and some DANNER/R/ products are produced at the Company's Clintonville, Wisconsin facility. The Company manufactures a majority of its footwear in the United States because the Company believes it is able to maintain better control over quality, inventory production scheduling and inventory levels. "Made in the USA" is prominently displayed in the Company's advertising, promotion and marketing materials for the LACROSSE/R/ and DANNER/R/ brands. The RAINFAIR/R/, RED BALL/R/ and LAKE OF THE WOODS/R/ brands, which the Company started distributing during 1996 and 1997, source a substantial portion of their product offshore, primarily in the Dominican Republic and Pacific Rim. The Company intends to continue to outsource these products. The Company believes that there are adequate sources of supply for these imported products. Suppliers The Company's three principal raw materials used in the production of the Company's products, based upon dollar value, are leather, crude rubber and oil-based vinyl compounds for vinyl footwear and rainwear products. While the Company saw price increases during 1995 for all three of these raw materials, prices have since stabilized at lower levels and the Company has no reason to believe that all three of these raw materials will not continue to be available at competitive prices. The Company also uses technical components in the Company's products including THINSULATE/R/, GORE-TEX/R/, CORDURA/R/, DRI-LEX/R/, POLARTEC/R/ and VIBRAM/R/. No interruption in the supply of any of these components is anticipated. The Company purchases GORE-TEX/R/ waterproof fabric directly from W.L. Gore & Associates ("Gore"), for both LaCrosse and Danner footwear. Gore has traditionally been Danner's single largest supplier, in terms of dollars spent on raw materials. Approximately 90% of Danner's footwear, in terms of number of pairs produced, incorporates GORE-TEX/R/ waterproof fabric. Agreements with Gore may be terminated by either party upon 90 days' written notice. The Company considers its relationships with Gore to be good. Effective January 1, 1997, the majority of Danner's GORE-TEX/R/ footwear is guaranteed to be waterproof for one year from the date of purchase compared to two years previously. Quality Assurance The Company's quality control programs are important to its reputation for manufacturing superior footwear. The Company's La Crosse, Wisconsin plant has a chemistry lab which is responsible for incoming raw material and in-process quality testing. All crude rubber is tested to assure that each batch meets the high values specified by the Company for range of plasticity and rate of cure, both of which have a direct relationship to the ultimate quality of the product. Fabrics are sample tested to meet LaCrosse's requirements for strength and weight. Incoming leather skins are inspected for color, brand and weight. The Company's Danner operation tests 100% of all GORE-TEX/R/ bootie liners for leaks prior to sewing them into boots. At least 30% of all completed waterproof boots are filled with water for testing. Leather is tested for lasting ability, tear strength, finish and thickness. Backlog At December 31, 1997, the Company had unfilled orders from its customers in the amount of approximately $14.2 million compared to $15.8 million at December 31, 1996. The decrease in backlog is primarily the result of the mild weather in December 1997 and the timing on certain rainwear orders. All orders at December 31, 1997 are expected to be filled during 1998. Because a major portion of the Company's orders are placed in January through July for delivery in June through October, the Company's backlog is lowest during the fourth quarter and peaks during the second quarter. Factors other than seasonality, such as pending large national account orders or United States government orders, could have a significant impact on the Company's backlog. Therefore, backlog at any one point in time may not be indicative of future results. Generally, orders may be cancelled by customers prior to shipment without penalty. Competition The various categories of the protective footwear, rainwear and protective clothing markets in which the Company operates are highly competitive. The Company competes with numerous other manufacturers, many of whom have substantially greater financial, distribution and marketing resources than the Company. Because the Company has a broad product line, its competition varies by product category. The Company has two to three major domestic competitors in most of its rubber and vinyl product lines, at least four major competitors in connection with the Company's sporting footwear, at least six major competitors in connection with hiking boots and at least four major competitors in connection with its occupational footwear, rainwear and protective clothing. The Company also faces competition from offshore manufacturers, particularly in the occupational and children's markets. LaCrosse believes it maintains a competitive position compared to its competitors through its attention to quality and the delivery of value, its position as an innovator in common product segments, its above- average record of delivering products on a timely basis, its strong customer relationships and, in some cases, the breadth of its product line. Some of the Company's competitors compete mainly on the basis of price. Offshore manufacturers face significantly lower labor costs to produce rubber and vinyl products. However, shipping costs and times, requirements for short runs on some items, and unpredictable weather patterns that would force offshore manufacturers or their distributors to store large inventories in the United States to be able to meet sudden increases in demand are some disadvantages the offshore manufacturers face. Further, because the manufacturing process for vinyl footwear products is much less labor intensive than for rubber footwear, lower offshore labor rates are less of a competitive advantage in the production of vinyl footwear. Moreover, the Company's vinyl footwear products enable the Company to compete more effectively against offshore manufacturers of rubber footwear. Leather boot manufacturers and suppliers, some of which have strong brand name recognition in the markets they serve, are the major competitors of the Company's Danner product line. These competitors manufacture domestically and/or import products from offshore. Danner products effectively compete with domestically produced products, but are generally at a price disadvantage against lower cost imported products, because offshore manufacturers generally pay significantly lower labor costs. 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, the Danner protective footwear line has maintained a strong competitive position in its current market niches. The LAKE OF THE WOODS/R/ brand, because of its market position, sources product both domestically and from offshore. Therefore, it competes with other distributors with products sourced from offshore locations. Employees As of December 31, 1997, the Company had approximately 1,520 employees, all located in the United States. Approximately 575 of the Company's employees at the La Crosse, Wisconsin facility are represented by the United Steel Workers of America under a three-year collective bargaining agreement which expires in October 1998, approximately 150 of the Company's employees at the Portland, Oregon facility are represented by the United Food & Commercial Workers Union under a collective bargaining agreement which expires in January 1999 and approximately 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 July 2000. The Company has approximately 450 employees at manufacturing facilities located outside of La Crosse, Wisconsin, Portland, Oregon and Racine, Wisconsin. None of these employees are represented by a union. The Company considers its employee relations to be good. Trademarks and Trade Names; Patents The Company owns United States federal registrations for several of its marks, including LACROSSE/R/, DANNER/R/, RED BALL/R/, LAKE OF THE WOODS/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/ and RED BALL JETS/R/. LaCrosse also has registrations for the "L" shape design associated with the lacing system on the Alltemp Boot Systems, and the stylized Indianhead design associated with the Company's logo. In addition, the Company owns registrations in Canada for its marks ALLTEMP/R/, ICEMAN/R/, AIRBOB/R/ and stylized Indianhead design and in Mexico for its mark LACROSSE 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/, RED BALL/R/, LAKE OF THE WOODS/R/ and RAINFAIR/R/ names, the Company does not believe any trademark is material to its business. The Company pays a royalty on sales of products carrying the DANNER/R/ name equal to 0.5% of the price of products sold that applies to net sales in excess of $4.0 million annually. The royalty agreement expires December 31, 1998. The Company is not aware of any material conflicts concerning its marks or its use of marks owned by other companies. The Company owns several patents that improve its competitive position in the marketplace, including patents for a cold cement process for affixing varying outsole compositions to a rubber upper; a method of manufacture for attaching a nylon upper to a rubber bottom; a rubber footwear product in which a heel counter is trapped or embedded within the rubber boot to improve the support provided to the wearer's foot; the DANNER BOB/R/ outsole; a neoprene wader upper with an expandable chest; and a patent for its AIRTHOTIC/R/, which is a ventilated arch support that fits under the heel. Seasonality As has traditionally been the case, the Company's sales in 1997 were higher in the last two quarters of the year than in the first two quarters. The Company expects this sales trend to continue. Additional information about the seasonality of the Company's business is contained under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Overview" on page 9 of the Company's 1997 Annual Report to Shareholders and such information is hereby incorporated herein by reference. Foreign Operations and Export Sales Other than the Company's 10% equity interest in Danner Japan, Ltd., the Company does not have any foreign operations. International sales accounted for less than 5% of the Company's net sales in 1997. 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 1998, 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, 1998, regarding the executive officers of the Company. Name Age Position George W. Schneider 75 Chairman of the Board and Director Frank J. Uhler, Jr. 67 Vice Chairman of the Board and Director Patrick K. Gantert 48 President, Chief Executive Officer and Director Eric E. Merk, Sr. 55 Vice President - Danner and Director Wayne L. Berger 51 Vice President - Purchasing Stephen F. Bonner 44 Vice President - Claremont Operations Kenneth F. Ducke 54 Treasurer and Assistant Secretary Joseph F. Fahey 43 Vice President - Retail Sales and Marketing D. Keith Fell 46 Vice President - Operations Peter V. Fiorini 60 Vice President - Industrial Sales David F. Flaschberger 39 Vice President - Human Resources David R. Llewellyn 60 Vice President - Marketing and Business Development Robert G. Rinehart, Jr. 45 Vice President - Product Development Joseph P. Schneider 38 Vice President of the Company and President and Chief Operating Officer of Danner Robert J. Sullivan 51 Vice President - Finance and Administration and Chief Financial Officer John A. Tadewald 59 Vice President - Engineering George W. Schneider was elected to the Board of Directors of the Company's predecessor in 1968 and was the principal investor and motivating force behind the management buyout of the Company's predecessor in 1982. Since 1982, Mr. Schneider also has served as Chairman of the Board of the Company. Frank J. Uhler, Jr., has served as Vice Chairman of the Board of the Company since December 31, 1994 and as a director since he joined the Company in June 1978. From June 1978 until 1982, Mr. Uhler served as President and from 1982 until December 31, 1994 he served as President and Chief Executive Officer of the Company. Along with Mr. George W. Schneider, Mr. Uhler was the other principal member of the management group that acquired the Company's predecessor in 1982. Patrick K. Gantert has served as President, Chief Executive Officer and as a director of the Company since December 31, 1994. Prior thereto, Mr. Gantert served as Executive Vice President and Chief Operating Officer of the Company since August 1993 and as Executive Vice President since June 1992. From March 1985, when he joined the Company, until June 1992, Mr. Gantert was Vice President-Finance. Eric E. Merk, Sr. has served as Vice President - Danner and as a director of the Company since the March 1994 completion of the Danner acquisition. On January 2, 1998, Mr. Merk was elected Vice Chairman of the Board and Chief Executive Officer of Danner. Prior to joining the Company, Mr. Merk was a significant shareholder and President of Danner since purchasing Danner in 1983. Wayne L. Berger joined the Company in 1974 and has held various positions in finance and administration since that time. In June 1988, Mr. Berger was elected Vice President - Purchasing. Stephen F. Bonner joined the Company in 1983 and has held various positions in manufacturing since that time. In June 1991, Mr. Bonner was elected Vice President - Claremont Operations. Kenneth F. Ducke joined the Company in 1974 and has held various positions in finance and administration since that time. In 1982, Mr. Ducke was elected Treasurer and Assistant Secretary. Joseph F. Fahey has served as Vice President - Retail Sales and Marketing since he joined the Company in October 1996. From 1993 until 1996, Mr. Fahey served as Vice President of Sales and Marketing for Stihl, Incorporated, a manufacturer of premium hand-held power equipment and from 1989 through 1993, Mr. Fahey was the Manager of Dealer Development and Research for the Power Equipment Division of American Honda Motor Company. D. Keith Fell has served as Vice President - Operations since he joined the Company in March 1996. From May 1994 until August 1995, Mr. Fell was Vice President of Manufacturing for Traco, Inc., a manufacturer of commercial windows and doors, from October 1993 until May 1994, he was Vice President of Manufacturing for Hedstrom Corporation, a manufacturer of outdoor play equipment, and from September 1990 until October 1993, Mr. Fell was Director of Manufacturing for Hedstrom. Peter V. Fiorini has served as Vice President - Industrial Sales since he joined the Company in July 1991. From 1975 until joining the Company, Mr. Fiorini was general manager of the Ranger Rubber Company division of Endicott Johnson Shoe Company, Inc. David F. Flaschberger joined the Company in May 1993 as Human Resources Manager. He served in such capacity until November 1995, when he was elected Vice President - Human Resources. From 1990 until joining the Company, Mr. Flaschberger was the Director of Human Resources of The Company Store, Inc., a direct mail marketer and manufacturer of down- filled bedding products. David R. Llewellyn has served as Vice President - Marketing and Business Development since he joined the Company in April 1994. From 1989 until joining the Company, Mr. Llewellyn was an independent marketing and business consultant. Robert G. Rinehart, Jr. joined the Company in January 1990 as a territory salesperson. In July 1991, Mr. Rinehart was appointed as the National Accounts Manager. He served in such capacity until October 1992, when he was appointed Senior Marketing Manager, and in March 1994 he was elected Vice President - Product Development. Joseph P. Schneider joined the Company in 1985 as a territory sales manager and in January 1990 was appointed as the National Accounts Manager. From May 1991 until January 1993, Mr. Schneider served as the National Sales Manager and from January 1993 until June 1996 he was Vice President - Retail Sales. In June 1996, Mr. Schneider was elected as a Vice President of the Company and as Executive Vice President and Chief Operating Officer of Danner, and on January 2, 1998, he was elected President and Chief Operating Officer of Danner. Robert J. Sullivan joined the Company in November 1992 as Manager of Finance and Administration, was elected Vice President - Finance and Administration in March 1994 and was given the additional title of Chief Financial Officer in March 1997. From 1987 until joining the Company, Mr. Sullivan was Vice President-Finance of Skipperliner Industries, Inc., a manufacturer of houseboats. John A. Tadewald has served as Vice President - Engineering since he joined the Company in October 1987. From 1963 until joining the Company, Mr. Tadewald held engineering positions with several industrial companies. Joseph P. Schneider is the son of George W. Schneider. None of the other directors or executive officers are related to each other. The term of office of each of the executive officers expires at the annual meeting of directors. Item 2. Properties The following table sets forth certain information, as of December 31, 1997, relating to the Company's principal facilities. Properties Owned Approximate or Floor Area in Location Leased Square Feet Principal Uses La Crosse, WI Leased(1) 212,000(1) Principal sales, marketing and executive offices and warehouse space La Crosse, WI Owned 400,000 Manufacture rubber boots La Crosse, WI Leased(2) 264,000 Main warehouse and distribution facility La Crosse, WI Owned 11,000 Retail outlet store Clintonville, WI Owned 42,500 Manufacture leather components and construct rubber boots Clintonville, WI Leased 4,000 Warehouse and raw material storage Hillsboro, WI Leased(3) 40,000 Manufacture component parts Kenosha, WI Leased 3,000 Retail outlet store Claremont, NH Owned 150,000 Manufacture vinyl injection-molded products Claremont, NH Leased(4) 68,000 Warehouse and distribution facility Portland, OR Leased(5) 36,000 Manufacture DANNER/R/ products, offices, retail outlet store and warehouse space Portland, OR Leased(6) 16,000 Warehouse and distribution facility Prentice, WI Leased(7) 24,000 Warehouse and distribution facility Racine, WI Leased(8) 104,700 Manufacturing, warehousing and offices for Rainfair Victoria, VA Leased(9) 38,000 Manufacture leather footwear _________________________ (1) The lease for this 212,000 square foot building adjacent to the Company's manufacturing plant in La Crosse, Wisconsin expires in 2007. Approximately 50% of this building is currently sublet to the former owner. Of the portion occupied by the Company, 6,600 square feet is used for office space and the balance is used for warehouse space. (2) The lease for 183,000 square feet of this facility expires in 2000. The Company leases the balance of the space on short-term leases. (3) There are two facilities leased by the Company in Hillsboro, Wisconsin with approximately 40,000 square feet. (4) The lease of this facility expires in 2000. This space is leased in a facility adjacent to the Company's manufacturing plant in Claremont, New Hampshire. (5) The lease for this facility expires in March 2004, but the Company has the option to extend the term for up to an additional ten years. The lease includes approximately one acre of adjacent vacant property that could be used for expansion. Eric E. Merk, Sr., a director, executive officer and shareholder of the Company, is affiliated with the lessor of this facility. (6) The lease for this facility expires in December 2000. (7) The lease for this facility expires in 1998. (8) The lease for this facility was entered into in May 1996 and expires in May 2001. (9) The lease for this facility expires in 1999. Based on present plans, management believes that the Company's current facilities will be adequate to meet the Company's anticipated needs for production of LaCrosse products for at least the next two years. Once the manufacturing facilities have reached capacity, the Company can expand further by leasing or purchasing facilities or by outsourcing some components. Item 3. Legal Proceedings In November 1993, the Company, in order to preserve its legal rights, instituted litigation against the United States Government in the United States Court of Federal Claims ("USCFC") seeking a refund of amounts previously paid to the Internal Revenue Service ("IRS") relating to the Company's treatment of its LIFO inventory stemming from the Company's 1982 leveraged buyout. If the Government prevails in this litigation, the IRS has indicated an intention to assess the Company for additional tax, penalties, interest and other amounts for prior periods as a result of recalculating the Company's LIFO inventory reserve. The Company is not currently in a position to predict the outcome of the USCFC litigation. The Company received a favorable preliminary decision, dated April 25, 1997, from the USCFC. However, a decision by the U.S. Federal Circuit Court of Appeals in another case (Kohler Co. vs. United States, Case No. 96-5043, September 17, 1997) supports one of the principal positions taken by the IRS and the Government in the USCFC litigation. The Company believes that its total current exposure to the IRS with respect to this matter is not material to the Company's financial position or results of operations. From time to time, the Company, in the normal course of business, is also involved in various other claims and legal actions arising out of its operations. The Company does not believe that the ultimate disposition of any currently pending claims or actions would have a material adverse effect on the Company or its financial condition. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of shareholders during the quarter ended December 31, 1997. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The portions of page 24 which describe the market for and dividends declared on the Company's Common Stock and Note 5 of Notes to Consolidated Financial Statements which describe restrictions on dividends and which are contained in the Company's 1997 Annual Report to Shareholders are hereby incorporated herein by reference in response to this Item. Item 6. Selected Financial Data The information set forth in the table on page 8 of the Company's 1997 Annual Report to Shareholders under the caption "Five Year Summary of Selected Financial Data" is hereby incorporated herein by reference in response to this Item. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information set forth on pages 9 through 12 in the Company's 1997 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 Not applicable. Item 8. Financial Statements and Supplementary Data The consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997, and the related consolidated balance sheets of the Company as of December 31, 1997 and 1996, 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, 1997, all set forth on pages 13 through 24 of the Company's 1997 Annual Report to Shareholders, are hereby incorporated herein by reference in response to this Item. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The information required by this Item with respect to directors and Section 16 compliance is included under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance", respectively, in the Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders ("Proxy Statement") and is hereby incorporated herein by reference. Information with respect to the executive officers of the Company appears in Part I, pages 9 through 12, of this Annual Report on Form 10-K. Item 11. Executive Compensation The information required by this Item is included under the captions "Board of Directors-Director Compensation" and "Executive Compensation" in the Proxy Statement and is hereby incorporated herein by reference; provided, however, that the subsection entitled "Executive Compensation-Report on Executive Compensation" shall not be deemed to be incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item is included under the caption "Principal Shareholders" in the Proxy Statement and is hereby incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information required by this Item is included under the captions "Certain Transactions" and "Executive Compensation-Compensation Committee Interlocks and Insider Participation" in the Proxy Statement and is hereby incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial statements - The financial statements listed in the accompanying index to financial statements and financial statement schedules are incorporated by reference in this Annual Report on Form 10-K. 2. Financial statement schedules - The financial statement schedules listed in the accompanying index to financial statements and financial statement schedules are filed as part of this Annual Report on Form 10-K. 3. Exhibits - The exhibits listed in the accompanying index to exhibits are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1997. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 27th day of March, 1998. LACROSSE FOOTWEAR, INC. By /s/ Patrick K. Gantert Patrick K. Gantert President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ George W. Schneider Chairman of the Board and March 27, 1998 George W. Schneider Director /s/ Patrick K. Gantert President, Chief Executive March 27, 1998 Patrick K. Gantert Officer and Director (Principal Executive Officer) /s/ Robert J. Sullivan Vice President-Finance and March 27, 1998 Robert J. Sullivan Administration and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Frank J. Uhler, Jr. Vice Chairman of the Board March 27, 1998 Frank J. Uhler, Jr. and Director /s/ Eric E. Merk, Sr. Vice President-Danner and March 27, 1998 Eric E. Merk, Sr. Director /s/ Craig L. Leipold Director March 27, 1998 Craig L. Leipold /s/ Richard A. Rosenthal Director March 27, 1998 Richard A. Rosenthal /s/ Luke E. Sims Director March 27, 1998 Luke E. Sims John D. Whitcombe Director INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page Annual Report Form 10-K to Shareholders Consolidated Balance Sheets at December 31, 1997 and 1996 - 13 Consolidated Statements of Income for each of the three years in the period ended December 31, 1997 - 14 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1997 - 15 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997 - 16 Notes to Consolidated Financial Statements - 17-23 Independent Auditor's Report - 23 Independent Auditor's Report on Financial Statement Schedule 21 - Financial Statement Schedule: II - Valuation and Qualifying Accounts 22-23 - All other financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto. INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders LaCrosse Footwear, Inc. La Crosse, Wisconsin Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidated supplemental schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is a part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. McGLADREY & PULLEN, LLP La Crosse, Wisconsin February 6, 1998 LACROSSE FOOTWEAR, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions Balance at Balance Beginning Charged To Costs Charged To at End Description of Period and Expenses Other Accounts Deductions of Period Year ended December 31, 1995: Accounts receivable allowances: Allowance for returns $ 239,000 $ 762,470 $ -- $ 721,470 $ 280,000 Allowance for cash discounts 112,000 644,486 -- 642,486 114,000 Allowance for doubtful accounts 337,000 168,068 -- 123,368 381,700 Allowance for uncollectible interest 30,374 85,729 -- 78,543 37,560 ------------ ------------ ---------- ----------- ---------- Total $ 718,374 $ 1,660,753 $ -- $ 1,565,867 $ 813,260 ============ ============ ========== =========== ========== Inventory allowances: Allowance for obsolescence $ 400,000 $ 718,224 $ -- $ 304,796 $ 813,428 ============ ============ ========== =========== ========== Warranty allowance: Allowance for warranties $ 787,000 $ 856,706 $ -- $ 803,706 $ 840,000 ============ ============ ========== =========== ========== Year ended December 31, 1996: Accounts receivable allowances: Allowance for returns $ 280,000 $ 1,234,556 $ -- $ 947,556 $ 567,000 Allowance for cash discounts 114,000 90,496 -- 15,496 189,000 Allowance for doubtful accounts 381,700 167,655 335,000 178,855 705,500 Allowance for uncollectible interest 37,560 92,268 -- 84,026 45,802 ------------ ------------ ---------- ----------- ---------- Total $ 813,260 $ 1,584,975 $ 335,000 $1,225,933 $1,507,302 ============ ============ ========== =========== ========== Inventory allowances: Allowance for obsolescence $ 813,428 $ 272,904 $ 350,000 $ 235,332 $1,201,000 ============ ============ ========== =========== ========== Warranty allowance: Allowance for warranties $ 840,000 $ 1,057,730 $ -- $ 972,730 $ 925,000 ============ ============ ========== =========== ========== Year ended December 31, 1997: Accounts receivable allowances: Allowance for returns $ 567,000 $ 1,142,866 $ 280,700 $1,152,866 $ 837,700 Allowance for cash discounts 189,000 63,345 65,000 217,345 100,000 Allowance for doubtful accounts 705,500 161,524 -- 292,069 574,955 Allowance for uncollectible interest 45,802 106,290 -- 95,631 56,461 ------------ ------------ ---------- ----------- ---------- Total $ 1,507,302 $ 1,474,025 $ 345,700 $1,757,911 $1,569,116 ============ ============ ========== =========== ========== Inventory allowances: Allowance for obsolescence $ 1,201,000 $ 586,560 $ -- $ 561,140 $1,226,420 ============ ============ ========== =========== ========== Warranty allowance: Allowance for warranties $ 925,000 $ 769,322 $ -- $1,084,197 $ 610,125 ============ ============ ========== =========== ========== The accounts receivable and inventory allowances above were deducted from the applicable asset account.
EXHIBIT INDEX Sequential Exhibit Page Number Exhibit Description Number (2.1) Asset Purchase Agreement, dated as of February -- 11, 1994, between LaCrosse Footwear, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (2) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (2.2) Asset Purchase Agreement, dated May 16, 1996, by -- and among Rainco, Inc., LaCrosse Footwear, Inc., Rainfair, Inc. and Craig L. Leipold [Incorporated by reference to Exhibit (2.1) to LaCrosse Footwear, Inc.'s Current Report on Form 8-K dated May 31, 1996 and filed June 14, 1996] (3.1) Restated Articles of Incorporation of LaCrosse -- Footwear, Inc. [Incorporated by reference to Exhibit (3.0) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33- 75534)] (3.2) By-Laws of LaCrosse Footwear, Inc., as amended to -- date [Incorporated by reference to Exhibit (3.2) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (4.1) Credit Agreement, dated as of May 31, 1996, by -- and among LaCrosse Footwear, Inc., Firstar Bank Milwaukee, N.A., The Northern Trust Company, Harris Trust and Savings Bank and Firstar Bank Milwaukee, N.A., as Agent for the Banks [Incorporated by reference to Exhibit (4.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 29, 1996] (4.2) Note Purchase Agreement, dated as of June 1, -- 1990, between LaCrosse Footwear, Inc. and Teachers Insurance and Annuity Association of America [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (4.3) Amendment to Note Purchase Agreement, dated as of -- October 7, 1994, between LaCrosse Footwear, Inc. and Teachers Insurance and Annuity Association of America [Incorporated by reference to Exhibit (10.3) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended October 1, 1994] (9.1) 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 (10.1) Lease, dated as of January 7, 1991, between -- LaCrosse Footwear, Inc. and Central States Warehouse, Inc. [Incorporated by reference to Exhibit (10.2) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33- 75534)] (10.2) Amendment, dated as of June 29, 1995, to Lease -- between LaCrosse Footwear, Inc. and Central States Warehouse, Inc. [Incorporated by reference to Exhibit (10.2) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995] (10.3)* Employment and Consulting Agreement, dated as of -- October 1, 1990 and as amended as of October 31, 1992, between Frank J. Uhler, Jr. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.4) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33- 75534)] (10.4)* Amendment No. 1, dated as of December 31, 1994, -- to Employment and Consulting Agreement between Frank J. Uhler, Jr. and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.5) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (10.5)* Employment Agreement, dated as of July 1, 1992, -- and amended as of May 28, 1993, between Patrick K. Gantert and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.8) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994] (10.6)* Employment Agreement, dated as of March 14, 1994, -- between LaCrosse Footwear, Inc. and Eric E. Merk, Sr. [Incorporated by reference to Exhibit (10.12) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.7)* Amendment No. 1, dated as of June 1, 1995, to -- Employment Agreement between LaCrosse Footwear, Inc. and Eric E. Merk, Sr. [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1995] (10.8)* Employment Agreement, dated as of June 9, 1994, -- between David Llewellyn and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 2, 1994] (10.9)* LaCrosse Footwear, Inc. Deferred Compensation Plan for Key Employees, as amended and restated (10.10)* LaCrosse Footwear, Inc. Deferred Compensation -- Plan for Directors [Incorporated by reference to Exhibit (10.15) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33- 75534)] (10.11)* 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)] (10.12)* 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)] (10.13)* 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)] (10.14)* 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] (10.15) Agreement, dated as of October 2, 1995, between -- Local No. 14, United Steel Workers of America (AFL-CIO-CLC) and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.20) to LaCrosse Footwear, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995] (10.16) Lease, dated as of March 14, 1994, between Jepco -- Development Company and LaCrosse Footwear, Inc. [Incorporated by reference to Exhibit (10.22) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.17) 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)] (10.18) Trademark License, dated as of October 19, 1993, -- between W.L. Gore & Associates, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.24) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.19) Registration Rights Agreement, dated as of March -- 14, 1994, between LaCrosse Footwear, Inc., Danner Shoe Manufacturing Co. and the shareholders of Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.25) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33-75534)] (10.20) Guarantee Agreement, dated as of March 14, 1994, -- between LaCrosse Footwear, Inc. and Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.26) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33- 75534)] (10.21) Form of Indemnification and Investment Agreement -- to be entered into between LaCrosse Footwear, Inc. and the shareholders of Danner Shoe Manufacturing Co. [Incorporated by reference to Exhibit (10.27) to LaCrosse Footwear, Inc.'s Form S-1 Registration Statement (Registration No. 33- 75534)] (10.22)* Employment Agreement, dated as of May 31, 1996, by and between Craig L. Leipold, Rainco, Inc. and LaCrosse Footwear, Inc. (10.23)* Amendment Agreement, dated as of August 23, 1997, -- by and between LaCrosse Footwear, Inc., Rainfair, Inc. (f/k/a Rainco, Inc.) and Craig L. Leipold [Incorporated by reference to Exhibit (10.1) to LaCrosse Footwear, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 27, 1997] (13) Portions of the 1997 Annual Report to Shareholders that are incorporated by reference herein (21) List of subsidiaries of LaCrosse Footwear, Inc. (23) Consent of McGladrey & Pullen, LLP (27.1) Financial Data Schedule - 1997 (EDGAR version only) (27.2)** Restated Financial Data Schedules for fiscal year -- ended December 31, 1996 and each quarterly period in 1996 and 1997 (99) Proxy Statement for the 1998 Annual Meeting of -- Shareholders [The Proxy Statement for the 1998 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 1998 Annual Meeting of Shareholders shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K.] -------------------- * A management contract or compensatory plan or arrangement. ** Not applicable -- no amounts reported in these previously filed Financial Data Schedules change as a result of adoption of Statement of Financial Accounting Standards No. 128. EX-9.2 2 AMENDMENT NO. 9 TO VOTING TRUST AGREEMENT Exhibit 9.2 AMENDMENT NO. 9 TO VOTING TRUST AGREEMENT THIS AMENDMENT NO. 9 to that certain Voting Trust Agreement, dated as of June 21, 1982, as restated, by and between the parties identified on the signature pages hereto, is made as of June 30, 1997. W I T N E S S E T H : WHEREAS, the undersigned constitute the holders of all of the outstanding voting trust certificates ("Voting Trust Certificates") issued with respect to shares of the Common Stock of LaCrosse Footwear, Inc., a Wisconsin corporation ("Company"); WHEREAS, each such Voting Trust Certificate was issued pursuant to that certain Voting Trust Agreement, dated as of June 21, 1982, as amended ("Voting Trust Agreement"), between George W. Schneider, Virginia F. Schneider and Leo J. Schneider, as the initial trustees, and George W. Schneider, Virginia F. Schneider, Joan S. Gilles, Anna Marie Cronin, Katherine S. Buschelman (formerly Katherine M. Schneider), John F. Schneider, Christopher Schneider, Mary E. Schubothe (formerly Mary E. Schneider), Joseph P. Schneider, Steven M. Schneider, Henry P. Schneider, Virginia S. Corrada (formerly Virginia M. Schneider), Leo J. Schneider and Schneider Properties, as depositors; and WHEREAS, the parties hereto believe it to be in their best interest to amend the Voting Trust Agreement as provided herein. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. The second (2nd) sentence of Paragraph 6.1 of the Voting Trust Agreement shall be amended to read in full as follows: "Unless and until this Agreement has been terminated according to the provisions hereof, the Trustees shall not accept the surrender of a Beneficiary's Trust Certificates in exchange for Common Stock, other voting securities of the Company or other assets held by the Trustees pursuant to this Agreement; provided, however, that on January 31st of each year commencing on January 31, 1998, each Beneficiary (and/or such Beneficiary's transferees in the aggregate) will automatically receive Ten Thousand (10,000) shares (subject to adjustment to avoid dilution) of Common Stock as a withdrawal from such Beneficiary's shares held pursuant to this Agreement." 2. Except as provided in Paragraph 1 hereof, all of the provisions of the Voting Trust Agreement currently in effect shall continue in full force and effect. 3. This instrument may be executed in one or more counterparts, each of which shall be deemed original, but all of which together shall constitute but one and the same instrument. Dated and effective as of the day and year first above written. TRUSTEES /s/ George W. Schneider (SEAL) /s/ Virginia F. Schneider (SEAL) George W. Schneider Virginia F. Schneider /s/ Joseph P. Schneider (SEAL) /s/ Steven M. Schneider (SEAL) Joseph P. Schneider Steven M. Schneider /s/ Patrick Greene (SEAL) Patrick Greene HOLDERS OF VOTING TRUST CERTIFICATES GEORGE W. AND VIRGINIA F. SCHNEIDER TRUST U/A DATED SEPTEMBER 1, 1987 By: /s/ George W. Schneider (SEAL) George W. Schneider Trustee By: /s/ Virginia F. Schneider (SEAL) Virginia F. Schneider Trustee GARY AND KATHERINE BUSCHELMAN TRUST By: /s/ Katherine S. Buschelman(SEAL) Katherine S. Buschelman, Trustee By: /s/ Gary Buschelman (SEAL) Gary Buschelman, Trustee /s/ Joan S. Gilles (SEAL) /s/ Joseph P. Schneider (SEAL) Joan S. Gilles Joseph P. Schneider /s/ Anna Marie Cronin (SEAL) /s/ Steven M. Schneider (SEAL) Anna Marie Cronin Steven M. Schneider /s/ John F. Schneider (SEAL) /s/ Henry P. Schneider (SEAL) John F. Schneider Henry P. Schneider /s/ Christopher Schneider (SEAL) /s/ Virginia S. Corrada (SEAL) Christopher Schneider Virginia S. Corrada /s/ Mary E. Schubothe (SEAL) /s/ Fredrick G. Schneider(SEAL) Mary E. Schubothe Fredrick G. Schneider EX-10.9 3 DEFERRED COMPENSATION PLAN Exhibit 10.9 LACROSSE FOOTWEAR, INC. DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES (AS AMENDED AND RESTATED) 1. Definitions. Except as otherwise expressly provided, each of the following terms used herein shall have the meaning set forth below: a) "Adjusted Book Value" means the book value of the Company as determined by the Company and its independent public accountants in accordance with generally accepted accounting principles, decreased by all amounts transferred to shareholders' equity as a result of the amortization of the "Excess of Net Assets Acquired Over Cost" account since the Company's or its predecessor's incorporation. b) "Company" means LaCrosse Footwear, Inc., a Wisconsin corporation, and all of its consolidated subsidiaries. c) "Contribution" means a dollar amount determined by the Company's Board of Directors with respect to a particular Participant and allocated to the appropriate Participant Account. d) "Net Income" or "Net Loss", as the case may be, means the consolidated net income (after-tax) or net loss (after tax benefits), respectively, of the Company from operations for any calendar year, as determined by the Company and its independent public accountants in accordance with generally accepted accounting principles. Without limiting the generality of the foregoing, Net Income and/or Net Loss shall not include any capital gains or losses realized by the Company, proceeds from insurance policies or any amount resulting from the amortization of the "Excess of Net Assets Acquired Over Cost" account. e) "Participant" means any executive or other key employee of the Company who is designated by the Company's Board of Directors as a Participant in the Plan. f) "Participant Account" means the account established for bookkeeping purposes by the Company under the Plan for each Participant to reflect all Contributions thereto, together with any increases and/or decreases thereto as herein provided. g) "Plan" means the Company's Deferred Compensation Plan for Key Employees adopted by the Company's Board of Directors on December 17, 1982 and as last amended and restated on November 22, 1996. h) "Applicable Interest Rate" means the then current market rate as reported in The Wall Street Journal, adjusted annually on January 1 of each year, on United States Treasury obligations with a maturity date closest to two (2) years as of the immediately preceding December 31; provided, however, that with respect to any Participant who retired from the Company prior to January 1, 1996, the Applicable Interest Rate shall be eight percent (8%) per annum. 2. Administration. The Plan shall be administered by the Board of Directors of the Company. 3. Operation. a) On or before December 31 of any calendar year, the Company's Board of Directors may make Contributions on behalf of such Participants as it shall deem appropriate. A Participant Account will be established for each Participant and will be increased by the amount (and at the time) of each Contribution for the account of such Participant. Except as otherwise provided herein, all Contributions are fully vested at the time they are allocated to the respective Participant Accounts. Each Participant Account will be increased in the event of Net Income or decreased in the event of a Net Loss as of the close of business on the last day of each calendar year by multiplying the sum of such Participant Account as of the first day of such calendar year by a fraction, the numerator of which is the Net Income or Net Loss, as the case may be, for the then current calendar year and the denominator of which is the sum of (i) the Adjusted Book Value as of the first day of such calendar year plus (ii) the aggregate value of all Participant Accounts as of the first day of such calendar year. Except as the Company's Board of Directors shall otherwise provide, no Participant Account shall be increased or decreased under this Paragraph after the occurrence of an event described in subparagraphs (a), (b) and (c) of Paragraph 4 hereof. b) On or before December 1 of any calendar year, each Participant may specify to the Company's Board of Directors, in writing, a percentage of the Contribution(s) to be made on his or her behalf during the following calendar year or years, to be deferred to a date specified by the Participant (the "Deferred Payment Date"). The Deferred Payment Date with respect to any Participant shall be the fifteenth (15th) day in January of such year as he shall specify, in writing, to the Company's Board of Directors. A Participant may extend his Deferred Payment Date to the January fifteenth (15th) of a later year at any time, provided that written notice of such extension shall be given to the Company's Board of Directors at least thirty (30) days preceding such earlier specified Deferred Payment Date. 4. Distributions. a) Notwithstanding any other provision of this Paragraph, a Participant shall receive the dollar value of his Participant Account within sixty (60) days after the first of the following events to occur: i) At any time at the sole discretion of the Company's Board of Directors; ii) A merger or consolidation in which the Company does not survive, a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company; iii) For other than the circumstances covered in subparagraphs (b) and (c) below, a Participant's termination of employment with the Company, with or without cause and regardless of whether initiated by the Company or the Participant; provided, however, that in no event shall a Participant who is entitled to a distribution from his or her Participant Account as a result of an event described in this subparagraph (iii) receive more than an amount equal to the Contributions made to such Participant Account together with interest thereon at the Applicable Interest Rate, compounded annually, from the date of each Contribution to the date of the event which triggered the distribution. b) In the event of a Participant's death, or any physical or mental disability resulting in a Participant's inability to perform his or her duties as an employee of the Company (which determination will be made by the Company's Board of Directors in its sole discretion), regardless of any Deferred Payment Date specified by such Participant pursuant to the provisions of subparagraph (b) of Paragraph 3 hereof or any distribution method elected pursuant to subparagraph (d) below, the balance in his or her Participant Account, plus, for the period from the first (1st) day of the calendar year to the date of his or her death or disability, interest at the Applicable Interest Rate on his or her Participant Account balance, will be paid to the Participant or his or her estate in no more than five (5) equal annual installments. i) The first installment paid within sixty (60) days of death, or disability, and ii) Succeeding installments paid on the anniversary date of his death or disability with interest at the Applicable Interest Rate on the unpaid balance. c) Retirement at age 62 or thereafter. i) If a Participant retires from the Company at age 62 or thereafter without having specified a later Deferred Payment Date as provided in subparagraph (b) of Paragraph 3 hereof, the balance in his or her Participant Account will be paid in the same manner as on his or her death or disability as provided in subparagraph (b) above. ii) If a Participant retires from the Company at age 62 or thereafter but has specified a later Deferred Payment Date as provided in subparagraph (b) of Paragraph 3 hereof, the balance in his or her Participant Account will be paid in accordance with the distribution method elected by the Participant pursuant to subparagraph (d) below. iii) Notwithstanding anything in this Plan to the contrary, any interest credited to a Participant's account during any calendar year during which the Participant is retired shall be paid to such Participant within thirty (30) days after the end of such calendar year. d) At least six (6) months before a Participant's Deferred Payment Date, such Participant shall, by written notice to the Company's Board of Directors, elect a lump payment upon his or her Deferred Payment Date or periodic payments, as described below: i) If a Participant shall have elected to receive a lump payment, or in the event a Participant shall fail to make any election as hereinbefore provided, the Participant shall, on his or her Deferred Payment Date, receive the dollar value of his or her Participant Account. ii) If a Participant shall have elected to receive periodic payments, the Company will, upon his or her Deferred Payment Date and periodically thereafter for such additional number of months or years not exceeding 119 months or 9 years as the Participant shall have specified, pay to the Participant the balance in his Participant Account, divided by the number of periodic payments which the Participant shall have specified. Interest at the Applicable Interest Rate on his or her Participant Account balance will be paid annually as provided in subparagraph (c) above. e) If a Participant has specified a Deferred Payment Date which is later than the date of his or her retirement from the Company at age 62 or thereafter, such Participant shall earn interest at the Applicable Interest Rate on his or her Participant Account balance until his or her Deferred Payment Date. Interest shall be paid annually as provided in subparagraph (c) above. 5. Nature of Rights. Participant Accounts shall be used solely as a device for the measurement and determination of the amounts to be paid to Participants as provided herein. No Participant Account shall constitute or be treated as a trust fund of any kind. A Participant shall be entitled only to receive cash as provided herein. 6. Rights Not Transferable. No right arising under the Plan shall be transferable other than by will or the laws of descent and distribution. Except as expressly authorized above, any attempted transfer or rights under the Plan shall be null and void, and without legal effect. 7. Withholding of Taxes. There shall be deducted from each distribution under the Plan the amount of any tax required by any governmental authority to be withheld and paid over by the Company to such government authority for the account of the Participant or other person entitled to such distribution. 8. No Effect on Retirement Benefits. No Contribution, increase in a Participant Account or distribution of all or any portion of a participant Account shall be deemed "compensation" for purposes of Section 1.01(c) or 1.01(j) of the Company's Retirement Plan or 2.01(j) of the Company's Employee Retirement Savings Plan for its salaried employees or for purposes of any comparable provision of any other Company pension or retirement plan hereafter in effect. 9. Termination; Amendment; Interpretation. The Company's Board of Directors may at any time terminate or amend the Plan as it, in its sole discretion, shall deem advisable. No termination or amendment of the Plan may, without the consent of a Participant, adversely affect the vested rights of such Participant. The Company's Board of Directors is authorized to interpret in good faith any provision of the Plan, and such interpretation shall be conclusive and binding on all parties concerned. EX-10.22 4 EMPLOYMENT AGREEMENT Exhibit 10.22 EMPLOYMENT AGREEMENT THIS AGREEMENT made as of the 31st day of May, 1996, by and between Craig L. Leipold, an individual resident of Wisconsin ("Mr. Leipold"), Rainco, Inc., a Wisconsin corporation (the "Company") and LaCrosse Footwear, Inc., a Wisconsin corporation ("LaCrosse"). W I T N E S S E T H : WHEREAS, the Company desires to retain the services of Mr. Leipold as President and Chief Executive Officer; WHEREAS, the Company is a subsidiary of LaCrosse and LaCrosse owns 50% of the Company's common equity; and WHEREAS, Mr. Leipold desires to be employed by the Company on the terms and conditions hereinafter set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises set forth herein and the mutual benefits to be derived from this Agreement, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Positions and Duties. Subject to the terms and conditions of this Agreement, from the date of this Agreement until December 31, 1999, the Company shall employ Mr. Leipold as its President and Chief Executive Officer. In such position, Mr. Leipold shall be responsible for the supervision, control and conduct of all the business and affairs of the Company, under the direction of the Board of Directors of the Company (the "Board of Directors"), and shall have such additional duties (consistent with his offices) as shall be assigned to him from time to time by the Board of Directors. Mr. Leipold will devote his best efforts to his employment with the Company and shall devote his business time and attention to the performance of his duties under this Agreement as follows: from the date hereof through December 31, 1997, not less than 60% of his Business Time (as defined below); from January 1, 1998 through December 31, 1998, not less than 50% of his Business Time; and from January 1, 1999 through December 31, 1999, not less than 40% of his Business Time. For purposes of this Section 1 only, "Business Time" means 1,840 hours devoted to business pursuits annually. 2. Term of Employment. Unless terminated earlier as provided below, the Company's employment of Mr. Leipold under this Agreement shall continue until December 31, 1999. The Company's employment of Mr. Leipold under this Agreement shall terminate prior to the end of the term hereof only under the following circumstances: (a) Death. Mr. Leipold's death; (b) Disability. If, as a result of Mr. Leipold's illness, physical or mental disability or other incapacity resulting in Mr. Leipold's inability to perform his duties under this Agreement for any period of four (4) consecutive months or any six (6) months in a twelve-month period, and within thirty (30) days after written notice of termination is given by the Company (which may occur before or after the end of such four-month or sixth-month period, as applicable), he shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate Mr. Leipold's employment hereunder; (c) Termination for Good Cause. The Company may, upon written notice, terminate Mr. Leipold's employment for good cause. "Good cause" for purposes of this Paragraph 2(c) shall mean Mr. Leipold's conviction of a felony, conviction of a crime involving moral turpitude or such other serious personal misconduct by Mr. Leipold of such a nature that results in a material adverse effect on the business or reputation of the Company, unless Mr. Leipold cures such matter to the reasonable satisfaction of the Company within thirty (30) days after written notice of Company's intention to terminate Mr. Leipold's employment under this Section 2(c); or (d) Voluntary Termination by Mr. Leipold. Mr. Leipold's employment shall terminate sixty (60) days after written notice of termination is delivered by Mr. Leipold to the Company or such earlier time as the Company may specify in writing upon receipt of Mr. Leipold's notice of termination; provided, however, that Mr. Leipold shall be entitled to his salary for such 60-day period. In no event shall the termination of Mr. Leipold's employment affect the rights and obligations of the parties set forth in this Agreement, except as expressly set forth herein. 3. Compensation. During the term of this Agreement, Mr. Leipold shall be entitled to the following compensation for services rendered to the Company: (a) Mr. Leipold shall be entitled to receive the following annual salary: Period Annual Salary The date hereof through December 31, 1997 $100,000 January 1, 1998 through December 31, 1998 $ 75,000 January 1, 1999 through December 31, 1999 $ 50,000 Mr. Leipold's salary shall be paid ratably on a bi-weekly basis and shall be pro-rated on a daily basis for any payment covering less than one half month. All payments under this Agreement shall be subject to withholding or deduction by reason of the Federal Insurance Contribution Act, federal income tax, Social Security, Medicare, state income tax and similar laws and regulations. (b) Mr. Leipold shall be granted the following options ("Options") to purchase the indicated number of shares of LaCrosse's Common Stock, $.01 par value ("LaCrosse Common Stock"), as a participant under LaCrosse's 1993 Employee Stock Incentive Plan, or any successor plan thereto (the "Plan"): options to purchase 10,000 shares granted on the date hereof; options to purchase 5,000 shares to be granted one year from the date hereof; and options to purchase 2,500 shares to be granted two years from the date hereof; provided, however, that Mr. Leipold shall not be granted any options if he is not an employee of the Company on the day provided for such grant. All Options will vest in their entirety three (3) years from the date of grant and shall expire on December 31, 2006. The exercise price of Options shall be the closing market price of LaCrosse Common Stock on the date of grant (or the first business day preceding the date of grant if the date of grant is not a business day). Except as expressly provided above, the Options shall be granted to Mr. Leipold subject to the terms and pursuant to agreements provided for and customarily used under the Plan. 4. Fringe Benefits. During the term of this Agreement, Mr. Leipold shall be entitled to participate at the Company's expense in any retirement plan, pension plan, employee stock purchase plan, employee stock option plan, life insurance plan, health insurance plan or fringe or other benefit which the Company from time to time makes available generally to its executive employees. Mr. Leipold shall be entitled to two (2) weeks paid vacation annually during the term of this Agreement, prorated for any partial year; provided, however, that any vacation not taken as of the end of any year during the term of this Agreement shall be forfeited. Mr. Leipold shall be compensated by the Company for all reasonable business expenses incurred by him on behalf of the Company upon presentation of appropriate documentation. 5. Covenant Not to Compete and Non-Disclosure. (a) During the term of this Agreement and so long as Mr. Leipold is entitled to compensation under this Agreement, including during any period in which Mr. Leipold has the right to exercise unexpired Options granted pursuant to Paragraph 3(b) hereof, Mr. Leipold covenants and agrees that neither he nor any of his affiliates (including any corporation or entity in which he is an officer, director or partner, or in which he owns beneficially five percent (5%) or more of any class of equity securities) shall, within the United States or Canada, whether directly or indirectly, with or without compensation, enter into, engage in or be employed by or act as a consultant to any corporation or other commercial enterprise which competes with the Company or LaCrosse in the design, manufacture, marketing and sale of protective clothing, footwear and complementary products, or solicit or do any business with any existing customers of the Company or LaCrosse for a competitive purpose without the written approval of LaCrosse; provided, however, that this covenant shall not restrict Mr. Leipold's legal or beneficial ownership of Johnson Worldwide Associates, Inc. or any of its controlled subsidiaries. (b) Mr. Leipold agrees to disclose promptly to the Company and does assign and agree to assign to the Company, free from any obligation to him, all his right, title and interest in and to any and all ideas, concepts, processes, improvements, inventions and intellectual property of any kind made, conceived, written, acquired, disclosed or developed by him, solely or in concert with others, during the term of his employment by the Company, which relate to the business, activities or facilities of the Company, or resulting from or suggested by any work he may do for the Company or at its request. Mr. Leipold further agrees to deliver to the Company any and all drawings, notes, photographs, copies, outlines, specifications, memoranda and data relating to such ideas, concepts, processes, improvements, inventions and intellectual property, to cooperate fully during his employment and thereafter in the securing of copyright, trademark or patent protection or other similar rights in the United States and foreign countries, and to give evidence and testimony and to execute and deliver to the Company all documents requested by it in connection therewith. (c) Except as expressly set forth below, Mr. Leipold agrees, whether during his employment pursuant to this Agreement or thereafter, except as authorized or directed by the Company in writing, not to disclose to others, use for his benefit, copy or make notes of any confidential knowledge or trade secrets or any other knowledge or information of or relating to the business, activities or facilities of the Company or any of its affiliates which may come to his knowledge during his employment pursuant to this agreement or thereafter. Mr. Leipold shall not be bound to this obligation of confidentiality and nondisclosure if: (i) the knowledge or information shall become part of the public domain by publication or otherwise through no fault of Mr. Leipold; (ii) the knowledge or information is known to the recipient prior to the receipt of the disclosure from Mr. Leipold; or (iii) the knowledge or information is disclosed to the recipient by a third party who is in lawful possession of the knowledge or information and has the lawful right to make disclosure thereof. (d) Upon termination of employment pursuant to this Agreement for any reason whatsoever, Mr. Leipold will deliver to the Company all records, notes, data, memoranda, photographs, models and equipment of any nature which are in his possession or control and which are the property of the Company or which relate to his employment or to the business, activities or facilities of the Company or any of its affiliates. (e) The parties understand and agree that the remedies at law for breach of the covenants in this Paragraph 5 would be inadequate and that the Company shall be entitled to injunctive or such other equitable relief as a court may deem appropriate for any breach of these covenants. If any of these covenants shall at any time be adjudged invalid or unenforceable to any extent by any court of competent jurisdiction, such covenant shall be deemed modified to the extent necessary in the opinion of such court to render it valid or enforceable. 6. Entire Agreement. This instrument embodies the entire agreement between the parties hereto with respect to Mr. Leipold's employment with the Company, and there have been and are no agreements, representations or warranties between the parties other than those set forth or provided for herein. 7. No Assignment. This Agreement shall not be assigned by either party hereto without the prior written consent of the other party and any attempted assignment without such prior written consent shall be null and void and without legal effect. 8. Notices. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given if delivered by hand or if mailed, by certified or registered mail, with postage prepaid: (a) If to Mr. Leipold, to Craig L. Leipold, c/o Rainco, Inc., 3600 South Memorial Drive, Racine, Wisconsin 53403-3871, or to such other person or place as Mr. Leipold may specify in a prior written notice to the Company and LaCrosse; (b) If to the Company to Rainco, Inc., 3600 South Memorial Drive, Racine, Wisconsin 53403-3871, or to such other person or place as the Company may specify in prior written notice to Mr. Leipold and LaCrosse, with a copy to LaCrosse at the address provided in (c) below. (c) If to LaCrosse, to LaCrosse Footwear, Inc., 1319 St. Andrew Street, P.0. Box 1328, La Crosse, Wisconsin 54603, Attention: Chairman of the Board, or to such other person or place as the LaCrosse may specify in prior written notice to Mr. Leipold, with a copy to Luke E. Sims, Foley & Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-5367. 9. Amendment; Modification. This Agreement shall not be amended, modified or supplemented other than in a writing signed by both parties hereto. 10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. 11. Headings. The headings in the sections of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement. 12. Severability. The parties agree that if any provision of this Agreement shall under any circumstances be deemed invalid or inoperative, the Agreement shall be construed with the invalid or inoperative provision deleted, and the rights and obligations of the parties shall be construed and enforced accordingly. 13. Governing Law. This Agreement shall be governed by and construed in accordance with the internal law of the State of Wisconsin. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. /s/ Craig L. Leipold (SEAL) Craig L. Leipold ("Mr. Leipold") RAINCO, INC. ("Company") By: /s/ Patrick K. Gantert Patrick K. Gantert, Vice President LACROSSE FOOTWEAR, INC. ("LaCrosse") By: /s/ Patrick K. Gantert Patrick K. Gantert, President EX-13 5 PORTIONS OF 1997 ANNUAL REPORT TO SHAREHOLDERS Exhibit 13 [Pages 8-24 of 1997 Annual Report to Shareholders] [Page 12] Five-Year Summary of Selected Financial Data Selected Income Statement Data ---------------------------------------- In Thousands - Year Ended December 31 1997 1996 1995 1994 1993 ----------------------------------------------------------------- Net sales $145,503 $121,997 $98,571 $108,319 $82,422 Operating income 13,156 10,088 6,662 11,230 7,250 Net income 6,779 5,386 3,328 6,152 3,700 Selected Balance Sheet Data In Thousands - Year Ended December 31 1997 1996 1995 1994 1993 Working capital $48,413 $46,811 $34,537 $35,382 $26,725 Total assets 101,920 92,286 74,862 74,822 46,488 Long-term obligations 12,499 16,002 4,893 7,340 10,751 Shareholders' equity 61,848 55,936 51,322 49,154 19,658 Selected Share Data --------------------------------------------- Year Ended December 31 1997 1996 1995 1994 1993 ----------------------------------------------------------------- Basic earnings per share $1.02 $.80 $.48 $.98 $.76 Diluted earnings per share $1.01 $.80 $.48 $.98 $.76 Dividends per share $.13 $.11 $.09 $.09 $.08 Shares used in basic per share calculation (000) 6,668 6,668 6,680 6,158 4,685 Shares used in diluted per share calculation (000) 6,713 6,674 6,680 6,158 4,694 Note: Earnings per share prior to 1997 were not impacted by Statement of Financial Accounting Standards No. 128. [Pages 9-12] Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Net sales generated during the last five months of the year can account for over 55% of the Company's net sales and have a significant impact on the Company's results of operations. Because consumers generally purchase a large percentage of the Company's products from September through January, retail dealers generally want delivery of products from June through October for advance orders and from October through December for restocking (or "fill-in") orders. Generally mild or dry weather during the late fall and early winter has a negative impact on the Company's net sales for the current year, while cold or wet weather during such time has a favorable impact. Further, weather conditions in one season can affect future net sales, particularly where weather contributes to high or low dealer inventory levels at the season's end. To satisfy demands for its products and to provide for uniform production levels, the Company generally manufactures its footwear products year-round. To assist in production scheduling, the Company's sales force calls on retail dealers from January to June to present the product line, review inventory levels and prepare an advance order. The Company offers price discounts for orders placed prior to July, although advance orders may be canceled at any time. To attempt to balance the flow of shipments and the need for warehouse space, the Company offers extended terms on receivables relating to advance orders to induce retail dealers to allow some shipments of seasonal products prior to the peak shipment period. The advance order terms provide for payment by December 1 (January 1 in the case of Southern dealers). Because of seasonal fluctuations, inventory levels are highest at mid-year and accounts receivable levels are highest during the fourth quarter. Each year, the Company introduces a number of new products. A new product, if successful, 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. In addition, the Rainfair, Inc. subsidiary, which is primarily in the rainwear business, provides products which react differently to the weather elements than the footwear business. In July 1997, the Company acquired all of the outstanding shares of capital stock of Pro-Trak Corporation, the company that owns and operates under the Lake of the Woods tradename. Lake of the Woods is a designer, manufacturer and marketer of branded leather footwear for both the outdoor and recreational segment of the market. If the acquisition had occurred on January 1, 1997, net sales and net income reported by the Company would have been $149.3 million and $6.9 million, respectively. The Company does not anticipate the future seasonality of sales will be significantly impacted by the net sales of Lake of the Woods. Results of Operations The following table shows the percentage relationship to net sales of items derived from the Consolidated Statements of Income and the percentage change from year to year. Percentage of Net Sales Percentage of Increase 1997 vs. 1996 vs. Year Ended December 31 1997 1996 1995 1996 1995 Net sales 100.0% 100.0% 100.0% 19% 24% Cost of goods sold 72.0 72.3 73.1 19 22 Gross profit 28.0 27.7 26.9 21 27 Selling and administrative expenses (19.0) (19.4) (20.2) 17 19 Operating income 9.0 8.3 6.7 30 51 Interest expense (1.4) (1.4) (1.5) 22 15 Other income .4 .3 .3 64 36 Income before income taxes 8.0 7.2 5.5 33 60 Income taxes (3.1) (2.8) (2.1) 33 61 Minority interest (.2) - - Net income 4.7% 4.4% 3.4% 26% 62% Year Ended December 31, 1997 Compared To Year Ended December 31, 1996 Net Sales. Net sales in 1997 increased $23.5 million, or 19%, to $145.5 million from $122.0 million in 1996. The increase in net sales was largely attributable to the July 1997 acquisition of the Lake of the Woods product line, which added approximately $5.2 million in net sales, along with an additional $15.2 million of net sales contributed by Rainfair and Red Ball, mainly as a result of including a full year of sales in 1997 as compared to 1996 when sales were included from their May acquisition dates. Danner net sales increased $2.7 million in 1997 compared to 1996 mainly due to increased sales of hiking boots and work boots, due in part to new product introductions. Net sales of LaCrosse products were up less than 1% with increased sales in injection molded vinyl knee boots largely offset by a weather related decrease in cold weather pac boot sales, the result of the mild weather in December 1997. Gross Profit. Gross profit as a percentage of net sales increased to 28.0% in 1997 from 27.7% in 1996. The improvement in gross margins as a percentage of net sales was due to more favorable pricing on key raw materials, a lower defective return rate on Danner and Red Ball products and improved margins on the Rainfair business, primarily due to increased volume. Selling and Administrative Expenses. As a percent of net sales, selling and administrative expenses decreased from 19.4% of net sales in 1996 to 19.0% of net sales in 1997. The ability to leverage the LaCrosse operating expenses across a greater sales base was the primary reason for the reduction in operating expenses as a percent of net sales. Expenses increased $3.9 million, or 17%, in 1997 as compared to 1996, partially due to a $1.4 million increase in expenses reported for Rainfair in 1997 as compared to 1996 when expenses were included from the date of acquisition in May 1996. The balance of the increase in spending was largely driven by the increase in net sales. Interest Expense. Interest expense increased $363,000, or 22%, in 1997 as compared to 1996. The increase was a result a higher level of average borrowings needed to provide the working capital in support of the increased sales of the Lake of the Woods, Rainfair and Red Ball product lines acquired in July 1997, May 1996 and May 1996, respectively. Income Tax Expense. The Company's effective income tax rate in 1997 was 39.2%, the same as the 1996 income tax rate. Year Ended December 31, 1996 Compared To Year Ended December 31, 1995 Net Sales. Net sales in 1996 increased $23.4 million, or 24.0%, to $122.0 million from $98.6 million in 1995. The increase in net sales was largely attributable to the May 1996 acquisitions of Rainfair and certain assets of Red Ball. These acquisitions added $11.1 million and $3.5 million, respectively, of net sales in 1996. Net sales of LaCrosse products increased $7.3 million in 1996 as compared to 1995, as a result of a $4.7 million increase in sales through the retail channel of distribution due to (i) more favorable weather conditions, (ii) an improved retail climate and (iii) new product offerings, and a $3.0 million improvement in sales through the industrial channel of distribution, mainly as a result of new products. Danner product sales increased $1.5 million in 1996 compared to 1995 resulting mainly from the introduction of the Dri-Foot boot series. Gross Profit. Gross profit as a percentage of net sales increased to 27.7% in 1996 from 26.9% in 1995. Gross profit margins as a percentage of net sales on LaCrosse products were up 1.5%, primarily the result of a $.4 million reduction in the LIFO reserve, more favorable pricing on key raw materials and improved productivity at the La Crosse, Wisconsin factory. This was partially offset by the lower margin rainwear business and lower margins on Red Ball brand sales, which were impacted by start-up inefficiencies. Selling and Administrative Expenses. Selling and administrative expenses increased $3.8 million, or 19%, in 1996 as compared to 1995, primarily resulting from the acquisitions of Rainfair and Red Ball, which added $2.2 million and $.6 million, respectively, to operating expenses in 1996. As a percent of net sales, operating expenses decreased from 20.2% of net sales in 1995 to 19.4% of net sales in 1996. The ability to leverage the LaCrosse operating expenses across a greater sales base was the primary reason for the reduction in operating expenses as a percent of sales. This allowed for a planned increase in advertising expenses. Interest Expense. Interest expense increased $223,000, or 15%, in 1996 as compared to 1995. The increase was the result of a $12.5 million increase in long-term debt to finance the Rainfair acquisition and the purchase of Red Ball assets, which was partially offset by lower short-term borrowings resulting from the reduced inventory levels of LaCrosse products during the year. Income Tax Expense. The Company's effective income tax rate in 1996 was 39.2%, the same as the 1995 income tax rate. Liquidity And Capital Resources The Company has historically financed its operations with cash generated from operations, long-term lending arrangements and short-term borrowings under its line of credit. The Company requires working capital primarily to support fluctuating accounts receivable and inventory levels caused by the Company's seasonal business cycle. The Company's working capital needs are lowest in the first quarter and highest in the third quarter. The Company invests excess cash balances in short-term investment grade securities or money market investments. In May 1996, the Company invested $10.9 million in Rainfair. Of this investment, approximately $8.0 million was for a secured loan to the subsidiary to support working capital requirements, consistent with the Company's intention to fund the working capital requirements of Rainfair through intercompany loans. Rainfair is a designer, light manufacturer and distributor of industrial and consumer rainwear, protective clothing and boots. In May 1996, the Company also acquired certain of the operating assets and trademarks of Red Ball for approximately $5.5 million, including $.3 million paid for equipment leased from a third party and $.5 million for relocation costs. Red Ball was a designer, manufacturer and distributor of waders, pac boots and children's footwear. In May 1996, the Company renegotiated its unsecured credit agreement with Firstar Bank Milwaukee, N.A. as the lead bank. Under the terms of the revised agreement, the maximum amount of borrowings were increased to $62.5 million, including a $12.5 million term loan, from the previous maximum level of $30.0 million. The $12.5 million term loan, which is outstanding at December 31, 1997, was primarily used to fund the investment in Rainfair and the acquisition of assets of Red Ball. The term loan requires quarterly payments of $.4 million commencing in March 1998. In July, 1997, the Company acquired all of the outstanding shares of capital stock of Pro-Trak Corporation, the company that operated under the Lake of the Woods tradename. The purchase price, including the assumption of liabilities, was approximately $7.3 million. Lake of the Woods is a designer, manufacturer and marketer of branded leather footwear for both the outdoor and occupational segment of the market. Cash generated by operations amounted to $2.1 million in 1997, a decrease from the $9.7 million and $5.7 million generated in 1996 and 1995, respectively. Net income increased $1.4 million in 1997 compared to 1996, however, cash generated by operating activities in total was down $7.6 million from the 1996 level. An increase in accounts receivable, primarily as a result of increased sales and extended terms on fill-in orders, and a $3.3 million increase in inventories compared to a $2.1 million decrease in 1996 were the main reasons for the reduction in cash generated by operations. Inventories increased primarily as a result of an increase in Red Ball inventories to support the anticipated increase in Red Ball sales. Operating cash flow in 1996 was $9.7 million compared to $5.7 million in 1995. The improvement was primarily attributable to a $2.0 million increase in net income and a $2.1 million reduction in inventories (excluding the effect of the Rainfair, Inc. inventories acquired as part of the May 1996 acquisition). The inventory reduction was the result of improved production planning. Net cash used in investing activities during 1997 was $3.7 million, down significantly from $14.2 million in 1996. During 1996, over $11.0 million of cash was invested in the Rainfair acquisition and the purchase of the Red Ball trademarks. The only acquisition during 1997 was the purchase of Pro-Trak Corporation for approximately book value which sis not result in a significant use of cash for investing activities. Purchases of property and equipment, which accounted for the bulk of the cash used in investing activities during 1997, were $3.4 million in 1997 compared to $3.1 million in 1996. It is anticipated 1998 capital spending will be in excess of $5.0 million, partially as a result of planned expenditures for a product development center, an injection molding machine and a new computer software system. In addition, in January 1998, Rainfair, Inc. became a 100% owned subsidiary when the Company acquired 50% of the common stock of Rainfair, Inc. from the former principal owner for approximately $2.4 million. Financing activities used $4.7 million in cash in 1997. In addition to a $1.7 million scheduled principal payment on long-term debt, over $6.1 million of debt assumed in the Lake of the Woods acquisition was repaid. This reduction in long-term debt was partially funded by a $4.0 million increase in short-term borrowings. In addition, the Company paid cash dividends of $.7 million. The Company's debt to total capital ratio was 24.3% at December 31, 1997, 24.2% at December 31, 1996 and 11.5% at December 31, 1995. In March 1994, the Company acquired substantially all of the assets of Danner Shoe Manufacturing Co. in part by issuing 277,778 shares of common stock as a portion of the purchase price. In the acquisition, the Company guaranteed the holders of this common stock a market price of at least $16.20 per share by March 1, 1999. If the market price is less than $16.20 per share, the Company will be required to make a cash payment equal to the difference on March 1, 1999. If the Danner shareholders have the opportunity to sell their common stock under a Company-filed registration statement or under Rule 144 promulgated under the Securities Act of 1933, as amended, and choose not to sell after receiving a Company request to sell, then the Company's obligation can be reduced or eliminated to the extent of the number of shares permitted to be sold based upon the then prevailing market price for the common stock. As of December 31, 1997, approximately half of these shares have been sold with no further obligation on the part of the Company. During 1997, the Company commenced for all of its systems a year 2000 date conversion project to address all necessary code changes, testing and implementation. Project completion is planned for the middle of 1999 at an estimated total cost of less than $200,000. The Company expects its year 2000 date conversion project to be completed on a timely basis. Currently available funds, including the line of credit, together with the anticipated cash flows generated from future operations, are believed to be adequate to cover the Company's anticipated capital and working capital needs during 1998. From time to time, the Company evaluates acquisitions of businesses or product lines that could complement the Company's business, such as the Rainfair and Lake of the Woods acquisitions. The Company has no present understandings, commitments or agreements with respect to any acquisition. However, if the Company makes significant future acquisitions, it may be required to raise funds through additional bank financing or the issuance of debt or equity securities. Subsequent Event In March 1998, the Company was informed by L.L. Bean, a long-term customer puchasing hand-crafted rubber pac boot bottoms, that they are going to replace a significant portion of the hand-crafted rubber bottoms with molded bottoms from other vendors. This decision will reduce the Company's 1998 net sales to L.L. Bean by approximately $1.5 million. In future years, the full year impact will reduce Company net sales to L.L. Bean an additional $0.5 to $1.0 million. [Pages 13-23] Consolidated Balance Sheets December 31, 1997 and 1996 (In Thousands) Assets 1997 1996 Current Assets Cash and cash equivalents $426 $6,716 Trade accounts receivable, less allowances of $1.6 and $1.5 million 27,390 20,705 Inventories (Note 3) 39,073 31,549 Prepaid expenses and deferred tax assets (Note 4) 4,670 4,016 ------- ------ Total current assets 71,559 62,986 ------- ------ Property and Equipment Land and land improvements and buildings 6,678 6,501 Machinery and equipment 26,896 23,391 ------- ------ 33,574 29,892 Less accumulated depreciation 20,299 17,262 ------- ------ 13,275 12,630 ------- ------ Other Assets Goodwill, net of amortization of $1.9 and $1.4 million 13,946 13,823 Deferred tax and other assets (Note 4) 3,140 2,847 ------- ------ 17,086 16,670 ------- ------ $101,920 $92,286 ======== ======= Liabilities and Shareholders' Equity Current Liabilities Current maturities of long-term obligations (Note 5) $3,349 $1,851 Notes payable, bank (Note 5) 4,000 - Accounts payable 6,385 5,755 Accrued expenses (Note 7) 9,412 8,569 ------- ------ Total current liabilities 23,146 16,175 ------- ------ Long-Term Obligations (Note 5) 12,499 16,002 Compensation and Benefits (Note 9) 2,921 2,980 Commitments and Contingencies (Notes 6, 8, 9 and 10) Minority Interest in Subsidiary (Note 2) 1,506 1,193 Shareholders' Equity Common stock, par value $.01 per share; authorized 50,000,000 shares; issued and outstanding, 6,717,627 shares (Notes 8 and 10) 67 67 Additional paid-in capital 27,579 27,579 Retained earnings (Note 5) 34,645 28,733 Less - cost of 49,900 and 50,000 shares of treasury stock (443) (443) ------- ------ Total shareholders equity 61,848 55,936 ------- ------ $101,920 $92,286 ======== ======= See Notes to Consolidated Financial Statements. Consolidated Statements of Income Years Ended December 31, 1997, 1996 and 1995 (In Thousands, except for share and per share data) 1997 1996 1995 Net sales $145,503 $121,997 $98,571 Cost of goods sold 104,692 88,176 72,011 -------- -------- ------- Gross profit 40,811 33,821 26,560 Selling and administrative expenses 27,655 23,733 19,898 -------- -------- ------- Operating income 13,156 10,088 6,662 Non-operating income (expense): Interest expense (2,043) (1,680) (1,457) Miscellaneous 593 361 266 -------- -------- ------- (1,450) (1,319) (1,191) Income before income taxes 11,706 8,769 5,471 Provision for income taxes (Note 4) 4,588 3,440 2,143 -------- -------- ------- Net income before minority interest 7,118 5,329 3,328 Minority interest in net (income) loss of subsidiary (339) 57 - -------- -------- ------- Net income $6,779 $5,386 $3,328 ======== ======== ======= Basic earnings per share $1.02 $.80 $.48 ======== ======== ======= Diluted earnings per share $1.01 $.80 $.48 ======== ======== ======= Weighted average shares outstanding: Basic earnings per share 6,667,702 6,667,627 6,679,545 Diluted earnings per share 6,712,975 6,673,539 6,679,545 See Notes to Consolidated Financial Statements. Consolidated Statements of Shareholders' Equity Years Ended December 31, 1997, 1996 and 1995 (In Thousands, except for share and per share data) Additional Total Common Paid-In Retained Treasury Shareholders' Stock Capital Earnings Stock Equity Balance, December 31, 1994 $67 $27,579 $21,508 $- $49,154 Net income - - 3,328 - 3,328 Common stock dividends ($.09 per share) - - (600) - (600) 6% preferred stock dividends - - (117) - (117) Purchase of 50,000 shares of treasury stock - - - (443) (443) ---- ------ ------ ----- ------ Balance, December 31, 1995 67 27,579 24,119 (443) 51,322 Net income - - 5,386 - 5,386 Common stock dividends ($.11 per share) - - (733) - (733) 6% preferred stock dividends - - (39) - (39) ---- ------ ------ ----- ------ Balance, December 31, 1996 67 27,579 28,733 (443) 55,936 Net income - - 6,779 - 6,779 Common stock dividends ($.13 per share) - - (867) - (867) ---- ------ ------ ----- ------ Balance, December 31, 1997 $67 $27,579 $34,645 $ (443) $61,848 === ======= ======= ====== ======= See Notes to Consolidated Financial Statements. Consolidated Statements of Cash Flows Years Ended December 31, 1997, 1996 and 1995 (In Thousands) 1997 1996 1995 Cash Flows from Operating Activities Net income $6,779 $5,386 $3,328 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,180 2,925 2,523 Amortization 572 513 484 Other 386 (34) 21 Deferred income taxes 86 (62) (62) Change in assets and liabilities, net of effects from acquisition of Rainfair, Inc. and Pro-Trak Corporation: Trade accounts receivable (4,033) (2,145) 93 Inventories (3,316) 2,136 (936) Accounts payable (1,065) 279 382 Other (462) 712 (139) ------ ------ ------ Net cash provided by operating activities 2,127 9,710 5,694 Cash Flows from Investing Activities Acquisition of Rainfair, Inc., net of cash acquired - (9,597) - Acquisition of Pro-Trak Corporation, net of cash acquired 77 - - Purchase of property and equipment (3,364) (3,060) (3,779) Purchase of trademarks - (1,439) - Other (416) (67) (13) ------ ------ ------ Net cash (used in) investing activities (3,703) (14,163) (3,792) Cash Flows from Financing Activities Proceeds from long-term obligations - 12,500 - Principal payments on long-term obligations (7,981) (1,742) (2,444) Net proceeds from short-term borrowings 4,000 - - Cash dividends paid (733) (668) (722) Purchase of redeemable preferred stock - (1,957) - Purchase of treasury stock - - (443) ------ ------ ------ Net cash provided by (used in) financing activities (4,714) 8,133 (3,609) ------ ------ ------ Increase (decrease) in cash and cash equivalents (6,290) 3,680 (1,707) Cash and cash equivalents: Beginning 6,716 3,036 4,743 ------ ------ ------ Ending $426 $6,716 $3,036 ====== ====== ====== Supplemental Information Cash payments for: Interest $1,891 $1,594 $1,396 Income taxes $4,055 $2,939 $1,762 See Notes to Consolidated Financial Statements. Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies Nature of business: The Company designs, manufactures and markets premium quality protective footwear and 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 and 50% owned subsidiaries (the "Company"). The Company consolidates 50% owned subsidiaries where it has board, operating and financial control. The Company acquired 100% ownership of its 50% owned subsidiary in January 1998 (Note 2). All material intercompany accounts and transactions have been eliminated in consolidation. Use of estimates in the preparation of financial statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair value of financial instruments: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those investments. The carrying amount of long-term debt approximates fair value based on the interest rates, maturities and collateral requirements currently available for similar financial instruments. Concentrations of credit risk: The Company grants credit to its customers, who are primarily domestic retail stores, direct mail catalog merchants 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. Cash and cash equivalents: The Company considers all highly liquid debt instruments (including short-term investment grade securities and money market instruments) purchased with maturities of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts. Inventories: Inventories are stated at the lower of cost or market. All inventories, except for vinyl products, boot liners, leather boots, leather boot components and rainwear, are valued using the last-in, first-out (LIFO) method. Vinyl products, boot liners, leather boots, leather boot components and rainwear are valued using the first-in, first-out (FIFO) method. Property and equipment: Property and equipment are carried at cost and are being depreciated using straight-line and accelerated methods over their estimated useful lives as follows: land improvements, 15 years; buildings and improvements, 20 to 39 years; and machinery and equipment, 3 to 7 years. Intangible assets: Goodwill, representing the excess of cost over net assets acquired, is being amortized on a straight-line basis over periods of 8 to 30 years. The Red Ball trademarks are being amortized on a straight-line basis over 15 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. Revenue recognition and product warranty: Revenue is recognized at the time products are shipped to customers. Revenue is recorded net of freight, estimated discounts and returns. The Company warrants its products against defects in design, materials and workmanship generally for one year. A provision for estimated future warranty costs is recorded when products are shipped. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets and liabilities are recognized for temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Stock-based compensation: 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 exercise price is equal to the market price at the date of the grant, no compensation costs have been recognized. Disclosures about the fair value of outstanding stock options are contained in Note 8. Earnings per share: The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, which supersedes APB Opinion No. 15. Statement No. 128 requires the presentation of earnings per share by all entities that have common stock or potential common stock (such as options and convertible securities) outstanding that trade in a public market. Those entities that have only common stock outstanding are required to present basic earnings per share amounts. All other entities are required to present basic and diluted per share amounts. 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 Company initially applied Statement No. 128 for the year ended December 31, 1997 and, as required by the Statement, has restated all per share information for the prior years to conform to the Statement. Because the Company has potential common stock outstanding, as discussed in Note 8, the Company is required to present basic and diluted earnings per share. The numerators are the same for the basic and diluted earnings per share computations for all years presented. The impact of the stock options on the denominators of the diluted earnings per share computation was to increase the shares outstanding by 45,273 shares, 5,912 shares and 0 shares for the years ended December 31, 1997, 1996 and 1995, respectively. Recent accounting pronouncements: In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components (revenue, expenses, gains and losses) in a full set of general purpose financial statements. The Company will adopt SFAS No. 130 for its year ending December 31, 1998. In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, which changes the way public companies report information about operating segments. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers and the major countries in which the entity holds assets and reports revenue. The Company will adopt SFAS No. 131 for its year ended December 31, 1998. Management is evaluating whether it will have reportable segments under the new standard. Note 2. Acquisitions In July 1997, the Company acquired all of the outstanding shares of capital stock of Pro-Trak Corporation, which operates under the Lake of the Woods tradename. The purchase price, including the assumption of liabilities, was approximately $7.3 million. The acquisition has been accounted for as a purchase. Accordingly, the purchase price has been allocated to assets and liabilities based on their estimated fair values as of the date of acquisition. The value of assets acquired and liabilities assumed is as follows (in thousands): Current assets, including cash of $77 $7,002 Equipment 547 Goodwill 695 Current liabilities (2,113) Long-term liabilities (6,131) ------ $ -- ====== In May 1996, the Company and the former principal owner of Rainfair, Inc. established a new corporation and each purchased one-half of the new corporation's common stock for $1,250,000. The Company also purchased all of the new corporation's outstanding preferred stock for $500,000. On May 31, 1996, this 50% owned subsidiary of the Company purchased substantially all of the assets of Rainfair, Inc. for approximately $10.9 million in cash and approximately $1.4 million in assumed liabilities for an aggregate purchase price of approximately $12.3 million. The name of the subsidiary was changed to Rainfair, Inc. ("Rainfair") in June 1996 after the completion of the acquisition. The Company loaned Rainfair approximately $8.0 million (secured by all assets of Rainfair) to fund the portion of the purchase price which was not funded by the initial capital contributions. The acquisition has been accounted for as a purchase. Accordingly, the purchase price was allocated to assets and liabilities based on 50% of their estimated fair values and 50% of the predecessor's historical cost as of the date of acquisition. In January 1998, the Company purchased all Rainfair common stock of the former principal owner for approximately $2.4 million. The Company's consolidated statements of income for the years ended December 31, 1997 and 1996 include the results of operations of Pro-Trak Corporation and Rainfair, Inc. since the dates of acquisition. The following unaudited pro forma information presents the consolidated results of operations as if the acquisitions had occurred as of the beginning of 1996 and does not purport to be indicative of what would have occurred had the acquisitions been made as of that date or of results which may occur in the future. (In Thousands, except for earnings per share) Years Ending December 31, 1997 1996 (Unaudited) Net sales $149,282 $135,900 Net income 6,918 5,154 Diluted earnings per share 1.03 .77 In May 1996, the Company acquired trade accounts receivable, inventories, machinery and equipment and trademarks from Red Ball, Inc. for a cash price of approximately $5.5 million. The Company has accounted for the transaction as a purchase of assets rather than the acquisition of a business. The primary purpose of the transaction was to purchase the Red Ball trademarks and there is limited continuity of the sale of Red Ball products, no facility leases were assumed, and there is no continuity of Red Ball's sales, production or cost structure. The purchase price was allocated to the assets based on their fair values as of the date of acquisition. Note 3. Inventories A summary of inventories is as follows: (In Thousands) December 31, 1997 1996 Finished goods $28,889 $22,188 Work in process 1,967 2,222 Raw materials 8,217 7,139 ------- ------- Total inventories $39,073 $31,549 ======= ======= If all inventories were valued on the FIFO method, total inventories for 1997 and 1996 would have been $42.2 and $35.3 million, respectively. Note 4. Income Tax Matters Net deferred tax assets and liabilities consist of the following components: (In Thousands) December 31, 1997 1996 Deferred tax assets: Receivable allowances $531 $523 Inventory differences 365 525 Compensation and benefits 1,969 1,752 Insurance reserves and other 416 500 ----- ----- 3,281 3,300 Deferred tax liabilities, principally intangibles 664 597 ------ ------ $2,617 $2,703 ====== ====== 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, 1997 1996 Current assets $2,132 $2,017 Noncurrent assets 485 686 ------ ------ $2,617 $2,703 ====== ====== The provision for income taxes consists of the following: (In Thousands) Years Ended December 31, 1997 1996 1995 Current: Federal $3,684 $2,947 $1,723 State 818 555 482 Deferred 86 (62) (62) ------ ------ ------ $4,588 $3,440 $2,143 ====== ====== ====== The differences between statutory federal tax rates and the effective tax rates are as follows: Years Ending December 31, 1997 1996 1995 Statutory federal tax rate 35.0% 35.0% 35.0% State taxes, net of federal tax benefit and other 4.2 4.2 4.2 ---- ---- ---- Effective tax rate 39.2% 39.2% 39.2% ==== ==== ==== Note 5. Financing Arrangements Credit agreement: The Company has a $62.5 million unsecured credit agreement. Under the agreement, the Company has (1) a $50 million revolving line of credit which expires on May 31, 1999 ($10 million of which can be used to support letters of credit) and (2) a $12.5 million term loan due December 31, 2001. At the Company's option, the interest rate is either the bank's prime rate or LIBOR plus .75% or 1% for the revolving line of credit and LIBOR plus 1% or 1.25% for the term loan, depending upon the Company's leverage ratio. (LIBOR plus .75% and LIBOR plus 1% for the revolving line of credit and term loan, respectively, as of December 31, 1997). The credit agreement contains various covenants, including minimum consolidated tangible net worth, sale of assets, indebtedness, current ratio, interest coverage ratio and leverage ratio. The revolving line of credit is used to finance peak inventory and accounts receivable levels and commitments for letters of credit. At December 31, 1997 and 1996, there was $4.0 million and $0 outstanding under the revolving line of credit and there were letter of credit commitments outstanding of $2.9 million and $1.0 million, respectively. Long-term obligations: (In Thousands) December 31, 1997 1996 Term loan under credit agreement, due in quarterly installments of $.4 million commencing in March 1998, interest payable monthly $12,500 $12,500 10.26% unsecured note payable, due in annual installments of $1.4 million excluding interest, interest payable semi-annually (a) 2,286 3,714 10.73% unsecured note payable, due in annual installments of $.3 million excluding interest, interest payable semi-annually (a) 457 743 Other 605 896 ------- ------- 15,848 17,853 Less current maturities 3,349 1,851 ------- ------- $12,499 $16,002 ======= ======= (a) The loan agreement contains various covenants, including minimum tangible net worth, working capital, current ratio, permitted indebtedness, net income before income taxes to interest expense and total permitted investments and restricted payments. Retained earnings available for dividends under these agreements amount to approximately $12.8 million at December 31, 1997. Maturities of long-term obligations for the next five years are as follows (in millions): 1998, $3.3; 1999, $2.7; 2000, $1.7; 2001, $7.8; 2002, $0; and $.3 thereafter. Note 6. Lease Commitments and Total Rental Expense The Company leases office space, retail stores, manufacturing facilities, equipment and warehouse space under non-cancelable agreements, which expire on various dates through 2007, and are recorded as operating leases. The total rental expense included in the consolidated statements of income for the years ended December 31, 1997, 1996 and 1995 is approximately $1.8, $1.6 and $1.2 million, respectively. Approximate future minimum lease payments are as follows (in millions): 1998, $1.8; 1999, $1.8; 2000, $1.5; 2001, $.7 , 2002, $.5 and $1.4 thereafter. Note 7. Accrued Expenses Accrued expenses are comprised of the following: (In Thousands) December 31, 1997 1996 Compensation $4,311 $4,423 Workers' compensation insurance 824 889 Income taxes payable 1,514 1,066 Other, including dividends 2,763 2,191 ------ ------ Total accrued expenses $9,412 $8,569 ====== ====== Note 8. Stock Options The Company has granted stock options to officers and key employees under its 1993 and 1997 stock option plans pursuant to which options for up to 550,000 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. The following summarizes all stock options granted under the plans: Common Per Share Shares Option Price December 31, 1994 87,500 $13.00 Granted 41,500 10.25-11.25 ------- December 31, 1995 129,000 10.25-13.00 Granted 89,125 9.06-10.38 Canceled (10,000) 9.06-13.00 ------- December 31, 1996 208,125 9.06-13.00 Granted 63,500 10.88-14.50 Canceled (3,300) 9.06 Exercised (100) 9.06 ------- December 31, 1997 268,225 9.06-14.50 Options for approximately 82,000 shares were exercisable at December 31, 1997. Compensation expense under the plans are accounted for following the provisions of APB Opinion No. 25 and its related interpretations. Accordingly, no compensation cost has been recognized for grants made to date. If the Company had elected to recognize compensation cost based on the fair value of the options granted at the grant date as provided by SFAS No. 123, pro forma net income would have been reduced by $.1 million and $.1 million and the pro forma diluted earnings per share would have been $.99 and $.79 for the years ended December 31, 1997 and 1996, 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: 1997 1996 Expected dividend yield 1% 1% Expected stock price volatility 25% 25% Risk-free interest rate 6.5% 7.0% Expected life of options 8 years 8 years The weighted average exercise price of the options granted during 1997 is $11.59 per share. Note 9. Compensation and Benefit Agreements The Company has defined benefit pension plans covering a majority of its employees. Eligible employees are entitled to monthly pension benefits beginning at normal retirement age (65). The monthly benefit payable at the normal retirement date under the Company's pension plans is equal to a specified dollar amount or percentage of average monthly compensation, as defined in the plans, multiplied by years of benefit service (maximum of 38 years). The Company's funding policy is to make not less than the minimum contribution that is required by applicable regulations, plus such amounts as the Company may determine to be appropriate from time to time. The following table sets forth the funded status of the plans and the amount recognized in the Company's consolidated balance sheets: (In Thousands) December 31, 1997 1996 Actuarial present value of benefit obligations: Vested benefits $ 11,068 $ 10,543 -------- -------- Accumulated benefits $ 11,619 $ 11,103 -------- -------- Projected benefits $(12,568) $(12,574) Plan assets at fair value (equity securities and pooled funds) 14,719 12,948 -------- -------- Plan assets in excess of projected benefit obligation 2,151 374 Unrecognized net gain (3,244) (1,362) Unrecognized transition obligation 163 214 Unrecognized prior service costs 342 383 -------- -------- (Accrued) pension cost $(588) $(391) ======== ======== Actuarial assumptions used at December 31, 1997 and 1996 were as follows: 1997 1996 Discount rate 7.0% 7.0% Rate of increase in compensation levels 4.5% 5.25% Expected long-term rate of return on plan assets 8.0% 8.0% Net pension expense for these plans for each of the years ended December 31, 1997, 1996 and 1995 approximates $.4 million. The Company sponsors an unfunded defined benefit postretirement medical and life insurance plan that covers a majority of its employees until they qualify for Medicare. The plan is contributory for retirees with contributions established annually as a specified dollar amount. The Company funds the postretirement benefit obligation as the costs are incurred. The accrued postretirement benefit cost is approximately $1.4 million at both December 31, 1997 and 1996 and the related expense is approximately $.1 million, $.2 million and $.2 million for the years ended December 31, 1997, 1996 and 1995, respectively. The assumed annual rate of increase in cost of covered health care benefits used by the Company in the determination of postretirement benefit information was 6.0% as of December 31, 1997 and 7.0% as of December 31, 1996 and 1995. The assumed discount rate was 7.0% as of December 31, 1997, 1996 and 1995. Note 10. Commitments In March 1994, the Company acquired substantially all of the assets of Danner Shoe Manufacturing Co. in part by issuing 277,778 shares of common stock as a portion of the purchase price. In the acquisition, the Company guaranteed the holders of this common stock a market price of at least $16.20 per share by March 1, 1999. If the market price is less than $16.20 per share, the Company will be required to make a cash payment equal to the difference on March 1, 1999. If the Danner shareholders have the opportunity to sell their common stock under a Company-filed registration statement or under Rule 144 promulgated under the Securities Act of 1933, as amended, and choose not to sell after receiving a Company request to sell, then the Company's obligation can be reduced or eliminated to the extent of the number of shares permitted to be sold based upon the then prevailing market price for the common stock. As of December 31, 1997, approximately half of these shares have been sold with no further obligation on the part of the Company. Independent Auditor's Report To the Board of Directors and Shareholders of LaCrosse Footwear, Inc. We have audited the accompanying consolidated balance sheets of LaCrosse Footwear, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LaCrosse Footwear, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. McGLADREY & PULLEN, LLP La Crosse, Wisconsin February 6, 1998 [Page 24] Quarterly Results of Operations (Unaudited) The Company reports its quarterly results of operations on the basis of 13-week periods for each of the first three quarters with the year ending on December 31st. The following tabulation presents the Company's unaudited quarterly results of operations for 1997 and 1996. Thousands of dollars except per share data First Second Third Fourth 1997 Quarter Quarter Quarter Quarter ----------------------------------------------------------------- Net sales $32,698 $28,421 $41,884 $42,500 Gross profit 8,286 7,652 12,422 12,451 Operating income 1,565 1,101 5,152 5,338 Net income 545 539 2,933 2,762 Basic earnings per share* .08 .08 .44 .41 Diluted earnings per share* $.08 $.08 $.44 $.41 Thousands of dollars except per share data First Second Third Fourth 1996 Quarter Quarter Quarter Quarter ----------------------------------------------------------------- Net sales $22,131 $23,054 $35,714 $41,098 Gross profit 5,807 6,107 10,315 11,592 Operating income 554 651 3,965 4,918 Net income 297 276 2,125 2,688 Basic earnings per share* .04 .04 .32 .40 Diluted earnings per share* $.04 $.04 $.32 $.40 * There was no impact on quarterly earnings per share when calculated in accordance with Statement of Financial Accounting Standard No. 128. 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. The approximate number of holders of record of common stock on March 20, 1998 was 400.
1st 2nd 3rd 4th Year end 1995 $ 8 - 12 $ 8 3/4 - 11 1/4 $10 1/4 - 11 3/4 $ 8 1/2 - 12 $ 8 3/4 1996 $ 8 3/4 - 12 $ 9 1/4 - 11 3/4 $ 9 1/2 - 10 3/4 $10 - 12 1/4 $10 3/4 1997 $10 3/4 - 14 3/8 $11 - 13 1/2 $12 1/2 - 17 1/4 $14 - 16 $14 1/2
Cash Dividends Declared Per Share It is the Company's policy to pay annual cash dividends. The chart below shows annual cash dividends declared per share for the past three years: 1997 1996 1995 Dividends declared per share $.13 $.11 $.09 EX-21 6 SUBSIDIARIES OF LACROSSE FOOTWEAR, INC. EXHIBIT (21) SUBSIDIARIES OF LACROSSE FOOTWEAR, INC. Jurisdiction Name of Incorporation Percent Ownership Direct Indirect Clintonville Products, Inc. Wisconsin 100% Hillsboro Footwear, Inc. Wisconsin 100% Danner Shoe Manufacturing Co. Wisconsin 100% Rainfair, Inc. Wisconsin 100% Pro-Trak Corporation Wisconsin 100% Pro-Trak of Virginia, Inc. Virginia 100%1 ----------------- 1 Direct percent ownership by Pro-Trak Corporation. EX-23 7 CONSENT OF INDEPENDENT AUDITORS 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 6, 1998, included in the 1997 Annual Report of Shareholders of LaCrosse Footwear, Inc. We also consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-77516, 33-77518 and 333-2702) pertaining to the LaCrosse Footwear, Inc. Employees' Retirement Savings Plan, the LaCrosse Footwear, Inc. Union Employees' Retirement Savings Plan and the LaCrosse Footwear, Inc. 1993 Employee Stock Incentive Plan of our report dated February 6, 1998, with respect to the consolidated financial statements incorporated herein by reference, and our report dated February 6, 1998, 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, 1997. McGLADREY & PULLEN, LLP La Crosse, Wisconsin March 27, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF LACROSSE FOOTWEAR, INC. AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 426 0 28,959 575 39,073 71,559 33,574 20,299 101,920 23,146 12,499 0 0 67 61,781 101,920 145,503 145,503 104,692 27,493 0 162 2,043 11,706 4,588 6,779 0 0 0 6,779 1.02 1.01
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