Phoenix Footwear
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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Annual Report Pursuant to Section 13 Or 15(d) of the
Securities Exchange Act of 1934
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For the Fiscal Year Ended
December 31, 2005
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OR
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Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the Transition Period from
to
Commission File Number:
001-31309
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Phoenix Footwear Group,
Inc.
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
(State or Other
Jurisdiction of
Incorporation or Organization)
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15-0327010
(I.R.S. Employer
Identification No.)
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5759 Fleet Street,
Suite 220
Carlsbad, California
(Address of Principal
Executive Offices)
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92008
(Zip
Code)
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(Registrants
Telephone Number, Including Area Code)
(760) 602-9688
None
(Former name, former address and former fiscal year, if changed
since last report)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which
Registered
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Common Stock, $.01 par value
per share
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American Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer þ
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of July 2, 2005, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was $36,111,000 based on the closing sale price of
$6.04 on such date as reported on the American Stock Exchange.
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Class
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Outstanding at March 15,
2006
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Common Stock, $.01 par value
per share
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8,366,547 shares
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DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Parts into Which
Incorporated
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Proxy Statement for the Annual
Meeting of
Stockholders to be held in 2006 (Proxy
Statement)
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Part III
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General
We design, develop and market a diversified selection of
mens and womens dress and casual footwear, belts,
personal items, outdoor sportswear and travel apparel and
design, manufacture and market military specification (mil-spec)
and commercial combat and uniform boots. Our
moderate-to-premium
priced brands include Royal
Robbins®
apparel, the Tommy
Bahama®,
Trotters®,
SoftWalk®,
H.S.
Trask®
and
Altama®
footwear lines, and Chambers
Belts®.
Through a series of acquisitions, we have built a portfolio of
niche brands that we believe exhibit brand growth potential. We
intend to continue to build our portfolio of brands through
acquisitions of footwear, apparel and related products companies
and product lines that complement our existing brands and
exhibit these same qualities.
Our operations are comprised of four reportable segments:
footwear and apparel, premium footwear, military boot business
and accessories. We identify operating segments based on, among
other things, the way our management organizes the components of
our business for purposes of allocating resources and assessing
performance. Segment revenues are generated from the sale of
footwear, apparel and accessories through wholesale channels,
military channels including the U.S. government, direct to
consumer catalogs and website sales. See Segment
Information in the Notes to Consolidated Financial
Statements.
During the past few years we have consummated a number of
acquisitions, including those discussed below, which have
significantly contributed to our growth. We intend to continue
to pursue acquisitions of footwear, apparel and related products
companies that we believe could complement or expand our
business, or augment our market coverage. We seek companies or
product lines that we believe have consistent historical cash
flow and brand growth potential. We also may acquire businesses
that we feel could provide us with important relationships or
otherwise offer us growth opportunities. We plan to fund our
future acquisitions through bank financing, seller debt or
equity financing and public or private equity financing.
Although we are actively seeking acquisitions that will expand
our existing brands, as of the date of this report we have no
agreements with respect to any such acquisitions, and there can
be no assurance that we will be able to identify and acquire
such businesses or obtain necessary financing on favorable terms.
History
and Recent Acquisitions
We have been engaged in the manufacture or importation and sale
of quality footwear since 1882. Prior to 1996, we were
predominantly a manufacturer and seller of womens
slippers. In 1996, James Riedman and Riedman Corporation
acquired a 35% ownership position in our common stock, and
Mr. Riedman became our Chairman and Chief Executive
Officer. Under Mr. Riedmans leadership, we began to
streamline our operations and focus on our core competencies of
brand specific sales, design and customer service support. We
developed a strategy to enhance profitability and growth through
recruiting new management, reducing costs and overhead and
acquiring complementary brands.
As part of our transformation, we entered into other areas of
the footwear business. In early fiscal 2000, we entered the
womens footwear market by acquiring the Penobscot Shoe
Company and its Trotters brand of traditional footwear. Later
that year we also introduced our new SoftWalk brand of
womens comfort footwear. In 2001, in the course of
consolidating these new product lines of our footwear business,
we elected to focus our efforts on the two product lines that
were experiencing growth, namely the Trotters and SoftWalk
brands, and to sell our mens and womens slipper
business.
In August 2003, we entered the mens premium dress and
casual footwear business through our acquisition of all the
outstanding shares of H.S. Trask & Co., a Bozeman,
Montana based footwear company. In October 2003, we entered the
apparel business with our acquisition of the Royal Robbins
apparel brand, through the purchase of all the outstanding
shares of Royal Robbins, Inc., a Modesto, California based
apparel company.
In July 2004, we entered the military boot market through our
acquisition of Altama Delta Corporation. Altama has manufactured
military footwear for the U.S. Department of Defense, or
DoD, for 37 consecutive years. It also sells a commercial line
of high-performance combat and public safety boots for civilian
use. Since this acquisition we have continued to sell mil-spec
combat boots to the DoD market and combat and uniform boots to
the commercial market. We have also developed boots for the
public safety market which services organizations such as
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law enforcement agencies, fire departments, the
U.S. Immigration and Naturalization Service and private
security services.
On June 29, 2005, we entered into the accessories business
through our acquisition of substantially all of the assets of
Chambers Belt Company, a leading manufacturer of mens,
womens and childrens belts and accessories spanning
contemporary, traditional and western styles.
On August 4, 2005, we expanded our premium footwear product
offering through the acquisition of substantially all of the
assets of The Paradise Shoe Company, LLC which included rights
as the exclusive licensee of the Tommy
Bahama®
line of mens and womens footwear, hosiery and belts
in the United States, Canada and certain Caribbean Islands.
With these acquisitions, we added to our portfolio of brands and
diversified our product offerings, added significant revenues,
diversified and added to our manufacturer and customer base and
added manufacturing operations. We intend to continue to pursue
acquisitions of footwear, apparel and accessories related
product companies that we believe have sustainable niche brands
that could complement or expand our business, augment our market
coverage, provide us with important relationships or otherwise
offer us growth opportunities. Although we are actively seeking
acquisitions that will expand our existing brands, as of the
date of this report we have no agreements to consummate an
acquisition and there can be no assurance that we will be able
to identify and acquire such businesses or obtain necessary
financing on favorable terms.
Business
Strategy
Our operations are based on a decentralized, brand focused
strategy. Each brand leader is responsible for the product
development, marketing, sales growth and profitability of his or
her brand. Our approach enables us to address individual
production and marketing requirements of our brands and respond
to changing market dynamics in a timely manner. At the same
time, our corporate infrastructure allows us to achieve
economies of scale through shared warehousing, finance functions
and information systems in the operations of each of our brands.
Our focus is on extending existing brands through our investment
in design and product development. We also seek to expand our
brand portfolio through creation of additional brands, licensing
and acquisitions.
We have developed core strengths that we believe have been
significant contributors to our growth to date and will help
support future growth. These strengths include:
Portfolio of Current Brands. Through product
design, innovation, quality and fit, our consumer brands have
built a high degree of consumer and retailer loyalty. We believe
our portfolio approach reduces business risk by diversifying the
sources of our revenue and cash flow. We believe that our
portfolio of brands also provides us with access to a broader
array of retailers than could be achieved by any of our brands
on a stand alone basis. We continue to seek brand acquisition
opportunities that complement our existing brands and meet
minimum operational, growth and cash flow investment criteria.
Manufacturing Relationships. We believe that
one of the key factors in the recent growth of consumer brands
has been our strong relationships with overseas manufacturers
that are capable of meeting our requirements for quality and
price in a timely fashion. We source our footwear products
primarily from Brazil and Asia, our commercial combat and
uniform boot products primarily from China, our accessory
products from Mexico and China and our apparel products
primarily from Asia and South America.
Emphasis on
Moderate-to-Premium-Priced
Categories of the Footwear and Apparel
Markets. We believe our emphasis on providing
high-quality foreign sourced products allows us to maintain
stronger gross profit margins. Our portfolio of brands in the
premium footwear and footwear and apparel segments are sold
through independent retailers, specialty retailers and better
department stores. This distribution strategy distinguishes us
from footwear and apparel companies that supply the discount or
mass merchant channel. We also sell these brands through direct
to consumer channels through catalog and web site sales.
Accessory Production Strategy. Our accessory
business deploys a production strategy which consists primarily
of offshore product sourcing combined with domestic
manufacturing. Our domestic manufacturing facility allows
smaller production runs with shorter lead times. We believe this
strategy allows us to generate
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competitive product pricing through our foreign suppliers and
improves our ability to react to current market trends through
the utilization of our domestic manufacturing capabilities.
Pre-Season Sales Approach. In the premium
footwear and footwear and apparel segments we attempt to reduce
the inventory risk resulting from changing trends and product
acceptance by attempting to obtain orders for approximately 50%
of our products before each season. We believe that this
approach mitigates the risks of carrying obsolete inventory and
reduces our exposure to poor retail sell-through.
Customer Relationships. We support our
footwear retailers and combat and uniform boot retailers and, to
a lesser extent, our accessory and apparel retailers, by
maintaining a limited in-stock inventory position for selected
styles, which minimizes the time necessary to fill in
season customers orders. In addition, we provide our
wholesale customers with brand specific sales forces, EDI
capability, co-op advertising,
point-of-sale
displays and assistance in evaluating which products are likely
to appeal to their retail customer base.
Seasoned Management Team. We believe our
management team, members of which have significant industry
experience in the areas of design, product development, sourcing
and distribution, represents a significant competitive
advantage. We also believe that the strength of our management
team, our portfolio of brands and our focused business strategy
improve our ability to attract and retain key industry personnel.
Growth
Strategies
Our growth will depend upon our broadening of the products
offered under each brand, expanding distribution of our products
and developing or acquiring new brands. Specifically, our growth
strategies include:
Growth of Existing Brands. We seek to increase
sales of products under each of our existing brands by
increasing the assortment of products and through brand
extensions. We believe that certain areas of our brands are
underdeveloped and will benefit from broader product assortment
and additional investment in the brands such as further
developing the Fall product offerings for Royal Robbins and the
potential introduction of Royal Robbins footwear products. We
also seek to further expand our existing retail opportunities in
current channels, such as our introduction of the H.S. Trask and
Soft Walk brands into the Walking Company independent store
chain. We also seek to expand our military boot sales by
developing new products in order to compete for new DoD
contracts, and to expand commercial boot sales to the broader
security market with organizations such as police forces, fire
departments, the U.S. Immigration and Naturalization Service,
the U.S. Coast Guard and private security services.
Growth with New Brands. We believe that
creating or licensing additional brands from third parties will
enable us to increase our sales volumes and satisfy the needs of
a wider range of customers. We believe we are well-positioned to
continue pursuing this strategy due to our historical track
record of brand development and ability to obtain working
capital financing and the strength of our management team.
Growth Through Acquisitions of Footwear, Apparel and Related
Products Companies. We continue to seek
acquisition opportunities that we believe complement our
existing brands. We seek companies or product lines that we
believe have brand growth potential. We believe that brand
acquisition opportunities currently exist in the footwear,
apparel and related products marketplace that would allow us to
expand our product offerings and improve our market segment
participation. We may also acquire businesses that we feel could
provide us with important relationships or otherwise offer us
growth opportunities such as our recent acquisition of Chambers
Belt Company and the licensing rights to Tommy
Bahama®
footwear and accessories
Expand Our Internet and Catalog Operations. We
currently sell our products through direct consumer catalog
solicitation and our own Internet web sites. Although these
sales comprise only a small portion of our net sales, we intend
to expand these sales to take advantage of their low overhead
opportunity for growth. Our catalog and Internet sales also
provide opportunities to renew contact with existing consumers
of our products, and to acquaint them with our new styles and
brands, which enhance our growth.
Product
Lines
Footwear and Apparel. Our current product
lines in the footwear and apparel segment consist of
womens dress and casual footwear sold under the Trotters
and SoftWalk brand names and outdoor sportswear and travel
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apparel for both men and women sold under the Royal Robbins
brand name. These products emphasize quality, fit and
traditional and authentic styles and emphasize the
moderate-priced categories of the footwear and apparel markets.
Several of our products in this segment include our patented
footbed technology and others patented materials,
including performance fabrics made with Gore
Tex®,
Lycra
Spandex®
and
Cordura®
nylon and
Dri-X-Tremetm
wicking finish.
Womens Dress and Casual Footwear. Our
womens dress and casual footwear consists of the Trotters
and SoftWalk brands. The Trotters brand primarily competes in
the womens traditional footwear classification
at key price points between $59 and $99. We have an exclusive
license with Tommy Bahama Group, Inc., a wholly owned subsidiary
of Oxford Industries, Inc., to manufacture and distribute
mens, womens, and childrens footwear, hosiery,
belts and mens small leather goods and accessories bearing
the Tommy
Bahama®
mark and related marks in the United States, Canada, Mexico and
certain Caribbean Islands for an initial term through
May 31, 2012. We have the option to extend the license
through May 31, 2016, if we are not in default and meet our
minimum net sales requirements under the license agreement. The
License Agreement may be terminated by Tommy Bahama before the
end of the term for several reasons, including material defaults
by us or our failure to sell products for 60 consecutive
days. The license is non-exclusive for the last 120 days of
the term for which no extension is available. The broad
selection of sizes and widths for our Trotters brand fills an
important niche for our female customers. This line emphasizes
quality and fit with continuity of style from season to season.
SoftWalk competes in the womens comfort
footwear niche. Key price points are between $89 and $129. All
of our SoftWalk products utilize our patented footbed
technology, which provides the consumer with exceptional comfort
without compromising style. This product line has exhibited
strong growth since its launch in fiscal 2000. We believe
SoftWalks popularity is attributable to its unique
combination of comfort and contemporary styling which fills a
niche of comfort footwear for our retail customer base.
Outdoor Sportswear and Travel Apparel. Our
Royal Robbins brand product line includes over 250 styles of
womens and mens outdoor sportswear and travel
apparel emphasizing comfort, rugged style, and specialty
fabrics. Key price points are between $39 and $120. This brand
was originally created by Royal Robbins, an internationally
acclaimed climber and traveler who, with his wife, founded their
outdoor clothing company over 30 years ago to meet the
specialty clothing needs of outdoor enthusiasts. The Royal
Robbins brand has strong customer loyalty and is recognized as a
core or authentic brand within its retail channel. In fiscal
2003 and 2005, Royal Robbins was nominated to compete in the
Vendor of the Year competition by its largest
customer, REI. This honor was bestowed on only 10 out of a total
of 800 vendors. We believe that this strong brand heritage
provides us with several promising growth opportunities,
including:
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increasing sales within the mens product offering
(currently womens products account for approximately 60%
of the brands offerings);
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increasing the sales of the brands Fall offering which we
began to do in fiscal 2004 (currently the Fall season accounts
for approximately 41% of the brands sales);
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introducing a line of Royal Robbins footwear; and
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broadening our distribution channel for this product line
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Premium Footwear. Our premium footwear brands
include H.S. Trask and Tommy
Bahama®
footwear. Our H.S Trask brand is based on a romantic
western image with product styles utilizing exotic leather
materials such as bison and elk leather with rugged
construction. Our special tanning techniques and the combination
of softness and durability found in these leathers enable us to
ensure high standards of quality and comfort. Key price points
are between $99 and $199. We believe this brand has significant
growth potential due to its strong brand image. In the future we
may seek brand extensions which could result in growth through
the introduction of apparel and other accessories, as well as
from a broader product assortment in the traditional mens
target market. Tommy
Bahama®
is a premier lifestyle brand featuring mens and
womens apparel, footwear and accessories. The brands
products are well-known and represent a relaxed, island-inspired
lifestyle. The Tommy
Bahama®
line of footwear, hosiery and belts and accessories feature the
brands signature style and benefits from a broad
distribution network of Tommy
Bahama®-branded
stores, department stores and independent specialty stores
throughout North America and the Caribbean. Key retail price
points range between $55 and $195. We believe this brand also
has significant growth
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potential due to its national brand presence and loyal consumer
following. We also believe that Tommy
Bahama®
footwear currently well known for its spring and summer product
collections can generate future growth opportunities from
broader product assortment and additional investment in the
brands Fall product offerings.
Military Boot Business. In the military boot
segment, we sell both mil-spec boots and commercial combat and
uniform boots.
Mil-Spec Combat Boots. The full mil-spec,
heavy-gauged leather, vulcanized rubber-soled combat boots are
designed to withstand the most severe battlefield conditions. We
have a contract to manufacture the tan desert boot and black
jungle boot for the DoD and are currently under the final option
year expiring in September 2006. These boots are used primarily
by the U.S. Army and the U.S. Marines. Our mil-spec boots
sold to the DoD are priced under the current DoD contract within
a range of $55 to $70 per pair, subject to adjustment under
the terms of the contract. We are also currently developing new
products designed for anticipated solicitations from the DoD.
These new products include temperate weather (waterproof) boots,
as well as a hot weather boot.
Commercial Combat Boots. Our civilian boots
combine the design features of our mil-spec boots with added
comfort and durability. The prices for commercial boots
generally range from $45 at wholesale to $120 at retail. Our
other commercial product lines are infantry combat boots,
tactical boots and safety and work boots. During late 2005,
Altama introduced the EXO-Speed TM tactical line of public
safety boots with initial shipments planned for Spring 2006.
Accessories Business. Our accessories business
includes branded and private label sales of mens,
womens, juniors and boys belts and small leather
goods. Our Chambers Belt division is under exclusive license
agreements to distribute certain accessories for the
Wrangler
Hero®,
Timber
Creek®
by
Wrangler®,
Wrangler Jeans
Co®.,
Wrangler Outdoor
Gear®,
Wrangler®,
Wrangler Rugged
Wear®,
20X®
and Twenty
X®
marks. We have three license agreements with Wrangler Apparel
Corp., as licensor, to license these marks in connection with
our accessories business. These licenses agreements continue
through December 31, 2006, December 31, 2007 and
December 31, 2007, respectively. The licenses may be
terminated prior to the end of the term, for among other
reasons, if minimum net sales requirements are not met. The
exclusivity period does not cover the last 6 months of the
license at the discretion of Wrangler Apparel. In addition,
Chambers also produces private label products for
Nordstroms, Gadzooks, Mervyns, Millers Outpost,
Pacific Sunwear and Wet Seal. Chambers has been a leading
supplier of belts for Wal-Mart since 1987 and is currently one
of three main vendors in its category. Key retail price points
for branded products range from $20 to $100 and private label
products range from $5 to $50.
Product
Design and Development
We employ separate design and development teams for each of our
product lines. Our management believes this approach results in
a more responsive design and product development process, which
reduces new product introduction lead times. Our sales
management and marketing departments also actively participate
in the design and product development process by collaborating
on opportunities related to new styles, patterns, design
improvements and the incorporation of new materials.
We have developed a patented technology utilized in our SoftWalk
brand. We believe this technology enhances our competitive
position. The patented technology claims an insole construction
for footwear comprising an intermediate member having raised
cushioning elements of a height, size and spacing so as to be
self-adjusting to the foot. These elements combine to create a
shoe with comfort and support that acts like a mattress for the
foot.
We manufacture mil-spec boots to meet the rigorous design
specifications and quality and administrative requirements
included in the DoD contracts. In order to manufacture these
boots to military specifications, we lease molds meeting the
design specifications of the DoD from Ro-Search, Inc. Altama has
licensed this technology from Ro-Search since its inception in
1969. Ro-Search is a wholly-owned subsidiary of Wellco
Enterprises, Inc., a direct competitor of our Altama brand and
one of the other licensees of the Ro-Search technology.
Ro-Search maintains an inventory of molds that meet the DoD
requirements for full and half-size DoD boots and licenses them
to four mil-spec manufacturers. The current Ro-Search license
expires in 2006.
We anticipate that the DoD will continue to solicit bids for
temperate weather (waterproof) infantry combat boots. To date we
have participated in one temperate bid proposal which has yet to
be awarded. We plan to compete
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for these contracts in the future. Altama has entered into a
limited license arrangement with W. L. Gore &
Associates, Inc., owner of the Gore-Tex technology, to develop
waterproof combat boots for DoD procurements.
We have attempted to leverage the Altama mil-spec boot
manufacturing experience in the design of our commercial boots
by adding comfort and durability to the mil-spec features. In
particular, we recently introduced two models of the infantry
combat boot by altering the design of the DoDs mil-spec
boot. Our commercial combat boots are not guaranteed for
battlefield conditions, but look substantially similar to the
mil-spec combat boots and are used by military personnel for
garrison duty, office and police patrol, guard or parade duty
and in other non-combat environments. We offer a tactical model
that is made with a leather and fabric upper on a bottom that
functions in a manner similar to a running shoe. The tactical
boots are targeted towards the public safety market as a
police/security duty boot. We also manufacture and design safety
and work boots to meet applicable safety requirements targeted
broadly towards individuals working in industrial, construction,
corrections, warehousing and distribution, packaging and
delivery, and private safety workplaces.
We incurred design and product development costs of
approximately $1.8 million in fiscal 2005, $759,000 in
fiscal 2004 and $139,000 in fiscal 2003. We expect to incur
approximately $2.5 million of design and development costs
in fiscal 2006.
Sales and
Distribution
Approximately 10,000 stores in the U.S. carry our products,
including many major department stores, mail order companies,
and specialty footwear and apparel retailers. Our military boot
products are sold to the DoD and into the commercial combat and
uniform boot market channels. Ten major customers represented
approximately 44% of our net sales in fiscal 2005 including the
DoD, which comprised 14% and Wal-Mart, which comprised 9%.
Except for those major customers added from our 2005
acquisitions, most of these same customers represented
approximately 36% of our net sales in fiscal 2004 and 39% of our
net sales in fiscal 2003. Though the DoD continued to be the
largest customer for both our military boot segment and the
Company, we expect Wal-Mart to be our largest customer for both
our accessories segment and for the Company in fiscal 2006.
Footwear and Apparel. Our casual and dress
footwear products are primarily sold to retailers and catalog
companies through our own employee sales force that covers much
of the U.S. and through independent sales representatives for
certain brands. The Trotters and SoftWalk brands are sold
primarily through independent retailers and department stores.
We also sell our Totters and Softwalk footwear products in
Canada and the Caribbean through independent distributors.
Our apparel products are sold in the U.S. primarily through
specialty retailers utilizing an independent sales force and two
retail stores. We also plan to distribute our apparel products
through department stores and have recently begun selling our
womens line of Royal Robbins through Dillards
department stores. In Canada, the United Kingdom, Japan and
Germany, our apparel products are sold under licensing
agreements with third parties. In January 2006 we began to
distribute Royal Robbins products throughout Canada on a
direct basis through our wholly-owned Canadian subsidiary. We
sell private label products to a small number of customers in
amounts that represent an insignificant portion of our total net
sales.
Premium Footwear. Our premium footwear
products are primarily sold to independent retailers, specialty
catalog companies, department stores and through the
companys direct to consumer catalogs and website. We sell
our H.S. Trask products through our own employee sales force and
utilize independent sales representatives to sell our Tommy
Bahama®
footwear products and accessories. We also sell H.S. Trask
footwear products in Canada and the Caribbean through
independent distributors.
Military Boot Business. Government Sales:
Whenever the DoD determines a need for combat boots for use by
the U.S. armed forces, the Defense Support Center
Philadelphia or (DSCP), solicits bid responses from
U.S. boot manufacturers. Bidding on U.S. government
boot solicitations is open to any qualified
U.S. manufacturer.
After the contract is awarded, a contractor will receive
delivery orders from the DoD, which under normal conditions must
be completed in six months. Weekly production lots against the
delivery order are presented to the DoDs quality assurance
representative, who purchases the boots at our Lexington,
Tennessee finishing plant. The lot of boots is then the property
of the DSCP and is either drop shipped to a specified location
or transferred to our
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Lexington, Tennessee warehouse for storage until the DSCP issues
a material release order to pick and ship the boots to a
specific DoD installation.
We are currently under the final option year in our contract
with the DoD, which expires in September 2006. We participate
with three other manufacturers under the DoDs award for
the production of initially three, but now two, of the direct
molded sole, or DMS, style of military combat boot. The award
was first made in September 2003. In September 2004, the DoD
exercised the first option term under the contract, and at that
time increased Altamas portion of the contract volume from
20% to 30%. The maximum pairs that the DoD ordered under the
first option was less than that of the base contract year, as a
result of the discontinuance of the all leather-combat boot, one
of the styles covered under the initial contract. In September
2005, the DoD exercised the second option term under its
contract with Altama with minimum pairs similar to that of the
first option term.
Our contracts with the DoD are subject to partial or complete
termination under certain specified circumstances including, but
not limited to, the following circumstances:
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the convenience of the government;
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the lack of funding; or
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our actual or anticipated failure to perform its contractual
obligations.
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If a contract is partially or completely terminated for its
convenience, the DoD is required to negotiate a settlement with
us to cover costs already incurred. In the 37 successive years
of its contract with the DoD, Altama has never had a contract
either partially or completely terminated.
Military Boot Business. Commercial Sales: Our
sales to the commercial market sales are handled by a direct
sales organization dedicated to the line. Our military boot
operation commercial market sales have been primarily through
domestic wholesale channels. We supply domestic retailers and
footwear and military catalogs such as U.S. Calvary and
Brigade Quartermaster. We have continued to expand international
wholesale focusing mostly on providing three mil-spec boots for
certain foreign military organizations, and through the agency
channel to local, county, state or federal law enforcement
agencies.
Accessories. We sell our accessories products
through two distinct sales groups that address the specific
market segments of targeted customers. Our mens sales
division focuses on selling products to department stores,
discount chains and mass merchandisers and includes dedicated
sales representatives for the Wal-Mart stores. We also have a
separate sales team that focuses on selling products to
department stores, womens specialty stores, discount
chains and mass merchandisers. As a result, mass merchandisers
purchasing mens and womens accessory products, other
than Wal-Mart, are served by two separate and highly specialized
sales teams, thereby positioning the Company to benefit from
cross-selling its products into the same channels.
Consumer
Direct
We believe our
e-commerce
web sites offer a significant growth potential while
simultaneously complementing our existing wholesale business by
increasing consumer awareness of our brands. Sales through our
Internet web sites represented approximately 4.1%, 5.1% and 4.4%
of our net sales for fiscal 2005, 2004 and 2003, respectively.
The products marketed through consumer direct channels are sold
at our suggested retail price, enabling us to maintain the full
retail margins.
Footwear and Apparel. We offer direct sales to
consumers through our own websites at
www.softwalkshoes.com, www.trotters.com and
www.royalrobbins.com. During fiscal 2004, we also offered
direct to consumer catalog sales for our Trotters and SoftWalk
brands, but did not continue this practice during fiscal 2005.
Sales through our Internet web site and print catalogs
represented approximately 2.4% of our footwear and apparel
segment net sales for fiscal 2005 and fiscal 2004 and
approximately 2.2% of our net sales for fiscal 2003.
Premium Footwear. We also offer direct sales
to consumers of our H.S. Trask brand through our website at
www.hstrask.com and through direct to consumer catalog
solicitation. We believe our catalog and
e-commerce
web site offers a significant growth potential while
simultaneously complementing our existing wholesale business by
increasing consumer awareness of our brands. Sales through our
Internet web site and print catalogs represented approximately
17.3%, 18.8% and 23.9% of our premium brand net sales for fiscal
2005, fiscal 2004 and fiscal 2003,
9
respectively. The products marketed through consumer direct
channels are sold at our suggested retail price, enabling us to
maintain the full retail margins. During fiscal 2006 we
anticipate offering Tommy
Bahama®
footwear and accessories sales directly to consumers through our
website at www.tommybahamafootwear.com.
Military Boot Business. We market our combat
and uniform boots through established footwear and clothing
retailers catalogs and web sites. We have over 500
retailers participating in this program, including large
sporting goods retailers such as Dicks Sporting Goods and
The Sports Authority and Army/ Navy surplus retailers. We also
sell our Altama brand combat and uniform boots over our own
www.altama.com website.
Marketing
and Advertising
Footwear and Apparel and Premium Footwear. We
advertise and promote our dress and casual footwear and apparel
brands through a variety of methods, including product
packaging, print advertising in trade publications, co-op
advertising with our retail customers, and direct consumer
marketing. Additionally, we attend tradeshows that are generally
well-attended by our retail customers and provide a platform for
the unveiling of new products and an important source of
pre-season sales orders. We avoid granting restricted or
exclusive product sale arrangements because we believe that a
profitable distribution of our product lines requires the
greatest number of outlets.
Military Boot Business. The DoD does not
permit advertising literature to be sent to soldiers, other than
branded boot boxes. Given Altamas 37 years as a DoD
prime contractor, we believe that the Altama brand is widely
recognized by U.S. military soldiers and well known for its
product quality and functionality. Our marketing strategy for
the military boot commercial channel consists of direct
advertising through military publications and direct mail to
retailers and agencies. We also seek to build brand recognition
and customer loyalty through a practice of including logo
t-shirts and posters inside its boot boxes for its website
generated sales. We have posted advertisements in the Army
Times, Navy Times, Marine Times and Air Force Times, and utilize
our website to market products to the commercial market,
including U.S. military soldiers, agency members, members
of foreign militaries and general retail customers in the U.S.
Accessories. Our direct media advertising
expenditures for accessory products consist primarily of product
brochures for the Companys house brands. Under our various
license agreements, the licensor is responsible for spending a
portion of the license fee on co-operative advertising.
Manufacturing
and Sourcing
Footwear and Apparel and Premium Footwear. We
source our products in our footwear and apparel segment entirely
through independent foreign third-party manufacturing
facilities. We provide the independent manufacturers with
detailed specifications and quality control standards. We
currently source our footwear products for these segments
primarily from Brazil and China, and source our apparel products
through Asia and South America. We utilize agency relationships
to monitor the production process to ensure high quality
standards and timely delivery. We also engage foreign agencies
to assist in product fulfillment, quality control and
inspection, customs and product delivery logistics. We do not
maintain long-term purchase commitments with our manufacturers,
but rather use individual purchase orders. We use multiple
sources for our foreign sourced products in an effort to reduce
the risk of reliance on any one manufacturing facility or
company. We believe that the various raw materials and
components used in the manufacture of our products are generally
available from multiple sources at competitive prices. See
Risk Factors Our reliance on independent
manufacturers for almost all of our non mil-spec and
non-accessory products, with whom we do not have long-term
written agreements, could cause delay and damage customer
relationships.
Military Boot Business. DoD guidelines require
that all mil-spec boots for combat use be manufactured in the
U.S. with U.S. materials. As a result, we manufacture
all DoD military footwear that we sell. In addition, we
manufacture some of our commercial boots. We maintain two
manufacturing plants to meet these needs. We have a
23,000 square foot cut and stitch manufacturing plant which
is located in Salinas, Puerto Rico. As of March 1, 2006,
approximately 127 employees worked at this facility.
We ship partially completed boots to our Lexington, Tennessee
facility where the boots are then lasted, bottomed and finished.
As of March 1, 2006, we employed 95 people at the Lexington
facility, the majority of whom
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are compensated by the number of pairs they produce. All
finished products are then packed for shipping to either our
30,000 square foot warehouse facility located five miles
from the Lexington facility, or in the case of commercial
product, to a third party warehouse in Farmington, Missouri.
Leather, Cordura
®
nylon and rubber are the principal material components used in
the boot manufacturing process. Pursuant to DoD contracts for
military combat boots, all materials used in manufacturing these
boots must be and are produced in the U.S. and must conform to
military specifications. A majority of our raw materials for our
combat and uniform boots can be obtained from various sources
and are readily available. Because all materials in boots sold
to the DoD must meet rigid DoD specifications and because
quality is the first priority, we purchase our raw materials for
these boots from domestic vendors who provide the best materials
at a reasonable cost.
We source a substantial majority of our commercial combat and
uniform boots from two China-based manufacturers. Commercial
product is shipped to a third party that manages all logistics
and distribution of this commercial inventory.
Accessories. Our accessories division has
developed both internal and outsourced manufacturing
capabilities creating significant manufacturing flexibility.
These manufacturing resources include company owned
manufacturing facilities in City of Commerce, California, an
exclusive third party full service manufacturing facility in
Pitiquito, Mexico and a network of suppliers and sub-contractors
in Asia.
Our manufacturing facilities in City of Commerce are
approximately 62,000 square feet in size. As of
March 1, 2006, we employed 183 people at these
facilities.
Seasonality
and Weather
Footwear and Apparel. Our product lines in the
footwear and apparel segment are sold during two distinct
selling seasons, Spring/ Summer and Fall/ Winter. We attempt to
design and develop our new product introductions for this
segment to coincide with this seasonal trend. Trotters and
SoftWalk sales are approximately evenly split between these two
seasons, while Royal Robbins products are purchased and used
predominantly during the Spring and Summer months.
Premium Footwear. Our product lines in the
premium footwear segment are sold during two distinct selling
seasons, Spring/ Summer and Fall/ Winter. We attempt to design
and develop our new product introductions for this segment to
coincide with this seasonal trend. Tommy Bahama products are
purchased and used by consumers predominantly in the Spring and
Summer months, while our H.S. Trask mens dress and casual
footwear lines are purchased and used by consumers predominantly
in the Fall and Winter months.
Military Boot Business. Many factors affect
the governments demand for boots, so the quantity
purchased may vary from year to year. Contractors cannot
influence the governments boot needs. Price, quality,
on-time delivery and manufacturing efficiency are the areas
emphasized by our military boot segment to strengthen its
competitive position. While the governments demand for
boots varies from month to month, business in our Altama brand
is not seasonal.
Accessories. Our product lines in the
accessories segment are sold throughout the year with a slightly
higher weighting in the second half of the year which is driven
by the back to school and holiday selling seasons.
Backlog
Footwear and Apparel and Premium Footwear. For
sales made in our footwear and apparel segment and our premium
footwear segment, we typically enter a selling season four to
six months in advance of the orders being shipped. For our
footwear business, approximately 50% of our sales are based on
orders placed in advance of the selling season and the remaining
sales are on an at once basis during the selling season. For our
apparel products, our preorder business represents approximately
80% to 85% of our total sales, with the remaining sales being
made on an at once basis during the selling season. We have
backlog orders for our Spring business in December of the
preceding year and for our Fall business in June of the same
year. As of March 1, 2006 our footwear and apparel segment
and premium had cancelable backlog orders of approximately
$23.6 million, compared with
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approximately $18.3 million as of March 1, 2005. We
anticipate the majority of our backlog orders as of
March 1, 2006 will be filled during fiscal 2006.
Military Boot Business. For our military boot
business, approximately 59% of our sales are considered future
orders with the remaining sales ordered on an at once basis. In
the military segment, our backlog of firm orders for combat and
uniform boots at March 1, 2006 totaled approximately
$8.1 million, as compared to $265,000 as of March 1,
2005. We expect to fill all of the backlog orders during fiscal
2006.
Accessories. For sales made in our accessories
segment approximately 25% of our sales are based on orders
placed in advance of the selling season and the remaining sales
are on an at once basis during the selling season. As of
March 1, 2006 our accessories segment had cancelable
backlog orders of approximately $1.1 million, compared with
approximately $1.2 million as of March 1, 2005. We
anticipate the majority of our backlog orders as of
March 1, 2006 will be filled during fiscal 2006.
Employees
We believe we enjoy a good relationship with our employees. As
of March 1, 2006, we employed approximately 558 individuals
most of whom are full-time. The majority of our employees are
employed in our Puerto Rico, California and Tennessee
manufacturing facilities. As of March 1, 2006, we employed
approximately 45 individuals as our executive and
administrative office employees at our Carlsbad, California
corporate headquarters. No employee is represented by a labor
union, and we have never suffered an interruption of business
caused by labor disputes.
Trademarks
and Patents
We regard our proprietary rights as valuable assets and as
important to our competitive advantage. Our trademarks include
Trotters, SoftWalk, H.S. Trask, Royal Robbins, Chambers Belts
and Altama which we have registered in the U.S. and many foreign
countries. Our SoftWalk brand contains a patented technology in
the footbed of the shoe, for which we own a patent in the
U.S. We vigorously protect our intellectual property
against infringement. In September 2005 we settled a patent
infringement lawsuit with Mark Tucker, Inc. Under the terms of
the settlement, Mark Tucker, Inc. acknowledged and recognized
the validity and enforceability of our patent that was the
subject of the infringement claim.
We cannot be sure, however, that our activities do not, and will
not, infringe on the proprietary rights of others. See
Risk Factors Our ability to compete could
be jeopardized if we are unable to protect our intellectual
property rights or if we are sued for intellectual property
infringement.
Competition
We face intense competition in the footwear and apparel industry
from numerous domestic and foreign footwear and apparel
designers and marketers.
Many of our competitors have greater financial, distribution or
marketing resources than we do, as well as greater brand
recognition. Our ability to compete successfully depends on our
ability to:
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anticipate and respond to changing consumer demands in a timely
manner;
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maintain brand reputation and authenticity;
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develop high quality products that appeal to consumers;
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appropriately price our products;
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provide strong and effective marketing support for our products;
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ensure product availability; and
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maintain and effectively access our distribution channels.
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Footwear and Apparel. In our footwear and
apparel segment, our Trotters footwear line primarily competes
with the Naturalizer
®,
EasySpirit
®,
Munro America
®
and Ros Hommerson
®
brands, as well as with retailers private label footwear.
Our SoftWalk footwear line primarily competes with the
EasySpirit
®
and ECCO
®
brands. Our Royal Robbins apparel lines compete primarily with
Patagonia,
®
The North Face
®
and Columbia Sportswear
Company.®
We believe we are well positioned to compete in the footwear and
apparel industry. By emphasizing traditional style, quality and
fit, we believe we can maintain a loyal consumer following that
is less susceptible to fluctuations due to changing fashions and
changes in consumer preferences.
Premium Footwear. Our H.S. Trask footwear line
primarily competes with the
Cole-Haan®,
ECCO
®
and Mephisto
®
brands. Our Tommy
Bahama®
footwear brands compete primarily with Cole
Haan®,
Sperry®,
Sebago®,
Born®
and Sandro
Moscoloni®.
Military Boot Business. No one company
dominates the DoD boot market. The major competitors within the
mil-spec boot category include our Altama brand, Belleville Shoe
Manufacturing Company, McRae Industries, Wellco Enterprises and
Wolverine World Wides Bates
®
Uniform Footwear division. Price, quality, manufacturing
efficiency and delivery are the main competitive forces in the
industry. The production allocation of the September 30,
2003 DoD contract was initially as follows: McRae Industries
(35%), Wellco Enterprises (30%), Altama (20%) and Belleville
Shoe Manufacturing (15%). Our percentage of the award increased
to 30% during the first option year, which ran from
October 1, 2004 through September 30, 2005. With
respect to the infantry combat boot contract three other
manufacturers received the award Wellco
Enterprises, Belleville Shoe Manufacturing and Wolverine World
Wides Bates
®
Uniform Footwear division. This additional competition could
make it more difficult for Altama to win a contract with respect
to future bid solicitations.
In the commercial market for boots, we compete with a large and
diverse set of footwear companies. The commercial market is
divided into various categories, with several footwear companies
supplying one or more of the following types of boot: military,
safety and work, outdoor, casual, fashion, western and
motorcycle. These footwear companies distribute their products
through several channels, including specialty footwear
retailers, specialty outdoor retailers, department stores,
sporting goods stores, shoe retailer chains and various other
retailers.
Accessories. We also face intense competition
in our accessories segment from numerous domestic and foreign
accessory designers and marketers. Our four major competitors
are American Belt Company, Humphreys, Leegin Creative
leather and Tandy Brands Accessories, Inc. We believe our
Chambers division is well positioned in the marketplace due to
their ability to produce and source high quality value-priced
products while staying on top of fashion trends. Chambers also
enjoys a reputation for customer care and satisfaction that has
allowed them to increase their current customers lines
purchased as well as attract and maintain new customers. We also
believe Chambers has a major competitive advantage through its
many licensing agreements including its license with
Wrangler®,
one of the top five recognized apparel brands in the United
States.
Regulation
We are subject to various laws and regulations concerning our
contracting with the DoD and environmental and employee safety
and health matters related to our manufacturing operations for
our Altama and chambers brands. We believe that we are operating
in compliance with these laws and regulations.
The following section discusses material risks that should
carefully consider, which, if they were actually to occur, could
harm our business and the trading price of our common stock. We
operate in a very competitive and rapidly changing environment.
New risk factors can arise and it is not possible for management
to predict all such risk factors, nor can it assess the impact
of all such risk factors on our business or the extent to which
any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking
statements.
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Our
acquisitions or acquisition efforts, which are important to our
growth, may not be successful, which may limit our growth or
adversely affect our results of operations and financial
condition
Acquisitions have been an important part of our development to
date. We acquired Royal Robbins and H.S. Trask during fiscal
2003, Altama during fiscal 2004 and Chambers Belt and Tommy
Bahama Footwear during fiscal 2005. As part of our business
strategy, we intend to make additional acquisitions of footwear,
apparel and related products companies that we believe could
complement or expand our business, augment our market coverage,
provide us with important relationships or otherwise offer us
growth opportunities. If we identify an appropriate acquisition
candidate, we may not be able to complete the acquisition timely
or at all, or negotiate successfully the terms of or finance the
acquisition. Unsuccessful acquisition efforts may result in
significant additional expenses that would not otherwise be
incurred. In addition, we cannot assure you that we will be able
to integrate the operations of our acquisitions without
encountering difficulties, including unanticipated costs,
possible difficulty in retaining customers and supplier or
manufacturing relationships, failure to retain key employees,
the diversion of management attention or failure to integrate
our information and accounting systems. Following an
acquisition, we may not realize the revenues and cost savings
that we expect to achieve or that would justify the acquisition
investment, and we may incur costs in excess of what we
anticipate. These circumstances could adversely affect our
results of operations or financial condition.
Our
recently completed acquisitions make evaluating our operating
results difficult given the significance of these acquisitions
to our operations, and our historical results do not give you an
accurate indication of how we will perform in the
future
Our historical results of operations do not give effect for a
full fiscal year to our 2005 acquisitions of Chambers Belt and
Tommy Bahama Footwear. Accordingly, our historical financial
information does not necessarily reflect what our financial
position, operating results and cash flows will be in the future
as a result of these acquisitions, or give you an accurate
indication of how we will perform in the future.
The
financing of any future acquisitions we make may result in
dilution to your stock ownership
and/or could
increase our leverage and our risk of defaulting on our bank
debt
Our business strategy is to expand into new markets and enhance
our position in existing markets through acquisitions. In order
to successfully complete targeted acquisitions, or to fund our
other activities, we may issue additional equity securities that
could dilute your stock ownership. We may also incur additional
debt if we acquire another company, which could significantly
increase our leverage and hence our risk of default under our
secured credit facility. For example, in financing our recent
Chambers Belt acquisition we issued 374,462 shares of our
common stock in a private placement to Chambers Belt and
incurred approximately $19.5 million of additional debt
under our amended credit facility to pay the purchase price and
to refinance Chambers Belts funded indebtedness. In our
recent acquisition of Tommy Bahama Footwear, we increased our
credit facility again to, among other things, obtain a
$7.0 million bridge loan to pay the cash purchase price.
Defaults
under our secured credit arrangement could result in a
foreclosure on our assets by our bank
We have a $63 million secured credit facility with our
bank. As of February 28, 2006, we had $60.2 million
outstanding under this facility, including a $7.0 bridge loan
due May 1, 2006. In the future, we may incur additional
indebtedness in connection with other acquisitions or for other
purposes. All of our assets are pledged as collateral to secure
our bank debt. Our credit facility includes a number of
covenants, including financial covenants and a requirement to
provide the lender with audited financial statements no later
than 90 days after our fiscal year end.
We were in default of one of our financial covenants as of
December 31, 2005 and did not deliver audited financial
statements to the lender by the March 31, 2006 deadline. We
obtained a waiver from our bank related to the violation of
these financial covenants. We are currently in discussions with
our lender to extend the term of our $7.0 million bridge
loan. We do not anticipate that we will be able to pay off the
bridge loan by the May 1, 2006 deadline, which would place
us in default under our credit facility. We anticipate that our
lender will agree to extend the term of this bridge loan,
although there can be no assurance that these discussions will
be successful or that we will be able to comply with any future
maturity date.
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If we default under our credit arrangement but are unable to
cure the default, obtain appropriate waivers or refinance the
defaulted debt, our bank could declare our debt to be
immediately due and payable and foreclose on our assets, which
may result in a complete loss of your investment.
If we
are unable to obtain awards of future DoD boot solicitations,
our net sales and consolidated operating results would be
adversely affected
We are currently under the final option year in our contract
with the DoD to manufacture mil-spec boots, which expires in
September 2006. We expect a new five-year solicitation for hot
weather combat boots to be offered during the next 120 days
and corresponding awards to be made at the end of the third
quarter of our 2006 fiscal year. There is no certainty that we
will be awarded future DSCP boot solicitations. Most boot
contracts are for multi-year periods. Our sales to the DoD were
$13.6 million or 59% of total net sales for our military
boot business in fiscal 2005. Therefore, if we do not receive an
award from this upcoming solicitation, we could be adversely
affected for several years.
A
large portion of our sales are to a relatively small group of
customers with whom we do not have long-term purchase orders,
therefore the loss of any one or more of these customers could
adversely affect our business
Ten major customers represented approximately 44.1% of net sales
in fiscal 2005, including the DoD, Wal-Mart and Nordstrom, which
comprised 14.4%, 9.2% and 4.9% of net sales for the period.
Except for Wal-Mart, which was added during fiscal 2005 through
the acquisition of Chambers Belt, most of these same customers
represented a significant portion of net sales in fiscal 2004.
Though the DoD continued to be the largest customer for both our
military boot segment and the Company, we expect Wal-Mart to be
our largest customer for both our accessories segment and for
the Company in fiscal 2006. Although we have long-term
relationships with many of our customers, our customers do not
have a contractual obligation to purchase our products, and we
cannot be certain that we will be able to retain our existing
major customers. The retail industry can be uncertain due to
changing customer buying patterns and consumer preferences, and
customer financial instability. For instance we have experienced
a sharp decline in our sales to Dillards over the past
three years due to its consolidation of its footwear vendor base.
These factors could cause us to lose one or more of these
customers, which could adversely affect our business. Material
reductions in the level of orders from the DoD have harmed our
operating results and this trend could continue.
Doing
business with the U.S. government entails many risks that
could adversely affect us through the early termination of our
contracts or by interfering with Altamas ability to obtain
future government contracts
Our contracts with the DoD under the Altama brand are subject to
partial or complete termination under specified circumstances
including, but not limited to, the following circumstances:
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the convenience of the government;
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the lack of funding; or
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our actual or anticipated failure to perform our contractual
obligations.
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Additionally, there could be changes in government policies or
spending priorities as a result of election results, changes in
political conditions or other factors that could significantly
affect the level of troop deployment. Any of these occurrences
could adversely affect the level of business we do with the DoD
and, consequently, our operating results. For example, the DoD
did not order in excess of the maximum volume under the first
year option of the DoD contract and, therefore we did not
operate at surge rates, as was the case during the first year of
the DoD contract which ended September 30, 2004.
The DSCP and other DoD agencies with which Altama may do
business are also subject to unique political and budgetary
constraints and have special contracting requirements and
complex procurement laws that may affect the
15
contract or Altamas ability to obtain new government
customers. These agencies often do not set their own budgets and
therefore have little control over the amount of money they can
spend. In addition, these agencies experience political pressure
that may dictate the manner in which they spend money. Due to
political and budgetary processes and other scheduling delays
that frequently occur in the contract or bidding process, some
government agency orders may be canceled or substantially
delayed, and the receipt of revenues or payments may be
substantially delayed. For example, the DoD delayed acceptance
of products ordered which caused our results to be lower in the
second quarter of fiscal 2005 than we anticipated.
Government agencies have the power, based on financial
difficulties or investigations of their contractors, to deem
contractors unsuitable for new contract awards. Because we
engage in the governmental contracting business, we will be
subject to audits and may be subject to investigation by
governmental entities. Failure to comply with the terms of any
of these government contracts could result in substantial civil
and criminal fines and penalties, as well as our suspension from
future government contracts for a significant period of time,
any of which could adversely affect our business by requiring us
to spend money to pay the fines and penalties and prohibiting us
from earning revenues from government contracts during the
suspension period.
Furthermore, our failure to qualify as a small business under
federal regulations following the acquisition could reduce the
likelihood of our ability to receive awards of future DoD
contracts. Altama qualified as a small business at the time of
its bid for the current DoD contract. Small business status,
having less than 500 employees, is a factor that the DoD
considers in awarding its military boot contracts. Our combined
employment is now in excess of 500 employees, which could
adversely affect our ability to obtain future contract awards.
Our
future success depends on our ability to respond to changing
consumer preferences and fashion trends and to develop and
commercialize new products successfully
A significant portion of our principal business is the design,
development and marketing of dress and casual footwear, apparel
and accessories. Although our focus in these segments of our
business is on traditional and sustainable niche brands, our
consumer brands may still be subject to rapidly changing
consumer preferences and fashion trends. For example, our
Trotters and Softwalk brands have experienced decreased retail
acceptance of various styles, which adversely affected our net
sales. Accordingly, we must identify and interpret fashion
trends and respond in a timely manner. Demand for and market
acceptance of new products, such as our new Altama public safety
footwear line, are uncertain, and achieving market acceptance
for new products generally requires substantial product
development and marketing efforts and expenditures. Any failure
on our part to regularly develop innovative products and update
core products could limit our ability to differentiate and
appropriately price our products, adversely affect retail and
consumer acceptance of our products, and limit sales growth.
Each of these risks could adversely affect our results of
operations or financial condition.
We
face intense competition, including competition from companies
with greater resources than ours, and if we are unable to
compete effectively with these companies, our market share may
decline and our business and stock price could be
harmed
We face intense competition in the footwear and apparel industry
from other companies, such as those companies listed in
Business Competition above. Many of
our competitors have greater financial, distribution or
marketing resources, as well as greater brand awareness. In
addition, the overall availability of overseas manufacturing
opportunities and capacity allow for the introduction of
competitors with new products. Moreover, new companies may enter
the markets in which we compete, further increasing competition
in the footwear and apparel industry.
We believe that our ability to compete successfully depends on a
number of factors, including anticipating and responding to
changing consumer demands in a timely manner, maintaining brand
reputation and authenticity, developing high quality products
that appeal to consumers, appropriately pricing our products,
providing strong and effective marketing support, ensuring
product availability and maintaining and effectively assessing
our distribution channels, as well as many other factors beyond
our control. Due to these factors within and beyond our control,
we may not be able to compete successfully in the future.
Increased competition may result in price reductions, reduced
profit margins, loss of market share, and an inability to
generate cash flows that are sufficient to maintain or expand
16
our development and marketing of new products, each of which
would adversely affect the trading price of our common stock.
The
financial instability of our customers could adversely affect
our business and result in reduced sales, profits and cash
flows
We sell much of our merchandise in our footwear and apparel,
premium brands and accessories segments to department stores and
specialty retailers across the U.S. and extend credit based on
an evaluation of each customers financial condition,
usually without requiring collateral. However, the financial
difficulties of a customer could cause us to curtail business
with that customer. We may also assume more credit risk relating
to that customers receivables due us. Two of our customers
constituted 28.9% of trade accounts receivable outstanding at
December 31, 2005. Our inability to collect on our trade
accounts receivable from any of our major customers could
adversely affect our business or financial condition.
Our
ability to compete could be jeopardized if we are unable to
protect our intellectual property rights or if we are sued for
intellectual property infringement
We believe that we derive a competitive advantage from our
ownership of the Trotters, SoftWalk, H.S. Trask, Royal Robbins
and Altama trademarks, and our patented footbed technology and
our license of the Wrangler and Tommy Bahama Footwear marks. We
vigorously protect our trademarks against infringement. We
believe that our trademarks are generally sufficient to permit
us to carry on our business as presently conducted. We cannot,
however, know whether we will be able to secure trademark
protection for our intellectual property in the future or that
protection will be adequate for future products. Further, we
face the risk of ineffective protection of intellectual property
rights in the countries where we source our products. We cannot
be sure that our activities do not and will not infringe on the
proprietary rights of others. If we are compelled to prosecute
infringing parties, defend our intellectual property, or defend
ourselves from intellectual property claims made by others, we
may face significant expenses and liability that could divert
our managements attention and resources and otherwise
adversely affect our business or financial condition.
We
depend on third-party trademarks to market some of our products
and services and the loss of the right to use these trademarks
or the diminished marketing appeal of these trademarks could
adversely affect our business
We hold licenses to design and distribute products bearing
trademarks owned by other entities. We have an exclusive license
from Tommy Bahama Group, Inc. to design and distribute
mens and womens footwear, hosiery, belts and
mens small leather goods and accessories bearing the
Tommy
Bahama®
mark and related marks and exclusive licenses from Wrangler
Apparel Corp. to distribute leather belts, accessories, and
suspenders bearing the
Wrangler®
mark and related marks. Each license agreement may be terminated
by the respective licensors prior to the end of the applicable
term for several reasons, including a material default by us
under the applicable agreement, or if we do not meet certain
sales requirements. Although we recently obtained these licenses
in connection with our fiscal 2005 acquisitions, we expect that
the revenue generated from sales of products under these
licenses will be a significant part of our overall revenue. If
an owner of a trademark that we license terminates our license
agreements because we have materially defaulted under the
applicable agreement, have not met required sales requirements,
or for any other reason permitted under such agreements, or if
the name Tommy
Bahama®
(or related marks) or
Wrangler®
(or related marks) were to suffer diminished marketing appeal,
or if we are unable to renew these agreements, our revenues and
operations could be materially adversely affected.
Our
inventory levels may exceed our actual needs, which could
adversely affect our operating results by requiring us to make
inventory write-downs
If we order more product than we are able to sell, we could be
required to write-down this inventory, adversely affecting our
margins and in turn, our operating results. Additionally, excess
inventory adversely affects our liquidity. Excess inventory
could occur as the result of change in customer order patterns,
general sales activity, orders subject to cancellation by
customers, misforecasting and consumer demand. Write-downs of
inventory could adversely affect our gross profit and operating
results.
17
Our
financial results may fluctuate from quarter to quarter as a
result of seasonality in our business, and if we fail to meet
expectations, the price of our common stock may
fluctuate
The footwear and apparel, and accessories industries generally,
and our business specifically, are characterized by seasonality
in net sales and results of operations. Our business is
seasonal, with the first and third quarters generally having
stronger sales and operating results than the other two
quarters. These events could cause the price of our common stock
to fluctuate.
Our
international manufacturing operations are subject to the risks
of doing business abroad, which could affect our ability to
manufacture our products in international markets, obtain
products from foreign suppliers or control the costs of our
products
We currently rely on foreign sourcing of our products, other
than most of our military footwear and some belts manufactured
at our California facility. We believe that one of the key
factors in our growth has been our strong relationships with
manufacturers capable of meeting our requirements for quality
and price in a timely fashion. We obtain our foreign-sourced
products primarily from independent third-party manufacturing
facilities located in Brazil and Asia. As a result, we are
subject to the general risks of doing business outside the U.S.,
including, without limitation, work stoppages, transportation
delays and interruptions, political instability, expropriation,
nationalization, foreign currency fluctuation, changing economic
conditions, the imposition of tariffs, import and export
controls and other non-tariff barriers, and changes in local
government administration and governmental policies, and to
factors such as the short-term and long-term effects of severe
acute respiratory syndrome, or SARS, and the outbreak of avian
influenza in China. Although a diverse domestic and
international industry exists for the kinds of merchandise
sourced by us, there can be no assurance that these factors will
not adversely affect our business, financial condition or
results of operations.
Our
reliance on independent manufacturers for almost all of our non
mil-spec non-accessory products, with whom we do not have
long-term written agreements, could cause delay and damage
customer relationships
In fiscal 2005, we utilized 21 third-party manufacturers to
produce our dress and casual footwear products,
7 third-party manufacturers to produce our apparel
products, 3 third-party manufacturers to produce our non
mil-spec boot volume, and 13 third-party manufacturers to
produce our accessories products. We do not have long-term
written agreements with any of our third-party manufacturers. As
a result, any of these manufacturers may unilaterally terminate
their relationships with us at any time. Establishing
relationships with new manufacturers would require a significant
amount of time and would cause us to incur delays and additional
expenses, which would also adversely affect our business and
results of operations.
In addition, in the past, a manufacturers failure to ship
products to us in a timely manner or to meet the required
quality standards has caused us to miss the delivery date
requirements of our customers for those items. This, in turn,
has caused, and may in the future cause, customers to cancel
orders, refuse to accept deliveries or demand reduced prices.
This could adversely affect our business and results of
operation.
Our
results could be adversely affected by disruptions in our
manufacturing systems
In fiscal 2005, our manufacturing operations at our Altama and
Chambers Belts brands produced approximately 80% of the products
sold. We expect that these products could represent over 19% of
our combined net sales in fiscal 2006, reflecting the inclusion
of the recently acquired Chambers Belt in our results for a full
fiscal year. Any significant disruption in those operations, or
in our Chambers Belt California manufacturing operations for any
reason, such as power interruptions, fires, hurricanes, war or
other force majeure, could adversely affect our sales and
customer relationships and therefore adversely affect our
business. For instance, in September 2004 we encountered
production delays at our Puerto Rico manufacturing plant
following a closure for several days due to severe weather.
18
Fluctuations
in the price, availability and quality of raw materials could
adversely affect our gross profit
Fluctuations in the price, availability and quality of raw
materials, such as leather and bison hides, used to manufacture
our products, could adversely affect our cost of goods or our
ability to meet our customers demands. Although we do not
expect our foreign manufacturing partners, or ourselves in
manufacturing our Altama brand and Chambers brand, to have any
difficulty in obtaining the raw materials required for footwear
and accessories production, certain sources may experience some
difficulty in obtaining raw materials. We generally do not enter
into long-term purchase commitments. In the event of price
increases in these raw materials in the future, we may not be
able to pass all or a portion of these higher raw materials
prices on to our customers, which would adversely affect our
gross profit.
A
decline in general economic conditions could lead to reduced
consumer demand for our products and could lead to a reduction
in our net sales, and thus in our ability to obtain
credit
In addition to consumer fashion preferences, consumer spending
habits are affected by, among other things, prevailing economic
conditions, levels of employment, salaries and wage rates,
consumer confidence and consumer perception of economic
conditions. Slowdowns would likely cause us to delay or slow our
expansion plans and result in lower net sales than expected on a
quarterly or annual basis, which could lead to a reduction in
our stockholders equity and thus our ability to obtain
credit as and when needed.
We may
be required to recognize impairment charges that could adversely
affect our reported earnings in future periods
Our business acquisitions typically result in goodwill and other
intangible assets. As of December 31, 2005, we had
$71.1 million of goodwill and unamortizable intangibles. We
expect this figure to continue to increase with additional
acquisitions. Pursuant to generally accepted accounting
principles in the United States, we are required to perform
impairment tests on our goodwill annually or at any time when
events occur that could impact the value of our business. Our
determination of whether an impairment has occurred is based on
a comparison of each of our reporting units fair market
value with its carrying value. Significant and unanticipated
changes could require a provision for impairment in a future
period that could adversely affect our reported earnings in a
period of such change.
The
exercise of outstanding stock options and warrants, and the
allocation of unallocated shares held by our 401(k) plan, would
cause dilution to our stockholders ownership percentage
and/or a
reduction in earnings per diluted share
As of March 15, 2006, we had outstanding
8,346,943 shares of common stock, net of treasury stock.
This includes 196,967 shares issued to the seller in connection
with our Altama acquisition and held by the escrow agent
pursuant to the terms of our settlement with him and 237,565
unallocated shares held by our 401(k) plan, which despite the
fact they are outstanding for voting and other legal purposes,
are classified as treasury shares for financial statement
reporting purposes and are not taken into account in determining
our earnings per share or earnings per diluted share. The
237,565 unallocated shares will be allocated at the rate of
approximately 120,000 shares annually until they are fully
allocated to the accounts of plan participants. After each
allocation these additional shares will be included in the
weighted average shares outstanding for purposes of determining
our earnings per share and earnings per diluted share. As of
March 15, 2006, we had outstanding options and
warrants to purchase 1,610,602 shares at exercise prices
ranging from $1.73 to $15.00 per share, and
52,500 shares reserved for issuance under deferred stock
awards. The exercise of all or part of these options or
warrants, and issuance of shares under the deferred stock
awards, would cause our stockholders to experience a dilution in
their percentage ownership.
We
depend on our senior executives to develop and execute our
strategic plan and manage our operations, and if we are unable
to retain them, our business could be harmed
Our future success depends upon the continued services of James
Riedman, our Chairman of the Board, who has played a key role in
developing and implementing our strategic plan. We also rely on
Richard E. White, our
19
Chief Executive Officer and Kenneth E. Wolf, our Chief Financial
Officer, who have played key roles in integrating our newly
acquired brands. Our loss of any of these individuals would harm
us if we are unable to employ a suitable replacement in a timely
manner. We do not maintain key man insurance on Messrs. Riedman,
White, Wolf, or any of our other senior executives.
The
charge to earnings from the compensation to employees under our
employee retirement plan could adversely affect the value of
your investment in our common stock
As of December 31, 2005, our 401(k) plan held 358,885
unallocated shares of our common stock, which constituted
approximately 4.3% of our outstanding shares as of that date.
Under the terms of the plan, approximately 120,000 of these
shares will be allocated to plan participants in February of
each year until fully allocated of which approximately 120,000
were allocated in February 2006. We are required to record an
expense for compensation based on the market value of the amount
allocated to employees each year. For fiscal 2004 and 2005, we
recorded non-cash expenses for this allocation of $854,000 and
$935,000, respectively. To the extent our stock price increases,
we would be required to take a higher charge for this allocation
and thereby decrease our reported earnings. This could adversely
affect the value of your investment in our common stock.
We are
controlled by a principal stockholder who may exert significant
control over us and our significant corporate decisions in a
manner adverse to your personal investment objectives, which
could depress the market value of our stock
James R. Riedman, our Chairman of the Board, is the largest
beneficial owner of our stock. Through his personal holdings and
shares over which he is deemed to have beneficial ownership held
by Riedman Corporation (of which he is a shareholder, President
and a director), our employee retirement plan, his children, and
an affiliated entity, he beneficially owned approximately 28.2%
of our outstanding shares as of March 15, 2006.
Mr. Riedman also has beneficial ownership of shares
underlying options which, if exercised, would increase his
percentage beneficial ownership to approximately 35.2% as of
March 15, 2006. Through this beneficial ownership,
Mr. Riedman can direct our affairs and significantly
influence the election or removal of our directors and the
outcome of all matters submitted to a vote of our stockholders,
including amendments to our certificate of incorporation and
bylaws and approval of mergers or sales of substantially all of
our assets. The interest of our principal stockholder may
conflict with interests of other stockholders. This
concentration of ownership may also harm the market price of our
common stock by, among other things:
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delaying, deferring or preventing a change in control of our
company;
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impeding a merger, consolidation, takeover or other business
combination involving our company;
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causing us to enter into transactions or agreements that are not
in the best interests of all stockholders; or
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discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of our company.
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Delaware
law, our charter documents and agreements with our executives
may impede or discourage a takeover, even if a takeover would be
in the interest of our stockholders
We are a Delaware corporation, and the anti-takeover provisions
of Delaware law impose various impediments to the ability of a
third-party to acquire control of us, even if a change in
control would be beneficial to our existing stockholders. In
addition, our Board of Directors has the power, without
stockholders approval, to designate the terms of one or
more series of preferred stock and issue shares of preferred
stock, which could be used defensively if a takeover is
threatened. All options issued under our stock option plans
automatically vest upon a change in control unless otherwise
determined by the compensation committee. In addition, several
of our executive officers have employment agreements that
provide for significant payments on a change in control. These
factors and provisions in our certificate of incorporation and
bylaws could impede a merger, takeover or other business
combination involving us or discourage a potential acquirer from
making a tender offer for our common stock or reduce our ability
to achieve a premium in such sale, which could limit the market
value of our common stock and prevent you from maximizing the
return on your investment.
20
Shares
of our common stock eligible for public sale could cause the
market price of our stock to drop, even if our business is doing
well
Sales of a substantial number of shares of our common stock in
the public market, or the perception that these sales could
occur, could adversely affect the market price for our common
stock. As of March 15, 2006, there were
8,346,943 shares of our common stock outstanding. Of our
currently outstanding shares of common stock,
5,533,306 shares are freely tradable without restriction or
further registration under federal securities laws, including
27,158 shares held by our affiliates which are registered
for resale on a
Form S-8.
In the near future we plan to register an additional
245,000 shares for resale on a
Form S-8,
which will include approximately 23,800 shares held by our
affiliates. The remaining 2,813,637 shares are held by our
affiliates or were issued in a private placement and are
considered restricted or control securities and are subject to
the trading restrictions of Rule 144 under the Securities
Act of 1933, as amended, or the Securities Act. These securities
cannot be sold unless they are registered under the Securities
Act or unless an exemption from registration is otherwise
available. We also have in effect registration statements on
Form S-8
covering 1,500,000 shares of common stock, under our 2001
Long-Term Incentive Plan, 1,195,102 shares of which are
subject to previously granted options and deferred stock awards
and the remainder of which are available for future awards under
that plan.
Our principal stockholders, James Riedman and Riedman
Corporation, who beneficially own in the aggregate
2,359,655 shares of our common stock and vested options to
acquire an additional 582,306 shares, have demand
registration rights covering 1,152,710 of the shares they
beneficially own. In connection with our recent Chambers Belt
acquisition we granted it registration rights covering the
374,462 shares and any additional shares issued to Chambers
Belt as part of the earn-out consideration under the terms of
the acquisition. The agreement provides one demand registration
right per year for three years and unlimited piggyback
registration rights for three years, subject to certain
exceptions.
Significant resale of these shares could cause the market price
of our common stock to decline regardless of the performance of
our business. These sales also might make it difficult for us to
sell equity securities in the future at a time and at a price
that we deem appropriate.
Our
stock price has fluctuated significantly during the past
12 months and may continue to do so in the future, which
could result in litigation against us and significant losses for
investors
Our stock price has fluctuated significantly during the past
12 months and in the future may continue to do so. A number
of factors could cause our stock price to continue to fluctuate,
including the following:
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the failure of our quarterly operating results or those of
similarly situated companies to meet expectations;
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adverse developments in the footwear, apparel or accessories
markets and the worldwide economy;
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changes in interest rates;
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our failure to meet investors expectations;
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changes in accounting principles;
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sales of common stock by existing stockholders or holders of
options;
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announcements of key developments by our competitors;
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the reaction of markets to announcements and developments
involving our company, including future acquisitions and related
financing activities; and
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natural disasters, acts of terrorism, riots, wars, geopolitical
events or other developments affecting us or our competitors.
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In addition, the stock market has experienced extreme price and
volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many
companies for reasons unrelated to their operating performance.
21
These broad market fluctuations may adversely affect our stock
price, regardless of our operating results. In the past,
securities class action litigation often has been brought
against a company following periods of volatility in the market
price of its securities. We may in the future be the target of
similar litigation. Securities litigation could result in
substantial costs and liabilities and could divert
managements attention and resources.
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Item 1B.
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Unresolved
Staff Comments
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None.
CAUTIONARY
STATEMENT
CONCERNING FORWARD-LOOKING INFORMATION
This Annual Report on
Form 10-K
and the Securities and Exchange Commission filings that are
incorporated by reference into this Annual Report on
Form 10-K
contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange
Act. We intend that these forward-looking statements be subject
to the safe harbors created by those sections.
These forward-looking statements include, but are not limited
to, statements relating to our anticipated financial
performance, business prospects, new developments, new
merchandising strategies and similar matters,
and/or
statements preceded by, followed by or that include the words
believes, could, expects,
anticipates, estimates,
intends, plans, projects,
seeks, or similar expressions. We have based these
forward-looking statements on our current expectations and
projections about future events, based on the information
currently available to us. These forward-looking statements are
subject to risks, uncertainties and assumptions, including those
described under the heading Risk Factors, that may
affect the operations, performance, development and results of
our business. You are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the
date stated, or if no date is stated, as of the date hereof.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or any other reason except as we may
be required to do under applicable law. In light of these risks,
uncertainties and assumptions, the forward-looking events
discussed in this Annual Report on
Form 10-K
may not occur.
We operate in a very competitive and rapidly changing
environment. New risk factors can arise and it is not possible
for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on our business or
the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained
in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on
forward-looking statements.
Investors should also be aware that while we do, from time to
time, communicate with securities analysts, it is against our
policy to disclose to them any material non-public information
or other confidential commercial information. Accordingly,
investors should not assume that we agree with any statement or
report issued by any analyst irrespective of the content of the
statement or report.
Furthermore, we have a policy against issuing or confirming
financial forecasts or projections issued by others. Thus, to
the extent that reports issued by securities analysts contain
any projections, forecasts or opinions, such reports are not our
responsibility.
Access to
SEC Filings
Interested readers can access the Companys Annual Reports
on
Form 10-K,
Quarterly Reports on
Form 10-Q,
current reports on
Form 8-K,
and any amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, through the U.S. Securities and Exchange
Commissions website at www.sec.gov. These reports
can be accessed free of charge.
22
We occupy offices and facilities in various locations in
California, Georgia, Maine, Puerto Rico, Arizona and Tennessee.
The following table summarizes our properties.
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Approximate
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Facility/Location
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Own/Lease
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Description
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Square Footage
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Corporate Headquarters
Carlsbad, California
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Lease
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Office Space
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14,000
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Footwear and Apparel
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Distribution Center
Old Town, Maine(1)
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Own
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Warehouse
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75,000
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Distribution Center
Modesto, California
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Lease
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Office/Warehouse
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20,000
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Berkeley, California
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Lease
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Retail
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2,400
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Modesto, California
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Lease
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Retail
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4,500
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Dolgeville, New York
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Own
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Vacant Land
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30 acres
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Premium Footwear
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Chicago, Illinois
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Lease
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Office
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3,000
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Phoenix, Arizona
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Lease
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Office/Warehouse
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27,800
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Military Boot
Operations
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Salinas, Puerto Rico
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Lease
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Cut and stitch plant
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23,500
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Lexington, Tennessee
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Own
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Finishing plant
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76,000
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Lexington, Tennessee
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Lease
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Distribution warehouse
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30,000
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Atlanta, Georgia
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Lease
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Office Space
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4,400
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Accessories
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Phoenix, Arizona
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Lease
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Office Space
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4,800
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City of Commerce, California
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Lease
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Manufacturing/Warehouse
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62,000
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(1) |
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H.S. Trask brand is distributed out of the Old Town, Maine
warehouse. |
Our Lexington, Tennessee finishing plant and certain equipment
at the plant are leased under a capital lease arrangement. Our
capital lease payments associated with the Lexington, Tennessee
plant were completed as of December 31, 2005. We exercised
the $100 purchase option at that time and terminated the lease.
We believe that our current facilities are adequate for our
current and foreseeable future requirements.
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Item 3.
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Legal
Proceedings.
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From time to time we are involved with legal proceedings, claims
and litigation arising in the ordinary course of business. As of
the date of this Annual Report on
Form 10-K
we are not a party to any pending material legal proceedings.
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Item 4.
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Submission
Of Matters To A Vote Of Security Holders.
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During the fourth quarter of our fiscal year, no matter was
submitted to a vote of stockholders.
23
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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Our common stock trades on the American Stock Exchange under the
symbol PXG. The following table sets forth for each
calendar quarter the low and high closing sale prices per share
of our common stock as reported on the American Stock Exchange
for the applicable periods.
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High
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Low
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Year Ended January 1,
2005:
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First Quarter
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$
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10.30
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$
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7.30
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Second Quarter
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$
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13.20
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$
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8.49
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Third Quarter
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$
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13.85
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$
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6.85
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Fourth Quarter
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$
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7.88
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$
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6.43
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Year Ended December 31,
2005:
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First Quarter
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$
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8.35
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$
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5.95
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Second Quarter
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$
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6.75
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$
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5.15
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Third Quarter
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$
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6.75
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$
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5.75
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Fourth Quarter
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$
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6.21
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$
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4.50
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At March 15, 2006, we had approximately 393 holders of
record. We believe that the number of beneficial owners of our
common stock on that date was substantially greater.
We do not pay cash dividends on our capital stock. We do not
anticipate paying cash dividends in the foreseeable future. We
currently anticipate that we will retain all future earnings for
use in servicing our current debt and funding the expansion of
our business and general corporate purposes. In addition, our
credit facility restricts our ability to declare or pay
dividends without the banks consent. Any future
determination as to the payment of dividends will be subject to
applicable limitations, will be at the discretion of our board
of directors and will depend on our results of operations,
financial condition, capital requirements and other factors
deemed relevant by our board of directors. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity
and Capital Resources.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information about the Companys equity compensation plans
at December 31, 2005 is as follows:
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
Number of securities
|
|
|
|
to be issued upon
|
|
|
Weighted average
|
|
|
remaining available for
|
|
|
|
exercise of
|
|
|
exercise price of
|
|
|
future issuance under
|
|
|
|
outstanding options,
|
|
|
outstanding options,
|
|
|
equity compensation plans
|
|
Plan Category
|
|
warrants and rights
|
|
|
warrants and rights
|
|
|
(excluding(a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved
by
stockholders(1)
|
|
|
1,195,000
|
|
|
$
|
7.30
|
|
|
|
151,000
|
|
Equity compensation plans not
approved by
stockholders(2)
|
|
|
448,000
|
|
|
$
|
3.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,643,000
|
|
|
$
|
6.27
|
|
|
|
151,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of the following plans: 2001 Long-Term Incentive Plan
and the 1995 Stock Incentive Plan. No shares are available for
grant under the 1995 Stock Incentive Plan at December 31,
2005. The 2001 Long-Term Incentive Plan permits the award of
stock options, restricted stock and various other stock-based
awards. |
24
|
|
|
(2) |
|
Consists of a) options to purchase 398,000 shares of
common stock granted to James R. Riedman and Riedman Corporation
at a weighted average exercise price of $2.07 per share in
connection with financial guaranties and loans granted to us.
See Note 11 to our Consolidated Financial Statements as of
December 31, 2005; and b) outstanding underwriter
warrants to purchase up to 50,000 shares at an exercise
price of $15.00 per share issued in July 2004 in connection
with our follow-on public offering. |
We did not make any repurchases of our common stock during
fiscal 2005.
|
|
Item 6.
|
Selected
Financial Data
|
The historical consolidated statements of operations data for
the years ended December 27, 2003, January 1, 2005 and
December 31, 2005 and the historical consolidated balance
sheet data as of January 1, 2005 and December 31,
2005, have been derived from our historical consolidated
financial statements included elsewhere in this Annual Report on
Form 10-K.
The historical consolidated statements of operations data for
the years ended December 31, 2001 and 2002, and the
historical balance sheet data as of December 31, 2001 and
2002 and December 27, 2003 have been derived from our
historical consolidated financial statements that are not
included in this Annual Report on
Form 10-K.
Historical results are not necessarily indicative of future
results. The following information should be read in conjunction
with our consolidated financial statements and the related notes
and Managements Discussion and Analysis of Financial
Condition and Results of Operations, which are included
elsewhere in this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 27,
|
|
|
January 1,
|
|
|
December 31,
|
|
|
|
2001(1)
|
|
|
2002(2)
|
|
|
2003(3)(4)
|
|
|
2005(5)(6)(7)
|
|
|
2005(8)(9)(10)(11)
|
|
|
|
(In thousands, except share, per
share data and stock price)
|
|
|
Consolidated Statements of
Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
46,851
|
|
|
$
|
36,161
|
|
|
$
|
39,077
|
|
|
$
|
76,386
|
|
|
$
|
109,189
|
|
Cost of goods sold
|
|
|
31,439
|
|
|
|
22,397
|
|
|
|
22,457
|
|
|
|
44,802
|
|
|
|
67,822
|
|
Gross profit
|
|
|
15,412
|
|
|
|
13,764
|
|
|
|
16,620
|
|
|
|
31,584
|
|
|
|
41,367
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
11,917
|
|
|
|
9,661
|
|
|
|
12,696
|
|
|
|
25,610
|
|
|
|
35,089
|
|
Other expense, net
|
|
|
375
|
|
|
|
442
|
|
|
|
1,377
|
|
|
|
113
|
|
|
|
617
|
|
Total operating expenses
|
|
|
12,292
|
|
|
|
10,103
|
|
|
|
14,073
|
|
|
|
25,723
|
|
|
|
35,706
|
|
Operating income
|
|
|
3,120
|
|
|
|
3,661
|
|
|
|
2,547
|
|
|
|
5,861
|
|
|
|
5,661
|
|
Interest expense
|
|
|
1,683
|
|
|
|
751
|
|
|
|
620
|
|
|
|
888
|
|
|
|
3,495
|
|
Earnings before income taxes
|
|
|
1,437
|
|
|
|
2,910
|
|
|
|
1,927
|
|
|
|
4,973
|
|
|
|
2,166
|
|
Income tax expense
|
|
|
67
|
|
|
|
1,207
|
|
|
|
986
|
|
|
|
1,990
|
|
|
|
975
|
|
Net earnings
|
|
$
|
1,370
|
|
|
$
|
1,703
|
|
|
$
|
941
|
|
|
$
|
2,983
|
|
|
$
|
1,191
|
|
Net earnings per
share(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.44
|
|
|
$
|
0.50
|
|
|
$
|
0.24
|
|
|
$
|
0.51
|
|
|
$
|
0.15
|
|
Diluted
|
|
$
|
0.41
|
|
|
$
|
0.45
|
|
|
$
|
0.22
|
|
|
$
|
0.48
|
|
|
$
|
0.15
|
|
Weighted average common shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,137,688
|
|
|
|
3,418,468
|
|
|
|
3,963,382
|
|
|
|
5,793,920
|
|
|
|
7,760,173
|
|
Diluted
|
|
|
3,444,042
|
|
|
|
3,781,634
|
|
|
|
4,350,132
|
|
|
|
6,277,222
|
|
|
|
8,129,107
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
Dec. 31
|
|
|
Dec. 31
|
|
|
Dec. 27
|
|
|
Jan. 1
|
|
|
Dec. 31
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2005
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,161
|
|
|
$
|
1,265
|
|
|
$
|
1,058
|
|
|
$
|
694
|
|
|
$
|
566
|
|
Working capital
|
|
|
5,358
|
|
|
|
8,812
|
|
|
|
13,423
|
|
|
|
29,159
|
|
|
|
34,052
|
|
Total assets
|
|
|
27,557
|
|
|
|
18,954
|
|
|
|
37,913
|
|
|
|
98,180
|
|
|
|
138,891
|
|
Contingent liability
|
|
|
|
|
|
|
|
|
|
|
1,942
|
|
|
|
|
|
|
|
|
|
Total bank debt
|
|
|
14,829
|
|
|
|
3,000
|
|
|
|
12,082
|
|
|
|
26,607
|
|
|
|
55,541
|
|
Total stockholders equity
|
|
$
|
7,452
|
|
|
$
|
10,112
|
|
|
$
|
14,987
|
|
|
$
|
49,686
|
|
|
$
|
54,024
|
|
|
|
|
(1) |
|
The net amount of $375,000 in Other expense, net
consists primarily of a $1.2 million gain in connection
with the divestiture of our slipper business, and a
$1.7 million loss incurred in connection with the
termination of the Penobscot Shoe Company pension plan and a net
gain on the sale of property of $142,000. |
|
(2) |
|
The net amount of $442,000 in Other expense, net
consists primarily of losses on dispositions and write-offs on
asset sales. |
|
(3) |
|
The net amount of $1,377,000 in Other expense, net
consists primarily of $394,000, or $0.06 per diluted share,
of non-capitalized acquisition expenses, $354,000, or
$0.05 per diluted share, associated with the relocation of
our corporate offices from Old Town, Maine to Carlsbad,
California, litigation costs and expenses totaling $733,000, or
$0.17 per diluted share, associated with the dissenting
stockholders appraisal proceeding resulting from our
fiscal 2000 acquisition of Penobscot Shoe Company, and a
$163,000, or $0.02 per diluted share, write-off of a
non-trade receivable. These amounts were offset partially by an
excise tax refund totaling $285,000, or $0.07 per diluted
share, which was not taxable, associated with the fiscal 2001
termination of the Penobscot pension plan. Interest
expense includes $376,000, or $0.05 per diluted
share, of interest expense related to the settlement of the
dissenting stockholders appraisal proceeding. On an
aggregate basis, these amounts reduced our fiscal 2003 per
diluted share earnings by $0.28. |
|
(4) |
|
In October 2003, we acquired Royal Robbins in a stock purchase
for an aggregate purchase price of $6.8 million, which
included the issuance of 71,889 shares of common stock
valued at $500,000, plus potential contingent earn-out cash
payments through May 2005. In August 2003, we acquired H.S.
Trask for an aggregate purchase price of $6.4 million which
included the issuance of 699,980 shares of common stock
valued at $3.2 million. In connection with these
acquisitions $109,000 or $0.02 per diluted share of
acquisition related expenses were not capitalized. |
|
(5) |
|
On July 19, 2004, we purchased all of the outstanding
capital stock of Altama Delta Corporation for approximately
$37.8 million plus non-competition payments totaling
$2.0 million and payable over five years. The price
included the issuance of 196,967 shares of common stock
valued at $2.5 million. We also incurred approximately
$740,000 in acquisition-related expenses which increased the net
purchase price. On January 8, 2006, we entered into a
settlement with the seller to modify the terms of acquisition.
As a result, we reduced the purchase price by approximately
$1.6 million in cash previously due to seller, 196,967 in
Company shares held in escrow and approximately
$1.6 million in future payment obligations, including a
contingent earn-out payment, and consulting and non-competition
payments. From this settlement, we expect to record a reduction
in goodwill and intangible assets as well as an after-tax gain
of approximately $1.6 million for the quarter ended
April 1, 2006. |
|
(6) |
|
To fund the Altama acquisition, we conducted a follow on public
offering of our common stock which was consummated on
July 19, 2004. In the offering we issued
2,500,000 shares at the $12.50 per share offering price,
resulting in net proceeds, after deducting the underwriters fees
and transaction costs, of approximately $28.4 million. |
|
(7) |
|
In 2004 we made a payment of $2.0 million in connection
with our earn-out obligation for the Royal Robbins acquisition. |
26
|
|
|
(8) |
|
The net amount of $617,000 in Other expense, net
consists primarily of management restructuring and severance
costs. |
|
(9) |
|
In 2005 we made a payment of $2.8 million in connection
with our earn-out obligation for the Royal Robbins acquisition. |
|
(10) |
|
On June 29, 2005, we acquired substantially all of the
assets of Chambers Belt Company for approximately
$22.0 million, plus contingent earn-out payments. As part
of the transaction, we incurred approximately $1.7 million
in acquisition related expenses and entered into a five-year,
$3.0 million non-compete agreement with four Chambers
stockholders. The price included the issuance of
374,462 shares of common stock then valued at
$2.0 million. |
|
(11) |
|
On August 4, 2005, we acquired substantially all of the
assets of The Paradise Shoe Company, LLC for approximately
$6.3 million in cash. As part of the transaction, we
incurred approximately $350,000 in acquisition related expenses. |
|
(12) |
|
Per share data has been adjusted to reflect the
2-for-1
stock split effective at the close of business on June 12,
2003. Phoenix Footwear Group, Inc.s Retirement Savings
Partnership Plan, a 401(k) plan, held 640,599 shares of our
common stock as of December 31, 2005. A total of
378,489 shares were not allocated as of December 31,
2005 and were classified as treasury shares for accounting
purposes, but are outstanding for voting purposes and other
legal purposes. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with
the historical consolidated financial statements and the related
notes and the other financial information included elsewhere in
this Annual Report on
Form 10-K.
This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of any number of factors, including those
set forth under Risk Factors and under other
captions contained elsewhere in this Annual Report on
Form 10-K.
Effective January 1, 2003, we changed our accounting
year to a 52/53 week period. Our annual accounting period
ends on the Saturday nearest to December 31. In this Annual
Report on
Form 10-K
we refer to the fiscal year ended December 31, 2002 as
fiscal 2002, to the fiscal year ended
December 27, 2003 as fiscal 2003, to the fiscal
year ended January 1, 2005 as fiscal 2004, to
the fiscal year ended December 31, 2005 as fiscal
2005,and to the fiscal year ending December 30, 2006
as fiscal 2006. The change in fiscal year end did
not materially impact our fiscal 2005 results of operations or
year-over-year
comparisons.
In this section we discuss pro forma organic net sales growth
with in our various segments, which is a non-GAAP financial
measure of reported sales based on our pro forma net sales for
these segments both including and excluding the brands we
acquired in fiscal 2005, fiscal 2004 and fiscal 2003. Management
believes that discussing pro forma organic net sales in this
manner provides a better understanding of our net sales
performance and trends than reported revenue because it allows
for more meaningful comparisons of current-period revenue to
that of prior periods on a comparable basis. SEC rules require
supplemental explanation and reconciliation, which is provided
at Results of
Operations Fiscal 2005 Compared to Fiscal 2004
Reconciliation and Fiscal 2004
compared to Fiscal 2003 Footwear and Apparel
Business Reconciliation and Premium
Footwear Reconciliation. With the
addition of the Tommy Bahama footwear brand during fiscal 2005
we formed a new reporting segment
titled premium footwear, which now also
includes our H.S. Trask brand. As a result, the operating
results comparisons for Fiscal 2004 have been updated to reflect
H.S. Trask in the premium segment rather than the footwear and
apparel segment as previously reported in our fiscal 2004
10K/A.
Overview
We design, develop and market a diversified selection of a
mens and womens dress and casual footwear, belts,
personal items, outdoor sportswear and travel apparel and
design, manufacture and market military specification (mil-spec)
and commercial combat and uniform boots. Our
moderate-to-premium
priced brands include Royal
Robbins®
apparel, the Tommy
Bahama®,
Trotters®,
SoftWalk®,
H.S.
Trask®
and
Altama®
footwear lines, and Chambers
Belts®.
27
In our footwear and apparel segment, we sell over 80 different
styles of footwear and over 250 different styles of apparel
products. By emphasizing traditional style, quality and fit in
this segment, we believe we can better maintain a loyal consumer
following that is less susceptible to fluctuations due to
changing fashion trends and consumer preferences. As a result, a
significant number of our product styles carry over from
year-to-year.
In addition, our design and product development teams seek to
create and introduce new products and styles that complement
these longstanding core products, are consistent with our brand
images and meet our high quality standards.
In our premium footwear segment, we sell over 50 different
styles of premium priced footwear products emphasizing exotic
leathers, hand made manufacturing qualities and exceptional
quality and comfort characteristics. This segment includes the
recently acquired Tommy
Bahama®
footwear and accessory licensing rights. Tommy
Bahama®
is a premier lifestyle brand featuring mens and
womens apparel, footwear and accessories. The brands
products are well-known and represent a relaxed, island-inspired
lifestyle. The Tommy
Bahama®
line of footwear and accessories feature the brands
signature style and benefits from a broad distribution network
of Tommy
Bahama®-branded
stores, department stores and independent specialty stores
throughout North America and the Caribbean.
We entered into the accessories segment in fiscal 2005 through
our June 29, 2005 acquisition of substantially all of
the assets of Chambers Belt Company, a leading manufacturer of
mens and womens belts and accessories headquartered
in Phoenix, Arizona. Through the accessories segment, we sell
over 750 different styles of personal accessories. Under
exclusive license agreements to distribute certain accessories
for the Wrangler
Hero®,
Timber
Creek®
by
Wrangler®,
Wrangler Jeans
Co.®,
Wrangler Outdoor
Gear®,
Wrangler®,
Wrangler Rugged
Wear®,
20X®
and Twenty
X®
marks, we accessorize each brand based on its respective
lifestyle and price point.
We entered the military boot segment in fiscal 2004 through our
acquisition of Altama Delta Corporation on July 19, 2004.
In our military boot segment, we sell a total of 18 boot models
under our Altama brand for the military and commercial markets.
We believe that the majority of products under this brand are
not sensitive to fashion risk, but are subject to risks of doing
business with the U.S. government.
During the last two quarters of fiscal 2003, we acquired H.S.
Trask & Co., a mens footwear company, and Royal
Robbins, Inc., an apparel company. Our fiscal 2003 and fiscal
2004 acquisitions added to our portfolio of brands, diversified
our product offerings and customer base and provided a base for
significant additional revenues in the future. Since making our
acquisitions, we have integrated their operations with our
infrastructure and sought to eliminate duplicative overhead and
operational inefficiencies. The increase in revenues and
operating expenses during fiscal 2004 as compared to fiscal 2003
primarily relates to our newly acquired brands.
On July 19, 2004, we purchased all of the outstanding
capital stock of Altama Delta Corporation for approximately
$37.8 million, plus an earn-out payment of
$2.0 million that is subject to Altama meeting certain
sales requirements. As part of the transaction, we refinanced
Altamas indebtedness of approximately $1.7 million
and incurred approximately $740,000 in acquisition related
expenses which increased the net purchase price. Payment of the
purchase price at closing was made by delivery of
$35.5 million in cash, and 196,967 shares of common
stock valued at $2.5 million.
To fund the Altama acquisition, we conducted a follow on public
offering of our common stock which was consummated on
July 19, 2004. In the offering we issued
2,500,000 shares at the $12.50 per share offering
price, resulting in net proceeds, after deducting the
underwriters fees and transaction costs, of approximately
$28.4 million. In addition to these proceeds we utilized
approximately $10.0 million of additional borrowings under
our amended credit facility to finance the cash portion of the
purchase price for the Altama acquisition, to refinance
Altamas funded indebtedness and to pay related transaction
fees and expenses.
Under the terms of the stock purchase agreement, we agreed to
pay Whitlow Wyatt, the former owner of Altama, $2.0 million
in consideration for a five-year
covenant-not-to-compete
and other restrictive covenants. We also entered into a two-year
consulting agreement with Mr. Wyatt which provides for an
annual consulting fee of $100,000.
28
Altama has manufactured military footwear for the DoD, for 37
consecutive years. Altama also produces combat and uniform boots
for commercial markets. During 2004, Altama operated under a
surge option pursuant to which it sold boots to the DoD in
excess of the initial maximum amount awarded under its DoD
contract. In September 2004, the DoD exercised the first option
term under its contract with Altama, and at that time increased
Altamas portion of the contract volume from 20% to 30%. In
September 2005 the DoD exercised the final option under the
Altama contract which expires in September 2006. The maximum
pairs that the DoD can order under this option is less than that
of the base contract year, as a result of the discontinuance of
the all leather-combat boot. We have been advised that the DoD
intends to begin the solicitation process for the renewal of
this contract in early summer 2006.
Altamas business generates lower gross margins than ours
historically has generated. As a result, the acquisition caused
our gross margin to be lower in fiscal 2004 and 2005 and we
expect this trend to continue in the future. However,
Altamas selling, general and administrative expenses as a
percentage of net sales has been historically lower than ours.
Therefore, our overall operating margin did not significantly
change as a result of the acquisition.
Altama produces its inventory only upon receipt of orders under
specific contracts. After completion of the manufacturing
process, DoD orders are reviewed for quality assurance, and upon
approval Altama bills the DoD. Thus, Altama has different
working capital requirements and lower inventory risks than we
do.
On January 8, 2006, we entered into an agreement which
modified the terms of the Altama acquisition. As a result of the
agreement, the total price paid by the Company for Altama was
reduced by and included approximately $1.6 million in cash
previously due the seller and held by the Company, 196,967 in
the Company shares held in escrow and the termination of all
future obligations under the stock purchase agreement, including
a contingent earn-out covenant, and consulting and
non-competition agreements which totaled approximately
$1.6 million. The escrow shares remain held by the escrow
agent for resale and are outstanding for legal purposes, but
deemed treasury shares for accounting purposes. As a result of
this transaction the Company expects to record a reduction in
goodwill and intangible assets as well as an after-tax gain of
approximately $1.6 million during the first quarter period
ended April 1, 2006.
With the acquisitions of Chambers Belt and the licensing rights
to Tommy
Bahama®
footwear and accessories the company now has four operating
segments including footwear and apparel, premium footwear,
military boot operations and accessories. See footnote 7 to
the Consolidated Financial Statements.
On June 29, 2005, we acquired substantially all of the
assets of Chambers Belt Company (Chambers) for
approximately $22.0 million, plus contingent earn-out
payments subject to Chambers meeting certain post-closing sales
targets. As part of the transaction, we incurred approximately
$1.7 million in acquisition related expenses and entered
into a five-year, $3.0 million non-compete agreement with
four Chambers stockholders. We paid the purchase price by
delivery of $19.7 million in cash, and 374,462 shares
of common stock then valued at $2.0 million. We funded the
cash portion of the purchase price through a $19.5 million
increase in our credit facility. Chambers business
generates lower gross margins than our historical footwear and
apparel business which is expected to have a negative impact on
our consolidated gross margins in the future.
On August 4, 2005, we acquired substantially all of the
assets of The Paradise Shoe Company, LLC (Tommy Bahama
Footwear) exclusive licensee of the Tommy
Bahama®
line of mens and womens footwear, hosiery and belts
in the United States, Canada and certain Caribbean Islands for
approximately $6.3 million in cash. We funded the cash
portion of the purchase price through an amendment to our credit
facility by increasing our borrowing capacity to
$63.0 million including a $7.0 million bridge loan.
The Tommy Bahama Footwear business generates lower gross margins
than our historical footwear and apparel business which is
expected to have a negative impact on our consolidated gross
margins in the future.
We intend to continue to pursue acquisitions of footwear,
apparel and related products companies that we believe could
complement or expand our business, or augment our market
coverage. We seek companies or product lines that we believe
have consistent historical cash flow and brand growth potential
and can be purchased at a reasonable price. We also may acquire
businesses that we feel could provide us with important
relationships or otherwise offer us growth opportunities. We
plan to fund our future acquisitions through bank financing,
seller debt
29
or equity financing and public or private equity financing.
Although we are actively seeking acquisitions that will expand
our existing brands, as of the date of this report we have no
agreements with respect to any such acquisitions, and there can
be no assurance that we will be able to identify and acquire
such businesses or obtain necessary financing on favorable terms.
Results
of Operations
The following table sets forth selected consolidated operating
results for each of the last three fiscal years, presented as a
percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 27,
|
|
|
January 1,
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2005
|
|
|
2005
|
|
|
Net sales
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
Costs of goods
sold(1)
|
|
|
57%
|
|
|
|
59%
|
|
|
|
62%
|
|
Gross profit
|
|
|
43%
|
|
|
|
41%
|
|
|
|
38%
|
|
Selling, general and
administrative and other expenses
|
|
|
36%
|
|
|
|
33%
|
|
|
|
33%
|
|
Operating income
|
|
|
7%
|
|
|
|
8%
|
|
|
|
5%
|
|
Interest expense
|
|
|
2%
|
|
|
|
1%
|
|
|
|
3%
|
|
Earnings before income taxes
|
|
|
5%
|
|
|
|
7%
|
|
|
|
2%
|
|
Income tax expense
|
|
|
3%
|
|
|
|
3%
|
|
|
|
1%
|
|
Net earnings
|
|
|
2%
|
|
|
|
4%
|
|
|
|
1%
|
|
|
|
|
(1) |
|
All costs incurred to bring finished products to our warehouse
are included in cost of goods sold. These items include shipping
and handling costs, agent and broker fees, letter of credit
fees, customs duty, inspection costs, inbound freight and
internal transfer costs. Costs associated with our own
distribution and warehousing are recorded in selling, general
and administrative expenses. Our gross margins may not be
comparable to others in the industry as some entities may record
and classify these costs differently. |
Fiscal
2005 Compared to Fiscal 2004
Consolidated
Net Sales
Consolidated net sales for fiscal 2005 were $109.2 million
compared to $76.4 million for fiscal 2004, representing a
43% increase. Of this increase, $25.0 million is
attributable to acquired brand revenue associated with the
Chambers Belt Company and Tommy Bahama Footwear brand
acquisitions that occurred during the second half of 2005 and
$9.4 million was attributable to the realization of a full
year of revenue from the Altama brand acquisition that occurred
during the third quarter of fiscal 2004. These sales increases
were partially offset by sales declines in our footwear and
apparel segment.
Consolidated
Gross Profit
Consolidated gross profit for fiscal 2005 increased 31% to
$41.4 million as compared to $31.6 million for the
comparable prior year period. The increase in gross profit is
primarily associated with our 2005 acquisitions and the
inclusion of Altama for a full fiscal year. Gross profit as a
percentage of net sales decreased to 38% compared to 41% in the
prior year period. The decrease in gross profit margin was due
to increased footwear mark downs and close-out activity
associated with inventory reduction strategies along with our
recent acquisitions which generate lower gross margins than our
other branded products.
Consolidated
Operating Expenses
Consolidated selling, general and administrative, or SG&A
expenses were $35.1 million, or 32% of net sales, for
fiscal 2005 as compared to $25.6 million or 34% of net
sales for fiscal 2004. This dollar increase was primarily
related to increased operating costs associated with supporting
a higher sales volume, our recently acquired brands and
increased legal, consulting and pre-selling costs associated
with our newly formed Canadian subsidiary. We
30
anticipate that our fiscal 2006 SG&A expenses will increase
as a result of our 2005 acquisition of Chambers Belt and Tommy
Bahama Footwear.
Consolidated Other expense net was
$617,000 for the fiscal 2005 and primarily related to
termination of the former President of the company and other
management restructuring and severance costs. Our Other
expense net of $113,000 for fiscal 2004
consisted primarily of expenses that could not be capitalized in
connection with discontinued acquisition activities.
Consolidated
Interest Expense
Consolidated interest expense for fiscal 2005 was
$3.5 million as compared to $888,000 in fiscal 2004. The
increase in interest expense during fiscal 2005 was a result of
increased acquisition and working capital indebtedness
associated with our 2004 and 2005 brand acquisitions and
increased interest rates from the general rise in market rates.
We expect our consolidated interest expense to increase during
fiscal 2006 due to our additional acquisition related borrowings
from fiscal 2005 and our seasonal working capital needs in the
first half of fiscal 2006.
Consolidated
Income Tax Provision
We recorded income tax expense of $975,000 for fiscal 2005 as
compared to $2.0 million for fiscal 2004. Our effective tax
rate during fiscal 2005 was 45% compared to an effective tax
rate in fiscal 2004 of 40%. The increase in our effective tax
rate during 2005 was primarily associated with the
Companys recent acquisitions which affected our state
income tax apportionment rates. The Company expects its fiscal
2006 effective tax rate to return to more historical levels of
approximately 40% as our sales and taxable income normalize
across the various states in which we operate. Deferred income
taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities, for
financial reporting purposes, and the amounts used for income
tax purposes.
Consolidated
Net Earnings
Our net earnings for fiscal 2005 were $1.2 million as
compared to $3.0 million for fiscal 2004. The decline in
net earnings is primarily due to lower gross margins and
increased interest expense associated with our 2005 acquisitions
which were funded primarily through new bank debt. Our net
earnings per diluted share were $0.15 for fiscal 2005 as
compared to $0.48 per diluted share for fiscal 2004.
Weighted-average shares outstanding for fiscal 2005 and 2004
were 8.1 million and 6.3 million, respectively.
Footwear
and Apparel Business
Net
Sales
Net sales for fiscal 2005 were $52.9 million compared to
$55.7 million for fiscal 2004, representing a 5% decrease.
During fiscal 2005 our Royal Robbins brand generated year over
year organic net sales growth of 25% primarily from an expanded
fall product line and increased customer base while our Trotters
and SoftWalk brands experienced sales declines on a year over
year basis of 19% primarily associated with higher close-out and
mark down sales related to poor product sell through and
consumer acceptance.
Gross
Profit
Gross profit for fiscal 2005 decreased 10% to $22.7 million
as compared to $25.1 million for the comparable prior
fiscal year. Gross margin in this segment as a percentage of net
sales decreased to 43% compared to 45% in the prior fiscal year.
The decrease in gross profit was primarily related to higher
footwear close-out and mark down sales.
Operating
Expenses
Selling, general and administrative, or SG&A expenses were
$15.7 million, or 30% of net sales, for fiscal 2005 as
compared to $16.4 million or 29% of net sales for fiscal
2004. This dollar decrease was primarily related to lower
footwear advertising, marketing and commission expenses. The
decrease in operating costs were partially offset by
31
pre-selling costs totaling $128,000 incurred during the second
half of 2005 related to our newly formed Canadian subsidiary.
Premium
Footwear
Net
Sales
Net sales for fiscal 2005 were $13.3 million compared to
$7.0 million for fiscal 2004, representing a 90% increase.
Of this increase, $5.0 million is attributable to acquired
brand revenue associated with the Tommy Bahama footwear brand,
acquired August 4, 2005, and $1.3 million was
attributable to increased direct to consumer sales and expanded
distribution associated with our H.S. Trask brand. The Tommy
Bahama footwear brand experienced an $800,000 decrease in
year-over-year
pro forma organic net sales based on $5.8 million in pro
forma net sales for the fiscal 2004 period of August 4,
2004 through January 1, 2005, due primarily to lower sales
of footwear products to the Tommy Bahama branded retail stores.
Gross
Profit
Gross profit for fiscal 2005 increased 78% to $4.8 million
as compared to $2.7 million for the comparable prior fiscal
year. The increase in gross profit is primarily associated with
increased sales activity associated with our 2005 Tommy Bahama
footwear brand acquisition. Gross margin in this segment as a
percentage of net sales decreased to 36% compared to 39% in the
prior fiscal year. The decrease in gross profit percent was
primarily related to our recent Tommy Bahama footwear brand
acquisition which generates a lower gross margin than our
existing premium footwear brand. The Company expects the gross
margin percentage for the Tommy Bahama footwear products to
improve as we leverage their product volume with our
consolidated product sourcing and development processes.
Operating
Expenses
Selling, general and administrative, or SG&A expenses were
$5.0 million, or 38% of net sales, for fiscal 2005 as
compared to $3.3 million or 47% of net sales for fiscal
2004. This dollar increase was primarily associated with our
recently acquired Tommy Bahama footwear brand and increased
commission expenses.
Military
Boot Business
Net
Sales
Net sales for fiscal 2005 were $23.0 million as compared to
net sales from July 19, 2004, the date of our acquisition
of Altama, through the fiscal year ended January 1, 2005 of
$13.7 million. Sales to the DoD were $13.6 million or
59% of total net sales for our military boot business in fiscal
2005 as compared to $7.8 million or 57% of total net sales
for the period we owned Altama during 2004. Sales to commercial
customers were $9.4 million or 41% of total net sales for
our military boot business in fiscal 2005 as compared to
$5.8 million or 43% of total net sales for the period we
owned Altama in 2004. The Altama brand experienced a
$14.8 million decrease in
year-over-year
pro forma organic net sales based on $37.8 million in pro
forma net sales for the fiscal 2004, due primarily to the
DoDs discontinuance of its surge option under the DMS
combat boot contract. Our DoD contract expires in September
2006, unless extended by the DoD. We anticipate that the DoD
will begin the solicitation process for the renewal of this
contract in early summer 2006.
Gross
Profit
Gross profit for fiscal 2005 was $6.0 million or 26% of net
sales for this segment. Gross profit for the period from
July 19, 2004 through the end of the fiscal year ended
January 1, 2005 was $3.8 million or 28% of net sales
for this segment. The increase in gross profit dollars was
related to a full year of sales activity compared to the prior
year acquisition period.
Operating
Expenses
Selling, general and administrative, or SG&A expenses for
fiscal 2005 were $3.2 million or 14% of net sales for this
segment. Direct selling, general and administrative expenses
were $1.4 million or 10% of net sales for this
32
segment, for the period from July 19, 2004, the date of our
acquisition of Altama, through January 1, 2005, the end of
fiscal 2004. The increase in expenses was related to a full year
of operations during fiscal 2005 compared to the prior year
acquisition period.
Reconciliation
The non-GAAP financial measure of pro forma organic net sales
growth discussed above under the heading
Results of Operations Fiscal
2005 Compared to Fiscal 2004 Military Boot
Business Net Sales, and elsewhere in this
report, does not replace the presentation of Phoenix
Footwears GAAP financial results and does not necessarily
reflect the actual financial results of the combined companies
for the periods presented. In our measure of pro forma net sales
above, we have included unaudited prior year net sales of
Altama. This information is provided to present Altamas
results as if we had owned it during the entire fiscal 2004. The
sales figures for these acquisitions are internally prepared and
unaudited, and have not been reviewed by our independent
accountants. A reconciliation of the non-GAAP financial measures
contained in this report to the most comparable GAAP measures is
as follows:
|
|
|
|
|
|
|
Unaudited Pro Forma
|
|
|
|
Net Sales
|
|
|
|
for the Fiscal Year Ended
|
|
|
|
January 1, 2005
|
|
|
|
(In thousands)
|
|
|
Military Boot Segment.
|
|
|
|
|
Post-Acquisition Altama:
7/19/04 1/1/05
|
|
$
|
13,636
|
|
Pre Acquisition Altama:
1/1/04 7/19/04(1)
|
|
|
24,185
|
|
|
|
|
|
|
Total Military Boot Segment Pro
Forma Net Sales
|
|
$
|
37,821
|
|
|
|
|
|
|
|
|
|
(1) |
|
We completed our acquisition of Altama Delta Corporation on
July 19, 2004. |
Accessories
Business
Net
Sales
Net sales from June 29, 2005, the date of acquisition of
Chambers, through the fiscal year ended December 31, 2005
were $20.0 million. The Chambers brand experienced a
$1.3 million decrease in year over year pro forma net sales
based on $21.3 million in pro forma net sales for the
fiscal 2004 period of June 29, 2004 through January 1,
2005 due primarily to reduced sales of branded womens and
juniors belt products to mass merchandisers.
Gross
Profit
Gross profit from June 29, 2005, the date of acquisition of
Chambers, through the fiscal year ended December 31, 2005
was $7.8 million or 39% of net sales for this segment as
compared to pro forma gross profit of $7.8 million or 37%
for the comparable pro forma period of fiscal 2004. The increase
in gross profit percentage was attributable to an improved
product sales mix in the current year period.
Operating
Expenses
Selling, general and administrative, or SG&A expenses from
June 29, 2005 through the fiscal year ended
December 31, 2005 were $5.9 million or 30% of net
sales compared to pro forma SG&A expenses of
$6.0 million or 28% for the comparable proforma period of
fiscal 2004. The decrease in operating expense was primarily
related to reduced employee compensation costs.
Fiscal
2004 Compared to Fiscal 2003
Consolidated
Net Sales
Consolidated net sales for fiscal 2004 were $76.4 million
compared to $39.1 million for fiscal 2003, representing a
95% increase. Of this increase, $23.6 million is
attributable to acquired brand revenue associated
33
the H.S. Trask and Royal Robbins brand acquisitions that
occurred during the second half of 2003 and $13.6 million
was attributable to acquired brand revenue associated with the
Altama brand acquisition that occurred during the third quarter
of fiscal 2004. Our footwear and apparel segment generated 5.5%
year over year pro forma organic net sales growth during fiscal
2004 as compared to pro forma net sales for these brands during
fiscal 2003.
Consolidated
Gross Profit
Consolidated gross profit for fiscal 2004 increased 90% to
$31.6 million as compared to $16.6 million for the
comparable prior year period. The increase in gross profit is
due to our 2003 and 2004 acquisitions. Gross profit as a
percentage of net sales decreased to 41% compared to 42% in the
prior year period. The decrease in gross profit margin was
primarily related to increased mark downs and close-out activity
and the inclusion of the Altama brand gross margins which
generate lower gross margins than our other branded products.
Consolidated
Operating Expenses
Consolidated selling, general and administrative, or SG&A
expenses were $25.6 million, or 34% of net sales, for
fiscal 2004 as compared to $12.7 million or 32% of net
sales for fiscal 2003. This dollar increase was primarily
related to increased operating costs associated with supporting
a higher sales volume, our recently acquired brands and
increased sales, design and management compensation expenses.
Consolidated Other expense net was
$113,000 for the fiscal 2004 and consisted primarily of expenses
that could not be capitalized in connection with discontinued
acquisition activities. Our Other
expense net of $1.4 million for
fiscal 2003 consisted primarily of $733,000 in litigation
expenses incurred with the dissenting Penobscot stockholders
settlement, $394,000 in non-capitalizable acquisition costs,
$354,000 in expenses related to our corporate headquarters
relocation and the write-off of non-trade receivables totaling
$163,000. These expenses were partially offset by an excise tax
refund of $285,000 associated with the 2001 Penobscot pension
plan reversion.
Consolidated
Interest Expense
Consolidated interest expense for fiscal 2004 was $888,000 as
compared to $620,000 in fiscal 2003. The increase in interest
expense during fiscal 2004 was a result of increased acquisition
and working capital indebtedness associated with our 2003 and
2004 brand acquisitions and higher interest rates. In addition,
fiscal 2003 results included interest charges totaling $376,000
associated with the dissenting stockholders litigation
settlement.
Consolidated
Income Tax Provision
We recorded income tax expense for fiscal 2004 of
$2.0 million as compared to $986,000 for fiscal 2003. Our
effective tax rate during fiscal 2004 was 40%. Our effective tax
rate in fiscal 2003 was 51% and was primarily associated with
the Penobscot litigation settlement, which was substantially
non-deductible for income tax purposes.
Consolidated
Net Earnings
Our net earnings for fiscal 2004 were $3.0 million as
compared to $941,000 for fiscal 2003. The improvement in net
earnings is primarily due to our increased net sales from the
fiscal 2003 and 2004 acquisitions, along with successful
integration of these new brands and our continuing expense
reduction efforts. Our net earnings per diluted share were $0.48
for fiscal 2004 as compared to $0.22 per diluted share for
fiscal 2003. This reflects our issuance of 2.5 million
shares of common stock with our July 2004 follow-on public
offering, and the shares issued in the Altama acquisition.
Footwear
and Apparel Business
Net
Sales
Net sales for fiscal 2004 were $55.7 million compared to
$35.1 million for fiscal 2003, representing a 59% increase.
Of this increase, $20.5 million is attributable to acquired
brand revenue associated the Royal Robbins
34
brand acquisition that occurred during late 2003. Our Trotters,
SoftWalk, and Royal Robbins brands on a combined basis generated
10.3%
year-over-year
pro forma organic net sales growth based on $50.5 million
in pro forma net sales for fiscal 2003. This increase was
primarily attributable to an expanded fall and winter product
line for our Royal Robbins brand and an increase in product sell
through along with a larger customer base for our SoftWalk
brand. These increases were partially offset by a decrease in
our Trotters brand which experienced poor sell through and
higher close-out activity during the second half of 2004.
Gross
Profit
Gross profit for fiscal 2004 increased 68% to $25.1 million
as compared to $14.9 million for the comparable prior
fiscal year. Gross margin in this segment as a percentage of net
sales increased to 45 % compared to 42% in the prior
fiscal year. The increase in gross profit dollars was primarily
related to increased sales from the addition of the Royal
Robbins product line which generates higher gross margins than
our other brands in the segment.
Operating
Expenses
Selling, general and administrative expenses were
$16.4 million, or 29% of net sales in this segment for
fiscal 2004 as compared to $8.8 million or 25% of net sales
for fiscal 2003. This dollar increase primarily relates
to$7.4 million in SG&A expenses associated with a full
year of operations for our recently acquired Royal Robbins brand.
Reconciliation
The non-GAAP financial measure of pro forma organic net sales
growth discussed above under the heading
Results of Operations Fiscal
2004 Compared to Fiscal 2003 Footwear and
Apparel Business Net Sales, and elsewhere
in this report, does not replace the presentation of Phoenix
Footwears GAAP financial results and does not necessarily
reflect the actual financial results of the combined companies
for the periods presented. In our measure of pro forma net sales
above, we have included unaudited Fiscal 2003 net sales of Royal
Robbins. This information is provided to present the combined
companies results under this segment as if we had owned
this brand during the entire fiscal 2003. The sales figures for
this acquisition have been internally prepared and unaudited,
and have not been reviewed by our independent accountants. A
reconciliation of the non-GAAP financial measures contained in
this report to the most comparable GAAP measures is as follows:
|
|
|
|
|
|
|
Unaudited Pro Forma
|
|
|
|
Net Sales
|
|
|
|
for the Fiscal Year Ended
|
|
|
|
December 27, 2003
|
|
|
|
(In thousands)
|
|
|
Footwear and Apparel Segment
|
|
|
|
|
Trotters and Softwalk brands
|
|
$
|
34,404
|
|
Royal Robbins:
11/1/03 12/27/03(1)
|
|
|
709
|
|
|
|
|
|
|
Total Net Sales (Actual)
|
|
|
35,113
|
|
2003 Acquired
Brand Royal Robbins, Inc.
|
|
|
|
|
Royal Robbins, Inc.:
1/1/03 10/31/03(1)
|
|
|
15,418
|
|
|
|
|
|
|
Total Footwear and Apparel Segment
Pro Forma Net Sales
|
|
$
|
50,531
|
|
|
|
|
|
|
|
|
|
(1) |
|
We completed our acquisition of Royal Robbins on
October 31, 2003. |
Premium
Footwear
Net
Sales
Net sales for fiscal 2004 were $7.0 million as compared to
net sales of $4.0 million from August 8, 2003, the
date of our acquisition of H.S Trask, through the fiscal year
ended December 27, 2003. The increase in sales was
attributable to the realization of a full year of revenue from
this brand. During fiscal 2004 the H.S. Trask brand
35
experienced a $1.9 million decrease in
year-over-year
pro forma organic net sales based on $8.9 million in pro
forma net sales for the fiscal 2003, as a result of a complete
product repositioning and redesign effort during 2004 which
contributed to a higher level of close-out sales.
Gross
Profit
Gross profit for fiscal 2004 increased 59% to $2.7 million
as compared to $1.7 million from August 8, 2003, the
H.S Trask acquisition date, through the fiscal year ended
December 27, 2003. The increase in gross profit dollars is
due to the increase in net sales. Gross margin in this segment
as a percentage of net sales decreased to 39% compared to 43% in
the prior year. The decrease in gross profit percent was
primarily related to higher close-out sales associated with a
product repositioning and design effort during 2004.
Operating
Expenses
Selling, general and administrative, or SG&A expenses were
$3.3 million, or 47% of net sales for fiscal 2004 as
compared to $980,000 or 25% of net sales for the period of time
we owned the H.S. Trask brand during fiscal 2003. This dollar
increase was primarily associated with a full year of SG&A
expenses and increased design, development, marketing and other
selling expenses associated with the product repositioning
effort during fiscal 2004.
Reconciliation
The non-GAAP financial measure of pro forma organic net sales
growth discussed above under the heading
Results of Operations Fiscal
2004 Compared to Fiscal 2003 Premium
Footwear Net Sales, and elsewhere in this
report, does not replace the presentation of Phoenix
Footwears GAAP financial results and does not necessarily
reflect the actual financial results of the combined companies
for the periods presented. In our measure of pro forma net sales
above, we have included unaudited Fiscal 2003 net sales of H.S.
Trask. This information is provided to present the combined
companies results under this segment as if they were
combined during the entire fiscal 2003. The sales figures for
this acquisition have been internally prepared and unaudited,
and have not been reviewed by our independent accountants. A
reconciliation of the non-GAAP financial measures contained in
this report to the most comparable GAAP measures is as follows:
|
|
|
|
|
|
|
Unaudited Pro Forma
|
|
|
|
Net Sales
|
|
|
|
for the Fiscal Year Ended
|
|
|
|
December 27, 2003
|
|
|
|
(In thousands)
|
|
|
Premium Footwear Segment
|
|
|
|
|
H.S. Trask:
8/8/03 12/27/03(1)
(Actual)
|
|
$
|
3,965
|
|
2003 Acquired
Brand H.S. Trask & Co.
|
|
|
|
|
H.S. Trask:
1/1/03 8/7/03(1)
|
|
|
4,971
|
|
|
|
|
|
|
Total Premium Footwear Segment Pro
Forma Net Sales
|
|
$
|
8,936
|
|
|
|
|
|
|
|
|
|
(1) |
|
We completed our acquisition of H.S. Trask on August 7,
2003. |
Military
Boot Business
Net
Sales
Net sales from July 19, 2004, the date of our acquisition
of Altama, through the fiscal year ended January 1, 2005
were $13.7 million. Sales to the DoD were $7.8 million
or 57% of total net sales for our military boot business and
sales to commercial customers were $5.8 million or 43% of
total net sales for our military boot business. The Altama brand
experienced a $5.0 million decrease in
year-over-year
pro forma organic net sales based on $18.6 million in pro
forma net sales for the fiscal 2003 period of July 19, 2003
through December 27, 2003, due primarily to the DoDs
discontinuance of its surge option under the DMS combat boot
contract.
36
Gross
Profit
Gross profit for the period from July 19, 2004 through the
end of the fiscal year ended January 1, 2005 was
$3.8 million or 28% of net sales for this segment as
compared to pro forma gross profit of $5.0 million or 27%
for the comparable pro forma period of fiscal 2003. The decrease
in gross profit dollars was attributable to lower net sales
during the period.
Operating
Expenses
Direct selling, general and administrative expenses were
$1.4 million or 11% of net sales for this segment, for the
period from July 19, 2004, the date of our acquisition of
Altama, through January 1, 2005, the end of fiscal 2004,
compared to $2.0 million or 11% of pro forma net sales for
this segment for the comparable pro forma period of fiscal 2003.
This reduction in direct selling, general and administrative
expenses in fiscal 2004 as compared to the comparable pro forma
period of fiscal 2003 is due primarily to reductions in employee
compensation due to decreased headcount and related costs.
Seasonal
and Quarterly Fluctuations
The following sets forth our consolidated net sales and income
(loss) from operations summary operating results for the
quarterly periods indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005
(Unaudited)
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Net sales
|
|
$
|
26,400
|
|
|
$
|
15,353
|
|
|
$
|
34,275
|
|
|
$
|
33,161
|
|
Income (loss) from operations
|
|
$
|
2,400
|
|
|
$
|
(1,193
|
)
|
|
$
|
2,814
|
|
|
$
|
1,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004
(Unaudited)
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Net sales
|
|
$
|
18,638
|
|
|
$
|
13,876
|
|
|
$
|
23,176
|
|
|
$
|
20,696
|
|
Income (loss) from operations
|
|
$
|
2,301
|
|
|
$
|
1,242
|
|
|
$
|
2,921
|
|
|
$
|
(603
|
)
|
Our quarterly consolidated results of operations have
fluctuated, and we expect will continue to fluctuate in the
future, as a result of seasonal variances. Notwithstanding the
effects of our acquisition activity, net sales and income from
operations in our first and third quarters historically have
been stronger than in our second and fourth quarters.
Liquidity
and Capital Resources
Our primary liquidity requirements include debt service, capital
expenditures, working capital needs and financing for
acquisitions. We have historically met these liquidity needs
with cash flows from operations, borrowings under our term loans
and revolving credit facility and issuances of shares of our
common stock.
During fiscal 2005, we entered into 3 amendments to our
credit facility with Manufacturers and Traders Trust Company
(M&T). On February 1, 2005, we amended our
existing credit agreement with M&T, to, among other things,
establish a $4 million overline credit facility in addition
to the $18 million revolving credit facility already
existing under the credit agreement.
We amended our credit facility again on June 29, 2005, in
connection with our acquisition of Chambers Belt. This new
credit agreement established a new $52.0 million credit
facility which included a $24.0 million revolving credit
facility, a $5.0 million swing line loan and a
$28 million term loan.
On August 3, 2005, in connection with our acquisition of
substantially all of the assets of Tommy Bahama Footwear, we
entered into an amended and restated credit facility agreement
with M&T. This agreement replaced our existing credit
agreement with M&T of $52 million and increased our
availability to $63 million. M&T acted as lender and
administrative agent for additional lenders under the new credit
agreement. The new credit agreement increased our prior line of
credit from $24 million to $28 million and added a
$7 million bridge loan that we used for the acquisition of
Tommy Bahama footwear. The line of credit has an interest rate
of LIBOR plus 3.0%, or the prime rate plus .375%. The bridge
loan has an interest rate of LIBOR plus 3.5% or the prime rate
plus 0.75%. The
37
borrowings under the new credit agreement are secured by a
blanket security interest in all the assets of the Company and
its subsidiaries. The credit facility expires on June 30,
2010 and all borrowings under that facility are due and payable
on that date. Our availability under the revolving credit
facility is $28 million (subject to a borrowing base
formula with inventory caps). The new credit agreement also
includes financial covenants requiring us not to exceed certain
average borrowed funds to EBITDA ratios and cash flow coverage
ratios.
As of the end of our year ended December 31, 2005, we were
not in compliance with our average borrowed funds to EBITDA
ratio covenant but obtained a waiver from M&T for non
compliance with this covenant on March 29, 2006. As of
March 31, 2006 we had not submitted audited financial
statements to our lender within 90 days of our fiscal year
end, in accordance with the credit facility agreement. On
March 29, 2006, we had obtained a waiver from our lender
for non-compliance with this covenant and an extension until
120 days of our fiscal year end 2005. On March 31,
2006, we entered into an amendment to our credit facility to
modify the financial covenants pertaining to the average
borrowed funds to EBITDA ratio, cash flow coverage ratio and the
current ratio, for the remainder of fiscal 2006, in a manner
that we believe more accurately reflects our current operating
position.
The maturity date of our bridge loan was initially
December 31, 2005. We have obtained four one-month
extensions of the bridge loan maturity date, the most recent
occurring on March 31, 2006, extending the maturity date
until May 1, 2006. We do not anticipate that we will be
able to pay off the bridge loan by the May 1, 2006 deadline
which would place us in default under our credit facility. We
are currently in discussions with our lender to further modify
the maturity date of the bridge to a future period better
aligned with our expected ability to retire this obligation. We
anticipate that our lender will agree to amend our bridge loan
terms in this manner, although there can be no assurance that
these negotiations discussions will be successful or that we
will be able to comply with any future maturity date these
covenants in the future. See Risk
Factors Defaults under our secured credit
arrangement could result in a foreclosure on our assets by our
bank.
The outstanding balances for the revolving credit facility and
our term loans at December 31, 2005 were $21.1 million
and $34.4 million, respectively. The available borrowing
capacity under the revolving credit facility, net of outstanding
letters of credit of $1.0 million, was approximately
$5.9 million at December 31, 2005, and net of
outstanding letters of credit of $269,000, was approximately
$1.4 million at February 25, 2006. The balance due on
the term loan is payable the first day of each calendar quarter
with the principal payment increasing annually on the last
payment of each year. The first three principal payments in 2006
are $550,000 each plus applicable interest, with the last
quarterly payment of 2006 increasing to $775,000 and subsequent
quarterly principal payments increasing in the last quarter of
each year to $850,000 in 2007, $975,000 in 2008, and $1,050,000
in 2009.
Cash Flows Provided By Operations. During
fiscal 2005 our net cash used in operating activities was
$577,000 as compared to $2.9 million net cash used by
operating activities and $282,000 net cash provided by
operating activities during the comparable period of fiscal 2004
and fiscal 2003, respectively. The decrease in cash used by
operations was primarily due to a reduction in inventory levels
resulting from improved merchandising and sell through. This
decrease was offset primarily by an increase in accounts
receivable from the 2005 acquisitions of Chambers Belt and Tommy
Bahama footwear, a decrease in deferred tax liabilities and
earn-out payments of $2.8 million made in 2005 to current
and former management, employees and owners of Royal Robbins.
The increase in cash used by operations in fiscal 2004 from
fiscal 2003 was primarily due to the increase in accounts
receivable and inventory related to our 2003 acquisitions of
H.S. Trask and Royal Robbins brands along with expanded product
offerings related to the then newly introduced H.S. Trask
womens line. Additionally, H.S. Trask
38
inventory levels increased at the end of fiscal 2004 as a result
this brands product repositioning and redesign efforts
during fiscal 2004 and the subsequent inventory replenishment
process. Furthermore, the Trotters brand inventory, and to a
lesser extent our Softwalk brand inventory, increased during
fiscal 2004 due to slower sell through activity during the
fourth quarter of fiscal 2004.
Working capital at the end of fiscal 2005 was approximately
$34.1 million, compared to approximately $29.2 million
at the end of fiscal 2004. Our working capital varies from time
to time as a result of the seasonal requirements of our brands,
which have historically been heightened during the first and
third quarters, the timing of factory shipments, the need to
increase inventories and support an in-stock position in
anticipation of customers orders, and the timing of
accounts receivable collections. The improvement in working
capital at the end of fiscal 2005 compared to the end of fiscal
2004 is due to our acquisitions of Chambers Belt and Tommy
Bahama footwear in fiscal 2005. These acquisitions caused us to
increase our long-term debt and caused increases in our year-end
inventory and accounts receivable balances. Though our working
capital increased year over year, our current ratio, the
relationship of current assets to current liabilities, decreased
to 2.2 at December 31, 2005 from 2.9 at January 1,
2005. Due to the seasonal inventory requirements of our newly
acquired brands we experienced an increase in inventory levels
at the end of fiscal 2005 in preparation for our spring season
which resulted in a similar increase in accounts payable at
December 31, 2005. Accounts receivable days outstanding
increased from 58 days in 2004 to 65 days in 2005,
reflective of extended payment terms historically offered by the
Chambers Belt and Tommy Bahama footwear, which we intend to
reduce to our standard terms of net 45.
Investing Activities. In fiscal 2005, our cash
used in investing activities totaled $27.5 million compared
to cash used totaling $38.6 million and $7.8 million
in the comparable periods of fiscal 2004 and fiscal 2003,
respectively. During fiscal 2005 and 2004 cash used in investing
activities was primarily due to purchase price payments
associated with the acquisitions of Chambers Belt and Tommy
Bahama footwear in 2005 and the acquisition of Altama in 2004.
During fiscal 2003 cash used in investing activities was
primarily due to the 2003 acquisitions of H.S. Trask and Royal
Robbins consisting primarily of purchase price payments and the
purchases of equipment, partially offset in fiscal 2003 by the
proceeds from the disposal of property and equipment.
For fiscal 2005, our capital expenditures were $1.3 million
compared to $969,000 and $326,000 for fiscal 2004 and 2003,
respectively. For fiscal 2005, these capital expenditures
consisted primarily of equipment needed to facilitate our
growth, integration of recently acquired brands and the addition
of a new roof for our Lexington finishing plant. For fiscal
2004, these capital expenditures consisted primarily of
equipment needed to facilitate our growth and integration of
recently acquired brands. Capital expenditures in fiscal 2003
were comprised mostly of furniture, fixtures and computer
equipment associated with the relocation of the Companys
headquarters from Maine to California. In addition, we renovated
portions of our distribution center in Maine to decrease the
amount of office space and increase our warehouse storage
capacity. We currently have no material commitments for future
capital expenditures. For fiscal 2006 we anticipate capital
expenditures of approximately $1.2 million, which will
consist generally of new computer hardware and software, further
development of an
e-commerce
platform for our brands and investment in new machinery and
equipment for the Puerto Rico and Lexington plants to improve
operating efficiencies. The actual amount of capital
expenditures for fiscal 2006 may differ from this estimate,
largely depending on acquisitions we may complete or unforeseen
needs to replace existing assets.
Financing Activities. For fiscal 2005, our net
cash provided by financing activities was $27.9 million
compared to $41.1 million and $7.3 million for the
comparable periods of fiscal 2004 and fiscal 2003, respectively.
The cash provided in fiscal 2005 was due to increased levels of
borrowings made to fund the acquisitions of Chambers Belt and
Tommy Bahama footwear. The cash provided in fiscal 2004 was
primarily due to our follow-on stock offering completed during
the third quarter of fiscal 2004 and the proceeds from
borrowings made on our revolving line of credit and notes
payable, partially offset by notes payable payments made, which
we re used to fund the acquisition of Altama. The cash provided
in fiscal 2003 was primarily due to net proceeds from our
revolving line of credit which were used to pay the dissenting
stockholders settlement expenses, and were partially offset with
notes payable payments, the repurchase of common stock from our
401(k) plan upon the election of terminated plan participants
and cash received from stock option exercises.
Our ability to generate sufficient cash to fund our operations
depends generally on the results of our operations and the
availability of financing. Our management believes, assuming we
successfully extend or refinance our
39
$7.0 million bridge loan, as discussed above, that cash
flows from operations in conjunction with the available
borrowing capacity under our amended credit facility will be
sufficient for the foreseeable future to fund operations, meet
debt service and contingent earn-out payment requirements and
fund capital expenditures other than future acquisitions.
In May 2002, our board of directors authorized us to repurchase
shares of our outstanding common stock in the open market or
privately negotiated transactions from time to time. We
repurchased approximately 15,000 shares during fiscal 2004
and 8,000 during fiscal 2003 under this program at a total cost
of $127,000. This program has been terminated. Our board of
directors has authorized us to repurchase, and from time to time
we have repurchased, shares in private transactions from our
401(k) plan upon the election of the plan participant. During
2003, we repurchased 50,000 shares from the 401(k) plan at
a total cost of $174,000. We place repurchased shares in
treasury and they are subsequently retired.
Additional financing will have to be obtained for any future
acquisitions that we may make. We expect this financing to be a
combination of seller financing, cash from operations,
borrowings under our financing facilities
and/or
issuances of additional equity or debt securities. Seller
financing depends upon the sellers willingness to accept
our shares as part of the consideration for an acquisition and
our willingness to issue our common shares, which will be
impacted by the market value of our common shares. If seller
financing is not available, we may be required to use cash from
operations, borrowings under our financing facilities
and/or
issuances of additional equity or debt securities. Using cash
from operations to finance acquisitions would reduce the funds
we have available for other corporate purposes. Additional
borrowings would increase interest expense and may require us to
commit to additional covenants that further limit our financial
and operational flexibility.
Inflation
We believe that the relatively moderate rates of inflation in
recent years have not had a significant impact on our net sales
or profitability.
Contractual
Obligations
The following table summarizes our contractual obligations at
December 31, 2005 and the effects we expect such
obligations to have on liquidity and cash flow in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period (in
thousands)
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Long-term debt
obligations(1)
|
|
$
|
55,541
|
|
|
$
|
9,425
|
|
|
$
|
10,675
|
|
|
$
|
35,441
|
|
|
|
|
|
Operating leases
|
|
$
|
1,863
|
|
|
$
|
886
|
|
|
$
|
773
|
|
|
$
|
204
|
|
|
|
|
|
Capital lease obligation
|
|
$
|
12
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential earn-out
payments(2)
|
|
$
|
2,500
|
|
|
$
|
1,250
|
|
|
$
|
1,250
|
|
|
|
|
|
|
|
|
|
Consulting and non-competition
agreements
|
|
$
|
2,118
|
|
|
$
|
660
|
|
|
$
|
1,437
|
|
|
$
|
21
|
|
|
|
|
|
Minimum royalty payments
|
|
$
|
13,287
|
|
|
$
|
1,914
|
|
|
$
|
5,756
|
|
|
$
|
5,617
|
|
|
|
|
|
Employment agreements
|
|
$
|
2,543
|
|
|
$
|
1,608
|
|
|
$
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent the principal portion of periodic payments
only and does not include an estimation of interest expense. As
of December 31, 2005 our credit facility consists of a
$27.5 million term loan payable in quarterly installments
through 2011, $7 million bridge loan with an original
maturity date of December 31, 2005 and a line of credit up
to $28 million, due in 2010. As of December 31, 2005,
the term loan and the bridge loan have an interest rate of LIBOR
plus 3.5% or the higher of the prime rate plus 0.75% or the
federal funds rate plus 1.25%. The revolving line has an
interest rate of LIBOR plus 3.0%, or the higher of the prime
rate plus 0.375% or the federal funds rate plus 0.875%. |
|
(2) |
|
In connection with our acquisition of Chambers Belt, we agreed
to pay as part of the purchase price potential earn-out cash
payments equal to 50% of the net contribution of Chambers Belt
division for the
12-month
periods ending June 28, 2006 and 2007, respectively, so
long as minimum thresholds are achieved by the |
40
|
|
|
|
|
acquired business during these periods. The net contribution is
defined as the operating earnings of the Chambers Division
determined in accordance with GAAP, with allocation of expenses
for services, facilities, equipment and products shared with our
other brands. The $1.25 million represents
managements current estimate of the potential earn-out
cash payments the Company may be required to pay. Actual
payments may vary from these estimated amounts. |
Off-Balance
Sheet Arrangements
We have no off-balance sheet arrangements other than operating
leases. See Contractual Obligations above. We do not
believe that these operating leases are material to our current
or future financial condition, results of operations, liquidity,
capital resources or capital expenditures.
Critical
Accounting Policies
Managements discussion and analysis of our financial
condition and results of operations is based upon our
consolidated financial statements, which have been prepared in
accordance with the rules and regulations of the Securities and
Exchange Commission. The preparation of these financial
statements requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent
assets and liabilities. We evaluate these estimates, including
those related to bad debts, inventories, intangible assets,
income taxes, and contingencies and litigation, on an ongoing
basis. We base these estimates on historical experiences and on
various other assumptions that we believe are reasonable under
the circumstances. These assumptions form our basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies and the
related estimates and assumptions discussed below are among
those most important to an understanding of our consolidated
financial statements.
Accounts receivable. We maintain allowances
for doubtful accounts, discounts and claims resulting from the
inability of customers to make required payments, and any claims
customers may have for merchandise. We initially record a
provision for doubtful accounts based on historical experience
of write-offs and then adjust this provision at the end of each
reporting period based on a detailed assessment of our accounts
receivable and allowance for doubtful accounts. In estimating
the provision for doubtful accounts, our management considers
the age of the accounts receivable, our historical write-offs,
the credit-worthiness of the customer, the economic conditions
of the customers industry, and general economic
conditions, among other factors. Should any of these factors
change, the estimates made by management will also change, which
could impact the level of our future provision for doubtful
accounts. Specifically, if the financial condition of our
customers were to deteriorate, affecting their ability to make
payments, additional provisions for doubtful accounts may be
required. At December 31, 2005, our gross trade accounts
receivable balance was $23.1 million and our allowance for
doubtful accounts, sales allowances and returns was
$1.3 million.
Inventory. We write down inventory for
estimated obsolescence or unmarketable inventory in an amount
equal to the differences between the cost of the inventory and
the estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are
less favorable than those projected by management, additional
inventory write-downs may be required. At December 31,
2005, inventories were $38.3 million and our inventory
obsolescence reserve was $1.1 million.
Business Combinations. Acquisitions require
significant estimates and judgments related to the fair value of
assets acquired and liabilities assumed to which the transaction
costs are allocated under the purchase method of accounting.
Certain liabilities are subjective in nature. We reflect such
liabilities based upon the most recent information available.
The ultimate settlement of such liabilities may be for amounts
that are different from the amounts initially recorded. A
significant amount of judgment also is involved in determining
the fair value of assets acquired. Different assumptions could
yield materially different results.
Goodwill and Intangible Assets. Certain of our
identifiable intangible assets, including non-compete agreements
and customer lists, are being amortized on the straight-line
method over their estimated useful lives,
41
which range from 2 to 13 years. Additionally, we have
recorded goodwill and trademarks and trade names, all of which
have indefinite useful lives and are therefore not amortized.
All of our intangible assets and goodwill are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable, and
goodwill and intangible assets with indefinite lives are
reviewed for impairment at least annually. Among other
considerations, we consider the following factors:
|
|
|
|
|
the assets ability to continue to generate income from
operations and positive cash flow in future periods;
|
|
|
|
our future plans regarding utilization of the assets;
|
|
|
|
changes in legal ownership or rights to the assets; and
|
|
|
|
changes in consumer demand or acceptance of the related brand
names, products or features associated with the assets.
|
If we consider assets to be impaired, we recognize an impairment
loss equal to the amount by which the carrying value of the
assets exceeds the estimated fair value of the assets. In
addition, as it relates to long-lived assets, we base the useful
lives and related amortization or depreciation expenses on the
estimate of the period that the assets will generate sales or
otherwise be used by us. At December 31 2005, we had
goodwill and other intangible assets of $71.1 million. The
Company determined that there was no impairment of goodwill to
be recorded during the year ended December 31, 2005,
January 1, 2005 or December 27, 2003.
Recent
Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board or
FASB, issued Statement of Financial Accounting Standards
No. 123 (revised 2004)
(SFAS No. 123®),
Share-Based Payment. This Statement replaces
SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes Accounting Principles Board
Opinion No. 25 (APB No. 25), Accounting
for Stock Issued to Employees. SFAS No. 123(R)
addresses the accounting for share-based payment transactions in
which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or
(b) liabilities that are based on the fair value of the
enterprises equity instruments or that may be settled by
the issuance of such equity instruments.
SFAS No. 123(R) eliminates the ability to account for
share-based compensation transactions using the intrinsic value
method under APB No. 25, and generally would require
instead that such transactions be accounted for using a
fair-value-based
method. On April 14, 2005, the Securities and Exchange
Commission issued an amendment to
Rule 4-01
of
Regulation S-X
that allows companies to implement SFAS 123R at the
beginning of their next fiscal year, instead of the next
reporting period that begins after June 15, 2005 as
originally required. The Company expects to continue to utilize
the Black-Scholes option-pricing model, which is an acceptable
option valuation model in accordance with SFAS 123R, to
estimate the value of stock options granted to employees. At
this time, the Company has not adopted the recognition provision
of SFAS No. 123(R), as amended, but has provided pro
forma disclosures.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets An amendment
of APB Opinion No. 29, Accounting for Nonmonetary
Transactions (SFAS No. 153). This
statement amends APB Opinion No. 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a
result of the exchange. The provisions in SFAS No. 153
are effective for nonmonetary asset exchanges incurred during
fiscal years beginning after June 15, 2005. The Company is
currently evaluating the effect, if any, of adopting
SFAS No. 153.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs (SFAS No. 151)
which amends Accounting Research Bulletin, (ARB
No. 43) Opinion No. 43, Chapter 4,
Inventory Pricing. SFAS No. 151 clarifies
the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage) to be
expensed as incurred and not included in overhead. Further,
SFAS No. 151 requires that allocation of fixed
production overheads to conversion costs should be based on
normal capacity of the production facilities. The provisions in
SFAS No. 151 are effective for inventory cost incurred
during fiscal years beginning after June 15, 2005. The
Companys current accounting policies are consistent with
the accounting practices addressed under SFAS No. 151.
42
On June 7, 2005, the FASB issued Statement No. 154
(SFAS 154), Accounting Changes and Error
Corrections a replacement of Accounting
Principles Board (APB) Opinion No. 20, Accounting Changes,
and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. Under the provisions of
SFAS 154, voluntary changes in accounting principles are
applied retrospectively to prior periods financial
statements unless it would be impractical to do so.
SFAS 154 supersedes APB Opinion No. 20, which required
that most voluntary changes in accounting principles be
recognized by including in the current periods net income
the cumulative effect of the change. SFAS 154 also makes a
distinction between retrospective application of a
change in accounting principle and the restatement
of financial statements to reflect the correction of an error.
The provisions of SFAS 154 are effective for accounting
changes made in fiscal years beginning after December 15,
2005. Management of the Company does not expect the adoption of
this standard to have a material impact on its financial
position or results of operations.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
We are exposed to interest rate changes primarily as a result of
our revolving line of credit and term loans, which we use to
maintain liquidity and to fund capital expenditures and
expansion. Our market risk exposure with respect to this debt is
to changes in the prime rate in the U.S. and changes
in LIBOR. Our revolving line of credit and our term loans
provide for interest on outstanding borrowings at rates tied to
the prime rate or, at our election, tied to LIBOR. At
December 31, 2005, we had $55.5 million in outstanding
borrowings under our credit facility. A 1.0% increase in
interest rates on our current borrowings would have had a
$555,000 impact on earnings before income taxes. We do not enter
into derivative or interest rate transactions for speculative
purposes.
As a majority of the Companys purchasing commitments are
denominated in U.S. dollars and all of the Companys
sales are denominated in U.S. dollars, the Company was not
significantly exposed to fluctuations in foreign currency rates
during fiscal 2005. In January of 2006, the Company established
an operating presence in Canada and will begin selling its
product into the Canadian market. As the volume of transactions
in a foreign currency is expect to remain relatively low in
fiscal 2006, the Company does not expect to experience
significant exposure to foreign currency risk in fiscal 2006.
|
|
Item 8.
|
Financial
Statements and Supplemental Data
|
Summarized
Quarterly Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2005
Quarters
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Total
|
|
|
|
(In thousands, except per share
data)
|
|
|
Net sales
|
|
$
|
26,400
|
|
|
$
|
15,353
|
|
|
$
|
34,275
|
|
|
$
|
33,161
|
|
|
$
|
109,189
|
|
Gross Profit
|
|
$
|
10,558
|
|
|
$
|
5,872
|
|
|
$
|
12,540
|
|
|
$
|
12,397
|
|
|
$
|
41,367
|
|
Net earnings (loss)
|
|
$
|
1,181
|
|
|
$
|
(1,041
|
)
|
|
$
|
980
|
|
|
$
|
71
|
|
|
$
|
1,191
|
|
Earnings (loss) per Common
Share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.12
|
|
|
$
|
0.01
|
|
|
$
|
0.15
|
|
Diluted
|
|
$
|
0.15
|
|
|
$
|
(0.14
|
)
|
|
$
|
0.12
|
|
|
$
|
0.01
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2004
Quarters
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Total
|
|
|
|
(In thousands, except per share
data)
|
|
|
Net sales
|
|
$
|
18,638
|
|
|
$
|
13,876
|
|
|
$
|
23,176
|
|
|
$
|
20,696
|
|
|
$
|
76,386
|
|
Gross Profit
|
|
$
|
8,146
|
|
|
$
|
6,289
|
|
|
$
|
9,831
|
|
|
$
|
7,318
|
|
|
$
|
31,584
|
|
Net earnings (loss)
|
|
$
|
1,236
|
|
|
$
|
643
|
|
|
$
|
1,728
|
|
|
$
|
(624
|
)
|
|
$
|
2,983
|
|
Earnings (loss) per Common
Share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.27
|
|
|
$
|
0.14
|
|
|
$
|
0.26
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.51
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.12
|
|
|
$
|
0.24
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.48
|
|
|
|
|
(1) |
|
Earnings per share are computed individually for each of the
quarters presented; therefore, the sum of the quarterly earnings
per share may not necessarily equal the total for the year. |
43
Management of Phoenix Footwear Group, Inc. is responsible for
the information and representations contained in this report.
The financial statements have been prepared in conformity with
the generally accepted accounting principles we considered
appropriate in the circumstances and include some amounts based
on our best estimates and judgments. Other financial information
in this report is consistent with these financial statements.
Our accounting systems include controls designed to reasonably
assure that assets are safeguarded from unauthorized use or
disposition and which provide for the preparation of financial
statements in conformity with generally accepted accounting
principles. These systems are supplemented by the selection and
training of qualified accounting personnel and an organizational
structure providing for appropriate segregation of duties.
The Audit Committee is responsible for recommending to the Board
of Directors the appointment of the independent accountants and
reviews with the independent accountants and management the
scope of the annual examination, the effectiveness of the
accounting control system and other matters relating to the
financial affairs of the Company as they deem appropriate. The
independent accountants have access to the Audit Committee, with
and without presence of management, to discuss any appropriate
matters.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
There has been no change of accountants nor any disagreements
with accountants on any matter of accounting principles or
practices of financial statement disclosure required to be
reported under this item.
|
|
Item 9A.
|
Controls
and Procedures
|
An evaluation was performed under the supervision of the
Companys management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO),
of the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in
Securities Exchange Act of 1934 (the Exchange Act)
Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this
report to provide reasonable assurance that information we are
required to disclose in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms and
that such information is accumulated and communicated to
management, including the CEO and the CFO, as appropriate, to
allow timely decisions regarding required disclosure.
Based on the foregoing, our CEO and CFO have determined that a
material weakness exists in our internal control over financial
reporting, and, as a result, our disclosure controls and
procedures were ineffective as of December 31, 2005. The
material weakness consists of inadequate resources in our
accounting and financial reporting group. Our auditors reported
this material weakness to us following the conclusion of their
audit. Based on this, there is more than a remote likelihood
that a material misstatement of the annual financial statements
would not have been prevented or detected. Our management and
auditors believe that the material weakness arose as a result of
the significant acquisitions we have recently completed.
Notwithstanding the material weakness, we believe our
consolidated financial statements included in this Annual Report
on
Form 10-K
fairly present in all material respects our financial position,
results of operations and cash flows for the periods presented
in accordance with generally accepted accounting principles. In
preparing our Exchange Act filings, including this Annual Report
on
Form 10-K,
we implemented processes and procedures to provide reasonable
assurance that the identified material weaknesses in our
internal control over financial reporting were mitigated with
respect to the information that we are required to disclose. As
a result, we believe, and our CEO and CFO have certified that,
to their knowledge, this Annual Report on
Form 10-K
does not contain any untrue statements of material fact or omit
to state any material fact necessary to make the statements
made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered in
this Annual Report.
We have taken corrective action to address the material weakness
in our internal controls by recently hiring several individuals
including cost accounting and financial analysis personnel. We
are also currently seeking to hire additional accounting and
financial reporting personnel, including one or more individuals
with SEC reporting experience to supplement our existing staff.
We are also reviewing the organizational structure of our
accounting
44
and financial group and may realign duties and responsibilities
to facilitate compliance with our financial reporting
obligations.
There can be no assurance, however, that our disclosure controls
and procedures will detect or uncover all failures of persons
within the Company and its consolidated subsidiaries to disclose
material information otherwise required to be set forth in our
periodic reports. There are inherent limitations to the
effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the
circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures
can only provide reasonable, not absolute, assurance of
achieving their control objectives.
There has been no change in our internal controls over financial
reporting that occurred during the last fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.
|
|
Item 9B.
|
Other
Information
|
On January 31, 2006, February 28, 2006 and
March 31, 2006, we entered into amendments to our Amended
and Restated Credit Facility Agreement made as of August 3,
2005 (the Credit Agreement) with Manufacturers and
Traders Trust Company (M&T), Amendment
Nos. 2, 3 and 4, respectively. Through these
amendments, we extended the maturity date of the
$7.0 million bridge loan under the Credit Agreement from
December 31, 2005 until May 1, 2006.
On March 31, 2006, we entered into Amendment No. 5 to
the Credit Agreement. Under this amendment we: (1) extended
the deadline for fiscal 2005 to provide audited financial
statements to M&T from 90 days to 120 days of our
fiscal year end; and (2) modified the financial covenants
pertaining to the average borrowed funds to EBITDA ratio, cash
flow coverage ratio and current ratio, for the remainder of
fiscal 2006, in a manner that we believe more accurately
reflects our current operating position.
PART III
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant
|
The information required by Item 10 is included under
Election of Directors and Executive Officers
of the Company, in the definitive Proxy Statement for our
2006 Annual Meeting of Stockholders to be filed with the
Commission within 120 days after the end of fiscal 2005,
pursuant to Regulation 14A and is incorporated herein by
reference.
|
|
Item 11.
|
Executive
Compensation
|
The information required by Item 402 of
Regulation S-K
regarding executive compensation is included under
Election of Directors and Executive Officers
of the Company, and Performance Graph in the
definitive Proxy Statement for our 2006 Annual Meeting of
Stockholders to be filed with the Commission within
120 days after the end of fiscal 2005, pursuant to
Regulation 14A and is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and
Management
|
The information required by Items 201(d) and 403 of
Regulation S-K
regarding equity compensation and security ownership,
respectively, is included under Equity Compensation Plan
Information and Security Ownership of Certain
Beneficial Owners and Management, respectively, in the
definitive Proxy Statement for our 2006 Annual Meeting of
Stockholders and is incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
The information required by Item 404 of
Regulation S-K
regarding certain relationships and related transactions is
included under Certain Relationships and
Transactions in the definitive Proxy Statement for our
2006
45
Annual Meeting of Stockholders to be filed with the Commission
within 120 days after the end of fiscal 2005, pursuant to
Regulation 14A and is incorporated herein by reference.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required under Item 14 is included under
Financial Matters with Grant Thornton LLP in
the definitive Proxy Statement for our 2006 Annual Meeting of
Stockholders to be filed with the Commission within
120 days after the end of fiscal 2005, pursuant to
Regulation 14A and is incorporated herein by reference.
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statements Schedules
|
(a) The following documents are filed as part of this
report:
(1) The following financial statements beginning at
page 53:
|
|
|
|
1.
|
Reports of Independent Registered Public Accounting
Firm Grant Thornton, LLP and
Deloitte & Touche, LLP
|
2. Consolidated Balance Sheets
3. Consolidated Statements of Operations
4. Consolidated Statements of Stockholders Equity
5. Consolidated Statements of Cash Flows
6. Notes to Consolidated Financial Statements
(2) Financial Statement Schedules (See
(c) below)
(3) Exhibits.
|
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger dated
as of June 16, 2003, by and among Phoenix Footwear Group,
Inc., H.S. Trask & Co., PFG Acquisition, Inc. and Nancy
Delekta as stockholder representative (incorporated by reference
to the Quarterly Report on
Form 10-Q
filed August 12, 2003 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))
(Exhibits and schedules have been omitted pursuant to
Item 601(b) (2) of
Regulation S-K,
but a copy will be furnished supplementally to the Securities
and Exchange Commission upon request)
|
|
2
|
.2
|
|
Letter Amendment to Agreement and
Plan of Merger dated August 6, 2003, by and among Phoenix
Footwear Group, Inc., H.S. Trask & Co., and PFG
Acquisition, Inc., and Nancy Delekta as stockholder
representative (incorporated by reference to the Quarterly
Report on
Form 10-Q
filed August 12, 2003 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))
|
|
2
|
.3
|
|
Stock Purchase Agreement By and
Among Dan J. and Denise L. Costa, as trustees of the Dan J. and
Denise L. Costa 1997 Family Trust and Douglas Vient as
trustee of the Kelsie L. Costa Trust and the Daniel S.
Costa Trust, Royal Robbins, Inc., and Phoenix Footwear Group,
Inc., dated October 2, 2003 (incorporated by reference to
Exhibit 2.1 to the Current Report
Form 8-K
dated November 5, 2003 (SEC File
No. 001-31309))
(Exhibits and schedules have been omitted pursuant to
Item 601(b) (2) of
Regulation S-K,
but a copy will be furnished supplementally to the Securities
and Exchange Commission upon request)
|
|
2
|
.4
|
|
Stock Purchase Agreement by and
among Phoenix Footwear Group, Inc., W. Whitlow Wyatt and Altama
Delta Corporation dated June 15, 2004, (incorporated by
reference to the Current Report on
Form 8-K
for June 15, 2004 by Phoenix Footwear Group, Inc. (SEC File
No.
001-31309))
(Exhibits and schedules have been omitted pursuant to
Item 601(b) (2) of
Regulation S-K,
but a copy will be furnished supplementary to the Securities and
Exchange Commission upon request)
|
46
|
|
|
|
|
|
2
|
.5
|
|
Asset Purchase Agreements between
Chambers Delaware Acquisition Company and Chambers Belt Company
and Stockholders of Chambers Belt Company, dated as of
April 18, 2005 (incorporated by reference to
Exhibit 2.1 to the Quarterly Report on
Form 10-Q
filed on May 24, 2005 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))
(Exhibits and schedules have been omitted pursuant to
Item 601(b) (2) of
Regulation S-K,
but a copy will be furnished supplementary to the Securities and
Exchange Commission upon request)
|
|
2
|
.6
|
|
Asset Purchase Agreement dated
August 3, 2005 by and among Phoenix Delaware Acquisition,
Inc., The Paradise Shoe Company, LLC, Tommy Bahama Group, Inc.,
Sensi USA, Inc., and Phoenix Footwear Group, Inc. (incorporated
by reference to Exhibit 2.1 to the
Form 8-K
filed on August 9, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))
(Exhibits and schedules have been omitted pursuant to
Item 601(b) (2) of
Regulation S-K,
but a copy will be furnished supplementary to the Securities and
Exchange Commission upon request)
|
|
3
|
.1
|
|
Certificate of Incorporation.
(incorporated herein by reference to Appendix B of the
definitive Proxy Statement on Schedule 14A dated
March 29, 2002 (SEC File
No. 000-00774))
|
|
3
|
.2
|
|
By-Laws. (incorporated herein by
reference to Appendix C of the definitive Proxy Statement
on Schedule 14A dated March 29, 2002 (SEC File
No. 000-00774))
|
|
3
|
.3
|
|
Certificate of Amendment to
Certificate of Incorporation. (incorporated herein by reference
to Exhibit A of the Definitive Proxy Statement on
Schedule 14A dated April 14, 2003 (SEC File
No. 001-31309))
|
|
10
|
.1
|
|
Stock Purchase Agreement between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
Riedman Corporation dated June 26, 1996 (incorporated by
reference to Exhibit 2 of
Form 8-K
dated July 10, 1996 (SEC File No.
000-00774))
|
|
10
|
.2
|
|
Stock Purchase Option between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
Riedman Corporation dated July 29, 1997 (incorporated by
reference to Exhibit 99.1 of Form SC 13D/A dated
August 11, 1997 (SEC File
No. 005-36674)).*
|
|
10
|
.3
|
|
Stock Purchase Option between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
Riedman Corporation dated September 1, 1999 (incorporated
by reference to Exhibit 10.3 to the Annual Report on
Form 10-K
dated March 26, 2004 (SEC file
No. 001-31309)).*
|
|
10
|
.4
|
|
Agreement by and between Phoenix
Footwear Group, Inc. and Wilhelm Pfander dated December 18,
2000 (incorporated by reference to exhibit 10.4 to the
Annual Report on
Form 10-K
dated March 26, 2004 (SEC file
No. 001-31309)).
*
|
|
10
|
.5
|
|
Stock Purchase Option between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
Riedman Corporation dated January 19, 2001 (incorporated by
reference to Exhibit 99.1 of Form SC 13D/A dated
February 28, 2001 (SEC File
No. 005-36674)).*
|
|
10
|
.6
|
|
Stock Purchase Option between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
Riedman Corporation dated April 11, 2001. (incorporated by
reference to Exhibit 10.6 to the Annual Report on
Form 10-K
dated March 26, 2004 (SEC file No.
001-31309)).*
|
|
10
|
.7
|
|
Stock Purchase Option between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
James R. Riedman dated June 1, 2001 (incorporated by
reference to Exhibit 10 of
Form 8-K
dated June 26, 2001 (SEC File No.
000-00774)).*
|
|
10
|
.8
|
|
Assignment for Patent Application
(All Rights) by and between Wilhelm F. Pfander and Phoenix
Footwear Group, Inc. dated August 27, 2003 (incorporated by
reference to Exhibit 10.12 to the Annual Report on
Form 10-K
dated March 26, 2004 (SEC file
No. 001-31309)).*
|
|
10
|
.9
|
|
Employment Agreement by and
between Phoenix Footwear Group, Inc. and James R. Riedman dated
January 1, 2004 (incorporated by reference to
Exhibit 10.17 to the Annual Report on
Form 10-K
dated March 26, 2004 (SEC file No.
001-31309)).*
|
|
10
|
.10
|
|
Employment Agreement by and
between Phoenix Footwear Group, Inc. and Richard E. White, dated
June 15, 2004 (incorporated by reference to
Exhibit No. 10.18 to the Phoenix Footwear Group, Inc.
Registration Statement on
Form S-2,
Amendment No. 1 (File
No. 333-114109)
filed on June 16, 2004, as amended).*
|
|
10
|
.11
|
|
Trademark License Agreement
between Tommy Bahama Group, Inc. and Phoenix Delaware
Acquisition, Inc. dated August 3, 2005 (incorporated by
reference to Exhibit 10.3 to the Quarterly Report on
Form 10-Q
filed on November 15, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))**
|
47
|
|
|
|
|
|
10
|
.12
|
|
Amendment dated September 23,
2005 to the award/contract by and between The Defense Supply
Center Philadelphia and Altama Delta Corporation dated
September 23, 2005 (incorporated by reference to
Exhibit 10.4 to the Quarterly Report on
Form 10-Q
filed on November 15, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))
|
|
10
|
.13
|
|
Registration Rights Agreement by
and between Phoenix Footwear Group, Inc. and Chambers Belt
Company, dated June 28, 2005 (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File No.
001-31309))
|
|
10
|
.14
|
|
Escrow Agreement by and among
Phoenix Footwear Group, Inc., Chambers Belt Company and Escrow
Agent, dated June 28, 2005 (incorporated by reference to
Exhibit 10.3 to the Quarterly Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File No.
001-31309))
|
|
10
|
.15
|
|
Employment Agreement by and among
Chambers Delaware Acquisition Company and Charles Stewart dated
June 28, 2005 (incorporated by reference to
Exhibit 10.4 to the Quarterly Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File No.
001-31309))*
|
|
10
|
.16
|
|
Employment Agreement by and among
Chambers Delaware Acquisition Company and Kelly Green dated
June 28, 2005 (incorporated by reference to
Exhibit 10.5 to the Quarterly Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))*
|
|
10
|
.17
|
|
Employment Agreement by and among
Chambers Delaware Acquisition Company and David Matheson dated
June 28, 2005 (incorporated by reference to
Exhibit 10.6 to the Quarterly Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))*
|
|
10
|
.18
|
|
Non-Competition and
Confidentiality Agreement by and among Chambers Delaware
Acquisition Company and Charles Stewart dated June 28, 2005
(incorporated by reference to Exhibit 10.7 to the Quarterly
Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))
|
|
10
|
.19
|
|
Non-Competition and
Confidentiality Agreement by and among Chambers Delaware
Acquisition Company and Kelly Green dated June 28, 2005
(incorporated by reference to Exhibit 10.8 to the Quarterly
Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))
|
|
10
|
.20
|
|
Non-Competition and
Confidentiality Agreement by and among Chambers Delaware
Acquisition Company and David Matheson dated June 28, 2005
(incorporated by reference to Exhibit 10.9 to the Quarterly
Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))
|
|
10
|
.21
|
|
Non-Competition and
Confidentiality Agreement by and among Chambers Delaware
Acquisition Company and Gary Edman dated June 28, 2005
(incorporated by reference to Exhibit 10.10 to the
Quarterly Report on
Form 10-Q
filed August 16, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))
|
|
10
|
.22
|
|
Credit Facility Agreement by and
between Phoenix Footwear Group, Inc. and Manufacturers and
Traders Trust Company dated June 29, 2005 (incorporated by
reference to Exhibit 10.11 to the Quarterly Report on
Form 10-Q
filed August 16, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))
|
|
10
|
.23
|
|
Amended and Restated Credit
Facility Agreement between Phoenix Footwear Group, Inc. and
Manufacturers and Traders Trust Company, dated August 4,
2005 (incorporated by reference to Exhibit 10.12 to the
Quarterly Report on
Form 10-Q
filed August 16, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))
|
|
10
|
.24
|
|
Third Amended and Restated
Revolving Credit and Term Loan Agreement Amendment Number 1
dated as of February 1, 2005 between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company
(incorporated by reference to Exhibit 10.1 to the Current
Report on
Form 8-K
for February 1, 2005 (SEC File
No. 001-31309))
|
|
10
|
.25
|
|
$4,000,000 Overline Credit Note
dated February 1, 2005 by Phoenix Footwear Group, Inc. in
favor of Manufacturers and Traders Trust Company (incorporated
by reference to Exhibit 10.2 to the Current Report on
Form 8-K
for February 1, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))
|
|
10
|
.26
|
|
Amended and Restated Credit
Facility Agreement Amendment No. 1 between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company dated
December 30, 2005 (incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K
for January 5, 2006 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))
|
|
10
|
.27
|
|
Amended and Restated Credit
Facility Agreement Amendment No. 2 between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company dated
January 31, 2006
|
48
|
|
|
|
|
|
10
|
.28
|
|
Amended and Restated Credit
Facility Agreement Amendment No. 3 between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company dated
February 28, 2006
|
|
10
|
.29
|
|
Amended and Restated Credit
Facility Agreement Amendment No. 4 between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company dated
March 31, 2006
|
|
10
|
.30
|
|
Covenant
Waiver Amendment No. 5 to Amended and
Restated Credit Facility Agreement between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company dated
March 29, 2006
|
|
10
|
.31
|
|
License Agreement by and between
Wrangler Apparel Corp. and Chambers Belt Company dated
January 1, 2004 (incorporated by reference to
Exhibit 10.13 to the Quarterly Report on
Form 10-Q
filed August 16, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))**
|
|
10
|
.32
|
|
Guaranty, dated April 18,
2005 by Phoenix Footwear Group, Inc., in favor of Chambers Belt
Company (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on
Form 10-Q
filed May 24, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))
|
|
10
|
.33
|
|
Summary of Phoenix Footwear Group,
Inc. Division Management Bonus Plan (incorporated by
reference to Exhibit 10.4 to the Quarterly Report on
Form 10-Q
filed May 24, 2005 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))*
|
|
10
|
.34
|
|
Summary of Phoenix Footwear Group
Corporate Executive Incentive Plan (incorporated by reference to
Exhibit 10.5 to the Quarterly Report on
Form 10-Q
filed May 24, 2005 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))*
|
|
10
|
.35
|
|
Settlement Agreement dated
January 8, 2006 by and among W. Whitlow Wyatt, Phoenix
Footwear Group, Inc. and Altama Delta Corporation
|
|
21
|
|
|
Subsidiaries of Registrant
|
|
23
|
.1
|
|
Consent of Deloitte &
Touche LLP
|
|
23
|
.2
|
|
Consent of Grant Thornton LLP
|
|
24
|
|
|
Power of Attorney
|
|
31
|
.1
|
|
Certification of Richard E. White
pursuant to
Rule 13a-14(a)
and
15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31
|
.2
|
|
Certification of Kenneth Wolf
pursuant to
Rule 13a-14(a)
and
15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
32
|
.1
|
|
Certification pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
* |
|
Management contract or compensatory plan or arrangement |
|
** |
|
Certain confidential information contained in the document has
been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended, or
Rule 24b-2
promulgated under the Securities and Exchange Act of 1934, as
amended. |
49
SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 2005, January 1,
2005, and December 27, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Allowances
|
|
|
Allowance for
|
|
|
Reserve for
|
|
|
|
and Allowance for
|
|
|
Sales
|
|
|
Obsolete
|
|
|
|
Doubtful Accounts
|
|
|
Returns
|
|
|
Inventory
|
|
|
Balance, December 31, 2002
|
|
$
|
352,000
|
|
|
$
|
127,000
|
|
|
$
|
484,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
|
626,000
|
|
|
|
112,000
|
|
|
|
883,000
|
|
Write-off, disposal, costs, and
other
|
|
|
(164,000
|
)
|
|
|
(27,000
|
)
|
|
|
(489,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 27, 2003
|
|
|
814,000
|
|
|
|
212,000
|
|
|
|
878,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
|
347,000
|
|
|
|
307,000
|
|
|
|
1,100,000
|
|
Write-off, disposal, costs, and
other
|
|
|
(105,000
|
)
|
|
|
(8,000
|
)
|
|
|
(1,096,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2005
|
|
|
1,056,000
|
|
|
|
511,000
|
|
|
|
882,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
|
362,000
|
|
|
|
232,000
|
|
|
|
2,252,000
|
|
Write-off, disposal, costs, and
other
|
|
|
(305,000
|
)
|
|
|
(543,000
|
)
|
|
|
(2,043,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
$
|
1,113,000
|
|
|
$
|
200,000
|
|
|
$
|
1,091,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Phoenix Footwear Group,
Inc.
Richard E. White
Chief Executive Officer
Date: April 17, 2006
51
PHOENIX
FOOTWEAR GROUP, INC.
Consolidated Financial Statements as of December 31,
2005, and January 1, 2005 and
for Each of the Three Years in the Period Ended
December 31, 2005 and
52
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Phoenix Footwear
Group, Inc.
Carlsbad, California.
We have audited the accompanying consolidated balance sheets of
Phoenix Footwear Group, Inc. and subsidiaries (the
Company) as of January 1, 2005 and the related
consolidated statements of operations, stockholders equity
and comprehensive income (loss), and cash flows for each of the
two years in the period ended January 1, 2005. Our audits
also included the financial statement schedule listed in the
Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, 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, such consolidated financial statements present
fairly, in all material respects, the financial position of
Phoenix Footwear Group, Inc. and subsidiaries as of
January 1, 2005 and the results of their operations and
their cash flows for each of the two years in the period ended
January 1, 2005, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
As described in Note 16 to the consolidated financial
statements, the accompanying consolidated balance sheet has been
restated.
Deloitte &
Touche LLP
San Diego, California
March 31, 2005 (May 23, 2005 as to the effects of the
restatement
discussed in Note 16)
53
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Phoenix Footwear
Group, Inc.:
We have audited the accompanying consolidated balance sheet of
Phoenix Footwear Group, Inc. and subsidiaries (the
Company) as of December 31, 2005, and the
related consolidated statements of operations,
stockholders equity and comprehensive income (loss), and
cash flows for the year ended December 31, 2005. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of the Company as of
December 31, 2005 and the consolidated results of its
operations and its consolidated cash flows for the year ended
December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole.
Schedule II Valuation and Qualifying
Accounts is presented for the purposes of complying with the
Securities and Exchange Commissions rules and is not a
required part of the basic financial statements. For the year
ended December 31, 2005, this schedule has been subjected
to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in
all material respects in relation to the basic financial
statements taken as a whole.
Grant Thornton LLP
Los Angeles, California
March 28, 2006, except for Note No. 8, as
to which the date is March 31, 2006
54
PHOENIX
FOOTWEAR GROUP, INC.
CONSOLIDATED
BALANCE SHEETS AS OF
DECEMBER 31, 2005 AND JANUARY 1, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
(See Note 16)
|
|
|
|
2005
|
|
|
2004
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
566,000
|
|
|
$
|
694,000
|
|
Accounts receivable (less
allowances of $1,313,000 in 2005 and $1,567,000 in 2004)
|
|
|
21,803,000
|
|
|
|
11,177,000
|
|
Inventories net
|
|
|
37,232,000
|
|
|
|
28,317,000
|
|
Other current assets
|
|
|
1,915,000
|
|
|
|
3,882,000
|
|
Deferred income tax asset
|
|
|
473,000
|
|
|
|
256,000
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
61,989,000
|
|
|
|
44,326,000
|
|
PLANT AND
EQUIPMENT Net
|
|
|
4,538,000
|
|
|
|
3,530,000
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
35,976,000
|
|
|
|
27,500,000
|
|
Unamortizable intangibles
|
|
|
22,992,000
|
|
|
|
17,975,000
|
|
Intangible assets, net
|
|
|
12,082,000
|
|
|
|
4,728,000
|
|
Other assets net
|
|
|
1,314,000
|
|
|
|
121,000
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
72,364,000
|
|
|
|
50,324,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
138,891,000
|
|
|
$
|
98,180,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13,215,000
|
|
|
$
|
7,568,000
|
|
Accrued expenses
|
|
|
3,752,000
|
|
|
|
3,543,000
|
|
Notes
payable current
|
|
|
9,425,000
|
|
|
|
3,656,000
|
|
Other current liabilities
|
|
|
1,466,000
|
|
|
|
400,000
|
|
Income taxes payable
|
|
|
79,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,937,000
|
|
|
|
15,167,000
|
|
OTHER LIABILITIES:
|
|
|
|
|
|
|
|
|
Notes
payable noncurrent
|
|
|
25,025,000
|
|
|
|
10,451,000
|
|
Notes
payable line of credit
|
|
|
21,091,000
|
|
|
|
12,500,000
|
|
Other long-term liabilities
|
|
|
2,685,000
|
|
|
|
1,111,000
|
|
Deferred income tax liability
|
|
|
8,129,000
|
|
|
|
9,265,000
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
|
56,930,000
|
|
|
|
33,327,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
84,867,000
|
|
|
|
48,494,000
|
|
Commitments and contingencies
(Note 5)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par
value 50,000,000 shares authorized;
8,367,000 and 7,858,000 shares issued in 2005 and 2004,
respectively
|
|
|
84,000
|
|
|
|
78,000
|
|
Additional
paid-in-capital
|
|
|
45,520,000
|
|
|
|
42,685,000
|
|
Retained earnings
|
|
|
9,494,000
|
|
|
|
8,303,000
|
|
Accumulated other comprehensive
loss
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,094,000
|
|
|
|
51,066,000
|
|
Less: Treasury stock at cost,
378,000 and 504,000 shares in 2005 and 2004, respectively
|
|
|
(1,070,000
|
)
|
|
|
(1,380,000
|
)
|
Total stockholders equity
|
|
|
54,024,000
|
|
|
|
49,686,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
$
|
138,891,000
|
|
|
$
|
98,180,000
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
55
PHOENIX
FOOTWEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2005, JANUARY 1, 2005 AND
DECEMBER 27, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Net sales
|
|
$
|
109,189,000
|
|
|
$
|
76,386,000
|
|
|
$
|
39,077,000
|
|
Cost of goods sold
|
|
|
67,822,000
|
|
|
|
44,802,000
|
|
|
|
22,457,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
41,367,000
|
|
|
|
31,584,000
|
|
|
|
16,620,000
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expense
|
|
|
35,089,000
|
|
|
|
25,610,000
|
|
|
|
12,696,000
|
|
Other expense net
|
|
|
617,000
|
|
|
|
113,000
|
|
|
|
1,377,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
35,706,000
|
|
|
|
25,723,000
|
|
|
|
14,073,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,661,000
|
|
|
|
5,861,000
|
|
|
|
2,547,000
|
|
Interest expense
|
|
|
3,495,000
|
|
|
|
888,000
|
|
|
|
620,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
2,166,000
|
|
|
|
4,973,000
|
|
|
|
1,927,000
|
|
Income tax expense
|
|
|
975,000
|
|
|
|
1,990,000
|
|
|
|
986,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,191,000
|
|
|
$
|
2,983,000
|
|
|
$
|
941,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.15
|
|
|
$
|
0.51
|
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
0.15
|
|
|
$
|
0.48
|
|
|
$
|
0.22
|
|
See notes to consolidated financial statements.
56
PHOENIX
FOOTWEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME
(LOSS) YEARS ENDED DECEMBER 31, 2005, JANUARY 1,
2005, AND DECEMBER 27, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Loss
|
|
|
Total
|
|
|
BALANCE December 31,
2002
|
|
|
4,588,000
|
|
|
$
|
46,000
|
|
|
$
|
8,081,000
|
|
|
$
|
4,379,000
|
|
|
|
(998,000
|
)
|
|
$
|
(2,394,000
|
)
|
|
$
|
|
|
|
$
|
10,112,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
35,000
|
|
|
|
|
|
|
|
34,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,000
|
|
Purchases of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,000
|
)
|
|
|
(201,000
|
)
|
|
|
|
|
|
|
(201,000
|
)
|
Allocation of shares in Company
sponsored defined contribution plan
|
|
|
|
|
|
|
|
|
|
|
97,000
|
|
|
|
|
|
|
|
119,000
|
|
|
|
305,000
|
|
|
|
|
|
|
|
402,000
|
|
Retirement of treasury stock
|
|
|
(334,000
|
)
|
|
|
(3,000
|
)
|
|
|
(713,000
|
)
|
|
|
|
|
|
|
334,000
|
|
|
|
716,000
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in
connection with acquisitions
|
|
|
772,000
|
|
|
|
8,000
|
|
|
|
3,691,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,699,000
|
|
Net earnings 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
941,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
941,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE December 27,
2003
|
|
|
5,061,000
|
|
|
$
|
51,000
|
|
|
$
|
11,190,000
|
|
|
$
|
5,320,000
|
|
|
|
(603,000
|
)
|
|
$
|
(1,574,000
|
)
|
|
$
|
|
|
|
$
|
14,987,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
100,000
|
|
|
|
|
|
|
|
260,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260,000
|
|
Purchases of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,000
|
)
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
(100,000
|
)
|
Allocation of shares in Company
sponsored defined contribution plan
|
|
|
|
|
|
|
|
|
|
|
560,000
|
|
|
|
|
|
|
|
114,000
|
|
|
|
294,000
|
|
|
|
|
|
|
|
854,000
|
|
Issuance of common stock in
connection with acquisitions
|
|
|
2,697,000
|
|
|
|
27,000
|
|
|
|
30,675,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,702,000
|
|
Net earnings 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,983,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,983,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE January 1,
2005
|
|
|
7,858,000
|
|
|
$
|
78,000
|
|
|
$
|
42,685,000
|
|
|
$
|
8,303,000
|
|
|
|
(504,000
|
)
|
|
$
|
(1,380,000
|
)
|
|
$
|
|
|
|
$
|
49,686,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
135,000
|
|
|
|
2,000
|
|
|
|
327,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329,000
|
|
Allocation of shares in Company
sponsored defined contribution plan, net of tax effect of
$244,000
|
|
|
|
|
|
|
|
|
|
|
381,000
|
|
|
|
|
|
|
|
126,000
|
|
|
|
310,000
|
|
|
|
|
|
|
|
691,000
|
|
Issuance of common stock in
connection with acquisitions
|
|
|
374,000
|
|
|
|
4,000
|
|
|
|
1,996,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
Tax benefit of options exercised
|
|
|
|
|
|
|
|
|
|
|
131,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,000
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,191,000
|
|
|
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
1,187,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE December 31,
2005
|
|
|
8,367,000
|
|
|
$
|
84,000
|
|
|
$
|
45,520,000
|
|
|
$
|
9,494,000
|
|
|
|
(378,000
|
)
|
|
$
|
(1,070,000
|
)
|
|
$
|
(4,000
|
)
|
|
$
|
54,024,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
57
PHOENIX
FOOTWEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005, JANUARY 1, 2005, AND
DECEMBER 27, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,191,000
|
|
|
$
|
2,983,000
|
|
|
$
|
941,000
|
|
Adjustments to reconcile net
earnings to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,283,000
|
|
|
|
1,219,000
|
|
|
|
317,000
|
|
Provision for losses on accounts
receivable
|
|
|
362,000
|
|
|
|
203,000
|
|
|
|
252,000
|
|
Write-off of non-trade receivable
|
|
|
|
|
|
|
|
|
|
|
163,000
|
|
Deferred income tax (expense)
benefit
|
|
|
(1,352,000
|
)
|
|
|
(313,000
|
)
|
|
|
727,000
|
|
Allocation of shares in defined
contribution plan
|
|
|
691,000
|
|
|
|
854,000
|
|
|
|
402,000
|
|
(Gain) Loss on sale of property
and equipment
|
|
|
(16,000
|
)
|
|
|
|
|
|
|
8,000
|
|
Changes in assets and liabilities
(net of effect of acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,286,000
|
)
|
|
|
(1,039,000
|
)
|
|
|
1,288,000
|
|
Inventories
|
|
|
(202,000
|
)
|
|
|
(9,320,000
|
)
|
|
|
(2,272,000
|
)
|
Other receivable
|
|
|
784,000
|
|
|
|
(338,000
|
)
|
|
|
300,000
|
|
Other current assets
|
|
|
1,512,000
|
|
|
|
(267,000
|
)
|
|
|
(1,204,000
|
)
|
Other assets
|
|
|
(2,626,000
|
)
|
|
|
92,000
|
|
|
|
48,000
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
605,000
|
|
|
|
2,169,000
|
|
|
|
2,435,000
|
|
Accrued expenses
|
|
|
48,000
|
|
|
|
1,936,000
|
|
|
|
(1,428,000
|
)
|
Liability to former stockholders
|
|
|
|
|
|
|
|
|
|
|
(1,806,000
|
)
|
Other long-term liabilities
|
|
|
(781,000
|
)
|
|
|
(987,000
|
)
|
|
|
|
|
Income taxes payable
|
|
|
210,000
|
|
|
|
(111,000
|
)
|
|
|
111,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
|
(577,000
|
)
|
|
|
(2,919,000
|
)
|
|
|
282,000
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of equipment
|
|
|
(1,256,000
|
)
|
|
|
(969,000
|
)
|
|
|
(326,000
|
)
|
Proceeds from disposal of property
and equipment
|
|
|
21,000
|
|
|
|
|
|
|
|
457,000
|
|
Acquisitions, net of cash acquired
|
|
|
(26,215,000
|
)
|
|
|
(37,581,000
|
)
|
|
|
(7,925,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(27,450,000
|
)
|
|
|
(38,550,000
|
)
|
|
|
(7,794,000
|
)
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (payments) on notes
payable line of credit
|
|
|
36,874,000
|
|
|
|
5,394,000
|
|
|
|
3,979,000
|
|
Proceeds from notes payable
|
|
|
35,000,000
|
|
|
|
10,000,000
|
|
|
|
4,500,000
|
|
Repayments of notes payable
|
|
|
(43,035,000
|
)
|
|
|
(2,534,000
|
)
|
|
|
(927,000
|
)
|
Issuance of common stock
|
|
|
329,000
|
|
|
|
28,436,000
|
|
|
|
34,000
|
|
Purchases of treasury stock
|
|
|
|
|
|
|
(100,000
|
)
|
|
|
(201,000
|
)
|
Debt issuance costs
|
|
|
(1,269,000
|
)
|
|
|
(91,000
|
)
|
|
|
(80,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
27,899,000
|
|
|
|
41,105,000
|
|
|
|
7,305,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(128,000
|
)
|
|
|
(364,000
|
)
|
|
|
(207,000
|
)
|
CASH AND CASH
EQUIVALENTS Beginning of year
|
|
|
694,000
|
|
|
|
1,058,000
|
|
|
|
1,265,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS End of year
|
|
$
|
566,000
|
|
|
$
|
694,000
|
|
|
$
|
1,058,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
See notes to consolidated financial statements.
58
PHOENIX
FOOTWEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2005, JANUARY 1, 2005, AND
DECEMBER 27, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
SUPPLEMENTAL CASH FLOW
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,435,000
|
|
|
$
|
853,000
|
|
|
$
|
862,000
|
|
Income taxes
|
|
$
|
1,043,000
|
|
|
$
|
3,532,000
|
|
|
$
|
565,000
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2005, the Company issued
374,462 shares of common stock in connection with its
acquisition of Chambers Belt.
|
|
$
|
2,000,000
|
|
|
|
|
|
|
|
|
|
In 2004, the Company issued
196,967 shares of common stock in connection with its
acquisition of Altama.
|
|
|
|
|
|
$
|
2,500,000
|
|
|
|
|
|
In 2003, the Company issued
699,980 shares of common stock in connection with its
acquisition of H.S. Trask and issued 71,889 shares of
common stock in connection with its acquisition of Royal Robbins
|
|
|
|
|
|
|
|
|
|
$
|
3,669,000
|
|
(Concluded)
See notes to consolidated financial statements.
59
PHOENIX
FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005, JANUARY 1, 2005 AND
DECEMBER 27, 2003
|
|
1.
|
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
DESCRIPTION OF BUSINESS Phoenix Footwear Group,
Inc. (the Company) is engaged primarily in the
import and sale of mens and womens leisure footwear,
apparel and accessories and the manufacturing of military
footwear and combat boots for civilian use. Sales of the
Companys mens and womens footwear, apparel and
accessories and our commercial combat boots are made principally
to retailers in the United States. Sales of the Companys
military footwear are made principally to the
U.S. Department of Defense (DoD). During 2002
the Company changed its name from Daniel Green Company to
Phoenix Footwear Group, Inc.
On August 4, 2005, the Company acquired substantially all
of the assets of The Paradise Shoe Company, LLC (Tommy
Bahama Footwear) exclusive licensee of the Tommy
Bahama®
line of mens and womens footwear, hosiery and belts
in the United States, Canada and certain Caribbean Islands for
approximately $6.3 million in cash. The Company funded the
cash portion of the purchase price through an amendment to the
credit facility by increasing its borrowing capacity to
$63.0 million including a $7.0 million bridge loan.
The results of Tommy Bahamas operations have been
included in the consolidated financial statements since the date
of acquisition (see Note 7).
On June 29, 2005, the Company acquired substantially all of
the assets of Chambers Belt Company (Chambers) for
approximately $21.7 million, plus contingent earn-out
payments subject to Chambers meeting certain post-closing sales
targets. As part of the transaction, the Company incurred
approximately $1.7 million in acquisition related expenses
and entered into a five-year, $3.0 million non-compete
agreement with four Chambers stockholders. The Company paid the
purchase price by delivery of $19.7 million in cash, and
374,462 shares of common stock then valued at
$2.0 million. The Company funded the cash portion of the
purchase price through a $18.6 million increase in its
credit facility and cash from operations. The results of
Chambers operations have been included in the consolidated
financial statements since the date of acquisition (see
Note 7).
On July 19, 2004, the Company purchased all of the
outstanding capital stock of Altama Delta Corporation
(Altama) for approximately $37.8 million, plus
an earn-out payment of $2.0 million that is subject to
Altama meeting certain sales requirements. As part of the
transaction, the Company refinanced Altamas indebtedness
of approximately $1.7 million. In addition, we incurred
approximately $740,000 in acquisition related expenses and
entered into a $1.7 million non-compete agreement with the
former owner of Altama, which increased the net purchase price.
Payment of the purchase price at closing was made by delivery of
$35.5 million in cash, and 196,967 shares of common
stock valued at $2.5 million. Altama has manufactured
military footwear for the DoD for 37 consecutive years. Altama
also produces a commercial line of high-performance combat boots
for civilian use that are marketed through domestic wholesale
channels to serve various retailers such as Army/ Navy surplus
stores, military catalogs and independent outdoor/sporting goods
stores and to international wholesalers serving the military and
other needs of foreign governments and foreign civilian markets.
The results of Altamas operations have been included in
the consolidated financial statements since the date of
acquisition (see Note 7).
On January 8, 2006, we entered into an agreement which
modified the terms of the Altama acquisition. As a result of the
agreement, the total price paid by the Company for Altama was
reduced by and included approximately $1.6 million in cash
previously due the seller and held by the Company, 196,967 in
the Company shares held in escrow and the termination of all
future obligations under the stock purchase agreement, including
a contingent earn-out covenant, and consulting and
non-competition agreements which totaled approximately
$1.6 million. The escrow shares remain held by the escrow
agent for resale and are outstanding for legal purposes, but
decrease treasury shares for accounting purposes. As a result of
this transaction the Company expects to record a reduction in
goodwill and intangible assets as well as an after-tax gain of
approximately $1.6 million during the first quarter period
ended April 1, 2006.
The Company acquired H.S. Trask & Co.
(Trask) on August 7, 2003 through the purchase
of all the outstanding shares of Trask, a Bozeman, Montana based
footwear company, for an aggregate purchase price of
60
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$6.4 million, including $2.9 million in cash,
699,980 shares of common stock valued at $3.2 million
and $343,000 in acquisition related expenses. Trask is a
provider of mens dress and casual footwear. On
October 31, 2003 the Company acquired Royal Robbins, Inc.
(Robbins) through the purchase of all the
outstanding shares of Robbins, a Modesto, California based
apparel company, for an aggregate purchase price of
$6.8 million, including $6.0 million in cash,
71,889 shares of common stock valued at $500,000 and
$406,000 in acquisition related expenses, plus potential
contingent earn-out cash payments. The potential contingent
earn-out payments equal 25% of the Royal Robbins product
lines gross profit over the 12 month periods ended
May 31, 2004 and 2005, respectively, so long as minimum
gross profit thresholds are achieved. In June 2004 in connection
with this earn-out agreement the Company paid $2.0 million
relating to the results achieved for the
12-month
period ended May 31, 2004. In June 2005 in connection with
this earn-out agreement the Company paid $2.8 million
relating to the results achieved for the
12-month
period ended May 31, 2005. Robbins is engaged in the import
and sale of casual and outdoor apparel. The results of
Trasks and Robbins operations have been included in
the consolidated financial statements since the date of their
respective acquisitions (see Note 7).
On December 28, 2001, the Company sold its Daniel Green and
L.B. Evans slipper brands to an unrelated third party for
approximately $4.8 million. The recorded value of the net
assets sold was approximately $3.6 million which included
inventory, related other assets and a related liability. The
sale price included guaranteed, minimum royalty payments at a
present value at the date of sale of approximately
$1.7 million. At January 1, 2005, the balance due to
the Company for the minimum royalty totaled approximately
$817,000 which is classified as other receivable in the
accompanying 2004 consolidated balance sheet. On
February 24, 2005 the Company agreed to receive a lump sum
payment of $817,000 in place of the minimum royalty payments.
This payment was received on March 1, 2005.
On March 30, 2000, the Company purchased all of the
outstanding shares of Penobscot Shoe Company
(Penobscot) from Riedman Corporation, a related
party, for approximately $18.2 million including direct
costs of the acquisition. Penobscot was also engaged in the
import and sale of footwear. The acquisition of Penobscot has
been accounted for under the purchase method of accounting and
accordingly, the operating results of Penobscot have been
included in the Companys consolidated financial statements
since the date of acquisition. The allocation of the purchase
price to the fair market value of assets and liabilities
acquired was finalized in 2001 and totaled approximately
$20.4 million and $4.0 million, respectively. The
excess of the aggregate purchase price over the estimated fair
market value of the net assets acquired (goodwill)
was approximately $1.9 million.
LIQUIDITY The Company has a $63 million
secured credit facility with its bank. As of February 28,
2006, the Company had $60.2 million outstanding under this
facility, including a $7.0 million bridge loan due
May 1, 2006. In the future, the Company may incur
additional indebtedness in connection with other acquisitions or
for other purposes. All of the Companys assets are pledged
as collateral to secure this bank debt. The Companys
credit facility includes a number of covenants, including
financial covenants and a requirement to provide the lender with
audited financial statements no later than 90 days after
its fiscal year end.
The Company was in default of one of its financial covenants as
of December 31, 2005 and did not deliver audited financial
statements to the lender by the March 31, 2006 deadline.
The Company obtained a waiver from its bank related to the
violation of these financial covenants. The Company is currently
in discussions with its lender to extend the term of its
$7.0 million bridge loan. The Company does not anticipate
that it will be able to pay off the bridge loan by the
May 1, 2006 deadline, which would place it in default under
its credit facility. The Company anticipates that its lender
will agree to extend the term of this bridge loan, although
there can be no assurance that these discussions will be
successful or that the Company will be able to comply with any
future maturity date. If the Company is unable to obtain the
expansion of this bridge loan, its business will be materially
and adversely affected. The Company may be required to seek
other financing resources at a significantly higher cost.
STOCK SPLIT On May 22, 2003, the Board of
Directors authorized a
two-for-one
stock split which became effective on June 12, 2003. All
references in these consolidated financial statements and notes
related to numbers of shares and per share amounts have been
restated to reflect the effect of the stock split.
61
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
PRINCIPLES OF CONSOLIDATION The consolidated
financial statements consist of Phoenix Footwear Group, Inc. and
its wholly-owned subsidiaries, Penobscot Shoe Company, H.S.
Trask & Co., Royal Robbins, Inc. Altama Delta
Corporation, Altama Delta Puerto Rico Corporation, Chambers Belt
Company, PXG Canada, Inc. and Phoenix Delaware Acquisition
Company (Tommy Bahama footwear). Intercompany
accounts and transactions have been eliminated in consolidation.
CASH EQUIVALENTS For purposes of the statements
of cash flows, the Company considers all highly liquid debt
instruments purchased with an original maturity of three months
or less to be cash equivalents.
ACCOUNTING PERIOD Effective January 1,
2003, the Company changed its year-end to a fiscal year that is
the 52- or
53-week
period ending the Saturday nearest to December 31st. Our
annual accounting period ends on the Saturday nearest to
December 31. We refer to the fiscal year ended
December 27, 2003 as fiscal 2003, to the fiscal
year ended January 1, 2005 as fiscal 2004, and
to the fiscal year ending December 31, 2005 as fiscal
2005. The change in fiscal year end did not materially
impact our fiscal 2004 results of operations or
year-over-year
comparisons.
ESTIMATES The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE We perform ongoing credit
evaluations of our customers and adjust credit limits based on
payment history and customer credit-worthiness. We maintain an
allowance for estimated doubtful accounts based on our
historical experience and the customer credit issues identified.
We monitor collections regularly and adjust the allowance for
doubtful accounts as necessary to recognize any changes in
credit exposure. Upon conclusion that a receivable is
uncollectible, we record the respective amount as a charge
against our allowance for doubtful accounts. At
December 31, 2005 our gross trade accounts receivable
balance was $23.1 million, our allowance for doubtful
accounts and sales allowances was $1.1 million and our
allowance for sales returns was $200,000. At January 1,
2005, our gross trade accounts receivable balance was
$12.7 million, our allowance for doubtful accounts and
sales allowances was $1.1 million and our allowance for
sales returns was $511,000.
INVENTORIES, net Inventories are stated at the
lower of cost or market net of reserve for obsolescence. Cost is
determined on a
first-in,
first-out basis. The reserve for obsolete inventory was
$1,091,000 and $882,000 as of December 31, 2005 and
January 1, 2005, respectively.
PLANT AND EQUIPMENT, net Plant and equipment is
stated at cost, less accumulated depreciation. Expenditures for
maintenance and repairs are charged to expense as incurred.
Replacements of significant items and major renewals and
betterments are capitalized. Leasehold improvements are
amortized over the shorter of the assets useful life or
the lease term. Depreciation is computed using estimated useful
lives under the straight-line method as follows:
|
|
|
|
|
Buildings
|
|
|
25 years
|
|
Machinery and equipment
|
|
|
10 years
|
|
Computers
|
|
|
4 years
|
|
Vehicles
|
|
|
4 years
|
|
Furniture and fixtures
|
|
|
8 years
|
|
OTHER ASSETS Other assets consist primarily of
deferred financing costs which are being amortized over the term
of the related debt instruments. Amortization expense associated
with deferred financing costs is recorded as interest expense in
the statement of operations and totaled $356,000 and $9,000 in
fiscal 2005 and 2004,
62
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
respectively. Accumulated amortization as of December 31,
2005 and January 1, 2005 totaled $365,000 and $9,000,
respectively.
GOODWILL Effective January 1, 2002, the
Company changed its method of accounting for goodwill to conform
with SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 discontinues the practice of
amortizing goodwill and initiates an annual review for
impairment. Impairment would be examined more frequently if
certain indicators are encountered. The Company determined that
there was no impairment of goodwill to be recorded during the
years ended December 31, 2005, January 1, 2005 or
December 27, 2003.
LONG-LIVED ASSET IMPAIRMENTS On at least an
annual basis, the Company reviews the carrying value of its
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of assets may not
be recoverable. Identification of any impairment would include a
comparison of estimated future operating cash flows anticipated
to be generated during the remaining life of the assets with
their net carrying value. An impairment loss would be recognized
as the amount by which the carrying value of the assets exceeds
their fair value.
REVENUE RECOGNITION Revenues are recognized
when products are shipped as all risk of loss transfers to the
Companys customer upon shipment except as noted below
related to sales to the DoD. Provisions for discounts, returns
and other adjustments are provided for in the same period the
related sales are recorded. Actual discounts, returns and other
allowances totaled $6.8 million, $4.8 million and
$2.7 million during fiscal 2005, 2004 and 2003,
respectively. All United States government combat boot
production contracts are fixed price with multi-year options
exercisable at the discretion of the government. The
Companys current boot contract requires a bill and hold
procedure. Under bill and hold, the government issues a specific
boot production order which, when completed and ready for
shipment, is inspected and accepted by the governments
Quality Assurance Representative, thereby transferring ownership
to the government. After inspection and acceptance, the Company
invoices and receives payment from the government, and
warehouses and distributes the related boots against government
requisition orders. The government owned inventory is segregated
in the Companys warehouse.
SHIPPING AND HANDLING FEES AND COSTS In
accordance with Emerging Issues Task Force (EITF)
Issue
No. 00-10,
Accounting for Shipping and Handling Fees and
Costs, costs billed to customers related to shipping
and handling costs incurred in delivering product to the
customer are included in net sales. Related costs incurred are
included in cost of goods sold. Shipping and handling costs
incurred in bringing finished products or raw materials to our
warehouse are capitalized as part of inventory. Costs associated
with our own distribution and warehousing are recognized as
expense as incurred and are included in selling, general and
administrative expenses.
COST OF GOODS SOLD Cost of goods sold includes
the landed cost of inventory (which includes shipping and
handling costs, agent and broker fees, letter of credit fees,
customs duty, inspection costs, inbound freight and internal
transfer costs), production mold expenses and inventory
reserves. Cost of goods sold may not be comparable to those of
other entities as a result of recognizing warehousing costs
within selling, general and administrative expenses.
RESEARCH AND DEVELOPMENT COSTS Expenditures
relating to the development of new products and processes,
including significant improvements and refinements to existing
products, are expensed as incurred. The amounts charged to
expense were $1.8 million in 2005, $759,000 in 2004, and
$139,000 in 2003 and are included in selling, general and
administrative.
ADVERTISING PROGRAMS We expense advertising
costs as incurred. Advertising paid for in advance is recorded
as prepaid until such time as the advertisement is published.
The Company participates in certain qualified cooperative
advertising programs to reimburse a portion of certain
advertising and marketing costs that customers may incur.
Advertising and marketing costs that qualify for reimbursement
include the cost of mailing catalogues or placing an
advertisement in newspapers, magazines, and television and radio
programs. We recognize advertising costs associated with these
programs in accordance with
EITF 01-9
Accounting for Consideration Given
63
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
by a Vendor to a Customer or a Reseller of the Vendors
Products. To qualify for reimbursement under the program the
customer is required to provide proper supporting documents that
detail the type of advertisement being placed and the specific
cost to place the advertisement. As supported by these
documents, we receive a separate identifiable benefit that has
an estimable fair value and therefore, we recognize these costs
as an advertising expense. The Companys portion of the
costs incurred are recognized in selling, general and
administrative expenses in the period when the catalogue is
mailed or when the advertisement is first placed. The amounts
charged to expense related to cooperative advertising programs
were $361,000 in fiscal 2005, $281,000 in fiscal 2004, and
$213,000 in fiscal 2003 and are included in selling, general and
administrative. Including amounts charged to cooperative
advertising programs, the Company charged to expense,
advertising costs of $1.9 million in fiscal 2005,
$2.4 million in fiscal 2004 and $0.9 million in fiscal
2003.
INCOME TAXES The Company accounts for income
taxes under Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income
Taxes. SFAS No. 109 is an asset and liability
approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
events that have been recognized in the Companys financial
statements or tax returns. Income taxes are provided on the
earnings in the consolidated financial statements. Tax credits
are recognized as a reduction to income taxes in the year the
credits are earned.
PER SHARE DATA In addition to shares held by
the public, the Companys defined contribution 401(k)
savings plan held approximately 359,000 and 485,000 shares
as of December 31, 2005 and January 1, 2005,
respectively, which were issued during 2001 in connection with
the termination of the Companys defined benefit pension
plan. These shares, while eligible to vote, are classified as
treasury stock and therefore are not outstanding for purpose of
determining per share earnings until the time that such shares
are allocated to employee accounts. This allocation is occurring
over a seven year period which commenced in 2002 (See
Note 6). Basic net earnings per share is computed by
dividing net earnings by the weighted average number of common
shares outstanding for the period. Diluted net earnings per
share is calculated by dividing net earnings and the effect of
assumed conversions by the weighted average number of common
and, when applicable, potential common shares outstanding during
the period. A reconciliation of the numerators and denominators
of basic and diluted earnings per share is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Basic net earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,191,000
|
|
|
$
|
2,983,000
|
|
|
$
|
941,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
7,760,000
|
|
|
|
5,794,000
|
|
|
|
3,963,000
|
|
Basic net earnings per share
|
|
$
|
0.15
|
|
|
$
|
0.51
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,191,000
|
|
|
$
|
2,983,000
|
|
|
$
|
941,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
7,760,000
|
|
|
|
5,794,000
|
|
|
|
3,963,000
|
|
Effect of stock options outstanding
|
|
|
369,000
|
|
|
|
483,000
|
|
|
|
387,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and
potential common shares outstanding
|
|
|
8,129,000
|
|
|
|
6,277,000
|
|
|
|
4,350,000
|
|
Diluted net earnings per share
|
|
$
|
0.15
|
|
|
$
|
0.48
|
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase shares of common stock which totaled
580,000, 332,500 and 200,000 in 2005, 2004 and 2003,
respectively, were not included in the computation of diluted
earnings per share as the effect would be anti-dilutive.
CONCENTRATION OF CREDIT RISK Financial
instruments that potentially subject the Company to credit risks
consist primarily of accounts receivable and other receivables.
Companies in the retail industry
64
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
comprise a significant portion of the accounts receivable
balance; collateral is not required. The Company monitors its
exposure for credit losses on all receivables and maintains
allowances for anticipated losses. Five of our largest customers
in the aggregate constituted 45% of trade accounts receivable
outstanding at December 31, 2005. Two of our largest
customers in the aggregate constituted 16% of trade accounts
receivable outstanding at January 1, 2005. Our inability to
collect on our trade accounts receivable from any of our major
customers could adversely affect our business or financial
condition.
FAIR VALUE OF FINANCIAL INSTRUMENTS The fair
value of financial instruments is determined by reference to
various market data and other valuation techniques, as
appropriate. Unless otherwise disclosed, the fair value of
short-term instruments approximates their recorded values due to
the short-term nature of the instruments. The fair value of
long-term debt instruments approximates their recorded values
primarily due to interest rates approximating current rates
available for similar instruments.
STOCK-BASED
COMPENSATION SFAS No. 148,
Accounting for Stock-Based
Compensation Transition and
Disclosure an Amendment of SFAS 123,
encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess,
if any, of the quoted market price of the Companys stock
at the date of grant over the amount an employee must pay to
acquire the stock.
The Company does not grant options at an exercise price below
the fair market value of the Companys common stock at the
date of grant. Accordingly, no compensation cost has been
recognized for such options granted. In connection with the
exercise of options, the Company realized income tax benefits of
$131,000, $158,000 and $17,000 in fiscal 2005, 2004 and 2003,
respectively that have been credited to additional paid-in
capital.
Had compensation cost for the plan been determined based on the
fair value of the options at the grant dates consistent with the
method of SFAS No. 148, the Companys net
earnings and earnings per share would have been:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1,191,000
|
|
|
$
|
2,983,000
|
|
|
$
|
941,000
|
|
Deduct: Total stock-based employee
compensation expense determined under fair value based method
for all awards, net of related tax effects
|
|
|
(1,581,000
|
)
|
|
|
(1,256,000
|
)
|
|
|
(423,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
($
|
390,000
|
)
|
|
$
|
1,727,000
|
|
|
$
|
518,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0.15
|
|
|
$
|
0.51
|
|
|
$
|
0.24
|
|
Pro forma expense
|
|
|
(0.20
|
)
|
|
|
(0.21
|
)
|
|
|
(0.11
|
)
|
Pro forma
|
|
$
|
(0.05
|
)
|
|
$
|
0.30
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0.15
|
|
|
$
|
0.48
|
|
|
$
|
0.22
|
|
Pro forma expense
|
|
|
(0.20
|
)
|
|
|
(0.20
|
)
|
|
|
(0.10
|
)
|
Pro forma
|
|
$
|
(0.05
|
)
|
|
$
|
0.28
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma information regarding net income is required by
SFAS No. 123 and has been determined as if the Company
had accounted for its employee stock options and employee stock
purchase plan purchases under the fair value method of
SFAS No. 123. The fair value of options was estimated
at the date of grant using the Black-Scholes
65
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
valuation model for option pricing with the following
assumptions for 2005, 2004 and 2003: a risk-free interest rate
of 2.75%, 4.13% and 3.92%, respectively; a dividend yield of
zero; expected volatility of the market price of the
Companys common stock of 45.1%, 45.5% and 44.0%,
respectively, and an expected life of an option of 6.0, 9.2 and
9.4 years, respectively. The effects of applying
SFAS No. 148 in this proforma disclosure are not
indicative of future amounts. SFAS No. 148 does not
apply to awards prior to 1995, and additional awards in future
years are anticipated.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Companys employee stock options have
characteristics significantly different from those of traded
options, and because changes in subjective input assumptions can
materially affect the fair value estimates, in managements
opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of grants under the
Companys employee stock-based compensation plans.
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123 (Revised 2004),
Share Based Payment, which will require the Company
to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair
value of the award. That cost will be recognized over the period
during which an employee is required to provide service in
exchange for the award the requisite service
period. No compensation cost is recognized for equity
instruments for which employees do not render the requisite
service. The grant-date fair value of employee share options and
similar instruments will be estimated using option-pricing
models adjusted for the unique characteristics of those
instruments. SFAS No. 123 (Revised
2004) eliminates the use of APB Opinion No. 25. On
April 14, 2005, the S.E.C. adopted a new rule, Staff
Accounting Bulletin (SAB) No. 107, amending the
effective date for SFAS No. 123 (Revised 2004). Under
the effective date provisions included in SFAS No. 123
(Revised 2004), the Company would have been required to
implement SFAS No. 123 (Revised 2004) as of the
first interim or annual reporting period that begins after
June 15, 2005. SAB No. 107 allows the Company to
implement SFAS No. 123 (Revised 2004) at the
beginning of the next fiscal year that begins after
June 15, 2005. None of the accounting provisions of
SFAS No. 123 (Revised 2004) are affected by
SAB No. 107.
The Company will adopt SFAS No. 123 (Revised
2004) in the first quarter of 2006. The precise impact of
the adoption of SFAS No. 123 (Revised 2004) will
have on the Company has not been determined at this time. The
fair value of stock options used to compute the proforma
disclosures is estimated using the Black-Scholes model. This
model requires the input of subjective assumptions, including
the expected volatility of the underlying stock. Projected data
related to the expected volatility and expected life of stock
options is based upon historical and other information. Had the
Company adopted SFAS No. 123 (Revised 2004) in
prior periods, the impact of such accounting pronouncement would
have approximated that which is described in the above
SFAS No. 148 proforma table.
On February 24, 2005, the Board of Directors approved the
accelerated vesting of options to acquire 440,333 shares of
common stock held by employees and non-employee directors that
would have otherwise vested over the next three years. All
options that were accelerated as of February 24, 2005 had
exercise prices in excess of the market price of our common
stock on that date. The primary purpose of the acceleration of
vesting of these options was to eliminate the future
compensation expense that we would have otherwise been required
to recognize in our consolidated statement of operations with
respect to these options once the revised FASB Statement
No. 123, Accounting for Stock-Based Compensation, became
effective for reporting periods beginning in January 2006. As a
result of the acceleration, we estimated to avoid recognition of
approximately $2.5 million of compensation expense over the
course of the original vesting period of these options.
SEGMENTS The Companys operating segments
have been classified into four business segments: footwear and
apparel, premium footwear, military boot operations and
accessories. The footwear and apparel operation designs,
develops and markets various moderately-priced branded dress and
casual footwear and apparel,
66
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outsources entirely the production of its products from foreign
manufacturers primarily located in Brazil and Asia and sells its
products primarily through department stores, national chain
stores, independent specialty retailers, third-party catalog
companies and directly to consumers over our Internet web sites.
The premium footwear operation designs, develops and markets
premium-priced branded dress and casual footwear, outsources
entirely the production of its products from foreign
manufacturers primarily located in Brazil, Asia and Europe and
sells its products primarily through department stores, national
chain stores, independent specialty retailers, third-party
catalog companies and directly to consumers over the Internet
web sites. The military boot operation manufactures one brand of
mil-spec combat boots for sale to the Department of Defense
(DoD) which serves all four major branches of the
U.S. military, however these boots and used primarily by
the U.S. Army and the U.S. Marines. In addition, the
military boot operation manufactures or outsources commercial
combat boots, infantry combat boots, tactical boots and safety
and work boots and sells these products primarily through
domestic footwear retailers, footwear and military catalogs and
directly to consumers over its own web site. The accessories
operation designs, develops and markets branded belts and
personal items, manufactures a portion of its product at a
facility in California, outsources the production of a portion
of its product from foreign manufacturers in Mexico and Asia and
sells its products primarily through department stores, national
chain stores and independent specialty retailers.
FOREIGN CURRENCY TRANSLATION The functional
currency for the Companys foreign subsidiaries is the
local currency. Assets and liabilities of wholly owned foreign
subsidiaries are translated into U.S. dollars at exchange
rates in effect at each period end. Amounts classified in
stockholders equity are translated at historical exchange
rates. Revenue and expenses are translated at the average
exchange rates during the period. The resulting translation
adjustments are recorded in accumulated other comprehensive
income (loss) within stockholders equity. At
December 31, 2005 and January 1, 2005, cumulative
translation adjustments were ($4,000) and $0, respectively.
RECENT
ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs (SFAS No. 151)
which amends Accounting Research Bulletin, (ARB
No. 43) Opinion No. 43, Chapter 4,
Inventory Pricing. SFAS No. 151 clarifies
the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage) to be
expensed as incurred and not included in overhead. Further,
SFAS No. 151 requires that allocation of fixed
production overheads to conversion costs should be based on
normal capacity of the production facilities. The provisions in
SFAS No. 151 are effective for inventory cost incurred
during fiscal years beginning after June 15, 2005. The
Companys current accounting policies are consistent with
the accounting practices addressed under SFAS No. 151.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets An amendment
of APB Opinion No. 29, Accounting for Nonmonetary
Transactions (SFAS No. 153). This
statement amends APB Opinion No. 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a
result of the exchange. The provisions in SFAS No. 153
are effective for nonmonetary asset exchanges incurred during
fiscal years beginning after June 15, 2005. The Company is
currently evaluating the effect, if any, of adopting
SFAS No. 153.
In December 2004, the FASB issued FASB Staff Position, 109-1
(FSP
SFAS 109-1),
Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs
Creation Act of 2004. In FSP
SFAS 109-1,
the FASB concluded that the tax relief (special tax deduction
for domestic manufacturing) from this legislation should be
accounted for as a special deduction instead of a
tax rate reduction. The guidance in FSP
SFAS 109-1
was effective December 21, 2004 and through the end of
fiscal 2005, had no impact on the Companys results of
operations or its financial position. The
67
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company expects to reach a conclusion on its ability to qualify
for certain tax deductions under FSP
SFAS 109-1
by the end of its fiscal 2006.
In December 2004, the FASB issued FSP
SFAS 109-2,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004. The American Jobs Creation Act
of 2004 introduces a special one-time dividends received
deduction on the repatriation of certain foreign earnings to a
U.S. taxpayer (repatriation provision), provided certain
criteria are met. FSP
SFAS 109-2
gives a company additional time to evaluate the effects of the
legislation on any plan for reinvestment or repatriation of
foreign earnings for purposes of applying
SFAS No. 109, Accounting for Income Taxes. The
deduction is subject to a number of limitations, and uncertainty
remains as to how to interpret numerous provisions in the Act.
As of December 31, 2005, the Company cannot reasonably
estimate a range of possible amounts of unremitted earnings as
the Company is still assessing its ability to qualify for
repatriation of earnings under the provisions under FSP
SFAS 109-2.
On June 7, 2005, the FASB issued Statement No. 154
(SFAS 154), Accounting Changes and Error
Corrections a replacement of Accounting
Principles Board (APB) Opinion No. 20, Accounting Changes,
and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. Under the provisions of
SFAS 154, voluntary changes in accounting principles are
applied retrospectively to prior periods financial
statements unless it would be impractical to do so.
SFAS 154 supersedes APB Opinion No. 20, which required
that most voluntary changes in accounting principles be
recognized by including in the current periods net income
the cumulative effect of the change. SFAS 154 also makes a
distinction between retrospective application of a
change in accounting principle and the restatement
of financial statements to reflect the correction of an error.
The provisions of SFAS 154 are effective for accounting
changes made in fiscal years beginning after December 15,
2005. Management of the Company does not expect the adoption of
this standard to have a material impact on its financial
position or results of operations.
In March 2005, the FASB issued FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement
Obligations an interpretation of FASB Statement
No. 143 (FIN 47), which requires companies to
recognize a liability for the fair value of a legal obligation
to perform asset retirement activities that are conditional on a
future event if the amount can be reasonably estimated. We
adopted the provisions of FIN 47 on December 31, 2005.
No conditional asset retirement obligations were recognized and,
accordingly, the adoption of FIN 47 had no effect on our
financial statements.
In June 2005, the EITF reached consensus on Issue
No. 05-6,
Determining the Amortization Period for Leasehold
Improvements
(EITF 05-6.)
EITF 05-6
provides guidance on determining the amortization period for
leasehold improvements acquired in a business combination or
acquired subsequent to lease inception. The guidance in
EITF 05-6
will be applied prospectively and is effective for periods
beginning after June 29, 2005. The adoption of
EITF 05-6I
did not have a material effect on the Companys
consolidated financial position or results of operations.
RECLASSIFICATIONS Certain reclassifications
have been made to the 2004 financial statements to conform to
the classifications used in 2005.
The components of inventories as of December 31, 2005 and
January 1, 2005, net of reserves were:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Raw materials
|
|
$
|
3,995,000
|
|
|
$
|
1,861,000
|
|
Work in process
|
|
|
1,286,000
|
|
|
|
807,000
|
|
Finished goods
|
|
|
31,951,000
|
|
|
|
25,649,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,232,000
|
|
|
$
|
28,317,000
|
|
|
|
|
|
|
|
|
|
|
68
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
GOODWILL AND
INTANGIBLE ASSETS
|
The changes in the carrying amounts of goodwill and
nonamortizable intangible assets during fiscal 2004 and fiscal
2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Amortizable
|
|
|
|
Goodwill
|
|
|
Intangibles
|
|
|
Balance at December 27, 2003
|
|
$
|
6,680,000
|
|
|
$
|
3,820,000
|
|
|
|
|
|
|
|
|
|
|
Increase from acquisitions
|
|
|
20,644,000
|
|
|
|
14,155,000
|
|
Adjustments to purchase price
allocation from prior acquisitions
|
|
|
176,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005
|
|
|
27,500,000
|
|
|
|
17,975,000
|
|
Increase from acquisitions
|
|
|
5,735,000
|
|
|
|
5,017,000
|
|
Payments of contingent earnout
considerations and adjustments to purchase price allocation from
prior acquisitions
|
|
|
2,741,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
35,976,000
|
|
|
$
|
22,992,000
|
|
|
|
|
|
|
|
|
|
|
Changes in goodwill and nonamortizable intangible assets during
fiscal 2005 and 2004 related primarily to the acquisition of
Altama, Chambers Belt and Tommy Bahama and the payment of
earn-out amounts due to current and former management members of
the Royal Robbins brand.
The changes in the carrying amounts of amortizable intangible
assets during fiscal 2004 and fiscal 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable Intangibles
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Balance at December 27, 2003
|
|
$
|
1,825,000
|
|
|
$
|
(59,000
|
)
|
|
$
|
1,766,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase from acquisitions
|
|
$
|
3,413,000
|
|
|
$
|
|
|
|
$
|
3,413,000
|
|
Amortization Expense
|
|
|
|
|
|
$
|
(451,000
|
)
|
|
$
|
(451,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005
|
|
|
5,238,000
|
|
|
|
(510,000
|
)
|
|
|
4,728,000
|
|
Increase from acquisitions
|
|
|
8,581,000
|
|
|
|
|
|
|
|
8,581,000
|
|
Amortization Expense
|
|
|
|
|
|
$
|
(1,227,000
|
)
|
|
$
|
(1,227,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
13,819,000
|
|
|
$
|
(1,737,000
|
)
|
|
$
|
12,082,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in amortizable intangibles during fiscal 2005 and 2004
related primarily to the acquisition of Altama, Chambers Belt
and Tommy Bahama.
69
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intangible assets consist of the following as of
December 31, 2005 and January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
(Years)
|
|
|
2005
|
|
|
2004
|
|
|
Non-amortizing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames
|
|
|
|
|
|
$
|
15,357,000
|
|
|
$
|
10,340,000
|
|
DoD relationship
|
|
|
|
|
|
|
7,635,000
|
|
|
|
7,635,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
22,992,000
|
|
|
$
|
17,975,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists
|
|
|
1-13
|
|
|
$
|
9,049,000
|
|
|
$
|
3,222,000
|
|
Covenant not to compete
|
|
|
2-5
|
|
|
|
4,730,000
|
|
|
|
1,982,000
|
|
Other
|
|
|
5
|
|
|
|
39,000
|
|
|
|
39,000
|
|
Less: Accumulated Amortization
|
|
|
|
|
|
|
(1,736,000
|
)
|
|
|
(515,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
12,082,000
|
|
|
$
|
4,728,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets with definite lives are amortized
using the straight-line method over periods ranging from 2 to
13 years. During fiscal 2005 and 2004 aggregate
amortization expense was approximately $1,227,000 and $451,000,
respectively.
Amortization expense related to intangible assets at
December 31, 2005 in each of the next five fiscal years and
beyond is expected to be incurred as follows:
|
|
|
|
|
2006
|
|
$
|
1,646,000
|
|
2007
|
|
|
1,666,000
|
|
2008
|
|
|
1,670,000
|
|
2009
|
|
|
1,469,000
|
|
2010
|
|
|
1,019,000
|
|
Thereafter
|
|
|
4,612,000
|
|
|
|
|
|
|
|
|
$
|
12,082,000
|
|
|
|
|
|
|
|
|
4.
|
PLANT AND
EQUIPMENT, net
|
Plant and Equipment as of December 31, 2005 and
January 1, 2005 respectively, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Land and buildings
|
|
$
|
821,000
|
|
|
$
|
923,000
|
|
Machinery, furniture and equipment
|
|
|
2,943,000
|
|
|
|
2,184,000
|
|
Leasehold improvements
|
|
|
1,225,000
|
|
|
|
390,000
|
|
Computer hardware and software
|
|
|
2,037,000
|
|
|
|
1,391,000
|
|
Vehicles
|
|
|
73,000
|
|
|
|
77,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,099,000
|
|
|
|
4,965,000
|
|
Less accumulated depreciation
|
|
|
2,561,000
|
|
|
|
1,435,000
|
|
|
|
|
|
|
|
|
|
|
Plant and
equipment net
|
|
$
|
4,538,000
|
|
|
$
|
3,530,000
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2005,
January 1, 2005 and December 27, 2003 totaled
$1,056,000, $768,000 and $259,000, respectively.
70
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
COMMITMENTS
AND CONTINGENCIES
|
The Company leases office and manufacturing facilities under
operating lease agreements and a manufacturing facility under a
capital lease which expired in December 2005:
Future minimum commitments under the lease agreements are as
follows:
|
|
|
|
|
Year ending December:
|
|
|
|
|
2006
|
|
$
|
899,000
|
|
2007
|
|
|
309,000
|
|
2008
|
|
|
238,000
|
|
2009
|
|
|
225,000
|
|
2010
|
|
|
165,000
|
|
Thereafter
|
|
|
39,000
|
|
|
|
|
|
|
Total
|
|
$
|
1,875,000
|
|
|
|
|
|
|
Rent expense for the years ended December 31, 2005,
January 1, 2005 and December 27, 2003 totaled
$1,236,000, $630,000 and $231,000, respectively.
During the fourth quarter of fiscal 2005, the Company
implemented the initial phase of a plan to close down certain
administrative and distribution operations of Tommy Bahama
footwear. As of December 31, 2005, the Company accrued for
these estimated costs which primarily consisted of relocation of
distribution operations to a third party distribution company
and severance expected to be paid to employees in 2006. We
estimated these costs to approximate $90,000.
In connection with its acquisition of Chambers Belt, the Company
agreed to pay as part of the purchase price potential earn-out
cash payments equal to 50% of the net contribution of Chambers
Belt division for the
12-month
periods ending June 28, 2006 and 2007, respectively, so
long as minimum thresholds are achieved by the acquired business
during these periods. The net contribution is defined as the
operating earnings of the Chambers division determined in
accordance with GAAP, with allocation of expenses for services,
facilities, equipment and products shared with its other brands.
The $1.25 million represents managements current
estimate of the potential earn-out cash payments the Company may
be required to pay. Actual payments may vary from these
estimated amounts.
In the normal course of business, the Company is subject to
legal proceedings, lawsuits and other claims. Such matters are
subject to many uncertainties and outcomes are not predictable
with assurance. Consequently, the ultimate aggregate amount of
monetary liability or financial impact with respect to these
matters at December 31, 2005, cannot be ascertained. While
these matters could affect the Companys operating results
for any one quarter when resolved in future periods and while
there can be no assurance with respect thereto, management
believes, with the advice of outside legal counsel, that after
final disposition, any monetary liability or financial impact to
the Company from these matters would not be material to the
Companys consolidated financial condition, results of
operations or cash flows.
DEFINED
CONTRIBUTION PLAN
The Company has a defined contribution 401(k) savings plan
(the Plan) covering substantially all employees of
the Company. Following the termination of the Companys
defined benefit pension plan in 2001, the net cash surplus of
$2.0 million was contributed to the Plan. Subsequently, the
Plan acquired 782,000 shares of the Companys common
stock at a price per share of $2.575, which was based on an
independent appraisal. The unallocated shares in the Plan have
been classified as treasury stock in stockholders equity.
Compensation expense is recognized as the shares are allocated
to the participants, which is expected to occur over a
seven-year period
71
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
which began in 2002. The amount allocated to participants during
the years ended December 31, 2005, January 1, 2005 and
December 27, 2003 was $935,000 (126,000 shares),
$854,000 (114,000 shares) and $402,000
(119,000 shares), respectively. In addition, the
Companys matching contribution to the Plan totaled $0, $0
and $24,000 in 2005, 2004 and 2003, respectively. The Company
terminated the matching contribution during 2003.
On August 7, 2003, we acquired the H.S. Trask footwear
brand and rights to the Ducks Unlimited footwear brand through
the purchase of all the outstanding shares of H.S.
Trask & Co., a Bozeman, Montana based mens
footwear company, for an aggregate purchase price of
$6.4 million, including $2.9 million in cash,
699,980 shares of common stock valued at $3.2 million
and $343,000 in acquisition related expenses. The value of the
699,980 shares of common shares issued was determined based
on the average closing market price of the Companys common
shares over the
3-day period
before the terms of the acquisition were agreed to and
announced. The results of Trasks operations have been
included in the consolidated financial statements since that
date. Trask is a provider of mens dress and casual
footwear and the acquisition allows the Company to compete in
the mens casual footwear market.
The following table summarizes the allocation of the purchase
price based on the estimated fair values of the assets acquired
and liabilities assumed at August 7, 2003, the date of
acquisition.
|
|
|
|
|
Current assets
|
|
$
|
4,320,000
|
|
Property, plant and equipment
|
|
|
15,000
|
|
Intangible assets, subject to
amortization
|
|
|
794,000
|
|
Goodwill and unamortizable
intangibles
|
|
|
4,330,000
|
|
|
|
|
|
|
Total assets acquired
|
|
|
9,459,000
|
|
Current liabilities
|
|
|
(2,455,000
|
)
|
Net deferred tax liability
|
|
|
(550,000
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
6,454,000
|
|
|
|
|
|
|
Of the $4.3 million of acquired goodwill and unamortizable
intangible assets, $1.2 million was allocated to registered
trademarks and tradenames that are not subject to amortization.
Intangible assets totaling $794,000 which are subject to
amortization have a weighted-average useful life of
approximately 9 years. The intangible assets subject to
amortization include wholesale customer list of $700,000 (ten
year weighted-average useful life), retail customer list of
$46,000 (five year weighted-average useful life), non-compete
agreement of $23,000 (two year weighted-average useful life) and
website of $25,000 (five year weighted-average useful life).
On October 31, 2003, we acquired the Royal Robbins apparel
brand through the purchase of all the outstanding shares of
Royal Robbins, Inc. a Modesto, California based apparel company,
for an aggregate purchase price of $6.8 million, including
$6.0 million in cash, 71,889 shares of common stock
valued at $500,000 and $406,000 in acquisition related expenses,
plus contingent earn-out cash payments. The contingent earn-out
payments equal 25% of the Royal Robbins product lines
gross profit over the 12 month periods ended May 31,
2004 and 2005, respectively, so long as minimum gross profit
thresholds are achieved. In June 2004 in connection with this
earn-out agreement we paid $2.0 million relating to the
results achieved for the
12-month
period ended May 31, 2004. In June 2005 in connection with
this earn-out agreement we paid $2.8 million relating to
the results achieved for the
12-month
period ended May 31, 2005. The number of common shares
issued was determined based on the average market price of the
Companys common shares over the
10-day
trading period ending on the second to last day prior to the
closing date of the acquisition. Robbins is engaged in the
import and sale of casual and outdoor apparel.
72
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the allocation of the purchase
price based on the estimated fair values of the assets acquired
and liabilities assumed at October 31, 2003, the date of
acquisition.
|
|
|
|
|
Current assets
|
|
$
|
4,449,000
|
|
Property, plant and equipment
|
|
|
513,000
|
|
Other assets
|
|
|
6,000
|
|
Intangible assets, subject to
amortization
|
|
|
1,031,000
|
|
Goodwill and unamortizable
intangibles
|
|
|
4,672,000
|
|
|
|
|
|
|
Total assets acquired
|
|
|
10,671,000
|
|
Current liabilities
|
|
|
(502,000
|
)
|
Contingent liability
|
|
|
(1,942,000
|
)
|
Net deferred tax liability
|
|
|
(1,340,000
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
6,887,000
|
|
|
|
|
|
|
Of the $4.7 million of acquired goodwill and unamortizable
intangible assets, $2.6 million was allocated to registered
trademarks and tradenames that are not subject to amortization.
Intangible assets totaling $1.0 million which are subject
to amortization have a weighted-average useful life of
approximately 11 years. The intangible assets subject to
amortization include wholesale customer list of $766,000
(thirteen year weighted- average useful life), non-compete
agreement of $250,000 (five year weighted-average useful life)
and website of $15,000 (five year weighted-average useful life).
The Company also recorded a $1.9 million contingent
liability which reflected the potential payments the Company was
required to make in connection with the earn-out.
On July 19, 2004, we purchased all of the outstanding
capital stock of Altama Delta Corporation for approximately
$37.8 million, plus an earn-out payment of
$2.0 million that is subject to Altama meeting certain
sales requirements. As part of the transaction, we refinanced
Altamas indebtedness of approximately $1.7 million.
In addition, we incurred approximately $740,000 in acquisition
related expenses and entered into a $1.7 million
non-compete agreement with the former owner of Altama, which
increased the net purchase price. Payment of the purchase price
at closing was made by delivery of $35.5 million in cash,
and 196,967 shares of common stock valued at
$2.5 million.
Under the terms of the stock purchase agreement, we agreed to
pay the previous owner $2.0 million in consideration for a
five-year
covenant-not-to-compete
and other restrictive covenants. We also entered into a two-year
consulting agreement with the previous owner which provides for
an annual consulting fee of $100,000. The results of
Altamas operations have been included in the consolidated
financial statements since the date of acquisition. Altama has
manufactured military footwear for the DoD, for 37 consecutive
years. Altama also produces a commercial line of
high-performance combat boots for civilian use that are marketed
through domestic wholesale channels to serve various retailers
such as Army/ Navy surplus stores, military catalogs and
independent outdoor/sporting goods stores and to international
wholesalers serving the military and other needs of foreign
governments and foreign civilian markets.
73
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the allocation of the purchase
price based on the estimated fair values of the assets acquired
and liabilities assumed at July 19, 2004, the date of
acquisition.
|
|
|
|
|
Current assets
|
|
$
|
9,209,000
|
|
Property, plant and equipment
|
|
|
1,705,000
|
|
Intangible assets, subject to
amortization
|
|
|
3,413,000
|
|
Goodwill and unamortizable
intangibles
|
|
|
34,732,000
|
|
|
|
|
|
|
Total assets acquired
|
|
|
49,059,000
|
|
Current liabilities
|
|
|
(2,801,000
|
)
|
Net deferred tax liability
|
|
|
(6,077,000
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
40,181,000
|
|
|
|
|
|
|
Of the $34.7 million of acquired goodwill and unamortizable
intangible assets, $6.5 million was allocated to registered
trademarks and tradenames and $7.6 million was allocated to
the DoD relationship that are not subject to amortization.
Intangible assets totaling $3.4 million which are subject
to amortization have a weighted-average useful life of
approximately 6.5 years. The intangible assets subject to
amortization include commercial customer list of
$1.7 million (eight year weighted-average useful life) and
non-compete agreement of $1.7 million (five year
weighted-average useful life).
On January 8, 2006, the Company entered into an agreement
which modified the terms of the Altama acquisition. As a result
of the agreement, the total price paid by the Company for Altama
was reduced by and included approximately $1.6 million in
cash previously due the seller and held by the Company, 196,967
in the Company shares held in escrow and the termination of all
future obligations under the stock purchase agreement, including
a contingent earn-out covenant, and consulting and
non-competition agreements which totaled approximately
$1.6 million. The escrow shares remain held by the escrow
agent for resale and are outstanding for legal purposes, but
decrease treasury shares for accounting purposes. As a result of
this transaction the Company expects to record a reduction in
goodwill and intangible assets as well as an after-tax gain of
approximately $1.6 million during the first quarter period
ended April 1, 2006.
The following table summarizes supplemental statement of income
information on an unaudited pro forma basis as if the
acquisitions of Trask, Robbins and Altama had occurred on
January 1, 2003.
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004
|
|
|
Fiscal 2003
|
|
Pro forma net sales
|
|
$
|
100,899,000
|
|
|
$
|
94,846,000
|
|
Pro forma net income
|
|
$
|
5,839,000
|
|
|
$
|
4,605,000
|
|
Basic Pro forma net income per
share
|
|
$
|
0.79
|
|
|
$
|
0.63
|
|
Diluted Pro forma net income per
share
|
|
$
|
0.75
|
|
|
$
|
0.60
|
|
The pro forma financial information does not necessarily reflect
the result that would have occurred if the acquisition had been
in effect for the periods presented. In addition, they are not
intended to be a projection of future results. Pro forma results
assume incremental interest expense the Company likely would
have incurred had the acquisitions occurred on January 1,
2003. The pro forma calculations do not reflect any synergies
that might be achieved from combining operations.
On June 29, 2005, the Company acquired substantially all of
the assets of Chambers Belt Company for approximately
$22.0 million, plus contingent earn-out payments subject to
Chambers Belt meeting certain post-closing sales requirements.
As part of the transaction, the Company incurred approximately
$1.7 million in acquisition related expenses and entered
into a $3.0 million non-compete agreement with four of
Chambers Belts
74
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stockholders and officers, which increased the net purchase
price. Payment of the purchase price at closing was made by
delivery of $19.7 million in cash, and 374,462 shares
of common stock valued at $2.0 million.
Under the terms of the asset purchase agreement, the Company
agreed to pay four of Chambers Belts stockholders and
officers $3.0 million in consideration for a five-year
covenant-not-to-compete
and other restrictive covenants. The Company also entered into
employment agreements with three of Chambers Belts
stockholders and officers: Charles Stewart, Kelly Green and
David Matheson. Chambers Belt is a leading manufacturer of
mens and womens belts and accessories.
The following table summarizes the allocation of the purchase
price based on the estimated fair values of the assets acquired
and liabilities assumed at June 29, 2005, the date of
acquisition. The purchase price allocation is subject to
refinement based upon managements final conclusions.
|
|
|
|
|
Current assets
|
|
$
|
11,587,000
|
|
Property, plant and equipment
|
|
|
753,000
|
|
Intangible assets, subject to
amortization
|
|
|
8,119,000
|
|
Goodwill and unamortizable
intangibles
|
|
|
8,348,000
|
|
|
|
|
|
|
Total assets acquired
|
|
|
28,807,000
|
|
Less liabilities
|
|
|
(6,780,000
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
22,027,000
|
|
|
|
|
|
|
Of the $8.3 million of acquired goodwill and unamortizable
intangible assets, $1.9 million was allocated to the value
of the Chambers workforce and $767,000 was allocated to
registered trademarks and tradenames. Intangible assets totaling
$8.1 million which are subject to amortization have a
weighted-average useful life of approximately 14.0 years.
The intangible assets subject to amortization include commercial
customer list of $2.7 million (17 year
weighted-average useful life), a licensing agreement of
$2.6 million (20 year useful life) and non-compete
agreement of $2.8 million (5 year useful life).
On August 4, 2005, the Company acquired substantially all
of the assets of Tommy Bahama Footwear for approximately
$6.3 million, plus a holdback of $500,000, to be released
after 14 months less any indemnity claims made by the
Company under the Asset Purchase Agreement. Tommy Bahama
Footwear is based in Phoenix, Arizona and was the exclusive
licensee of the Tommy
Bahama®
line of mens and womens footwear, hosiery and belts.
In addition, on the same date, the Company entered into a
trademark license agreement with Tommy Bahama Group, Inc., a
wholly owned subsidiary of Oxford Industries, Inc.
Under the terms of the trademark license agreement, the Company
has an exclusive license to manufacture and distribute
mens and womens footwear, hosiery, belts and
mens small leather goods and accessories bearing the
Tommy
Bahama®
mark and related marks in the United States, Canada, Mexico and
certain Caribbean Islands for an initial term through
May 31, 2012 with an option to extend the agreement through
May 31, 2016 if certain requirements are met. The license
agreement may be terminated by Tommy Bahama before the end of
the term for several reasons, including material defaults by the
Company or its failure to sell products for 60 consecutive days.
The license is non-exclusive for the last 120 days of the
term for which no extension is available.
75
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the preliminary allocation of the
purchase price based on the estimated fair values of the assets
acquired and liabilities assumed at August 4, 2005, the
date of acquisition. The preliminary purchase price allocation
is subject to refinement based upon completion of a formal
valuation of the assets by an independent third party and
managements final conclusions.
|
|
|
|
|
Current assets
|
|
$
|
5,432,000
|
|
Property, plant and equipment
|
|
|
66,000
|
|
Intangible assets, subject to
amortization
|
|
|
462,000
|
|
Goodwill and unamortizable
intangibles
|
|
|
2,403,000
|
|
|
|
|
|
|
Total assets acquired
|
|
|
8,363,000
|
|
Less liabilities
|
|
|
(2,071,000
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
6,292,000
|
|
|
|
|
|
|
Of the $2.4 million of acquired goodwill and unamortizable
intangible assets, $2.3 million was preliminarily allocated
to registered trademarks and tradenames. Intangible assets
totaling $462,000 which are subject to amortization have a
weighted-average useful life of approximately 8 years. The
intangible assets subject to amortization include commercial
customer lists.
The following table summarizes supplemental statement of income
information on an unaudited pro forma basis as if the
acquisitions of Chambers Belt and Tommy Bahama footwear occurred
on January 1, 2004.
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Pro forma net sales
|
|
$
|
139,313,000
|
|
|
$
|
134,929,000
|
|
Pro forma net income
|
|
$
|
1,233,000
|
|
|
$
|
4,058,000
|
|
Basic Pro forma net income per
share
|
|
$
|
0.16
|
|
|
$
|
0.70
|
|
Diluted Pro forma net income per
share
|
|
$
|
0.15
|
|
|
$
|
0.65
|
|
The pro forma financial information does not necessarily reflect
the results that would have occurred if the acquisition had been
in effect for the periods presented. In addition, they are not
intended to be a projection of future results. Pro forma results
assume incremental interest expense the company likely would
have incurred had the acquisitions occurred on January 1,
2004. The pro forma calculations do not reflect any synergies
that might be achieved from combining the operations.
During the first month of fiscal 2005, the Company had a
$33.4 million credit facility with Manufacturers and
Traders Trust Company (M&T) pursuant to a Third
Amended and Restated Revolving Credit and Term Loan Agreement
dated as of July 19, 2004, which was comprised of an
$18.0 million revolving line of credit
(revolver) and $15.4 million in term loans,
including a new $10.0 million term loan which was repayable
in equal monthly installments maturing in July 2009. The
Companys obligations under the credit facility were
secured by accounts receivable, inventory and equipment. The
revolver and the notes payable to M&T contained certain
financial covenants relative to average borrowed funds to
earnings ratio, net earnings, current ratio, and cash flow
coverage.
On February 1, 2005, the Company entered into Amendment
Number 1 (the Amendment) to the credit
agreement between the Company and M&T. The Amendment, among
other things, established a $4 million overline credit
facility in addition to the $18 million revolving credit
facility already existing under the credit agreement. The
overline credit facility expired on May 30, 2005 and all
borrowings under that facility were due and payable on that
date. Until May 30, 2005, Phoenixs combined
availability under the overline credit facility and revolving
credit facility was $22 million, subject to a borrowing
base formula. The Amendment revised the borrowing base formula
to remove until May 30, 2005 the inventory caps which had
applied to each of the Companys product lines. The
76
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amendment also modified the financial covenants requiring us not
to exceed certain average borrowed funds to EBITDA ratios and
cash flow coverage ratios.
On June 29, 2005, the Company entered into a new Credit
Facility Agreement with M&T in connection with its
acquisition of Chambers Belt. This new credit agreement replaced
the Companys prior credit agreement with M&T for a new
$52.0 million credit facility. The new credit facility was
an increase of approximately $19.0 million over the prior
credit facility with M&T. The new credit agreement
established up to a $24.0 million revolving credit
facility, a $5.0 million swing line loan and a
$28.0 million term loan. The revolving line had an interest
rate of LIBOR plus 3.0%, or the prime rate plus .375%. The term
loan had an interest rate of LIBOR plus 3.5%. The borrowings
under that new credit agreement were secured by a blanket
security interest in all the assets of the Company and its
subsidiaries. The Companys availability under the
revolving credit facility was $24.0 million and was subject
to a borrowing base formula with inventory caps, and financial
covenants requiring the Company not to exceed certain average
borrowed funds to EBITDA ratios and cash flow coverage ratios.
On August 3, 2005, the Company and M&T entered into an
Amended and Restated Credit Facility Agreement (the
Amended Credit Agreement) in connection with its
acquisition of Tommy Bahama Footwear. This Amended Credit
Agreement replaced the Companys existing credit agreement
with M&T of $52 million and increased its availability
to $63 million. M&T acted as lender and administrative
agent for additional lenders under the Amended Credit Agreement.
The Amended Credit Agreement increased the existing line of
credit from $24 million to $28 million and added a
$7 million bridge loan used for the acquisition of Tommy
Bahama Footwear. The revolving line has an interest rate of
LIBOR plus 3.0%, or the prime rate plus .375%. The bridge loan
has an interest rate of LIBOR plus 3.5% or the prime rate plus
0.75%. The borrowings under the Amended Credit Agreement are
secured by a blanket security interest in all the assets of the
Company and its subsidiaries. The amended credit facility
expires on June 30, 2010 and all borrowings under that
facility are due and payable on that date. The Companys
availability under the revolving credit facility is
$28 million (subject to a borrowing base formula). The
bridge loan was due December 31, 2005. At December 31,
2005, LIBOR with a
90-day
maturity was 4.53% and the prime rate was 7.00%. In addition,
the payment or declaration of dividends and distributions is
restricted. The Company is permitted to pay dividends on its
common stock as long as it is not in default and doing so would
not cause a default, and as long as its average borrowed funds
to EBITDA ratio, as defined in the amended Credit Agreement, is
no greater than 2 to 1. Under the terms of the amended Credit
Agreement, the borrowing base for the revolver is based on
certain balances of accounts receivable and inventory. The
borrowing base formula contains inventory caps, and financial
covenants requiring the Company not to exceed certain average
borrowed funds to EBITDA ratios and cash flow coverage ratios.
As of the end of our year ended December 31, 2005, the
Company was not in compliance with its average borrowed funds to
EBITDA ratio covenant. As of March 31, 2006. The Company
had not submitted audited financial statements to its lender
within 90 days of its fiscal year end, in accordance with
the Amended Credit Agreement. On March 29, 2006, The
Company obtained waivers from its lender of the ratio covenant
default and were provided an amendment from the lender,
extending the requirement to provide audited financial
statements to the lender with 120 days of its fiscal year
end. On March 31, 2006, the Company entered into an
amendment to its Amended Credit Agreement to modify these
covenants for the remainder of fiscal 2006.
The bridge loan was initially due December 31, 2005. The
Company obtained four one-month extensions of the bridge loan
maturity date, the most recent occurring on March 31, 2006,
extending the maturity date until May 1, 2006. The Company
is currently in discussions with its lender to further modify
the maturity date of the bridge to a future period better
aligned with its expected ability to retire this obligation. The
Company anticipates that its lender will agree to amend its
bridge loan terms in this manner.
77
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt as of December 31, 2005 and January 1,
2005 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Revolving line of credit to bank;
secured by accounts receivable, inventory and equipment;
interest due monthly at LIBOR rate of 6.44%;
|
|
$
|
16,000,000
|
|
|
$
|
|
|
Revolving line of credit to bank;
secured by accounts receivable, inventory and equipment;
interest due monthly at Prime plus .375%;
|
|
|
5,091,000
|
|
|
|
|
|
Revolving line of credit to bank;
secured by accounts receivable, inventory and equipment;
interest due monthly at LIBOR plus 275 basis points
|
|
|
|
|
|
|
5,000,000
|
|
Revolving line of credit to bank;
secured by accounts receivable, inventory and equipment;
interest due monthly at Prime plus .25%
|
|
|
|
|
|
|
7,500,000
|
|
Term loan payable to bank in
variable quarterly installments through 2011, interest due
monthly at LIBOR plus 3.5%
|
|
|
27,450,000
|
|
|
|
|
|
Term loan payable to bank in
annual installments of $750,000 through 2006, interest due
monthly at LIBOR plus 300 basis points
|
|
|
|
|
|
|
1,500,000
|
|
Term loan payable to bank in
quarterly installments of $150,000 through 2008, interest due
monthly at LIBOR plus 300 basis points
|
|
|
|
|
|
|
2,250,000
|
|
Term loan payable to bank in
monthly installments of $25,000 through 2008, interest due
monthly at LIBOR plus 300 basis points
|
|
|
|
|
|
|
1,175,000
|
|
Term loan payable to bank in
monthly installments of $167,000 through 2009, interest due
monthly at LIBOR plus 300 basis points
|
|
|
|
|
|
|
9,167,000
|
|
Bridge loan payable to bank on
December 31, 2005, interest due monthly at LIBOR plus 3.5%
or the prime rate plus .75%
|
|
|
7,000,000
|
|
|
|
|
|
Note payable to financial
institution; collateralized by vehicle; interest at 0%;
principal payable $493 monthly; remaining principal balance
due July 2007
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,541,000
|
|
|
|
26,607,000
|
|
Less: current portion
|
|
|
9,425,000
|
|
|
|
3,656,000
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion
|
|
$
|
46,116,000
|
|
|
$
|
22,951,000
|
|
|
|
|
|
|
|
|
|
|
The available borrowing capacity under the revolving credit
facility, net of outstanding letters of credit of
$1.0 million, was $5.9 million as of December 31,
2005.
The aggregate principal payments of notes payable are as follows:
|
|
|
|
|
2006
|
|
$
|
9,425,000
|
|
2007
|
|
|
3,175,000
|
|
2008
|
|
|
3,525,000
|
|
2009
|
|
|
3,975,000
|
|
2010
|
|
|
35,441,000
|
|
|
|
|
|
|
Total
|
|
$
|
55,541,000
|
|
|
|
|
|
|
78
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income tax expense for the years ended December 31, 2005,
January 1, 2005 and December 27, 2003 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,553,000
|
|
|
$
|
1,861,000
|
|
|
$
|
477,000
|
|
State
|
|
|
455,000
|
|
|
|
442,000
|
|
|
|
172,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,008,000
|
|
|
|
2,303,000
|
|
|
|
649,000
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(852,000
|
)
|
|
|
(196,000
|
)
|
|
|
185,000
|
|
State
|
|
|
(181,000
|
)
|
|
|
(117,000
|
)
|
|
|
152,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,033,000
|
)
|
|
|
(313,000
|
)
|
|
|
337,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
975,000
|
|
|
$
|
1,990,000
|
|
|
$
|
986,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between tax computed at the statutory federal
income tax rate and the Companys reported tax expense is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Expense at statutory rate
|
|
$
|
737,000
|
|
|
$
|
1,691,000
|
|
|
$
|
655,000
|
|
State and other
taxes net of federal tax benefit
|
|
|
134,000
|
|
|
|
212,000
|
|
|
|
137,000
|
|
Items not deductible
|
|
|
48,000
|
|
|
|
41,000
|
|
|
|
151,000
|
|
Change in tax rate
|
|
|
|
|
|
|
|
|
|
|
24,000
|
|
Puerto Rico tollgate taxes
|
|
|
66,000
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(10,000
|
)
|
|
|
46,000
|
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
975,000
|
|
|
$
|
1,990,000
|
|
|
$
|
986,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 and January 1, 2005, the
Company had approximately $97,000 of federal net operating loss
carryforwards which begin to expire in 2023. As of
December 31, 2005 and January 1, 2005 the Company had
approximately $713,000 and $1,009,000, respectively, of net
operating loss carryforwards available for Georgia State tax
purposes, which begin to expire in 2018.
79
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Components of the Companys deferred income tax asset
(liability) as of December 31, 2005 and January 1,
2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
Current
|
|
|
Noncurrent
|
|
|
ASSETS
|
Non-deductible bad debt reserves
|
|
$
|
473,000
|
|
|
$
|
|
|
UNICAP
|
|
|
|
|
|
|
198,000
|
|
Inventory
|
|
|
|
|
|
|
376,000
|
|
Other accruals
|
|
|
|
|
|
|
293,000
|
|
Net operating loss carryforwards
|
|
|
|
|
|
|
34,000
|
|
|
LIABILITIES
|
Pension
|
|
|
|
|
|
|
(360,000
|
)
|
Depreciation
|
|
|
|
|
|
|
(107,000
|
)
|
Tollgate taxes
|
|
|
|
|
|
|
(219,000
|
)
|
Purchased Intangibles
|
|
|
|
|
|
|
(8,344,000
|
)
|
Other accruals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liability
|
|
$
|
473,000
|
|
|
$
|
(8,129,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
Current
|
|
|
Noncurrent
|
|
|
ASSETS
|
Non-deductible bad debt reserves
|
|
$
|
596,000
|
|
|
$
|
|
|
UNICAP
|
|
|
219,000
|
|
|
|
|
|
Inventory
|
|
|
49,000
|
|
|
|
|
|
Other accruals
|
|
|
140,000
|
|
|
|
110,000
|
|
Net operating loss carryforwards
|
|
|
|
|
|
|
38,000
|
|
|
LIABILITIES
|
Pension
|
|
|
(471,000
|
)
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
(168,000
|
)
|
Tollgate Taxes
|
|
|
|
|
|
|
(193,000
|
)
|
Purchased Intangibles
|
|
|
|
|
|
|
(9,052,000
|
)
|
Other accruals
|
|
|
(277,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liability
|
|
$
|
256,000
|
|
|
$
|
(9,265,000
|
)
|
|
|
|
|
|
|
|
|
|
The change in net deferred income tax liability from the year
ended January 1, 2005 to the year ended December 31,
2005 totaled approximately $1.4 million. This decrease in
net deferred tax liability was a result of the Company realizing
a net deferred tax benefit of $1.1 million and an
adjustment to goodwill of $318,000. These adjustments related to
a change in state effective tax rates due to the acquisition of
Altama in fiscal 2004.
|
|
10.
|
LIABILITY TO
FORMER STOCKHOLDERS
|
The consolidated balance sheet as of December 31, 2002
included an obligation of approximately $1.8 million and
accrued interest of $280,000 to dissenting stockholders of
Penobscot Shoe Company. This liability arose prior to the
acquisition of Penobscot and was assumed by the Company. On
May 30, 2003 the Company received from the
80
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Superior Court in Penobscot County, Maine its decision which
stated dissenting Penobscot stockholders were entitled to
$7.94 per common share, which represented $2.06 more per
share than the amount the Company paid at the time of the
acquisition. Additionally, the ruling granted interest to the
dissenting stockholders bringing the total judgment to
$3.1 million. As a result, during fiscal 2003 the Company
recorded in Other expense, net $733,000 of litigation related
legal and settlement expenses and $376,000 of interest expense.
The Company used $500,000 in cash and increased its notes
payable line of credit in the amount of
$2.6 million to pay the settlement.
On May 22, 2003, the Board of Directors authorized a
two-for-one
stock split which became effective on June 12, 2003. All
references in these consolidated financial statements and notes
related to numbers of shares and per share amounts have been
restated to reflect the effect of the stock split.
The Company has a 2001 Long-Term Incentive Plan. Under the 2001
Plan, awards in the form of stock options, stock appreciation
rights or stock awards may be granted to employees and directors
of the Company and persons who provide consulting or other
services to the Company deemed by the Board of Directors to be
of substantial value to the Company. In 2005, the Company began
issuing performance-based stock rights which cliff vest based on
specifically defined performance criteria and expire generally
within a three year period if the performance criteria have not
been met. The Company has reserved 1,500,000 shares of its
common stock for issuance under the Plan. In addition to the
stock options and stock rights outstanding under the Plan, the
Company has granted options to two separate major stockholders
in consideration for debt or debt guarantees. Options
outstanding and exercisable under these arrangements totaled
802,000 as of December 31, 2005, 522,000 as of
January 1, 2005 and 322,000 as of December 27, 2003.
The Plan is administered by the compensation committee of the
Board of Directors.
The employee stock awards and rights activity for the years
ended December 31, 2005, January 1, 2005 and
December 27, 2003 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
2005
|
|
|
Price
|
|
|
2004
|
|
|
Price
|
|
|
2003
|
|
|
Price
|
|
|
Options and rights outstanding,
beginning of year
|
|
|
1,082,000
|
|
|
$
|
7.53
|
|
|
|
648,000
|
|
|
$
|
4.03
|
|
|
|
356,000
|
|
|
$
|
2.89
|
|
Options and rights granted
|
|
|
393,000
|
|
|
$
|
5.11
|
|
|
|
611,000
|
|
|
$
|
10.30
|
|
|
|
332,000
|
|
|
$
|
4.97
|
|
Options and rights exercised
|
|
|
(139,000
|
)
|
|
$
|
2.51
|
|
|
|
(100,000
|
)
|
|
$
|
3.20
|
|
|
|
(31,000
|
)
|
|
$
|
1.65
|
|
Options and rights cancelled
|
|
|
(141,000
|
)
|
|
$
|
7.66
|
|
|
|
(77,000
|
)
|
|
$
|
5.80
|
|
|
|
(9,000
|
)
|
|
|
2.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and rights
outstanding end of year
|
|
|
1,195,000
|
|
|
$
|
7.30
|
|
|
|
1,082,000
|
|
|
$
|
7.53
|
|
|
|
648,000
|
|
|
$
|
4.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and rights
exercisable end of year
|
|
|
802,000
|
|
|
$
|
8.50
|
|
|
|
522,000
|
|
|
$
|
5.58
|
|
|
|
322,000
|
|
|
$
|
3.04
|
|
The outstanding stock awards and rights as of December 31,
2005 have an exercise price ranging from $0.00-$13.33 per
share and expire at various dates through June 2015.
81
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about employee stock
awards and rights outstanding and exercisable at
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and Rights
Outstanding
|
|
|
Options and Rights
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Weighted
|
|
|
Number
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable at
|
|
|
Average
|
|
Range of Exercise
Price
|
|
December 31, 2005
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
December 31, 2005
|
|
|
Exercise Price
|
|
|
$0.00 to $1.78
|
|
|
45,000
|
|
|
|
8.6 years
|
|
|
$
|
0.49
|
|
|
|
13,000
|
|
|
$
|
1.74
|
|
$3.13 to $3.63
|
|
|
160,000
|
|
|
|
7.0 years
|
|
|
$
|
3.40
|
|
|
|
121,000
|
|
|
$
|
3.43
|
|
$4.45 to $5.95
|
|
|
410,000
|
|
|
|
9.3 years
|
|
|
$
|
5.51
|
|
|
|
88,000
|
|
|
$
|
5.40
|
|
$6.77 to $7.05
|
|
|
85,000
|
|
|
|
8.0 years
|
|
|
$
|
6.99
|
|
|
|
85,000
|
|
|
$
|
6.99
|
|
$8.10 to $8.91
|
|
|
178,000
|
|
|
|
5.2 years
|
|
|
$
|
8.58
|
|
|
|
178,000
|
|
|
$
|
8.58
|
|
$11.00 to $11.40
|
|
|
227,000
|
|
|
|
8.6 years
|
|
|
$
|
11.35
|
|
|
|
227,000
|
|
|
$
|
11.35
|
|
$13.33
|
|
|
90,000
|
|
|
|
8.5 years
|
|
|
$
|
13.33
|
|
|
|
90,000
|
|
|
$
|
13.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,195,000
|
|
|
|
8.0 years
|
|
|
$
|
7.30
|
|
|
|
802,000
|
|
|
$
|
8.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All stock options are granted with an exercise price equal to
the fair market value of the Companys common stock at the
grant date. All stock rights are awarded based on the
achievement of specifically defined performance criteria. The
weighted average fair value of the stock awards granted was
$2.92, $6.05, and $3.02 for fiscal 2005, 2004, and 2003,
respectively. The fair value of each stock award is estimated on
the date of the award using the Black-Scholes option pricing
model with the following weighted average assumptions used for
awards in 2005: risk-free interest rate of 2.75%; expected
dividend yield of 0%; expected life of 6.0 years; and
expected volatility of 45%. In 2004, the assumptions were:
risk-free interest rate of 4.13%; expected dividend yield of 0%;
expected life of 9.2 years; and expected volatility of 45%.
In 2003, the assumptions were: risk-free interest rate of 3.92%;
expected dividend yield of 0%; expected life of 9.4 years;
and expected volatility of 44%. Stock options generally expire
ten years from the date of grant with one-third becoming
exercisable on each anniversary of the grant date. There was no
compensation cost related to Stock Awards recognized in the
statement of operations during fiscal 2005, 2004 or 2003.
In addition to the options and rights outstanding under the
Plan, the Company granted options to two separate major
stockholders in consideration for debt and debt guarantees.
Options outstanding and exercisable under these arrangements
totaled 398,000 as of December 31, 2005 and have an
exercise price ranging from $1.75 to $2.38 per share and expire
at various dates through June 2011.
In conjunction with the Companys secondary offering
completed July 19, 2004, the Company issued
50,000 warrants with an exercise price of $15.00 to the
managing underwriters. The warrants contain piggyback
registration rights that expire seven years from the closing of
the offering. The warrants expire on July 18, 2009.
12. OTHER
EXPENSE, NET
For the year ended December 31, 2005 other expense net
totaled $617,000, which primarily consists of severance costs
related to the termination of the Companys former
President and other employees.
For the year ended January 1, 2005 other expense, net
consists of non-capitalized acquisition costs of $113,000
associated with discontinued acquisition efforts.
Other expense, net consists primarily of the following for the
year ended December 27, 2003: non-capitalized acquisition
costs of $394,000 associated with the discontinued Antigua
Enterprises acquisition effort and successful H.S.
Trask & Co. and Royal Robbins, Inc. acquisitions;
relocation costs of $354,000 associated with the relocation of
the Companys corporate headquarters from Old Town, Maine
to Carlsbad, California; litigation costs and expenses totaling
$733,000 associated with the dissenting Penobscot stockholders
settlement, the write-off of non-trade receivables totaling
$163,000, and asset disposal charges and other expenses totaling
$18,000. These amounts were partially offset by an excise tax
refund of $285,000 associated with the 2001 Penobscot pension
plan reversion.
82
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the fiscal year ended December 31, 2005, the
Companys operating segments were classified into four
segments: footwear and apparel, premium footwear, military boot
operations and accessories. Through the acquisition of Chambers
Belt in 2005, the Company added the accessories segment. Through
the acquisition of Tommy Bahama footwear the Company added the
premium footwear segment. As the H.S. Trask brand has a similar
customer base and retail pricing structure to Tommy Bahama
Footwear, the H.S. Trask brand was reclassified into the premium
footwear segment and prior year numbers related to H.S. Trask
were reclassified to conform to current year presentation.
The footwear and apparel operation designs, develops and markets
various moderately-priced branded dress and casual footwear and
apparel, outsources entirely the production of its products from
foreign manufacturers primarily located in Brazil and Asia and
sells its products primarily through department stores, national
chain stores, independent specialty retailers, third-party
catalog companies and directly to consumers over our Internet
web sites. The premium footwear operation designs, develops and
markets premium-priced branded dress and casual footwear,
outsources entirely the production of its products from foreign
manufacturers primarily located in Brazil, Asia and Europe and
sells its products primarily through department stores, national
chain stores, independent specialty retailers, third-party
catalog companies and directly to consumers over our Internet
web sites. The military boot operation manufactures one brand of
mil-spec combat boots for sale to the Department of Defense
(DoD) which serves all four major branches of the
U.S. military, however these boots are used primarily by
the U.S. Army and the U.S. Marines. In addition, the
military boot operation manufactures or outsources commercial
combat boots, infantry combat boots, tactical boots and safety
and work boots and sells these products primarily through
domestic footwear retailers, footwear and military catalogs and
directly to consumers over its own web site. The accessories
operation designs, develops and markets branded belts and
personal items, manufactures a portion of its product at a
facility in California, outsources the production of a portion
of its product from foreign manufacturers in Mexico and Asia and
sells its products primarily through department stores, national
chain stores and independent specialty retailers.
Operating profits by business segment exclude allocated
corporate interest expense and income taxes. Corporate general
and administrative expenses include expenses such as salaries
and related expenses for executive management and support
departments such as accounting, information technology and human
resources which benefit the entire corporation and are not
segment specific. The increase in corporate expenses during
fiscal 2005 is due to increased spending on information
technology systems and initiatives addressing Sarbanes Oxley
compliance.
In our footwear and apparel segment there were no customers that
exceeded 10% of the segments net sales for fiscal 2005. In the
premium footwear segment, sales to Nordstroms department
stores represented 20.4% of net sales in fiscal 2005, and no
other customer exceeded 10% of this segments net sales in
fiscal 2005. In our military boot segment sales to the DoD
represented 68.4% of net sales in fiscal 2005. No other customer
exceeded 10% of this segments net sales. In the accessories
segment, sales to Wal-mart department stores represented 50.0%
of net sales for the period we owned Chambers belt in fiscal
2005. No other customer exceeded 10% of this segments net sales
in fiscal 2005. One foreign customer represented 2.0% of the
footwear and apparel segment for fiscal 2005. No other foreign
companies represented any material sales for any one segment or
on a consolidated basis for fiscal 2005.
83
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
December 27,
|
|
|
|
2005
|
|
|
2005
|
|
|
2003
|
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear and Apparel
|
|
$
|
52,887,000
|
|
|
$
|
55,710,000
|
|
|
$
|
35,112,000
|
|
Premium Footwear
|
|
|
13,283,000
|
|
|
|
7,040,000
|
|
|
|
3,965,000
|
|
Military Boots
|
|
|
23,022,000
|
|
|
|
13,636,000
|
|
|
|
|
|
Accessories
|
|
|
19,997,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109,189,000
|
|
|
$
|
76,386,000
|
|
|
$
|
39,077,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear and Apparel
|
|
$
|
7,021,000
|
|
|
$
|
8,662,000
|
|
|
$
|
6,077,000
|
|
Premium Footwear
|
|
|
(215,000
|
)
|
|
|
(642,000
|
)
|
|
|
720,000
|
|
Military Boots
|
|
|
2,846,000
|
|
|
|
2,107,000
|
|
|
|
|
|
Accessories
|
|
|
1,876,000
|
|
|
|
|
|
|
|
|
|
Reconciling Items(1)
|
|
|
(5,867,000
|
)
|
|
|
(4,266,000
|
)
|
|
|
(4,250,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,661,000
|
|
|
$
|
5,861,000
|
|
|
$
|
2,547,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear and Apparel
|
|
$
|
24,194,000
|
|
|
$
|
26,283,000
|
|
|
$
|
24,033,000
|
|
Premium Footwear
|
|
|
15,357,000
|
|
|
|
8,870,000
|
|
|
|
3,380,000
|
|
Military Boots
|
|
|
13,987,000
|
|
|
|
12,600,000
|
|
|
|
|
|
Accessories
|
|
|
22,116,000
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear and Apparel
|
|
|
6,553,000
|
|
|
|
3,725,000
|
|
|
|
3,614,000
|
|
Premium Footwear
|
|
|
3,168,000
|
|
|
|
3,100,000
|
|
|
|
3,066,000
|
|
Military Boots
|
|
|
20,577,000
|
|
|
|
20,675,000
|
|
|
|
|
|
Accessories
|
|
|
5,678,000
|
|
|
|
|
|
|
|
|
|
Non-amortizable
intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear and Apparel
|
|
|
2,590,000
|
|
|
|
2,590,000
|
|
|
|
2,590,000
|
|
Premium Footwear
|
|
|
3,577,000
|
|
|
|
1,230,000
|
|
|
|
1,230,000
|
|
Military Boots
|
|
|
14,155,000
|
|
|
|
14,155,000
|
|
|
|
|
|
Accessories
|
|
|
2,670,000
|
|
|
|
|
|
|
|
|
|
Reconciling Items(2)
|
|
|
4,269,000
|
|
|
|
4,952,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
138,891,000
|
|
|
$
|
98,180,000
|
|
|
$
|
37,913,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear and Apparel
|
|
$
|
630,000
|
|
|
$
|
716,000
|
|
|
$
|
276,000
|
|
Premium Footwear
|
|
|
136,000
|
|
|
|
96,000
|
|
|
|
41,000
|
|
Military Boots
|
|
|
1,004,000
|
|
|
|
407,000
|
|
|
|
|
|
Accessories
|
|
|
513,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,283,000
|
|
|
$
|
1,219,000
|
|
|
$
|
317,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
December 27,
|
|
|
|
2005
|
|
|
2005
|
|
|
2003
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Footwear and Apparel
|
|
$
|
292,000
|
|
|
$
|
96,000
|
|
|
$
|
45,000
|
|
Premium Footwear
|
|
|
|
|
|
|
235,000
|
|
|
|
14,000
|
|
Military Boots
|
|
|
876,000
|
|
|
|
286,000
|
|
|
|
|
|
Accessories
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
Reconciling Items(3)
|
|
|
40,000
|
|
|
|
352,000
|
|
|
|
267,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,256,000
|
|
|
$
|
969,000
|
|
|
$
|
326,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents corporate general and administrative expenses and
other income (expense) not utilized by management in determining
segment profitability. Corporate general and administrative
expenses include expenses such as salaries and related expenses
for executive management and support departments such as
accounting, information technology and human resources which
benefit the entire corporation and are not segment specific. The
increase in corporate expenses during fiscal 2005 is due to
increased spending on legal, information technology systems and
initiatives addressing Sarbanes Oxley compliance. |
|
(2) |
|
Identifiable assets are comprised of net receivables, net
inventory, certain property and plant and equipment. Reconciling
items represent unallocated corporate assets not segregated
between the four segments and includes amortizable intangibles
and other assets. |
|
(3) |
|
Represents capital expenditures of our corporate office not
utilized by management in determining segment performance. |
The Company provides raw materials, components and equipment
utilized in manufacturing its product, to Maquiladora Chambers
de Mexico, S.A., a manufacturing company located in Sonora,
Mexico. Maquiladora Chambers de Mexico, S.A. provides production
related services to convert these raw materials into finished
goods for the Company. The President and CEO of Chambers Belt
Company, a wholly owned subsidiary of the Company, each own an
equity interest in Maquiladora Chambers de Mexico, S.A.. As of
December 31, 2005, there were no outstanding amounts due to
or from the Company and Maquiladora Chambers de Mexico, S.A..
Since the Companys acquisition of substantially all of the
assets of Chambers Belt Company on June 29, 2005, the
Company has purchased a total of $835,000 in production related
services from Maquiladora Chambers de Mexico, S.A.
On January 8, 2006, the Company entered into an agreement
with the seller of Altama Delta Corporation which modified the
terms of the Stock Purchase Agreement dated June 15, 2004
among them pursuant to which the Company acquired Altama. As a
result of the agreement, the total price paid by the Company for
Altama was reduced by and included approximately
$1.6 million in cash previously due the seller and held by
the Company,
85
PHOENIX FOOTWEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
196,967 in the Company shares held in escrow and the termination
of all future obligations under the stock purchase agreement,
including a contingent earn-out covenant, and consulting and
non-competition agreements which totaled approximately
$1.6 million. As a result of this transaction the Company
expects to record a reduction in goodwill and intangible assets
as well as an after-tax gain of approximately $1.6 million
during the first quarter period ended April 1, 2006.
Subsequent to the issuance of the Companys consolidated
financial statements for the fiscal year ended January 1,
2005, the Company determined its previously issued consolidated
balance sheets required restatement to correct its accounting
for purchased intangibles resulting from prior acquisitions. The
Company should have recorded both a deferred tax liability to
account for the tax effect of the differences between the book
and tax bases of these assets, and a corresponding increase in
goodwill. As a result the Company has recorded $1.5 million
on its December 27, 2003 consolidated balance sheet and an
additional $5.6 million on its January 1, 2005
consolidated balance sheet.
The restatement resulted in an increase of $1.5 million in
total assets and total liabilities at December 27, 2003 and
an increase of $7.1 million in total assets and total
liabilities at January 1, 2005. Net sales, net income,
earnings per share, net assets and stockholders equity for
the fiscal years ended January 1, 2005,
December 27, 2003, and December 31, 2002 remained
unchanged.
A summary of the effects of the restatement are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2005
|
|
|
December 27, 2003
|
|
|
|
As Previously
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
Reported
|
|
|
As Restated
|
|
|
Reported
|
|
|
As Restated
|
|
|
Goodwill
|
|
$
|
20,374,000
|
|
|
$
|
27,500,000
|
|
|
$
|
5,178,000
|
|
|
$
|
6,680,000
|
|
Deferred income tax liability
|
|
$
|
2,139,000
|
|
|
$
|
9,265,000
|
|
|
$
|
1,235,000
|
|
|
$
|
2,737,000
|
|
* * * * *
86
(3) Exhibits.
|
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger dated
as of June 16, 2003, by and among Phoenix Footwear Group,
Inc., H.S. Trask & Co., PFG Acquisition, Inc. and Nancy
Delekta as stockholder representative (incorporated by reference
to the Quarterly Report on
Form 10-Q
filed August 12, 2003 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))
(Exhibits and schedules have been omitted pursuant to
Item 601(b) (2) of
Regulation S-K,
but a copy will be furnished supplementally to the Securities
and Exchange Commission upon request)
|
|
2
|
.2
|
|
Letter Amendment to Agreement and
Plan of Merger dated August 6, 2003, by and among Phoenix
Footwear Group, Inc., H.S. Trask & Co., and PFG
Acquisition, Inc., and Nancy Delekta as stockholder
representative (incorporated by reference to the Quarterly
Report on
Form 10-Q
filed August 12, 2003 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))
|
|
2
|
.3
|
|
Stock Purchase Agreement By and
Among Dan J. and Denise L. Costa, as trustees of the Dan J. and
Denise L. Costa 1997 Family Trust and Douglas Vient as
trustee of the Kelsie L. Costa Trust and the Daniel S.
Costa Trust, Royal Robbins, Inc., and Phoenix Footwear Group,
Inc., dated October 2, 2003 (incorporated by reference to
Exhibit 2.1 to the Current Report
Form 8-K
dated November 5, 2003 (SEC File
No. 001-31309))
(Exhibits and schedules have been omitted pursuant to
Item 601(b) (2) of
Regulation S-K,
but a copy will be furnished supplementally to the Securities
and Exchange Commission upon request)
|
|
2
|
.4
|
|
Stock Purchase Agreement by and
among Phoenix Footwear Group, Inc., W. Whitlow Wyatt and Altama
Delta Corporation dated June 15, 2004, (incorporated by
reference to the Current Report on
Form 8-K
for June 15, 2004 by Phoenix Footwear Group, Inc. (SEC File
No.
001-31309))
(Exhibits and schedules have been omitted pursuant to
Item 601(b) (2) of
Regulation S-K,
but a copy will be furnished supplementary to the Securities and
Exchange Commission upon request)
|
|
2
|
.5
|
|
Asset Purchase Agreements between
Chambers Delaware Acquisition Company and Chambers Belt Company
and Stockholders of Chambers Belt Company, dated as of
April 18, 2005 (incorporated by reference to
Exhibit 2.1 to the Quarterly Report on
Form 10-Q
filed on May 24, 2005 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))
(Exhibits and schedules have been omitted pursuant to
Item 601(b) (2) of
Regulation S-K,
but a copy will be furnished supplementary to the Securities and
Exchange Commission upon request)
|
|
2
|
.6
|
|
Asset Purchase Agreement dated
August 3, 2005 by and among Phoenix Delaware Acquisition,
Inc., The Paradise Shoe Company, LLC, Tommy Bahama Group, Inc.,
Sensi USA, Inc., and Phoenix Footwear Group, Inc. (incorporated
by reference to Exhibit 2.1 to the
Form 8-K
filed on August 9, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))
(Exhibits and schedules have been omitted pursuant to
Item 601(b) (2) of
Regulation S-K,
but a copy will be furnished supplementary to the Securities and
Exchange Commission upon request)
|
|
3
|
.1
|
|
Certificate of Incorporation.
(incorporated herein by reference to Appendix B of the
definitive Proxy Statement on Schedule 14A dated
March 29, 2002 (SEC File
No. 000-00774))
|
|
3
|
.2
|
|
By-Laws. (incorporated herein by
reference to Appendix C of the definitive Proxy Statement
on Schedule 14A dated March 29, 2002 (SEC File
No. 000-00774))
|
|
3
|
.3
|
|
Certificate of Amendment to
Certificate of Incorporation. (incorporated herein by reference
to Exhibit A of the Definitive Proxy Statement on
Schedule 14A dated April 14, 2003 (SEC File
No. 001-31309))
|
|
10
|
.1
|
|
Stock Purchase Agreement between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
Riedman Corporation dated June 26, 1996 (incorporated by
reference to Exhibit 2 of
Form 8-K
dated July 10, 1996 (SEC File No.
000-00774))
|
|
10
|
.2
|
|
Stock Purchase Option between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
Riedman Corporation dated July 29, 1997 (incorporated by
reference to Exhibit 99.1 of Form SC 13D/A dated
August 11, 1997 (SEC File
No. 005-36674)).*
|
|
10
|
.3
|
|
Stock Purchase Option between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
Riedman Corporation dated September 1, 1999 (incorporated
by reference to Exhibit 10.3 to the Annual Report on
Form 10-K
dated March 26, 2004 (SEC file
No. 001-31309)).*
|
|
10
|
.4
|
|
Agreement by and between Phoenix
Footwear Group, Inc. and Wilhelm Pfander dated December 18,
2000 (incorporated by reference to exhibit 10.4 to the
Annual Report on
Form 10-K
dated March 26, 2004 (SEC file
No. 001-31309)).
*
|
87
|
|
|
|
|
|
10
|
.5
|
|
Stock Purchase Option between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
Riedman Corporation dated January 19, 2001 (incorporated by
reference to Exhibit 99.1 of Form SC 13D/A dated
February 28, 2001 (SEC File
No. 005-36674)).*
|
|
10
|
.6
|
|
Stock Purchase Option between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
Riedman Corporation dated April 11, 2001. (incorporated by
reference to Exhibit 10.6 to the Annual Report on
Form 10-K
dated March 26, 2004 (SEC file No.
001-31309)).*
|
|
10
|
.7
|
|
Stock Purchase Option between
Phoenix Footwear Group, Inc. (f/k/a Daniel Green Company) and
James R. Riedman dated June 1, 2001 (incorporated by
reference to Exhibit 10 of
Form 8-K
dated June 26, 2001 (SEC File No.
000-00774)).*
|
|
10
|
.8
|
|
Assignment for Patent Application
(All Rights) by and between Wilhelm F. Pfander and Phoenix
Footwear Group, Inc. dated August 27, 2003 (incorporated by
reference to Exhibit 10.12 to the Annual Report on
Form 10-K
dated March 26, 2004 (SEC file
No. 001-31309)).*
|
|
10
|
.9
|
|
Employment Agreement by and
between Phoenix Footwear Group, Inc. and James R. Riedman dated
January 1, 2004 (incorporated by reference to
Exhibit 10.17 to the Annual Report on
Form 10-K
dated March 26, 2004 (SEC file No.
001-31309)).*
|
|
10
|
.10
|
|
Employment Agreement by and
between Phoenix Footwear Group, Inc. and Richard E. White, dated
June 15, 2004 (incorporated by reference to
Exhibit No. 10.18 to the Phoenix Footwear Group, Inc.
Registration Statement on
Form S-2,
Amendment No. 1 (File
No. 333-114109)
filed on June 16, 2004, as amended).*
|
|
10
|
.11
|
|
Trademark License Agreement
between Tommy Bahama Group, Inc. and Phoenix Delaware
Acquisition, Inc. dated August 3, 2005 (incorporated by
reference to Exhibit 10.3 to the Quarterly Report on
Form 10-Q
filed on November 15, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))**
|
|
10
|
.12
|
|
Amendment dated September 23,
2005 to the award/contract by and between The Defense Supply
Center Philadelphia and Altama Delta Corporation dated
September 23, 2005 (incorporated by reference to
Exhibit 10.4 to the Quarterly Report on
Form 10-Q
filed on November 15, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))
|
|
10
|
.13
|
|
Registration Rights Agreement by
and between Phoenix Footwear Group, Inc. and Chambers Belt
Company, dated June 28, 2005 (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File No.
001-31309))
|
|
10
|
.14
|
|
Escrow Agreement by and among
Phoenix Footwear Group, Inc., Chambers Belt Company and Escrow
Agent, dated June 28, 2005 (incorporated by reference to
Exhibit 10.3 to the Quarterly Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File No.
001-31309))
|
|
10
|
.15
|
|
Employment Agreement by and among
Chambers Delaware Acquisition Company and Charles Stewart dated
June 28, 2005 (incorporated by reference to
Exhibit 10.4 to the Quarterly Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File No.
001-31309))*
|
|
10
|
.16
|
|
Employment Agreement by and among
Chambers Delaware Acquisition Company and Kelly Green dated
June 28, 2005 (incorporated by reference to
Exhibit 10.5 to the Quarterly Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))*
|
|
10
|
.17
|
|
Employment Agreement by and among
Chambers Delaware Acquisition Company and David Matheson dated
June 28, 2005 (incorporated by reference to
Exhibit 10.6 to the Quarterly Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))*
|
|
10
|
.18
|
|
Non-Competition and
Confidentiality Agreement by and among Chambers Delaware
Acquisition Company and Charles Stewart dated June 28, 2005
(incorporated by reference to Exhibit 10.7 to the Quarterly
Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))
|
|
10
|
.19
|
|
Non-Competition and
Confidentiality Agreement by and among Chambers Delaware
Acquisition Company and Kelly Green dated June 28, 2005
(incorporated by reference to Exhibit 10.8 to the Quarterly
Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))
|
|
10
|
.20
|
|
Non-Competition and
Confidentiality Agreement by and among Chambers Delaware
Acquisition Company and David Matheson dated June 28, 2005
(incorporated by reference to Exhibit 10.9 to the Quarterly
Report on
Form 10-Q
filed on August 16, 2005 by Phoenix Footwear Group, Inc.
(SEC File
No. 001-31309))
|
88
|
|
|
|
|
|
10
|
.21
|
|
Non-Competition and
Confidentiality Agreement by and among Chambers Delaware
Acquisition Company and Gary Edman dated June 28, 2005
(incorporated by reference to Exhibit 10.10 to the
Quarterly Report on
Form 10-Q
filed August 16, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))
|
|
10
|
.22
|
|
Credit Facility Agreement by and
between Phoenix Footwear Group, Inc. and Manufacturers and
Traders Trust Company dated June 29, 2005 (incorporated by
reference to Exhibit 10.11 to the Quarterly Report on
Form 10-Q
filed August 16, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))
|
|
10
|
.23
|
|
Amended and Restated Credit
Facility Agreement between Phoenix Footwear Group, Inc. and
Manufacturers and Traders Trust Company, dated August 4,
2005 (incorporated by reference to Exhibit 10.12 to the
Quarterly Report on
Form 10-Q
filed August 16, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))
|
|
10
|
.24
|
|
Third Amended and Restated
Revolving Credit and Term Loan Agreement Amendment Number 1
dated as of February 1, 2005 between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company
(incorporated by reference to Exhibit 10.1 to the Current
Report on
Form 8-K
for February 1, 2005 (SEC File
No. 001-31309))
|
|
10
|
.25
|
|
$4,000,000 Overline Credit Note
dated February 1, 2005 by Phoenix Footwear Group, Inc. in
favor of Manufacturers and Traders Trust Company (incorporated
by reference to Exhibit 10.2 to the Current Report on
Form 8-K
for February 1, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))
|
|
10
|
.26
|
|
Amended and Restated Credit
Facility Agreement Amendment No. 1 between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company dated
December 30, 2005 (incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K
for January 5, 2006 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))
|
|
10
|
.27
|
|
Amended and Restated Credit
Facility Agreement Amendment No. 2 between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company dated
January 31, 2006
|
|
10
|
.28
|
|
Amended and Restated Credit
Facility Agreement Amendment No. 3 between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company dated
February 28, 2006
|
|
10
|
.29
|
|
Amended and Restated Credit
Facility Agreement Amendment No. 4 between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company dated
March 31, 2006
|
|
10
|
.30
|
|
Covenant
Waiver Amendment No. 5 to Amended and
Restated Credit Facility Agreement between Phoenix Footwear
Group, Inc. and Manufacturers and Traders Trust Company dated
March 29, 2006
|
|
10
|
.31
|
|
License Agreement by and between
Wrangler Apparel Corp. and Chambers Belt Company dated
January 1, 2004 (incorporated by reference to
Exhibit 10.13 to the Quarterly Report on
Form 10-Q
filed August 16, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))**
|
|
10
|
.32
|
|
Guaranty, dated April 18,
2005 by Phoenix Footwear Group, Inc., in favor of Chambers Belt
Company (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on
Form 10-Q
filed May 24, 2005 by Phoenix Footwear Group, Inc. (SEC
File
No. 001-31309))
|
|
10
|
.33
|
|
Summary of Phoenix Footwear Group,
Inc. Division Management Bonus Plan (incorporated by
reference to Exhibit 10.4 to the Quarterly Report on
Form 10-Q
filed May 24, 2005 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))*
|
|
10
|
.34
|
|
Summary of Phoenix Footwear Group
Corporate Executive Incentive Plan (incorporated by reference to
Exhibit 10.5 to the Quarterly Report on
Form 10-Q
filed May 24, 2005 by Phoenix Footwear Group, Inc. (SEC
File No.
001-31309))*
|
|
10
|
.35
|
|
Settlement Agreement dated
January 8, 2006 by and among W. Whitlow Wyatt, Phoenix
Footwear Group, Inc. and Altama Delta Corporation
|
|
21
|
|
|
Subsidiaries of Registrant
|
|
23
|
.1
|
|
Consent of Deloitte &
Touche LLP
|
|
23
|
.2
|
|
Consent of Grant Thornton LLP
|
|
24
|
|
|
Power of Attorney
|
|
31
|
.1
|
|
Certification of Richard E. White
pursuant to
Rule 13a-14(a)
and
15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
89
|
|
|
|
|
|
31
|
.2
|
|
Certification of Kenneth Wolf
pursuant to
Rule 13a-14(a)
and
15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
32
|
.1
|
|
Certification pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
*
|
Management contract or compensatory plan or arrangement.
|
|
|
** |
Certain confidential information contained in the document has
been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended, or
Rule 24b-2
promulgated under the Securities and Exchange Act of 1934, as
amended.
|
90