Phoenix Footwear Group, Inc. Business Information, Profile, and History

Company Perspectives:

We believe that our employees are members of our company family. We will treat them with respect, strive to provide opportunities for their professional development, provide a working environment in which to thrive, and reward their contributions to our successes. We believe in providing our customers with quality products and services as it relates to our industry. We are committed to developing and servicing long-term, mutually profitable relationships with our customers through moral and ethical business practices. We believe in developing and maintaining long-term relationships with ethical suppliers, and conducting these relationships with the utmost integrity and personal character. We believe the company should be a good corporate citizen within our community by providing a safe and friendly workplace, obeying all environmental regulations, and participating in appropriate community activities. We believe the company will provide shareholders with a fair return on investment, in order to attract additional investors. This will enable the company to continue to develop, market, and service quality footwear profitably.

History of Phoenix Footwear Group, Inc.

Phoenix Footwear Group, Inc., markets a number of leading brands of footwear and apparel. Brands include Trotters, SoftWalk, H.S. Trask, and Ducks Unlimited footwear, and Royal Robbins and Audubon apparel. These brands tend to feature conservative styling, shielding them somewhat from the fickle nature of the fashion industry. Phoenix is headquartered in Carlsbad, California, and has an operations center in Old Town, Maine. Most of its footwear is produced in Brazil, and clothing is sourced in South America and Asia. Phoenix was formerly known as the Daniel Green Company; however, the Daniel Green slipper brand is now owned by an entirely separate company.

Origins

The origins of Phoenix Footwear Group, Inc., begin with the Daniel Green Company of Dolgeville, New York, located 60 miles northwest of Albany. Daniel Green was a shoe salesman in 1881 when he found that a company manufacturing felt for pianos had also fashioned some slippers that factory workers used to keep their feet warm. Green and his brother gained the license to market the felt slippers and set up shop at their home in Canastota, New York. Billed as the "Original Comfy Slipper Company," the Daniel Green Company flourished, eventually moving operations and incorporating in New York City. The company was advertising nationally by the late 1920s in such publications as Ladies Home Journal, and by the 1960s, the company was manufacturing a wider variety of slippers and shoes for women and men.

Big changes ensued in the 1990s. James Riedman joined the Daniel Green Company in 1987, and in 1996 he became chairman and chief executive officer, having acquired an initial 35 percent interest in the company under the auspices of his insurance brokerage, the Riedman Corporation. Under Riedman's leadership, Daniel Green pursued a strategy of developing and complementing its brands while cutting costs.

By 1998, according to the Business Journal of Syracuse, New York, Daniel Green employed only 300 people. In June 1999, the company shut down its plant in upper New York State. About 125 people were laid off, while another 35 remained at the distribution center. In the mid-1980s, the company had as many as 700 employees.

By June 1999, all of the company's footwear manufacturing had been outsourced overseas. Its suppliers at the time were in Spain, China, and Mexico. The company earned $1.5 million on sales of $15 million in 1999.

The issue was not merely lower wages. As one of the last shoe manufacturers in the United States, the company was having problems sourcing materials and machinery, company president Greg Tunney lamented to the Business Journal.

New Brands in 2000

Daniel Green acquired a number of brands from the L.B. Evans & Son Company Limited Partnership in February 2000. Evans, based in Fitchburg, Massachusetts, was the oldest footwear manufacturer in the United States, established in 1804. It had been a serious competitor for Daniel Green for 100 years and was a leader in the men's slipper business.

Another important acquisition was made in April 2000, the purchase of the Penobscot Shoe Company, a publicly traded importer of women's footwear and owner of the Trotters brand. The company paid $17.8 million for Penobscot, which had been founded in 1935 as Philco Shoe Company by Max Kagan and Philip W. Lown. Penobscot originally made moccasins. When acquired by Daniel Green, it was publicly traded on the American Stock Exchange and had sales of about $20 million a year.

In May 2000, Green relocated its headquarters and distribution center to the Penobscot site in Old Town, Maine. Penobscot had been producing women's shoes for more than six decades, and had outsourced its production five years earlier.

Revenues more than doubled in 2000 to $33 million, and the company narrowed its net loss from $1.5 million to $682,000. The company was profitable again in 2001, posting net income of $1.4 million on sales of $46.9 million. The Riedman family sold Riedman Corporation to Brown & Brown Inc. for $62 million in January 2001.

Shedding Slippers in 2001

The company was producing slippers under the Daniel Green, L.B. Evans, and Woolrich names, but sold these lines to St. Louis-based Elan-Polo, Inc. in December 2001 to focus on the fast-growing Trotters and SoftWalk brands (the latter was new). Shoes were also a less seasonal business than slippers.

This was the end of the company's involvement with its original brand name, Daniel Green. The company changed its name to Phoenix Footwear Group, Inc. in May 2002 (while the brand's new owner Elan-Polo formed Daniel Green Enterprises, LLC). In the same month, the company's shares migrated from the NASDAQ (ticker symbol: DAGR) to the American Stock Exchange under the symbol PXG.

Trotters footwear sold for up to $99 a pair and featured a wide variety of sizes and widths. After acquiring the brand, Phoenix updated it to appeal to a younger audience, Greg Tunney, company president since 1998, told FN. SoftWalk shoes, priced up to $129, were designed as "comfort" footwear and boasted a patented, extra depth footbed. This brand debuted in fall 2000 with a line of sandals and clogs.

Tunney also told FN the company's recent turnaround was greatly helped by diversifying distribution beyond major department stores to catalogs and independent stores.

Moving to California in 2003

The company relocated its headquarters to Carlsbad, California in fiscal 2003. During the year, the company added two new footwear brands to its line-up and also acquired a leading apparel brand.

Phoenix acquired H.S. Trask & Co. in August 2003. Trask, based in Bozeman, Montana, was known for producing Western-style boots using exotic materials such as bison, longhorn, and elk leather. It had been founded in 1993 by John Brewer and Harrison Trask, a former regional sales manager for Reebok who had begun his career at the Brown Shoe Co. in St. Louis. By 1997, H.S. Trask & Co. had estimated revenues of $12 million, according to Forbes, and was selling almost 200,000 pairs of shoes a year. After the acquisition, Phoenix soon won rights to distribute footwear under the Ducks Unlimited brand; this was assigned to the H.S. Trask unit.

By this time, almost all of Phoenix's production was coming from Brazil. Starting with spring 2003, the company had begun to use some of this capacity to supply private-label customers like the Mason Shoe Comfort Footwear catalog, reported FN.

The Royal Robbins brand was acquired in October 2003 in a deal worth up to $11.5 million, depending on performance. Royal Robbins produced comfortable, conservatively styled apparel designed for traveling and outdoor recreation. It was a well-developed line with more than 250 styles.

Royal Robbins had been founded in 1968 as a mountaineering equipment store by climber and adventurer Royal Robbins. His wife Liz introduced the clothing aspect in 1975 with the Billy Goat Shorts of her own design. Entrepreneur Dan Costa acquired control of the company in 1999.

Phoenix was also developing a men's comfort footwear line called Strol, to reach stores in October 2004. It featured the same patented footbed technology as the SoftWalk line. Strol shoes were more expensive, in the $160 to $180 range. The H.S. Trask brand was also extended into a women's line, something that had been tried unsuccessfully by Trask's previous owners ten years earlier.

The company had net income of $941,000 on sales of $39 million in 2003. A weak economy benefited Phoenix by keeping companies' asking prices down. Nevertheless, an attempted acquisition of Antigua Enterprises Inc., an Arizona-based man- ufacturer of golf apparel, did not go through. Former Cole Haan executive Richard White was hired as chief executive officer in June 2004, taking over the position from James Riedman, who remained chairman.

Phoenix acquired army boot manufacturer Altama Delta Corporation in July 2004. Altama, based in Atlanta, produced combat boots for the U.S. military and others, and had sales of $40 million a year. It had been supplying the U.S. Department of Defense for 35 years and began a commercial business in 1991.

According to an April 2004 story in the New York Times, footwear prices had remained fairly stagnant for the previous decade. "If anything, prices are going downward," said Riedman. The only way for Phoenix to reach new price points was to introduce new and improved shoes. The company redesigned the entire H.S. Trask line in 2004. In 2005, the company also was revamping its Trotters brand.

Principal Subsidiaries: H.S. Trask & Company; Penobscot Shoe Company; Royal Robbins, Inc.

Principal Divisions: Altama Footwear; H.S. Trask; Trotters.

Principal Competitors: Brown Shoe Company; C&J Clark International Ltd.; Cole Haan Ltd.; Columbia Sportswear, Inc.; ECCO Sko A/S; R.G. Barry Corporation.

Chronology

• Key Dates:
• 1882: The Daniel Green Company is founded.
• 1996: James Riedman becomes CEO and chairman after acquiring ownership position.
• 1999: The Group begins outsourcing all footwear production.
• 2000: Penobscot Shoe (Trotters) and several brands from L.B. Evans are acquired.
• 2001: The men's and women's slipper business is sold off.
• 2002: The original Daniel Green Company is renamed Phoenix Footwear Group, Inc.
• 2003: Phoenix headquarters are relocated to Carlsbad, California; H.S. Trask and Royal Robbins are acquired.
• 2004: Army boot manufacturer Altama Delta Corporation is acquired.