<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
- --- OF 1934
For the transition period from to
Commission File Number 0-28596
THE NORTH FACE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 94-3204082
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2013 Farallon Drive, San Leandro, California 94577
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 618-3500
Former name, former address and former fiscal year,
if changed since last report. N/A
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock, with $0.0025 par value, outstanding on
May 15, 1997, was 11,213,160.
1
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THE NORTH FACE, INC.
MARCH 31, 1997
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1 - Financial Statements (unaudited)
Condensed Consolidated Balance Sheets ...... 3
Condensed Consolidated Statements of
Operations ................................ 4
Condensed Consolidated Statements of
Cash Flows ................................ 5
Notes to Condensed Consolidated Financial
Statements................................. 6
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................... 7
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings............................. 12
ITEM 6 - Exhibits and Reports on Form 8-K.............. 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE NORTH FACE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
--------- ----------- ---------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $1,618 $8,315 $705
Trade accounts receivable, net . . . . . . . . . . . . . . 24,134 21,405 15,968
Income tax receivable. . . . . . . . . . . . . . . . . . . 2,585 1,294 935
Other receivables. . . . . . . . . . . . . . . . . . . . . 2,928 2,744 978
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 35,889 31,475 26,690
Other current assets . . . . . . . . . . . . . . . . . . . 5,911 4,075 4,793
--------- ----------- ---------
Total current assets . . . . . . . . . . . . . . . . . 73,065 69,308 50,069
Property and equipment, net. . . . . . . . . . . . . . . . 13,998 12,039 8,435
Trademarks and intangibles, net. . . . . . . . . . . . . . 29,655 29,346 29,919
Debt issuance costs, net . . . . . . . . . . . . . . . . . 0 58 1,600
Other assets . . . . . . . . . . . . . . . . . . . . . . . 2,279 1,197 458
--------- ----------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . $118,997 $111,948 $90,481
--------- ----------- ---------
--------- ----------- ---------
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses, and other
current liabilities . . . . . . . . . . . . . . . . . . 20,515 18,775 18,423
Short term borrowings and current portion of long-term
debt and obligations under capital leases . . . . . . . 3,821 95 9,513
-------- --------- --------
Total current liabilities . . . . . . . . . . . . . . 24,336 18,870 27,936
Long-term debt and obligations under capital leases . . . 477 135 11,846
Other long-term liabilities . . . . . . . . . . . . . . . 6,461 6,444 6,492
Subordinated debt . . . . . . . . . . . . . . . . . . . . 0 0 24,333
-------- ----------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . 31,274 25,449 70,607
-------- ----------- ---------
Stockholders' equity:
Series A Preferred Stock, $1.00 par value - shares
authorized 4,000,000; issued and outstanding 1,936,000
at March 31, 1996 and 0 at December 31, 1996, and at
March 31, 1997 . . . . . . . . . . . . . . . . . . . . . 0 0 12,267
Cumulative Preferred Dividends Accrued . . . . . . . . . . 0 0 2,407
Common Stock, $.0025 par value - 50,000,000 shares
authorized; 7,010,000 issued and outstanding at
March 31, 1996; 11,200,000 at December 31, 1996;
and 11,205,000 at March 31, 1997 . . . . . . . . . . . . 29 29 7
Additional paid in capital . . . . . . . . . . . . . . . . 77,256 76,130 645
Subscriptions receivable . . . . . . . . . . . . . . . . . (62) (95) (142)
Retained earnings . . . . . . . . . . . . . . . . . . . . . 10,348 10,113 5,084
Cumulative translation adjustments . . . . . . . . . . . . 152 322 (394)
------- ----------- ---------
Total stockholders' equity . . . . . . . . . . . . . . 87,723 86,499 19,874
-------- ----------- ---------
Total liabilities and stockholders' equity . . . . . . $118,997 $111,948 $90,481
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
THE NORTH FACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
-----------------------
1997 1996
-------- --------
Net Sales. . . . . . . . . . . . . . . . . . . . . $39,342 $31,020
Cost of Sales. . . . . . . . . . . . . . . . . . . 22,127 18,417
-------- --------
Gross Profit . . . . . . . . . . . . . . . . . . . 17,215 12,603
Operating Expenses . . . . . . . . . . . . . . . . 16,773 12,464
-------- --------
Operating Income . . . . . . . . . . . . . . . . . 442 139
Interest Expense . . . . . . . . . . . . . . . . . (119) (1,453)
Other Income (Expense), net. . . . . . . . . . . . 62 167
-------- --------
Income Before Provision for Income Taxes . . . . . 385 (1,147)
Provision for Income Taxes . . . . . . . . . . . . 150 (518)
-------- --------
Net Income . . . . . . . . . . . . . . . . . . . . $235 $(629)
-------- --------
-------- --------
Earnings per Share (1996, pro forma):. . . . . . . $0.02 $(0.085)
-------- --------
-------- --------
Weighted Average Shares Outstanding. . . . . . . . 11,638 7,401
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
THE NORTH FACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended
March 31,
-----------------------
1997 1996
------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 235 $ (629)
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . 1,004 850
Deferred income taxes. . . . . . . . . . . . . . 7 (51)
Provision for doubtful accounts. . . . . . . . . 371 (174)
Tax benefit of exercise of stock options . . . . 1,055 0
Effect of changes in:
Accounts receivable . . . . . . . . . . . . . . (4,575) (1,125)
Inventories . . . . . . . . . . . . . . . . . . (4,414) (5,642)
Other assets . . . . . . . . . . . . . . . . . . (3,432) (1,385)
Accounts payable anda accrued liabilities. . . . 1,757 2,201
------- ---------
NET CASH USED IN OPERATING ACTIVITIES. . . . . . . (7,992) (5,955)
------- ---------
INVESTING ACTIVITIES-
Purchase of fixed assets . . . . . . . . . . . . (2,707) (507)
------- ---------
FINANCING ACTIVITIES:
Borrowings on long term debt . . . . . . . . . . 380 100
Long term debt repayments. . . . . . . . . . . . (9) (66)
Proceeds from revolver, net. . . . . . . . . . . 3,697 4,432
Payments of debt acquisition costs . . . . . . . 0 (57)
Proceeds from issuance of stock. . . . . . . . . 104 0
------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . 4,172 4,409
------- ---------
Effect of foreign currency fluctuations on cash. (170) (65)
------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS. . . . . . . (6,697) (2,118)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . 8,315 2,823
------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . $1,618 $ 705
------- ---------
------- ---------
See accompanying notes to consolidated financial statements
-5-
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of The North Face, Inc. and its subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations.
These financial statements have been prepared by The North Face, Inc. in
a manner consistent with that used in the preparation of the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (the "Form 10-K"). Certain items
contained in these statements are based on estimates. In the opinion of
management, the accompanying financial statements reflect all adjustments,
consisting of only normal and recurring adjustments, necessary for a fair
presentation of the financial position and results of operations and cash
flows for the periods presented. All significant intercompany accounts and
transactions have been eliminated.
Operating results for the three month period ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1997. These unaudited financial statements should
be read in conjunction with the financial statements included in the Form 10-K.
The financial statements included herein are unaudited. The Condensed
Consolidated Balance Sheet as of December 31, 1996, has been prepared from
the Consolidated Balance Sheet as of December 31, 1996 included in the Form
10-K.
Pro Forma Earnings Per Share -- Upon consummation of the Company's
initial public offering in July 1996, all outstanding shares of Series A
Preferred Stock were converted into 4,220,808 shares of Common Stock. The
net income per share and shares used in per share calculations for the three
months ended March 31, 1996 reflect this conversion as of the beginning of
the period. In accordance with the rules of the Securities and Exchange
Commission, all common stock equivalents issued within one year of the
Company's anticipated initial public offering have been considered
outstanding for all periods using the treasury stock method. Due to the
conversion of the Series A Preferred Stock into Common Stock, historical
earnings per share for 1996 is not meaningful.
NOTE 2. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). The Company is required to adopt SFAS 128 in the fourth quarter
of 1997 and will restate at that time earnings per share (EPS) data for prior
periods to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces
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<PAGE>
current EPS reporting requirements and requires a dual presentation of basic
and diluted EPS. Basic EPS excludes dilution and is computed by dividing net
income by the weighted average of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. If SFAS 128 had been in effect during the current and prior year
periods, basic EPS would have been $.02 and ($.09) for the quarters ended
March 31, 1997 and 1996 (pro forma), respectively. Diluted EPS under SFAS
128 would not have been significantly different than EPS currently reported
for the periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW -- FACTORS THAT MAY AFFECT FUTURE RESULTS
When used below in connection with matters that may occur in the future,
the words "anticipate", "estimate", "expect" or similar words identify
forward looking statements within the meaning of federal securities laws.
Forward looking statements below are based on the Company's current
expectations of future events. The matters described in the forward looking
statements are subject to risks and uncertainties. The actual results of
these matters may differ substantially from the results anticipated by the
Company. The Company cannot assure that future results will meet its current
expectations. Risks and uncertainties relating to forward looking statements
and to the Company's business include, but are not limited to, those
described below and in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 and in other documents that may be
subsequently filed with the Commission.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, certain items
in the Company's consolidated statements of operations as a percentage of net
sales (except for income taxes which are shown as a percentage of pretax
income). The results of operations for the three month periods ended March
31, 1997 and 1996 are not necessarily indicative of future results or results
to be expected for the full year.
Three Months Ended
March 31,
------------------
1997 1996
------- ------
Net sales....................................... 100.0% 100.0%
Gross profit.................................... 43.8 40.6
Operating expenses.............................. 42.6 40.2
Operating income ............................... 1.1 0.4
Interest expense................................ 0.3 4.7
Net income before provision for income taxes ... 1.0 (3.7)
Provision (benefit) for income taxes............ 39.0 (45.2)
Net income .................................... 0.6 (2.0)
-7-
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996
NET SALES Net sales increased by 26.8% to $39.3 million from $31.0
million for the three months ended March 31, 1997 ("First Quarter 1997")
over the three months ended March 31, 1996 ("First Quarter 1996").
Net sales to wholesale customers increased by 37.0% to $31.3 million
from $22.8 million for First Quarter 1997 compared to First Quarter 1996.
This increase was primarily a result of increased unit shipments to the
Company's existing wholesale customers resulting from (i) the introduction of
new products, including Tekware, (ii) higher levels of sales of existing
products and (iii) increased sales through the Summit Shop program.
Company operated retail sales for First Quarter 1997 approximated First
Quarter 1996 sales of $8.0 million.
GROSS PROFIT Gross profit as a percentage of net sales for First Quarter
1997 was 43.8% compared to 40.6% for First Quarter 1996. The higher gross
margin was primarily attributable to lower costs as well as lower levels of
discounted sales for company operated retail sales.
OPERATING EXPENSES Operating expenses include selling, marketing and general
and administrative expenses. Operating expenses increased by 34.6% to $16.8
million from $12.5 million for First Quarter 1997 compared to First Quarter
1996, primarily as a result of increases in variable and fixed costs to
support the growth of the Company's business.
INTEREST EXPENSE Interest expense decreased to $0.1 million from $1.5
million for First Quarter 1997 compared to First Quarter 1996 primarily as a
result of the application of the proceeds from the Company's initial public
offering in July 1996 and secondary offering in November 1996 which was used
to repay debt.
PROVISION FOR INCOME TAXES Provision for income taxes as a percent of pretax
income was approximately 39.0% for First Quarter 1997 compared to 45.2% tax
benefit for First Quarter 1996. This increase relates to the mix of the
Company's pretax earnings between the U.S. and the United Kingdom, which have
different tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Since June 7, 1994 (the date of the closing of the acquisition of the
assets and certain liabilities of the Company's predecessor), the Company has
satisfied its cash requirements through borrowings under its credit facility
and proceeds from its initial and secondary public offerings. Its primary
uses of cash have been to purchase merchandise inventories, finance growth of
the Company's accounts receivable, upgrade the Company's management
information systems, expand the U.S. corporate headquarters and finance
openings of Summit Shops, one retail store and one outlet. During the three
months ended March 31, 1997, the Company used cash of approximately $8.0
million for operations, primarily due to increased levels of inventory and
accounts receivable. These funds were provided by existing cash balances and
borrowings under the Company's credit facility.
Historically, the Company's ability to maintain adequate levels of
inventory was constrained by its capital resources. In March 1995, the
Company obtained an increase in its credit facility. As a result of this
increase in credit facility, as well as the Company's public offerings in
1996, the Company has increased its levels of inventory in order to better
enable it to meet reorder demand in key products. The Company
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anticipates that inventory levels will continue to increase as the Company
expands its business and implements its core inventory replenishment program.
Such inventory increases are expected to be financed by borrowings under the
Company's credit facility. The increased inventories resulting from this
core inventory replenishment program may result in increased excess inventory
and material, increased markdowns and lower margins.
The Company's credit facility provides for borrowings up to $60.0
million under its revolving line of credit with actual borrowings limited to
available collateral (approximately $42.2 million of gross availability as of
March 31, 1997) and for up to $5.0 million under a term note for capital
expenditures (approximately $5.0 million of remaining availability as of
March 31, 1997) from Heller Financial, Inc. and two banks. The credit
facility also provides a sublimit for letters of credit of up to $25.0
million to finance the Company's purchases of merchandise inventories from
foreign suppliers. As of March 31, 1997, the Company had approximately $6.8
million of letters of credit outstanding under the credit facility. The
credit facility contains certain financial covenants that require the Company
to maintain a specified minimum tangible net worth and interest coverage and
leverage ratios, limit capital expenditures and restrict the Company's
ability to incur additional indebtedness and pay cash dividends on its
capital stock. The Company was in compliance with these covenants as of
March 31, 1997.
The Company estimates that its total capital expenditures in 1997 will
be approximately $12.0 to $14.0 million. This amount will be used
principally for investment in Summit Shops, the upgrade of management
information systems, the expansion of the Company's administration and
distribution facilities and new technology center, expansion of its European
sales and marketing operations and remodeling of existing retail stores.
The Company anticipates that cash generated from operations and
available under the Company's credit facility will be sufficient to satisfy
its cash requirements for at least the next 12 months.
FACTORS THAT MAY AFFECT OUR BUSINESS
Certain statements set forth herein which refer to future financial items,
economic performance or operations are forward looking, and actual results
may differ materially from the results expected by the Company. The
Company's future growth and operating results may be adversely affected by a
number of factors, including those set forth below and elsewhere herein.
There may also be important, unforeseen risks not described herein.
CONSUMER PREFERENCES Consumer demand for the Company's products may be
adversely affected if consumer interest in outdoor activities does not grow
or declines. If the Company is unable to respond successfully to changes in
consumer preferences, or if consumer preferences shift toward competing
products or away from the Company's product categories altogether, the
Company's business would be adversely affected. The Company cannot assure
future growth or consumer demand for its products.
MANAGING GROWTH If the Company's business grows, the Company may have
increased difficulties in managing product design, hiring, marketing,
distribution, management information and other resources, and in obtaining
supplies, manufacturing services and working capital. The Company's future
profitability will be critically dependent on its ability to achieve and
manage potential future growth effectively.
WHOLESALE STRATEGY The Company's wholesale customers consist almost
exclusively of specialty outdoor product retailers. The Company cannot
assure that its existing customers will increase their purchases of the
Company's products, that future preseason wholesale orders will increase, or
that the Company will
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be able to fill reorders during each season. Because the Company expects its
wholesale business to constitute an increasing percentage of total sales
going forward, overall gross margins may continue to decline in the future.
The Company's wholesale strategy also depends on its ability to achieve
increased sales through its Summit Shop program. Risks of this program
include sourcing and managing higher inventory levels, funding all or most of
the cost of the Summit Shop fixtures without assurance of additional sales
and profits, and the need to supply products that maintain consumer demand on
a year round basis. There can be no assurance that additional Summit Shops
will be opened in a timely manner or that their cost or performance will meet
the Company's expectations. If the Summit Shop program is unsuccessful, the
Company risks writeoffs of inventory and fixtures that could have a material
adverse effect on the Company's business. The Company believes that the
success of its Summit Shop program will be highly dependent on market
acceptance of its recently introduced Tekware-TM- line of products.
DEPENDENCE ON NEW PRODUCTS To continue its growth, the Company must
successfully introduce new products and improvements to existing products on
an ongoing basis. Risks of new product introductions include targeting new
markets involving more casual outdoor uses, offering products in wider price
ranges, product obsolescence, increased costs and competition, possible
consumer rejection of new products or styles and possible dilution of the
Company's product image. In 1996, the Company introduced Tekware-TM-, a line
of synthetic outdoor apparel. The Company's limited experience in marketing
casual apparel, limited distribution channels, and possible consumer
resistance to synthetic fabrics could result in slow sales of Tekware-TM-.
RELIANCE ON UNAFFILIATED MANUFACTURERS The Company currently relies on
approximately 50 unaffiliated manufacturers to produce nearly all of its
products, with ten of the manufacturers producing approximately 75% of the
Company's products for 1996. The Company has no long-term contracts with its
manufacturing sources, and it competes with other companies for production
facilities and import quota capacity. Any disruption in the Company's
ability to obtain manufacturing services could have a material adverse effect
on the Company's business. The Company has occasionally received, and may in
the future receive, shipments of products from manufacturers that fail to
conform to the Company's quality control standards. The Company established
a core inventory replenishment program in October 1996 to facilitate reorders
of core products, and cannot assure that this program will meet reorder
requirements or avoid excess inventory.
KEY SUPPLIES Certain important materials used in the Company's products are
only available from one or a limited number of independent suppliers. The
Company's future success may depend upon the Company's continued ability to
purchase supplies of technically advanced textiles developed by third
parties. The Company cannot assure that it will be able to obtain in the
future adequate supplies of technically advanced materials or that desired
purchase terms or other benefits of past purchases, such as suppliers'
funding of development costs and co-op advertising arrangements, will
continue.
FLUCTUATIONS IN SALES Sales of the Company's products historically have
fluctuated due to external conditions such as weather and economic recessions
or other conditions which reduce consumer spending. The Company expects to
continue to experience seasonality in the future.
INTERNATIONAL OPERATIONS The Company's business is subject to the risks
generally associated with doing business abroad. The Company imports more
than 50% of its merchandise from contract manufacturers located outside of
the United States, primarily in the Far East. A significant portion of the
Company's products is produced in China. From time to time, the U.S.
government has considered imposing punitive tariffs on apparel and other
exports from China. The imposition of any such tariffs could disrupt the
supply of the Company's products, which could have a material adverse effect
on the Company's results of operations.
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COMPETITION AND TRADEMARKS The Company faces intense competition from major
brand name apparel companies, other large companies, and smaller businesses
specializing in outdoor products. The Company owns and uses a number of
trademarks, some of which may be important in maintaining or creating a
competitive advantage and consumer demand. Certain competitors in the United
States and abroad have copied and may in the future copy certain of the
Company's trademarks and designs. The Company is also aware of certain
counterfeiting of the Company's products. Without authorization by the
Company, a third party has filed an application in China to register as a
trademark the Chinese characters for "North Face" and a copy of the Company's
"N" design, and, unless successfully opposed, this application could result
in material adverse consequences to the Company's business. There is no
assurance that the Company's efforts to stop or reduce the copying or
counterfeiting of its trademarks or products will be successful, that the
Company's trademarks will not violate the proprietary rights of others, or
that the Company will be able to avoid or successfully defend challenges to
its trademarks or other intellectual property in the United States or abroad.
KEY PERSONNEL The Company recently announced a shift in its executive
responsibilities pursuant to which Marsden S. Cason was named Chairman of the
Board of Directors and William N. Simon was named Chief Executive Officer in
addition to his role as President. This change was due in part to health
considerations affecting Mr. Cason. The unanticipated loss of one or more
current senior executives or key employees could have a significant adverse
effect on the Company's business.
PRODUCT AND WARRANTY LIABILITY The Company's products are used often in
severe weather conditions. For example, in 1997 the Company began selling
portaledges used as sleeping platforms in big wall rock climbing. There is
no assurance that insurance maintained by the Company will cover possible
future losses from product liability claims. The Company maintains a
warranty reserve for the lifetime warranty offered on its products, but
cannot assure that future claims will not exceed this reserve. Further, in
the event that the Company experiences problems with product quality or
reliability, its reputation as a provider of high quality products could
suffer, which could have a material adverse effect on the Company's business.
STOCK MARKET RISKS The trading price of the Company's Common Stock has
fluctuated significantly since the Company's initial public offering in July
1996, and may fluctuate in the future as a result of many factors, including
the Company's operating results, new products introduced by the Company or
its competitors, market conditions for the Company's products, changes in
earnings estimates by analysts, results reported by the Company which are
more or less than estimates by analysts, and speculation in the trade or
business press. The trading price may also be affected by retail industry,
stock market, or economic factors unrelated to the Company's operating
performance. Future sales of substantial amounts of Common Stock by existing
stockholders may also adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise equity capital
in the future.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three-month period ended March 31, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE NORTH FACE, INC.
(REGISTRANT)
Dated: May 15, 1997 By: /S/ WILLIAM N. SIMON
-----------------------
William N. Simon
Chief Executive Officer
Dated: May 15, 1997 By: /S/ ROXANNA PRAHSER
-----------------------
Roxanna Prahser
Chief Financial Officer
(Principal Financial and Accounting
Officer of the Registrant)
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INDEX OF EXHIBITS
The following exhibits are included herein:
11.1 Computation Of Net Income Per Share
27.1 Financial Data Schedule
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EXHIBIT 11.1
THE NORTH FACE, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Three Months Ended
March 31,
------------------
1997 1996
------- --------
(pro forma)(1)
Weighted average shares outstanding during the period:
Weighted Average Shares Outstanding ..................... 11,205 2,902
Incremental shares from assumed
exercise of stock options (2)........................... 433 491
Shares issued upon conversion of Series A
Preferred Stock......................................... 0 4,008
----- ------
Weighted average common and common
equivalent shares outstanding........................... 11,638 7,401
------ ------
------ ------
Net Income .............................................. $235 $(629)
------ ------
------ ------
Earnings per Share (1996, pro forma):.................... $0.02 $(0.085)
------ ------
------ ------
(1) Pro forma due to the assumed conversion, as of the beginning of the
period, of all outstanding shares of Preferred Stock into Common Stock in
conjunction with the Company's initial public offering in July 1996.
(2) In accordance with the rules of the Securities and Exchange Commission,
common stock and common stock equivalents issued within one year to the
initial public offering effective July 8, 1996, have been considered as
outstanding for all periods using the treasury stock method (assuming a
market price of $14.00 in prior years), even though they are anti-dilutive
in loss periods.
-15-
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0
0
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