<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
May 7, 1999
THE NORTH FACE, INC.
--------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware
-------------------------------------------
(State or other jurisdiction of incorporation)
0-28596 94-3204082
- --------------------- ----------------------------
(Commission File No.) (IRS Employer Identification
Number)
407 Merrill Avenue
Carbondale, Colorado 81623
------------------------------------
(Address of Principal Executive Offices)
<PAGE>
(970) 704-2300
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
-2-
<PAGE>
Item 5. Other Events
------------
On May 7, 1999, The North Face, Inc. issued a press release announcing
that it had filed its annual report on Form 10-K for the year ended December 31,
1998. The Company also announced that it had filed an amended annual report on
Form 10-K for the year ended December 31, 1997, as well as an amended quarterly
report on Form 10-Q for each of the first three quarters of 1998. The Company
currently expects to file its quarterly report on Form 10-Q for the first
quarter of 1999 by May 24, 1999. The Company also announced that its Transaction
Agreement with Leonard Green & Partners, L.P. is in full force and effect
although Leonard Green & Partners has informed the Company that they are
reevaluating the transactions contemplated by the Transaction Agreement.
(a) Exhibits:
99.1 Press Release dated May 7, 1999
-3-
<PAGE>
SIGNATURE
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 hereunto duly authorized.
THE NORTH FACE, INC.
Dated: May 20, 1999 By: /s/James G. Fifield
----------------------------
James G. Fifield
President and Chief Executive Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
99.1 Press Release dated May 7, 1999.
<PAGE>
Exhibit 99.1
Contact: John Batelli
Director, Investor Relations
510.618-3631
THE NORTH FACE, INC.
FILES ITS ANNUAL REPORT ON FORM 10-K
CARBONDALE, Colo., May 7, 1999/PRNewsire/ - The North Face, Inc (Nasdaq: TNFI-
E), announced today that it has filed with the Securities and Exchange
Commission its annual report on Form 10-K for the year ended December 31, 1998
which includes the Company's audited financial statements for 1998. The Company
had previously announced that it was experiencing delays in making this filing
because the annual audit by the Company's independent auditors, Deloitte &
Touche, LLP was not complete. In addition, the Company announced that it has
filed an amended 10-K for 1997 which includes restated financial statements for
1997, as well as an amended 10-Q for each of the first three quarters of 1998.
The Company currently expects to file its 10-Q for the first quarter of 1999 by
May 24, 1999.
The Company's 1998 financial statements reflect a reduction in revenue from
$263.3 million to $247.1 million, a reduction in net income from $9.5 million to
$3.6 million, and a reduction of earnings per share from $0.76 cents to $0.29
cents from the results announced in the Company's 1998 earnings release issued
on January 29, 1999. Excluding charges for facility closure, relocation and
realignment, 1998 net income was reduced from $13.8 million to $8.1 million, and
earnings per share was reduced from $1.11 cents to $0.65 cents. The Company's
restated 1997 financial statements reflect a reduction in revenue from $208.4
million to $203.2 million, a reduction in net income from $11.1 million to $8.0
million, and a reduction of earnings per share from $0.96 cents to $0.69 cents
from the results reported in the Company's 1997 10-K filed with the SEC on March
6, 1998.
The restatements for each of the periods reflect three primary categories
of adjustments affecting the income statement: (1) the reversal of revenues
previously recognized which were associated with sales to two distributors
because sales accounting was not consistent with certain terms of those
transactions which were designed to avoid distribution into inappropriate
channels and preserve The North Face brand. The reversal of this revenue
lowered pre-tax earnings by $3.1 million in 1997 and $6.0 million in 1998; (2)
the write-off of capitalized and previously incurred costs to expense in order
to more appropriately reflect the future value of those costs. These write-
offs, primarily related to capitalized system implementation costs, lowered pre-
tax earnings by $1.8 million in 1997 and $1.0 million in 1998; and (3) increases
in accrued expenses, which reduced pre-tax earnings in 1997 by $0.3 million and
$2.7 million in 1998. Additional details regarding the amounts of the
restatements are summarized below.
The Company's 1998 results reflect annual sales growth of 21.6% from the
previous year, which includes 20.3% growth in wholesale sales and 27.8% growth
in Company owned retail and outlet stores. Gross margin was 45.3%, a decrease
of 20 basis points compared to 1997. Excluding charges for facility closure,
relocation and realignment, operating cash flow or EBITDA for 1998 was $25.7
million as compared to $20.4 million for 1997, an increase of 25.8%.
Jim Fifield, President and Chief Executive Officer, commented, "this has
been a difficult period in the Company's history. We know that the shareholders
have been frustrated by the lack of information and by the inability to trade in
the Company's stock. While these restatements are troubling, we do not believe
they diminish the strength of The North Face brand or our ability to achieve our
long range plan of broadening our product line, expanding our distribution and
improving our profit margins and cash flow. The difficult winter of 1998/1999
and the turmoil surrounding the events of the past months has negatively
impacted the Company in the short term. While we continue to believe that we
have good prospects ahead for the full-year 1999, we will report a loss for the
first quarter of 1999. These results will be significantly lower than analysts'
expectations."
-1-
<PAGE>
Mr. Fifield also stated that "the Company has taken steps to improve sales
and profitability over the balance of 1999, and it is our objective to achieve
overall growth of over 20% in sales and over 30% in net income, excluding non-
recurring charges, with a goal of earnings per share of $1.00 for the year. We
are pleased to report that Fall 1999 preseason sales growth is expected to
exceed 25% as the demand for the Company's products continues to grow. The
strength of the brand is further supported by comparative store growth in our
full priced retail stores of 11.2%, outlet stores of 27.8%, and a combined 16.3%
comparative store growth rate through March 1999. In addition, the introduction
of The North Face rugged footwear, which launched in March 1999, has met
expectations."
The Company also announced today that its Transaction Agreement with
Leonard Green & Partners, L.P. is in full force and effect although Leonard
Green & Partners has informed the Company that they are reevaluating the
transactions contemplated by the Transaction Agreement. The Company previously
announced that it had entered into a Transaction Agreement with Leonard Green &
Partners pursuant to which Leonard Green & Partners would acquire the Company.
Quote for reference ticker symbols: TNFIE
Statements included in this press release which are not historical in
nature, are intended to be, and are hereby identified as, "forward-looking
statements" for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended by Public Law 104-67. Specifically,
the statements relating to the Company's expected 10-Q filing for the first
quarter of 1999, the Company's ability to achieve its long range plan, the
Company's prospects for 1999, the Company's projected results for the first
quarter of 1999, the Fall 1999 preseason sales growth, and improvement of
profitability in 1999 are forward-looking statements. The Company cautions
readers that actual results or events may differ from those indicated in the
forward-looking statements as a result of the Company's inability to prepare the
financial information required to be disclosed in the 1999 first quarter 10-Q on
a timely basis, the decline in demand for the Company's products, material
increases in the Company's costs relative to its revenues, weather that is
warmer than usual, lower than expected margins, or the loss of services of any
key executive or director.
-2-
<PAGE>
<TABLE>
<CAPTION>
THE NORTH FACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
Restated
1998 1997
PREVIOUSLY PREVIOUSLY
REPORTED (A) RESTATED REPORTED (B) RESTATED
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net Sales $263,323 247,096 $ 208,403 203,247
Cost of Sales 143,225 135,134 113,339 110,764
------------------------ ------------------------
Gross Profit 120,098 111,962 95,064 92,483
Gross Profit Percent 45.6% 45.3% 45.6% 45.5%
Operating Expenses 92,845 93,897 73,720 76,350
Facility Closure, Relocation - -
and Realignment Expenses 6,954 7,379 - -
------------------------ ------------------------
Operating Income 20,299 10,686 21,344 16,133
Interest Expense (5,244) (4,907) (2,238) (2,238)
Other Income (Expense), net 425 64 (749) (749)
------------------------ ------------------------
Income Before Provision for Income Taxes 15,480 5,843 18,357 13,146
Provision for Income Taxes (5,960) (2,251) (7,250) (5,191)
------------------------ ------------------------
Net Income Including Facility Closure Charges
and Relocation and Realignment Expenses $ 9,520 3,592 $ 11,107 7,955
======================== ========================
Net Income Excluding Facility Closure Charges
and Relocation and Realignment Expenses $ 13,797 8,130 $ 11,107 7,955
======================== ========================
Weighted Average Shares Outstanding - Diluted 12,483 12,485 11,578 11,578
Net Income Per Share - Diluted:
Including Facility Closure Charges
and Relocation and Realignment Expenses $ 0.76 0.29 $ 0.96 0.69
Excluding Facility Closure Charges
and Relocation and Realignment Expenses $ 1.11 0.65 $ 0.96 0.69
</TABLE>
(a) As reported on January 29, 1999, "Fourth Quarter 1998 Earnings Release"
(b) As reported in 1997 Form 10-K filed with the SEC on March 6, 1998
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET DATA
(In thousands)
Restated
December 31
------------------------------------------
1998 1997
------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 13,452 4,511
Trade accounts receivable, net 71,460 48,745
Inventories 57,457 46,682
Working Capital 68,546 61,995
Total Assets 232,644 167,449
Accounts payable, accrued expenses &
other current liabilities 40,463 30,232
Current portion of long-term debt &
obligations under capital leases 55,910 25,734
Long-term debt & obligations under 5,360 5,177
leases
Total stockholders equity 123,210 100,141
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
THE NORTH FACE, INC.
Summary of 1997 and 1998 Audit Adjustments
CHANGES TO FINANCIAL RESULTS
(Dollars in millions, except per share amounts)
1997 1998
OPERATING NET OPERATING
REVENUE INCOME INCOME EPS ($) REVENUE INCOME NET INCOME EPS ($)
------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reported - including
non-recurring charges $208.4 21.3 11.1 0.96 $263.3 20.3 9.5 0.76
REPORTED - EXCLUDING
non-recurring charges $208.4 21.3 11.1 0.96 $263.3 27.3 13.8 1.11
AUDIT ADJUSTMENTS
REVENUE REVERSAL
Wholesale distributor - - - - (9.3) (4.1) (2.5) (0.20)
Barter transaction (5.2) (3.1) (1.9) (0.16) (0.9) (1.9) (1.2) (0.10)
Total - revenue reversals (5.2) (3.1) (1.9) (0.16) (10.2) (6.0) (3.7) (0.30)
WRITE-OFF OF CAPITALIZED COSTS
Includes information system
projects, product
development & other - (1.8) (1.1) (0.09) - (1.0) (0.6) (0.05)
INCREASES IN ACCRUED EXPENSES
Includes credit memos,
warranty & severance costs - (0.3) (0.1) (0.02) (2.6) (2.7) (1.7) (0.14)
OTHER ADJUSTMENTS
La Sportiva de-consolidation - - - - (3.5) - - -
Other - - - - 0.1 0.1 0.1 0.02
Total - - - - (3.4) 0.1 0.1 0.02
TOTAL ADJUSTMENTS * (5.2) (5.2) (3.1) (0.27) 16.2 (9.6) (5.9) (0.47)
Restated - including
non-recurring charges $203.2 16.1 8.0 0.69 $247.1 10.7 3.6 0.29
RESTATED - EXCLUDING
non-recurring charges $203.2 16.1 8.0 0.69 $247.1 18.1 8.1 0.65
</TABLE>
* Includes $0.4 million pre-tax adjustment to non-recurring charges in 1998
-4-
