<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
--------------------
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended November 25, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to _________
Commission File Number 0-19402
VANS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 33-0272893
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2095 Batavia Street
Orange, California 92665-3101
(Address of Principal Executive Offices) (Zip Code)
(714) 974-7414
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 9,693,617 shares of
Common Stock, $.001 par value, as of January 8, 1996.
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
VANS, INC.
Consolidated Balance Sheets
November 25, 1995 and May 31, 1995
<TABLE>
<CAPTION>
November 25, May 31,
1995 1995
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,506,499 $ 3,279,843
Accounts receivable, net of allowance for doubtful accounts of $1,146,834
and $812,631 at November 25, 1995 and May 31, 1995, respectively 17,449,411 12,584,244
Inventories (note 2) 18,806,843 16,997,738
Deferred income taxes 1,615,000 1,615,000
Income taxes receivable - 3,530,128
Prepaid expenses 1,156,182 498,555
----------- -----------
Total current assets 42,533,935 38,505,508
Property, plant and equipment, net 10,810,904 10,747,450
Excess of cost over the fair value of net assets acquired, net of accumulated
amortization of $32,348,162 and $31,966,872 at November 25, 1995 and May 31,
1995, respectively 16,891,238 17,272,527
Deferred financing costs, net of accumulated amortization of $306,516 and
$270,454 at November 25, 1995 and May 31, 1995, respectively 270,427 306,489
Property held for sale 5,299,771 5,299,771
Other assets 574,993 934,290
----------- -----------
$76,381,268 $73,066,035
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 7,041,278 $ 2,608,173
Current portion of senior notes 5,800,000 7,025,069
Accounts payable 6,662,533 8,579,473
Accrued payroll and related expenses 1,966,387 2,026,229
Restructuring costs 3,533,560 6,083,934
Accrued workers' compensation 1,126,689 1,540,046
Accrued interest 785,726 907,660
Income taxes payable 1,155,750 -
----------- -----------
Total current liabilities 28,071,923 28,770,584
Deferred income taxes 1,615,000 1,615,000
Capital lease obligation 368,132 441,384
Long term credit facility 6,894,448 -
Senior notes 17,400,000 21,974,931
----------- -----------
54,349,503 52,801,899
----------- -----------
Stockholders' equity:
Common stock, $.001 par value, 20,000,000 shares authorized, 9,646,917
and 9,639,877 shares issued and outstanding at November 25, 1995 and
May 31, 1995, respectively 9,647 9,640
Additional paid-in capital 46,837,645 46,803,649
Accumulated deficit (24,815,527) (26,549,153)
----------- -----------
22,031,765 20,264,136
----------- -----------
$76,381,268 $73,066,035
=========== ===========
</TABLE>
2
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VANS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Thirteen weeks ended November 25, 1995 and November 26, 1994
<TABLE>
<CAPTION>
Thirteen weeks ended
November 25, November 26,
1995 1994
------------ ------------
<S> <C> <C>
Net sales $29,098,068 $20,276,914
Cost of sales 17,247,502 12,237,136
----------- -----------
Gross profit 11,850,566 8,039,778
Operating expenses:
Selling and distribution 6,223,009 4,380,042
Marketing, advertising and promotion 1,672,912 1,198,621
General and administrative 1,282,178 1,513,977
Provision for doubtful accounts 103,950 20,348
Amortization of intangibles 190,645 410,332
----------- -----------
Total operating expenses 9,472,694 7,523,320
----------- -----------
Earnings from operations 2,377,872 516,458
Interest income - 19,864
Interest and debt expense (763,989) (714,031)
Other income 513,222 1,004,480
----------- -----------
Earnings before income taxes 2,127,105 826,771
Income tax expense 850,843 330,709
----------- -----------
Net earnings 1,276,262 496,062
=========== ===========
Net earnings per share $ 0.13 $ 0.05
=========== ===========
Weighted average common and common equivalent shares
(note 3) 10,114,665 9,853,250
=========== ===========
</TABLE>
3
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VANS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Twenty-six weeks ended November 25, 1995 and November 26, 1994
<TABLE>
<CAPTION>
Twenty-six weeks ended
November 25, November 26,
1995 1994
------------ ------------
<S> <C> <C>
Net sales $57,501,915 $41,736,990
Cost of sales 35,537,394 24,580,560
----------- -----------
Gross profit 21,964,521 17,156,430
Operating expenses:
Selling and distribution 12,338,063 8,743,010
Marketing, advertising and promotion 3,072,688 1,856,076
General and administrative 2,531,618 3,099,871
Provision for doubtful accounts 179,256 69,838
Amortization of intangibles 381,290 820,664
----------- -----------
Total operating expenses 18,502,915 14,589,459
----------- -----------
Earnings from operations 3,461,606 2,566,971
Interest income 0 71,966
Interest and debt expense (1,512,649) (1,428,057)
Other income 940,419 1,120,665
----------- -----------
Earnings before income taxes 2,889,376 2,331,545
Income tax expense 1,155,751 932,619
----------- -----------
Net earnings 1,733,625 1,398,926
=========== ===========
Net earnings per share $ 0.17 $ 0.14
=========== ===========
Weighted average common and common equivalent shares
(note 3) 10,072,720 9,814,065
=========== ===========
</TABLE>
4
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VANS, INC.
STATEMENTS OF CASH FLOWS
Twenty-six weeks ended November 25, 1995 and November 26, 1994
<TABLE>
<CAPTION>
Twenty-six weeks ended
November 25, November 26,
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,733,625 $ 1,398,926
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 1,591,338 2,170,519
Amortization of deferred financing costs 36,062 36,062
Provision for losses on accounts receivable and sales returns 334,203 189,889
Changes in assets and liabilities:
Accounts receivable (5,199,370) 1,621,121
Income taxes receivable 3,530,128 526,131
Inventories (1,809,105) (6,460,907)
Prepaid expenses (657,627) (646,464)
Other assets 359,297 91,989
Accounts payable (1,916,940) 2,138,343
Accrued payroll and related expenses (59,842) (1,504,832)
Accrued workers' compensation, net (413,357) (10,897)
Restructuring costs (2,550,374) -
Accrued interest (121,934) (5)
Income taxes payable 1,155,750 -
----------- -----------
Net cash used in operating activities (3,988,146) (450,125)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,273,502) (1,560,191)
----------- -----------
Net cash used in investing activities (1,273,502) (1,560,191)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term borrowings 4,433,105 -
Payments on capital lease obligations (73,252) -
Proceeds from long term credit facility 6,894,448 -
Principal payments on senior notes (5,800,000) -
Proceeds from issuance of common stock, net 34,003 168,482
----------- -----------
Net cash provided by financing activities 5,488,304 168,482
----------- -----------
Net increase (decrease) in cash and cash equivalents 226,656 (1,841,834)
Cash and cash equivalents, beginning of period 3,279,843 7,129,172
----------- -----------
Cash and cash equivalents, end of period $ 3,506,499 $ 5,287,338
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION - AMOUNTS PAID FOR:
Interest $ 1,476,587 $ 1,392,000
Income taxes $ 41,265 $ 304,969
</TABLE>
5
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VANS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Vans, Inc. (the "Company") manufactures and markets high-quality
casual and active casual shoes for men, women and children, as well as
performance footwear for enthusiast sports and snowboard boots, primarily under
the brand name "Vans."* The Company is the successor to Van Doren Rubber
Company, Inc. , a California corporation that was founded in 1966 ("VDRC").
VDRC was merged with and into the Company in connection with the Company's
initial public offering of Common Stock in August 1991.
The financial statements included herein are unaudited and reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of the interim period presented. The results of
operations for the current interim periods are not necessarily indicative of
results to be expected for the current year.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation.
2. Inventories are comprised of the following:
<TABLE>
<CAPTION>
11/25/95 5/31/95
----------- -----------
<S> <C> <C>
Raw Materials $ 1,970,832 $ 1,978,760
Work-in-Process 84,630 695,995
Finished Goods 17,351,381 14,922,983
----------- -----------
19,406,843 17,597,738
Inventory Reserves (600,000) (600,000)
----------- -----------
$18,806,843 $16,997,738
=========== ===========
</TABLE>
3. Primary earnings per share approximate fully diluted earnings per
share for the thirteen weeks and twenty-six weeks ended November 25, 1995 and
November 26, 1994.
- -------------
* Vans is a registered trademark of Vans, Inc.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Vans, Inc. is a leading designer, manufacturer and distributor of a
collection of high quality casual and active-casual footwear for men, women and
children, as well as performance footwear for enthusiasts of outdoor sports such
as skateboarding, snowboarding and BMX bicycling. The Company is the successor
to Van Doren Rubber Company, Inc., a California corporation that was founded in
1966 ("VDRC"). VDRC was acquired by the Company in February 1988 in a series of
related transactions for a total cost (including assumed liabilities) of $74.4
million (the "Acquisition"). The Acquisition resulted in the recognition of
approximately $48.0 million of goodwill by the Company (the "Acquisition
Goodwill"). VDRC was merged with and into the Company in August 1991 at the time
of the Company's initial public offering.
Prior to fiscal 1995, the Company manufactured all of its footwear at two
domestic manufacturing facilities located in Southern California. As part of the
Company's strategic redirection, in the first quarter of fiscal 1995 the Company
began to source from South Korea its line of casual and performance footwear
known as the International Collection. The success of the International
Collection created a domestic manufacturing overcapacity problem for the Company
which contributed to an overstock in domestic inventories. In the second quarter
of fiscal 1995, the Company increased the inventory valuation allowance from
$324,772 to approximately $600,000 in order to help mitigate the risks
associated with increased inventory balances. In the third quarter of fiscal
1995, the Company took steps to adjust its U.S. production; however, customer
demand for the International Collection continued to grow. In the fourth quarter
of fiscal 1995, it first became apparent that domestic manufacturing workforce
reductions would not be sufficient to address the increase in orders for the
International Collection and the decrease in demand for domestically-produced
footwear, and the Company determined that a plant closure would be required.
Therefore, on May 30, 1995 the Board of Directors voted to close its Orange,
California manufacturing facility (the "Orange Facility") and in July 1995, the
Company closed the Orange Facility. Accordingly, the Company recognized
restructuring costs of $30.0 million in the fourth quarter of fiscal 1995. Of
that amount: (i) $20.0 million represented a write-off of the goodwill allocated
to the manufacturing know-how associated with the Orange Facility (the "Orange
Facility Goodwill"); and (ii) $10.0 million represented restructuring costs to
close the Orange Facility. All remaining U.S. production of the Company was
shifted to the Company's smaller Vista, California manufacturing facility (the
"Vista Facility").
The Company is attempting to sell the Orange Facility and anticipates that,
if such sale is consummated, its administrative personnel will be primarily
relocated to space near the Company's City of Industry, California distribution
center. The Company is in preliminary negotiations with several potential buyers
of the Orange Facility. The Company cannot currently estimate when such
negotiations may result in a purchase agreement, if at all. The expected cost of
disposal of the Orange Facility is estimated at approximately $300,000 which
consists primarily of a 6% sales commission and legal fees.
In the fourth quarter of fiscal 1995, the Company wrote-down $6.3 million
of inventory. The write-down of inventory consisted of $4.5 million of
domestically-produced finished goods and $1.8 million of raw material inventory.
Such inventory became impaired as a result of the following events which
occurred in the fourth quarter of fiscal 1995: (i) the expanding sales of the
International Collection; (ii) the slowing of sales of domestically-produced
footwear and related price erosion and discounting; (iii) the decrease in
domestic production as a result of the above and the subsequent closure of the
Orange Facility; and (iv) the discontinuance of certain domestically-produced
product.
7
<PAGE> 8
Management of the Company, with the assistance of outside valuation
consultants, calculated the amount of the Orange Facility Goodwill based on an
analysis of the Company's business at the date of the Acquisition. At that time,
the Company's strategy was one of manufacturing efficiency, and the Company's
reputation was based on fast-turn, made-to-order manufacturing. The Company's
fixed assets as of the date of the Acquisition were primarily deployed to
manufacture footwear, and the Company's chain of retail stores served as outlets
for the footwear manufactured at the Orange Facility.
Based on this analysis, and a similar analysis of the other components of
the Acquisition Goodwill (trademarks and dealer relationships), management
determined that approximately 53% of such Acquisition Goodwill should have been
allocated to the manufacturing know-how associated with the Orange Facility at
the date of the Acquisition. The unamortized portion of the Orange Facility
Goodwill at May 31, 1995 was $20.0 million, and was written-off in connection
with the closure of the Orange Facility.
RESULTS OF OPERATIONS
THIRTEEN-WEEK PERIOD ENDED NOVEMBER 25, 1995 ("Q2 FISCAL 1996") VERSUS THE
THIRTEEN-WEEK PERIOD ENDED NOVEMBER 26, 1994 ("Q2 FISCAL 1995")
NET SALES. Net sales for Q2 Fiscal 1996 increased 43.5% to $29,098,000,
compared to $20,277,000 for the same period in fiscal 1995. The sales increase
was primarily driven by (i) sales of the International Collection, which
increased from approximately $3,774,000, or 18.6% of net sales for Q2 Fiscal
1995, to approximately $16,500,000, or 56.7% of net sales for Q2 Fiscal 1996;
and (ii) sales of the Company's recently introduced line of snowboard boots,
which totaled $3,763,000, or 12.9% of net sales for Q2 Fiscal 1996.
Sales to national accounts increased 67.2% during Q2 Fiscal 1996 to
$16,880,000, compared to $10,093,000 for the comparable period of fiscal 1995.
The increase featured a 76.3% increase in sales to the Company's top 10
accounts.
8
<PAGE> 9
Sales through the Company's 80-store retail chain (as of November 25,
1995) increased 21.9% to $6,913,000, up from $5,672,000 for Q2 Fiscal 1995.
Comparable store sales (sales at stores open one year or more) were up 12.8%
for the quarter. Comparable store sales increased for each Company store type,
with Factory outlet store comparable sales leading the way with a 26.2%
increase.
Sales for export increased 17.6% to $5,305,000 for Q2 Fiscal 1996,
compared to $4,512,000 for the same period a year ago. Increased sales to
Germany, the United Kingdom, Canada and France were the principal reasons for
the increase.
GROSS MARGIN. Gross margin increased to 40.7% for Q2 Fiscal 1996 from 39.7%
for the comparable period a year ago. The improvement in gross margin was
primarily due to higher margins associated with sales of the International
Collection which were partially offset by (i) lower margins associated with
sales of snowboard boots, and (ii) a shift in sales mix of the Company's
distribution channels.
OPERATING EXPENSES. Operating expenses increased to $9,473,000 for Q2 Fiscal
1996, up from $7,523,000 for Q2 Fiscal 1995. The increase was primarily the
result of the following factors: (i) increased commissions to sales
representatives due to increased sales to national accounts; (ii) increased
distribution costs related to the operation of the Company's City of Industry
distribution facility which did not exist in Q2 Fiscal 1995; (iii) increased
advertising expenditures to support the Company's sales growth; and (iv) costs
associated with increased personnel needed to manage the Company's sales growth.
These increases were partially offset by a decrease in amortization of
intangibles from $410,000 to $191,000 on a period-to-period basis as a result of
the write-off of the Orange Facility Goodwill at May 31, 1995. See "Overview."
OTHER INCOME. Other income decreased to $513,000 in Q2 Fiscal 1996 from
$1,004,000 in Q2 Fiscal 1995, primarily due to the absence of a one-time benefit
of $572,000 of litigation recovery received in Q2 Fiscal 1995.
INTEREST AND DEBT EXPENSE. Interest and debt expense increased to $764,000 in
Q2 Fiscal 1996, as compared to $714,000 in Q2 Fiscal 1995. The increase was
attributable to interest payments made to the Company's secured and unsecured
lenders which did not exist in Q2 Fiscal 1995. See "Liquidity and Capital
Resources."
9
<PAGE> 10
TWENTY-SIX WEEK PERIOD ENDED NOVEMBER 25, 1995 VERSUS TWENTY-SIX WEEK PERIOD
ENDED NOVEMBER 26, 1994
NET SALES. Net sales increased 37.8% to $57,502,000 in the first twenty-six
weeks of Fiscal 1996 from $41,737,000 in the first twenty-six weeks of Fiscal
1995. Increased sales were primarily attributable to the Company's national
accounts which increased 48.3% to $34,143,000, while international sales
increased 27.8% to $9,392,000 on a period-to-period basis and sales through the
Company's retail network increased 23.0% to $13,967,000.
GROSS MARGIN. Gross margin decreased to 38.2% for the first twenty-six weeks
of Fiscal 1996 from 41.1% for the comparable period a year ago. Margins were
negatively impacted during the first twenty-six weeks of Fiscal 1996 because
the Company experienced significant manufacturing variances in Q1 Fiscal 1996
related to the closure of the Orange facility and the ramp-up of production at
the Vista facility. See "Fiscal 1995 Restructuring."
OPERATING EXPENSES. Operating expenses increased 26.8% to $18,503,000 in the
first twenty-six weeks of Fiscal 1996 from $14,589,000 in the first twenty-six
weeks of Fiscal 1995. The increase was primarily a result of the conditions
discussed under the caption "Results of Operations - Operating Expenses" for Q2
Fiscal 1996.
OTHER INCOME. Other income decreased to $940,000 in the first twenty-six weeks
of Fiscal 1996 from $1,121,000 in the first twenty-six weeks of Fiscal 1995.
The decrease was primarily the result of the conditions discussed under the
caption "Results of Operations -- Other Income" for Q2 Fiscal 1996, partially
offset by increased royalty income in the first twenty-six weeks of Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $10.0 million revolving line of credit with a bank,
which is secured by the eligible accounts receivable of the Company (the
"Secured Bank Line"). The Company is permitted to borrow up to 75% of the
dollar amount of such accounts. The Secured Bank Line was established in July
1995. The Company pays interest on the debt incurred under this Line at the
prime rate established by the bank from time to time. The Company has the
option to pay interest at the LIBOR rate. Under the agreement establishing the
Line, the Company must maintain certain financial covenants and is prohibited
from paying dividends without the bank's consent. Debt incurred under the
Secured Bank Line is due and payable on July 1, 1997. At November 25, 1995,
the Company had drawn down $6,894,000 under the Secured Bank Line.
Additionally, at November 25, 1995, the Company was in compliance with all
covenants under the Agreement governing the Secured Bank Line.
The Company has a $4,000,000 unsecured revolving credit facility with
Ssanyong Corporation, a South Korean corporation, which is utilized to support
the purchase of footwear. Assuming full utilization of the line, the Company
will pay an effective interest rate of 15.6% per annum on the debt incurred
under the facility, comprised of (i) a fee of 10% payable at the time of the
first draw thereunder, and (ii) annual interest of 5.6% on the outstanding
debt. The facility expires on April 26, 1997. The balance payable under the
facility was approximately $4,000,000 as of November 25, 1995.
At November 25, 1995, the Company had outstanding $23,200,000 million
principal amount of the 9.6% Senior Notes. Interest on such Notes is payable
on February 1 and August 1 of each year. On August 1, 1995, the Company paid
the first installment of principal of the Notes ($5.8 million), along with $1.4
million of interest also due on that date. Equal additional installments of
principal are due on August 1, 1996, 1997 and 1998, with remaining principal
plus accrued interest due on August 1, 1999. The agreements governing the 9.6%
Senior Notes restrict the Company's ability to declare dividends and require
the Company to maintain certain financial covenants. At November 25, 1995, the
Company was in compliance with all such covenants.
10
<PAGE> 11
The Company's cash position was $3,506,000 at November 25, 1995,
exclusive of approximately $680,000 of restricted cash included in other assets
in the consolidated balance sheets which related to the Company's self-insured
workers' compensation plan. In connection with the self-insurance, the Company
maintains a $2,304,000 surety bond which is secured by $680,000 in long-term
marketable securities. The Company's cash position continues to be adversely
impacted by the rapid sales growth of the imported International Collection.
See "Results of Operations - Net Sales." Because the International Collection
is imported, there are greater timing differences between the payment for goods
and the receipt of cash from sales of such goods. Additionally, because
payment terms in the ski and snow industry are longer than the Company's
traditional distribution channels, there are even greater timing differences
between payment for the Company's new line of snowboard boots and the receipt
of cash from sales of such boots.
11
<PAGE> 12
The Company believes that cash from operations, coupled with its
current level of financing, is sufficient to satisfy its anticipated cash needs
for the remainder of Fiscal 1996 and the first quarter of Fiscal 1997, during
which the Company must make the second $5.8 million principal payment of the
9.6% Senior Notes. NOTE: THE FOREGOING IS A FORWARD-LOOKING STATEMENT; THE
COMPANY'S ACTUAL RESULTS MAY BE MATERIALLY DIFFERENT. IF SALES OF THE COMPANY'S
IMPORTED INTERNATIONAL COLLECTION FOOTWEAR AND SNOWBOARD BOOTS GROW AT A RATE
THAT IS FASTER THAN ANTICIPATED DURING THE REMAINDER OF FISCAL 1996, ADDITIONAL
FINANCING WILL BE REQUIRED TO SUPPORT SUCH GROWTH AND TO SATISFY THE COMPANY'S
OTHER CASH REQUIREMENTS. THE COMPANY IS CURRENTLY EXPLORING NUMEROUS FINANCING
ALTERNATIVES, BUT THERE CAN BE NO ASSURANCE THAT SUCH FINANCING WILL BE
AVAILABLE, OR THAT IF IT IS AVAILABLE IT WILL BE ON TERMS ACCEPTABLE TO THE
COMPANY. IF THE COMPANY FAILS TO OBTAIN SUCH FINANCING, SUCH GROWTH MAY BE
SLOWED AND EARNINGS COULD BE NEGATIVELY IMPACTED.
The Company experienced an outflow of cash from operating activities
of $3,988,000 during the first twenty-six weeks of Fiscal 1996, compared to an
outflow of cash of $450,000 for the same period in Fiscal 1995. The cash used
in operations was primarily the result of increases in accounts receivable,
inventory, and prepaids and decreases in the restructuring costs accrual,
accounts payable, accrued workers' compensation and accrued interest. Cash
used in operations was partially offset by the decrease in income taxes
receivable and an increase in income taxes payable.
The Company had a net outflow of cash from investing activities of
$1,274,000 during the first twenty-six weeks of Fiscal 1996, compared to an
outflow of cash of $1,560,000 for the same period in Fiscal 1995, due to
capital expenditures.
The Company had a net inflow of cash from financing activities of
$5,488,000 during the first twenty-six weeks of Fiscal 1996, compared to an
inflow of cash of $168,000 for the same period in Fiscal 1995. The cash
provided by financing activities was primarily the result of proceeds from the
Secured Bank Line and the unsecured revolving credit facility with Ssanyong
Corporation. Cash provided by financing activities was partially offset by the
payment of $5,800,000 of the principal amount of the 9.6% Senior Notes on
August 1, 1995.
Accounts receivable, net of allowance for doubtful accounts, increased
to $17,449,000 at November 25, 1995 from $12,584,000 at May 31, 1995. The
increase was primarily due to the increase in net sales the Company experienced
during the first twenty-six weeks of Fiscal 1996 and the timing of such sales.
12
<PAGE> 13
Inventories, which include raw materials, work-in-process, accessories
and finished goods, increased to $18,807,000 at November 25, 1995 from
$16,998,000 at May 31, 1995, primarily as a result of (i) an increase in
finished goods related to the Company's new line of snowboard boots (which have
a much higher cost per pair than the Company's other footwear inventory); (ii)
an increased number of finished goods held for sale at the Company's retail
stores; and (iii) an increased number of International Collection pairs needed
to support increased sales volume. These increases in inventory were partially
offset by a decrease in the Company's work-in-process inventory in connection
with the closing of the Orange facility. See "Fiscal 1995 Restructuring."
In the remainder of Fiscal 1996, the Company plans to open three to
six new retail stores at an estimated aggregate cost of $200,000 - $500,000.
The stores will be opened throughout the year and consist primarily of factory
outlet stores. At the same time, the Company will continue to identify and
close underperforming stores.
The Company is currently exploring a number of systems-related
projects, including a materials requirement planning system and shipping and
warehouse systems, to further enhance its scheduling, manufacturing and
distribution capabilities. While it is too early to estimate the depth, and
therefore the cost of these projects, the Company estimates that these projects
will be financed with internally generated funds.
SEASONALITY
Historically, the Company's business has been somewhat seasonal, with
the largest percentage of sales realized in the fourth and first fiscal
quarters (March through August), the so-called "Spring and Summer" and "Back to
School" months. However, with the introduction of the Company's line of
snowboard boots, the seasonal aspects of the Company's business have been
reduced, since sales of such boots are primarily recognized in the second and
third fiscal quarters.
CERTAIN CONSIDERATIONS
The Company operates in a highly competitive industry. Many of its
competitors are significantly larger and have greater resources than the
Company, including significantly larger marketing and advertising budgets.
Management believes that, in order for the Company to compete more effectively,
it must continue to devote more resources to developing and marketing products
aimed at its core customers.
Additionally, the Company's importation of product from foreign
countries is subject to certain risks, such as export duties, quotas, and
political instability. The Company cannot predict the likelihood of such
developments occurring or their effect on the Company. See also "Liquidity and
Capital Resources" for a discussion of the impact imported product has on the
Company's liquidity.
13
<PAGE> 14
Also, the Company's future operating results may be affected by a
number of other factors, including: uncertainties related to global economic
conditions; the strength of its distribution channels; adverse weather
conditions, which could negatively affect sales of snowboard boots; and the
Company's ability to effectively manage expense growth relative to revenue
growth. The Company typically ships a large portion of its products toward the
end of the quarter, coinciding with peak spring, summer, back-to-school and
holiday selling periods. Consequently, the Company may not learn of sales
shortfalls until late in any particular fiscal quarter, which could result in
an adverse effect on the trading price of its stock.
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 Financial Data Schedule
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
Vans, Inc.
(Registrant)
Date: May 15, 1996 By: /s/ Craig E. Gosselin
-----------------------------------
CRAIG E. GOSSELIN
Vice President and
General Counsel
16
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<NAME> VANS INC.
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