<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------------
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended February 28, 1998
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.
(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.)
15700 Shoemaker Avenue
Santa Fe Springs, California 90670-5515
(Address of Principal Executive Offices) (Zip Code)
(562) 565-8267
(Registrant's Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Formal 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 report(s), 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: 13,345,542 shares
of Common Stock, $.001 par value, as of April 13, 1998.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1998 AND MAY 31, 1997
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 10,717,400 $ 15,350,175
Accounts receivable, net of allowance for doubtful accounts of $1,536,702 and $1,399,589 at
February 28, 1998 and May 31, 1997, respectively 27,649,517 24,390,794
Inventories 31,452,130 25,098,695
Prepaid expenses 3,314,653 2,960,435
------------- -------------
Total current assets 73,133,700 67,800,099
Property, plant and equipment, net 14,932,604 13,346,452
Property held for lease 4,857,522 4,953,522
Excess of cost over the fair value of net assets acquired, net of accumulated
amortization of $34,273,289 and $33,580,138 at February 28, 1998 and May 31,
1997, respectively 18,460,502 17,862,389
Other assets, net 4,577,564 1,861,808
------------- -------------
Total Assets $ 115,961,892 $ 105,824,270
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,629,338 $ 3,684,419
Accounts payable 4,364,571 4,906,192
Accrued payroll and related expenses 2,053,735 2,047,509
Income taxes payable 2,607,465 3,763,727
------------- -------------
Total current liabilities 12,655,109 14,401,847
------------- -------------
Deferred income taxes 1,774,732 1,636,605
Capital lease obligation 181,864 222,605
Long term debt 1,990,469 258,594
------------- -------------
Total Liabilities 16,602,174 16,519,651
------------- -------------
Minority interest 767,709 1,022,893
Stockholders' equity:
Common stock, $.001 par value, 20,000,000 shares authorized, 13,344,542 and
13,166,947 shares issued and outstanding at February 28, 1998 and May 31, 1997,
respectively 13,361 13,167
Cumulative foreign translation adjustment (46,575) 123,919
Additional paid-in capital 102,430,878 101,113,448
Stock subscriptions -- (4,500)
Accumulated deficit (3,805,655) (12,964,308)
------------- -------------
Total Shareholders' Equity 98,592,009 88,281,726
------------- -------------
Total Liabilities & Stockholders' Equity $ 115,961,892 $ 105,824,270
============= =============
</TABLE>
2
<PAGE> 3
VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THIRTEEN WEEKS ENDED FEBRUARY 28, 1998 AND MARCH 1, 1997
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
FEBRUARY 28, MARCH 1
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 43,511,454 $ 39,101,657
Cost of sales 25,018,900 22,979,932
------------ ------------
Gross profit 18,492,554 16,121,725
Operating expenses:
Selling and distribution 8,439,507 7,238,997
Marketing, advertising and promotion 3,888,370 3,557,091
General and administrative 1,825,026 1,741,348
Provision for doubtful accounts 421,875 163,179
Amortization of intangibles 235,288 227,366
------------ ------------
Total operating expenses 14,810,066 12,927,981
------------ ------------
Earnings from operations 3,682,488 3,193,744
Interest income 73,342 128,516
Interest and debt expense (27,041) (66,247)
Other income (expense) (28,633) 598,151
Minority interest (68,230) (173,037)
------------ ------------
Earnings before income taxes 3,631,926 3,681,127
Income tax expense 1,307,494 1,487,969
------------ ------------
Net earnings $ 2,324,432 $ 2,193,158
============ ============
Earnings per share information:
Basic:
Weighted average shares 13,360,489 13,106,843
Net earnings per share $ 0.17 $ 0.17
============ ============
Diluted:
Weighted average shares 13,873,924 13,848,896
Net earnings per share $ 0.17 $ 0.16
============ ============
</TABLE>
3
<PAGE> 4
VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
THIRTY-NINE WEEKS ENDED FEBRUARY 28, 1998 AND MARCH 1, 1997
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
FEBRUARY 28, MARCH 1,
1998 1997
------------- -------------
<S> <C> <C>
Net sales $ 141,669,623 $ 120,162,650
Cost of sales 83,999,208 72,525,442
------------- -------------
Gross profit 57,670,415 47,637,208
Operating expenses:
Selling and distribution 25,447,459 20,720,644
Marketing, advertising and promotion 12,648,776 10,037,864
General and administrative 5,314,382 4,765,531
Provision for doubtful accounts 697,926 569,687
Amortization of intangibles 693,150 608,656
------------- -------------
Total operating expenses 44,801,693 36,702,382
------------- -------------
Earnings from operations 12,868,722 10,934,826
Interest income 310,773 347,391
Interest and debt expense (177,895) (365,238)
Other income 1,812,222 1,925,663
Minority interest (503,426) (173,037)
------------- -------------
Earnings before income taxes 14,310,396 12,669,605
Income tax expense 5,151,743 4,977,729
------------- -------------
Net earnings $ 9,158,653 $ 7,691,876
============= =============
Earnings per share information:
Basic:
Weighted average shares 13,273,246 12,895,492
Net earnings per share $ 0.69 $ 0.60
============= =============
Diluted:
Weighted average shares 13,878,636 13,725,980
Net earnings per share $ 0.66 $ 0.56
============= =============
</TABLE>
4
<PAGE> 5
VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED FEBRUARY 28, 1998 AND MARCH 1, 1997
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
FEBRUARY 28, MARCH 1,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 9,158,653 $ 7,691,876
Adjustments to reconcile net earnings to net cash
provided by ( used in) operating activities:
Depreciation and amortization 3,318,950 2,545,302
Minority share of income 503,426 --
Provision for losses on accounts receivable and sales returns 746,851 569,687
Changes in assets and liabilities:
Accounts receivable (4,005,574) (504,904)
Inventories (6,353,435) (3,928,285)
Prepaid expenses (354,218) 857,719
Other assets (1,740,083) 90,959
Accounts payable (541,621) (152,969)
Accrued payroll and related expenses 6,226 (279,565)
Accrued workers' compensation -- (398,387)
Restructuring costs -- (329,513)
Income taxes payable (1,156,262) 2,423,137
Deferred income taxes 138,127 --
------------ ------------
Net cash provided by (used in) operating activities (278,960) 8,585,057
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (3,990,577) (2,585,660)
Investments in other companies and intangibles (2,027,535) (500,000)
------------ ------------
Net cash used in investing activities (6,018,112) (3,085,660)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short term borrowings (55,081) (5,216,563)
Payments on capital lease obligations (40,741) (20,001)
Proceeds from long term debt 1,731,875 --
Consolidated subsidiary dividends paid to minority shareholders (526,106) --
Proceeds from issuance of common stock, net 1,031,059 2,218,657
Payment for repurchase of common stock (306,215) --
------------ ------------
Net cash provided by (used in) financing activities 1,834,791 (3,017,907)
Effect of exchange rate on cash (170,494) --
------------ ------------
Net increase (decrease) in cash and cash equivalents (4,632,775) 2,481,490
Cash and cash equivalents, beginning of period 15,350,175 14,233,352
------------ ------------
Cash and cash equivalents, end of period $ 10,717,400 $ 16,714,842
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION - AMOUNTS PAID FOR:
Interest $ 177,895 $ 338,104
Income taxes $ 6,128,837 $ 2,587,801
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued to acquire an increased interest in
consolidated subsidiary $ 597,280 $ --
</TABLE>
5
<PAGE> 6
VANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Vans, Inc., a Delaware corporation (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 condensed consolidated 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
periods 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>
FEBRUARY 28, 1998 MAY 31, 1997
----------------- ------------
<S> <C> <C>
Raw materials $ 2,154,508 $ 1,743,660
Work-in-process 473,797 32,796
Finished goods 29,636,578 24,067,041
------------ ------------
32,314,883 25,843,497
Less: Valuation allowance (862,753) (744,802)
------------ ------------
$ 31,452,130 $ 25,098,695
============ ============
</TABLE>
3. The difference between basic and diluted earnings per share is due to the
inclusion of employee incentive stock options in the diluted net earnings
per share calculation.
4. During Q2 Fiscal 1997, the Company acquired a 51% interest in Global
Accessories Limited, an international distributor based in the United
Kingdom ("Global"). The purchase price of $2,811,000 consisted of the
issuance of 170,000 shares of the Company's common stock and related
acquisition costs in exchange for 51% of the common shares of Global. The
excess of the cost over the fair value of the net assets acquired is
reflected as excess of cost over the fair value of net assets acquired in
the accompanying condensed consolidated balance sheets. During Q2 Fiscal
1998, the Company acquired an additional 9% of the common shares of Global
to bring the total investment to 60%. The purchase price of $597,280
consisted of the issuance of 37,330 shares of the Company's common stock.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements that involve
risk and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed hereunder, as well
as those discussed under the caption "Certain Considerations" on pages 9 to 12
of the Company's Annual Report on Form 10-K for the year ended May 31, 1997,
which is filed with the Securities and Exchange Commission.
OVERVIEW
The Company is a leading designer, manufacturer and distributor of high
quality stylish-casual and active-casual footwear and clothing, as well as
performance footwear for enthusiast sports such as skateboarding, snowboarding,
surfing, wakeboarding, BMX racing, and mountain bike racing, 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 acquired by
the Company in February 1988 in a series of related transactions for a total
cost (including assumed liabilities) of $74.4 million. VDRC was merged with and
into the Company in August 1991 at the time of the Company's initial public
offering.
On November 20, 1996, the Company acquired 51% of the outstanding common
shares of Global Accessories Limited ("Global"), the Company's exclusive
distributor for the United Kingdom, in a stock-for-stock transaction. During Q2
Fiscal 1998, the Company acquired another 9% of the Global common shares in
exchange for Common Stock of the Company. The remaining 40% of the Global common
shares is expected to be acquired by the Company over the next four years. The
results of Global are consolidated in the Company's financial statements.
In addition, the Company has established a subsidiary in Mexico, Vans
Latinoamericana (Mexico), S.A. de C.V. ("Vans Latinoamericana"), and a
subsidiary in Argentina, Vans Argentina S.A. ("Vans Argentina"). The results of
these subsidiaries are also consolidated in the Company's financial statements.
All significant intercompany balances and transactions have been eliminated in
consolidation.
RESULTS OF OPERATIONS
THIRTEEN-WEEK PERIOD ENDED FEBRUARY 28, 1998 ("Q3 FISCAL 1998") VERSUS THE
THIRTEEN-WEEK PERIOD ENDED MARCH 1, 1997 ("Q2 FISCAL 1997")
NET SALES
Net sales for Q3 Fiscal 1998 increased 11.3% to $43,511,000, compared to
$39,102,000 for the same period in Fiscal 1997. The sales increase was driven by
increases in the Company's domestic wholesale and retail sales channels, as
discussed below.
Sales to the Company's wholesale accounts on a worldwide basis increased
7.1% to $31,860,000 during Q3 Fiscal 1998, compared to $29,755,000 during Q3
Fiscal 1997. Within the Company's wholesale business, sales to domestic
wholesale accounts increased 20.3% during Q3 Fiscal 1998 to $20,507,000 compared
to $17,046,000 for the comparable period of Fiscal 1997, primarily as a result
of increased sales to the Company's top twenty-five accounts. Sales to
international distributors through the Company's Hong Kong subsidiary, Vans Far
East Limited ("VFEL"), decreased 10.7% to $11,353,000 for Q3 Fiscal 1998,
compared to $12,709,000 for the same period a year ago. Decreased sales to
distributors for the Pacific Rim and Europe were the principal reasons for the
decrease. The Company anticipates that sales to international distributors,
including exports from the Company's Vista, California manufacturing facility
(the "Vista Facility"), will be lower in the fourth quarter of fiscal 1998 ("Q4
Fiscal 1998") versus the same period a year ago, primarily due to the weakened
Japanese and Pacific Rim economies and the strength of the U.S. dollar relative
to foreign currencies.**
- ---------------------
* VANS is a registered trademark of Vans, Inc.
** Note: This is a forward-looking statement. The Company's actual international
sales results could differ materially. Important factors which could cause or
contribute to such differences include, but are not limited to: (i) the relative
strength of the Japanese and Pacific Rim economies; and (ii) fluctuations in the
currencies of foreign countries, as compared to the U.S. dollar.
7
<PAGE> 8
Sales through the Company's 93-store retail chain increased 24.6% to
$11,651,000 in Q3 Fiscal 1998 from $9,347,000 for Q3 Fiscal 1997. Comparable
store sales (sales at stores open one year or more) were up 13.4% for the
quarter.
GROSS PROFIT
Gross profit increased 14.7% to $18,493,000 in Q3 Fiscal 1998 from
$16,122,000 in the same period of Fiscal 1997. As a percentage of net sales,
gross profit increased to 42.5% for Q3 Fiscal 1998 from 41.2% for the same
period of Fiscal 1997. The increase in gross profit as a percentage of net sales
was primarily due to a higher proportionate mix of retail and domestic wholesale
sales versus the same period last year, and benefits from the devaluation of the
South Korean won as it related to the Company's manufacturing efforts in South
Korea. These benefits were somewhat offset by negative manufacturing variances
at the Vista Facility which resulted from capacity underutilization at that
Facility. The underutilization resulted from a decrease in orders from the
Company's distributor for Japan. The Company expects this decrease to continue
in Q4 Fiscal 1998*, and is therefore evaluating the competitiveness of
the Vista Facility in light of this situation and the availability of other
sourcing alternatives.
EARNINGS FROM OPERATIONS
Earnings from operations increased 15.3% to $3,682,000 in Q3 Fiscal 1998
from $3,194,000 in the same period of Fiscal 1997. Operating expenses in Q3
Fiscal 1998 increased to $14,810,000 from $12,928,000 in Q3 Fiscal 1997,
primarily due to a $1,201,000 increase in selling and distribution expense and a
$331,000 increase in marketing, advertising and promotion expenses, each as
discussed below. As a percentage of net sales, operating expenses increased to
34.0% from 33.1%, on a period-to-period basis.
Selling and distribution. Selling and distribution expenses increased 16.6%
to $8,440,000 in Q3 Fiscal 1998 from $7,239,000 in Q3 Fiscal 1997, primarily due
to: (i) increased personnel costs, rent expense and other operating costs
associated with the continued expansion of the Company's retail division; and
(ii) the inclusion of operating costs related to Vans Latinoamericana and Vans
Argentina which were not included in the Q3 Fiscal 1997 consolidated financial
statements.
Marketing, advertising and promotion. Marketing, advertising and promotion
expenses increased 9.3% to $3,888,000 in Q3 Fiscal 1998 from $3,557,000 in Q3
Fiscal 1997, primarily due to: (i) the Company's continued support of sales
growth through increased television, print advertising and event sponsorships;
and (ii) an increased number of athletes who are paid to endorse the Company's
products.
General and administrative. General and administrative expenses increased
4.8% to $1,825,000 in Q3 Fiscal 1998 from $1,741,000 in Q3 Fiscal 1997,
primarily due to: (i) the addition of rent expense associated with the Company's
new corporate offices and distribution center in Santa Fe Springs, California
(the "Santa Fe Springs Facility"); and (ii) increased legal fees associated with
the worldwide protection of the Company's trademarks.
Provision for doubtful accounts. The provision for doubtful accounts
increased to $422,000 in Q3 fiscal 1998 from $163,000 in Q3 Fiscal 1997,
primarily due to an increase in the general allowance for doubtful accounts to
correspond to the increase in accounts receivable which resulted from higher
sales to domestic wholesale accounts.
INTEREST INCOME
Interest income is primarily derived from the investment of a portion of the
net proceeds from the Company's May 1996 public offering of common stock (the
"Offering"), and the investment of surplus operating cash. See " - Liquidity and
Capital Resources."
INTEREST AND DEBT EXPENSE
Interest and debt expense decreased to $27,000 in Q3 Fiscal 1998 from
$66,000 in Q3 Fiscal 1997 due to the Company's use of operating capital to
finance its snowboard boot line, which previously was financed by a third party
through the end of Q3 Fiscal 1997.
- ---------------------
* Note: This is a forward-looking statement. The Company's actual results could
differ materially. Important factors which could cause or contribute to
differences in the capacity utilization of the Vista Facility include, but are
not limited to: (i) the relative strength of the Japanese economy; and (ii) the
ability of the Company to develop other business for the Vista Facility.
8
<PAGE> 9
OTHER INCOME (EXPENSE)
The Company incurred other expense of $29,000 in Q3 Fiscal 1998 versus the
recognition of other income of $598,000 in the same period of Fiscal 1997,
primarily due to a significant decline in royalty income from the Company's
distributor for Japan which was the result of the weakening Japanese economy and
the bankruptcy of a major wholesale customer of that distributor. The Company
expects that other income will continue to be adversely impacted in Q4 Fiscal
1998 due to the decline in royalties from Japan.*
MINORITY INTEREST
Minority interest decreased to $68,000 for Q3 Fiscal 1998 from $173,000 for
Q3 Fiscal 1997 primarily due to decreased profitability of Global.
See Note 4 to "Notes to Condensed Consolidated Financial Statements."
INCOME TAX EXPENSE
Income tax expense decreased to $1,307,000 in Q3 Fiscal 1998 from $1,488,000 for
Q3 Fiscal 1997 primarily due to tax benefits derived from the establishment of
VFEL.
THIRTY-NINE WEEK PERIOD ENDED FEBRUARY 28, 1998 ("FISCAL 1998 NINE MONTHS")
VERSUS THE THIRTY-NINE WEEK PERIOD ENDED MARCH 1, 1997 ("FISCAL 1997 NINE
MONTHS")
NET SALES
Net sales for the Fiscal 1998 Nine Months increased 17.9% to
$141,669,000, compared to $120,163,000 for the same period in Fiscal 1997. The
sales increase was driven by increased sales through all of the Company's
distribution channels, as discussed below.
Sales to the Company's wholesale accounts on a worldwide basis
increased 15.3% to $107,087,000 for the Fiscal 1998 Nine Months from $92,858,000
for the same period a year ago. Within the Company's wholesale business, sales
to domestic wholesale accounts increased approximately 6.3% during the Fiscal
1998 Nine Months to $63,545,000, compared to $59,802,000 for the same period a
year ago. Overall growth in domestic wholesale sales was adversely affected by
the softening market for athletic footwear in the United States during the
Fiscal 1998 Nine Months, but increased significantly in Q3 Fiscal 1998. Sales to
international distributors through VFEL increased 31.7% to $43,542,000 for the
Fiscal 1998 Nine Months, as compared to $33,056,000 for the same period a year
ago, primarily due to increased sales to Japan, the United Kingdom, Mexico and
Argentina.
Sales through the Company's 93-store retail chain increased 26.7% to
$34,582,000 for the Fiscal 1998 Nine Months from $27,305,000 for the same period
a year ago. Comparable store sales (sales at stores open one year or more) were
up 17.0% for the period.
GROSS PROFIT
Gross profit increased 21.1% to $57,670,000 in the Fiscal 1998 Nine
Months from $47,637,000 in the same period of Fiscal 1997. As a percentage of
net sales, gross profit increased to 40.7% for the Fiscal 1998 Nine Months from
39.6% for the same period of Fiscal 1997. The increase in gross profit was
primarily due to: (i) increased sales through the Company's retail stores; (ii)
improved margins on sales of snowboard boots; and (iii) benefits from the
devaluation of the South Korean won as it related to the Company's manufacturing
efforts in South Korea.
- -----------------------------------------
* Note: This is a forward looking statement. The Company's actual other income
for Q4 Fiscal 1998 could differ materially if the Japanese economy improves
and/or the Company's distributor for Japan increases production of licensed
products which, in turn, would increase royalty payments to the Company.
9
<PAGE> 10
EARNINGS FROM OPERATIONS
Earnings from operations increased 17.7% to $12,869,000 in the Fiscal
1998 Nine Months from $10,935,000 in the same period of Fiscal 1997. Operating
expenses in the Fiscal 1998 Nine Months increased 22.1% to $44,802,000 from
$36,702,000 in the same period a year ago, primarily due to a $4,727,000
increase in selling and distribution expense and a $2,611,000 increase in
marketing, advertising and promotion expenses, each as discussed below. As a
percentage of sales, operating expenses increased from 30.5% to 31.6%, on a
period-to-period basis.
Selling and distribution. Selling and distribution expenses increased
22.8% to $25,447,000 in the Fiscal 1998 Nine Months from $20,721,000 in the same
period a year ago, primarily due to: (i) increased personnel costs, rent expense
and other operating costs associated with the expansion of the Company's retail
division by the net addition of nine new stores; (ii) costs required to support
the Company's sales growth and the addition of the Company's apparel division;
(iii) the inclusion of operating costs related to the Company's subsidiaries
which were not included for the entire period in the Fiscal 1997 Nine Months
consolidated financial statements; and (iv) increased commission expense
resulting from higher domestic wholesale sales volume.
Marketing, advertising and promotion. Marketing, advertising and
promotion expenses increased 26.0% to $12,649,000 in the Fiscal 1998 Nine Months
from $10,038,000 in the same period a year ago, primarily due to: (i) costs
associated with the Vans Warped Tour '97; (ii) the Company's continued support
of sales growth through increased television, print and cooperative advertising;
(iii) increased royalty expense related to footwear, snowboard boots and
clothing which bear licensed athlete names and logos; and (iv) an increased
number of athletes who are paid to endorse the Company's products.
General and administrative. General and administrative expenses
increased 11.5% to $5,314,000 in the Fiscal 1998 Nine Months from $4,766,000 in
the same period a year ago, primarily due to: (i) the addition of rent expense
associated with the new Santa Fe Springs Facility; (ii) increased costs to
support the Company's sales growth; (iii) increased legal fees associated with
the worldwide protection of the Company's trademarks; and (iv) increased
depreciation expense associated with new equipment and tenant improvements at
the Santa Fe Springs Facility.
Provision for doubtful accounts. The amount that was provided for bad
debt expense in the Fiscal 1998 Nine Months increased to $698,000 from $570,000
in the same period a year ago due to the reasons discussed under the caption
"Results of Operations - Thirteen-week period ended February 28, 1998 versus the
thirteen-week period ended March 1, 1997 - Provision for doubtful accounts."
INTEREST INCOME
Interest income was derived primarily from the investment of a
portion of the net proceeds of the Offering and the investment of surplus cash.
See " - Liquidity and Capital Resources."
INTEREST AND DEBT EXPENSE
Interest and debt expense decreased to $178,000 in the Fiscal 1998
Nine Months from $365,000 in the same period a year ago, due to the Company's
use of operating capital to finance its snowboard boot line, which previously
was financed by a third party through Q3 Fiscal 1997.
OTHER INCOME
Other income decreased 5.9% to $1,812,000 for the Fiscal 1998 Nine
Months from $1,926,000 for the same period a year ago, primarily due to the
significant decline in royalty payments from the Company's distributor for Japan
in Q3 Fiscal 1998. See "Results of Operations - Thirteen-week period ended
February 28, 1998 versus the thirteen-week period ended March 1, 1997 - Other
income."
INCOME TAX EXPENSE
Income tax expense increased 3.5% to $5,152,000 during the Fiscal
1998 Nine Months from $4,978,000 for the same period in Fiscal 1997 as a result
of the higher earnings discussed above. Income tax expense as a percentage of
earnings before taxes decreased to 36.0% in the Fiscal 1998 Nine Months from
39.3% in the same period a year ago due to the tax benefits derived from the
establishment of VFEL.
10
<PAGE> 11
MINORITY INTEREST
Minority interest increased to $503,000 for the Fiscal 1998 Nine
Months versus $173,000 for the same period a year ago due to: (i) the inclusion
of a full nine months of operations of Global versus the prior year; and (ii)
the formation of Vans Latinoamericana and Vans Argentina which were not included
in the Company's consolidated financial statements for the Fiscal 1997 Nine
Months.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The Company finances its operations with a combination of cash flows from
operations and borrowings. On May 24, 1996, the Company completed the Offering.
The Company obtained net proceeds of $47.7 million from the Offering. Of such
amount, $25.4 million was utilized to repay the Company's 9.6% Senior Notes due
August 1, 1999 (including a $1.5 million makewhole amount resulting from the
prepayment of such Notes), and $8.1 million was utilized to repay debt under a
secured bank line of credit. The balance of the net proceeds was utilized for
general corporate purposes.
The Company experienced an outflow of cash from operating activities of
$279,000 during the Fiscal 1998 Nine Months, compared to an inflow of $8,585,000
for the Fiscal 1997 Nine Months. Cash used in operations was primarily the
result of increases in accounts receivable, inventories and other assets and a
decrease in income taxes payable. These uses of cash were offset by the
Company's earnings. The cash provided by operations in the Fiscal 1997 Nine
Months was primarily the result of earnings, decreases in prepaid expenses and
other assets, along with an increase in taxes payable.
The Company incurred a net cash outflow from investing activities of
$6,018,000 for the Fiscal 1998 Nine Months, compared to a net cash outflow of
$3,086,000 in the Fiscal 1997 Nine Months. These outflows were primarily due to
tenant improvements at the Santa Fe Springs Facility and capital expenditures
related to new retail store openings. Cash used in investing activities for the
same period a year ago was primarily related to new retail store openings,
tenant improvements made to the Company's former corporate headquarters,
investments in the entity which owns the Vans Warped Tour musical event, the
purchase of the Triple Crown of Surfing series of events, and costs related to
upgrading the Company's distribution and shipping software system.
The Company incurred a net cash inflow from financing activities of
$1,835,000 for the Fiscal 1998 Nine Months, compared to a net cash outflow of
$3,018,000 for the same period in Fiscal 1997, primarily due to proceeds from
long-term debt incurred by Vans Latinoamericana and proceeds from the issuance
of common stock. See "Borrowings," below. Cash used in financing activities for
the same period a year ago was primarily related to payments on short-term
borrowings.
Accounts receivable, net of allowance for doubtful accounts, increased 13.4%
to $27,650,000 at February 28, 1998 from $24,391,000 at May 31, 1997. This
increase was primarily due to the increase in sales during Q3 Fiscal 1998, as
discussed above, and the timing of such sales. Inventories increased 25.3% from
$25,099,000 to $31,452,000 during the same period due to: (i) an increased
number of finished goods held for sale at the Company's retail stores to support
increased sales and the net addition of 9 new stores in the Fiscal 1998 Nine
Months; (ii) an increased number of wholesale finished goods held to support
increased domestic wholesale sales levels; and (iii) the addition of inventories
related to the establishment of Vans Latinoamericana and Vans Argentina.
BORROWINGS
The Company has a line of credit (the "Line of Credit") with Bank of the
West (the "Bank"). The Line of Credit permits the Company to borrow up to the
lesser of (i) a formula based on eligible accounts receivable and inventory, or
(ii) $25.0 million. The Line of Credit is unsecured; however, if certain events
of default occur by the Company under the loan agreement establishing the Line
of Credit (the "Loan Agreement"), the Bank may obtain a security interest in the
Company's accounts receivable and inventory. The Company pays interest on the
debt incurred under the Line of Credit at the prime rate established by the Bank
from time to time, plus a percentage which varies depending on the Company's
ratio of debt to earnings before interest, taxes, depreciation, and amortization
(the "Debt to EBITDA Ratio"). The Company has the option to pay interest at the
LIBOR rate plus a percentage which varies with the Company's Debt to EBITDA
Ratio. Under the Loan Agreement, the Company must maintain certain financial
covenants and is prohibited from paying dividends or making any other
distribution without the Bank's consent. All amounts under the Line of Credit
are due and owing on November 1, 1999. At February 28, 1998, the Company had
$2.0 million drawn down under the Line of Credit.
11
<PAGE> 12
During Q3 Fiscal 1998, the Company and the Bank amended the Line of Credit
to (i) increase the borrowing limit to $25.0 million, and (ii) provide for a
$5.0 million facility to fund the Company's stock repurchase program which was
adopted on February 3, 1998. See "Part II - Other Information - Item 6. Exhibits
and Reports on Form 8-K."
Vans Latinoamericana maintains a two-year 12% note payable to Tavistock
Holdings A.G., a 49.99% owner of such company ("Tavistock"). The loan by
Tavistock was made pursuant to a shareholders' agreement requiring Tavistock to
provide operating capital, on an as-needed basis, in the form of loans to Vans
Latinoamericana. The loan is secured by the assets of Vans Latinoamericana. At
February 28, 1998, Vans Latinoamericana had a $1,940,000 outstanding balance
under this facility.
CURRENT CASH POSITION
The Company's cash position was $10,717,000 as of February 28, 1998,
compared to $15,350,000 at May 31, 1997. The Company believes that cash from
operations, together with borrowings under the Line of Credit, should be
sufficient to meet its working capital needs for the next 12 months.*
CAPITAL EXPENDITURES
In the remainder of Fiscal 1998, the Company plans to open two to four
retail stores (including its first store in the United Kingdom) and remodel one
existing retail store at an estimated aggregate cost of approximately $500,000.
The new store additions will consist of factory outlet stores.
During Q4 Fiscal 1997, the Company completed the move of its corporate
offices to the Santa Fe Springs Facility. In the first month of Fiscal 1998, the
Company relocated its distribution center to the same Facility. The Company
incurred capital expenditures of approximately $2.5 million in Fiscal 1998
relating to new equipment and certain tenant improvements for such Facility. The
Company does not anticipate that it will make any material capital expenditures
for such Facility during the balance of Fiscal 1998.
The Company continues to explore other projects which may involve capital
expenditures. While it is still too early to estimate the amount of such
expenditures, the Company does not anticipate a significant increase in the
level of capital expenditures for the balance of Fiscal 1998. The Company
intends to utilize cash generated from operations and funds drawn down under the
Line of Credit to fulfill its capital expenditure requirements for the balance
of Fiscal 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 specifies new standards designed to improve the earnings
per share ("EPS") information provided in financial statements by simplifying
the existing computational guidelines, revising the disclosure requirements and
increasing the comparability of EPS data on an international basis. Some of the
changes made to simplify the EPS computations include: (a) eliminating the
presentation of primary EPS and replacing it with basic EPS, with the principal
difference being that the common stock equivalents are not considered in
computing basic EPS, (b) eliminating the modified treasury stock
- -------------------------------
* Note: This is a forward-looking statement. The Company's actual cash position
could differ materially. Important factors that could cause or contribute to
such differences include: (i) the Company's rate of growth; (ii) the Company's
product mix between imported footwear, snowboard boots and domestically-produced
footwear; (iii) the Company's ability to effectively manage its inventory
levels; (iv) timing differences in payment for the Company's foreign-sourced
product; (v) the increased utilization of letters of credit for purchases of
foreign-sourced product; and (vi) timing differences in payment for product
which is sourced from countries which have longer shipping lead times, such as
China.
12
<PAGE> 13
method and the three percent materiality provision, and (c) revising the
contingent share provisions and the supplemental EPS data requirements. SFAS No.
128 also makes a number of changes to existing disclosure requirements. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The financial statements included
herein, reflect the application of SFAS No. 128. Prior periods have been
retroactively restated.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for the reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS 130 requires all items that are
required to be recognized under accounting standards as components of
comprehensive income to be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS 130 does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period covered by that financial statement. SFAS 130 requires an enterprise to
(a) classify items of other comprehensive income by their nature in a financial
statement, and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. Management has not yet determined
whether the adoption of SFAS 130 will have a material impact on the Company's
combined financial position or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for public business
enterprises to report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 requires, among other items, that
a public business enterprise report a measure of segment profit or loss, certain
specific revenue and expense items and segment assets, information about the
revenues derived from the enterprise's products or services, and major
customers. SFAS 131 also requires that the enterprise report descriptive
information about the way that the operating segments were determined and the
products and services provided by the operating segments. SFAS 131 is effective
for financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated. SFAS 131 need not be applied to interim financial statements in the
initial year of its application, but comparative information for interim periods
in the initial year of application is to be reported in financial statements for
interim periods in the second year of application. Management has not yet
determined whether the adoption of SFAS 131 will have a material impact on the
Company's segment reporting.
SEASONALITY
Historically, the Company's business has been moderately seasonal,
with the largest percentage of sales realized in the first fiscal quarter (June
through August), the so-called "back to school" months. In addition, because
snowboarding is a winter sport, sales of the Company's snowboard boots have
historically been strongest in the first and second fiscal quarters. As the
Company increases its international sales and experiences changes in product
mix, it believes that future quarterly results may vary from historical trends.
In addition to seasonal fluctuations, the Company's operating results fluctuate
quarter-to-quarter as a result of the timing of holidays, weather, timing of
shipments, product mix, cost of materials and the mix between wholesale and
retail channels. Because of such fluctuations, the results of operations of any
quarter are not necessarily indicative of the results that may be achieved for a
full fiscal year or any future quarter. In addition, there can be no assurance
that the Company's future results will be consistent with past results or the
projections of securities analysts.
THE YEAR 2000 PROBLEM
The Company is dependent upon complex computer systems for many
phases of its operations, including production, sales, distribution and
delivery. Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000 (i.e., read the year 2000 as "1900") (the "Year 2000 Problem"). The
Company has commenced a program intended to timely identify, mitigate and/or
prevent the adverse effects of the Year 2000 Problem, and to pursue compliance
by its suppliers, creditors and financial service organizations. It is not
possible, at present, to quantify the overall cost of this work, or the
financial effect of the Year 2000 Problem on the Company if it is not timely
resolved. However, the Company presently believes that the cost of fixing the
Year 2000 Problem will not have a material effect on the Company's current
financial position, liquidity or results of operations.*
- ----------------------------------
* Note: This is a forward looking statement. The Company's actual results of
operations could differ materially if the Company's program identifies either
internal or external Year 2000 Problems of a serious financial magnitude.
13
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 5. OTHER MATTERS
Executive Officer Changes. Effective as of January 16, 1998, John Walker
resigned as the Company's Vice President - Merchandising. He was replaced in
that position by Michael Jonte.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment, dated as of February 3, 1998, to Amended and Restated Loan
and Security Agreement, dated as of October 31, 1997, by and between the
Registrant and Bank of the West
10.2 Employment Agreement, dated as of February 3, 1998, by and between the
Registrant and Michael Jonte
27 Financial Data Schedule
(b) Reports on 8-K.
During the three-month period ended February 28, 1998, the Company filed one
Report on Form 8-K, dated as of February 3, 1998, disclosing the adoption of a
stock repurchase program by the Board of Directors.
14
<PAGE> 15
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.
VANS, INC.
(Registrant)
Date: April 14, 1998 By: /s/ Gary H. Schoenfeld
-----------------------------------
GARY H. SCHOENFELD
President and Chief
Executive Officer
Date: April 14, 1998 By: /s/ Kyle B. Wescoat
-----------------------------------
KYLE B. WESCOAT
Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE NO.
<S> <C>
10.1 Amendment, dated as of February 3, 1998, to Amended and Restated Loan and Security Agreement, dated as of
October 31, 1997, by and between the Registrant and Bank of the West
10.2 Employment Agreement, dated as of February 3, 1998, by and between the Registrant and Michael Jonte
27 Financial Data Schedule
</TABLE>
16
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(the "Amendment"), is made as of February 3, 1998, by and between VANS, INC.
("Borrower"), and BANK OF THE WEST ("Bank"), and is entered into with respect to
the Amended and Restated Loan and Security Agreement, dated as of October 31,
1997, by and between Borrower and Bank (the "Agreement").
RECITALS
WHEREAS, Borrower has requested that the Committed Line be increased to
Thirty Million Dollars ($30,000,000) by the addition of a Five Million Dollars
($5,000,000) facility to finance Borrower's stock repurchase program and by a
Five Million Dollars ($5,000,000) increase in the Revolving Facility; and
WHEREAS, Bank is willing to agree to the request, on the terms set forth
herein, provided that Borrower (i) pays a facility fee in the amount of Ten
Thousand Dollars ($10,000), and (ii) waives all causes of action that it may
have against Bank, as provided herein;
NOW, THEREFORE, IT IS AGREED THAT:
Definitions. Unless otherwise indicated, words and terms which
are defined in the Agreement shall have the same meaning where used herein.
Amendments. The Agreement is amended as follows:
The following definitions in Section 1.1 are amended to
read as follows:
"Adjusted Committed Line" means, at any date, the Revolver
Committed Line, less (i) the sum of the aggregate undrawn face amount of the
Letters of Credit outstanding and the aggregate drawn but unreimbursed Letters
of Credit on such date, and (ii) the sum of the Reserves on such date.
"Advance" or "Advances" means an advance under the Revolving
Facility or the Stock Repurchase Facility, as applicable.
"Committed Line" means Thirty Million Dollars ($30,000,000).
The following definitions are added to Section 1.1 in the
proper alphabetical positions as follows:
"Capital Stock" means any equity security of Borrower, any option
or other right to acquire any equity security of Borrower, whether or nor
currently exercisable, and any obligation that is convertible into any equity
security of Borrower, whether or nor currently convertible.
"Revolver Committed Line" means Twenty-Five Million Dollars
($25,000,000).
"Stock Repurchase Facility" means the facility under which
Borrower may request Bank to issue cash advances to finance the repurchase of
Capital Stock, as specified in Section 2.14 hereof.
The first paragraph of Section 2.1 is amended to read as
follows:
2.1 Revolving Advances. Subject to the terms and provisions hereof,
including, without limitation, that no Event of Default or Potential Default has
occurred and is continuing, upon Borrower's request, made at any time and from
time to time during the term hereof, Bank shall make Advances under the
Revolving Facility up to the Adjusted Committed Line, so long as the Borrowing
Base formula is not in effect. While the Borrowing Base formula is in effect,
Bank shall make Advances under the Revolving Facility up to (A) the lesser of
(i) the Borrowing Base and (ii) the Committed Line, minus (B) the sum of (i) the
sum of the aggregate undrawn face amount of the Letters of Credit outstanding
and the aggregate drawn but unreimbursed Letters of Credit, and (ii) the sum of
the Reserves; provided, however, that in no event shall Advances under the
Revolving Facility based on Eligible Inventory exceed fifty percent (50%) of the
aggregate dollar amount of the Advances under the Revolving Facility
outstanding. Availability under the immediately preceding sentence
<PAGE> 2
during a calendar month shall be determined based on Eligible Accounts and
Eligible Inventory as of the last day of the immediately preceding calendar
month.
Section 2.2(a) is amended to read as follows:
(a) Issuance. Subject to the terms and conditions
hereof, Bank agrees to issue or cause to be issued for Borrower's account (A)
sight documentary letters of credit, (B) usance documentary letters of credit
with a final maturity or payment date of not more than one hundred twenty (120)
days from acceptance date and (C) standby letters of credit (the "Letters of
Credit") in an aggregate face amount not to exceed (i) the Adjusted Committed
Line minus (ii) the then outstanding principal balance of the Advances provided
that the face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) shall not in any case exceed Twenty-Five Million
Dollars ($25,000,000), unless the Borrowing Base formula is in effect, in which
case the aggregate face amount of the Letters of Credit may not exceed (i) the
lesser of the Committed Line or the Borrowing Base, minus (ii) the then
outstanding principal balance of the Advances and the Reserves. Each such sight
Letter of Credit shall have an expiry date no later than one hundred twenty
(120) days after the Maturity Date. Each such usance Letter of Credit shall have
a final maturity or payment date no later than one hundred twenty (120) days
after the Maturity Date. All such Letters of Credit shall be, in form and
substance, acceptable to Bank in its sole discretion and shall be subject to the
terms and conditions of Bank's form of application and letter of credit
agreement.
Section 2.3 is amended to read as follows:
2.3 Repayment of Overadvance. If, at any time while the Borrowing Base
formula is in effect and for any reason, the outstanding Advances under the
Revolving Facility plus (i) the sum of the aggregate undrawn face amount of the
Letters of Credit and (ii) the drawn but unreimbursed Letters of Credit exceed
the Borrowing Base, less the sum of the Reserves, Borrower shall, upon
telephonic or other notice from Bank, pay to Bank, in cash, the amount of such
excess (such amount the "Overadvance"), and prior to such repayment such
Overadvance shall bear interest at the per annum rate of the Prime Interest Rate
plus two percent (2%); provided, however, that if the Overadvance exists as of
the date that the Borrowing Base formula is imposed as a result of the
Debt/EBITDA Ratio exceeding 2.00 to 1.00, Borrower shall have thirty (30) days
from the date that the Borrowing Base formula is imposed to pay the full amount
of such Overadvance.
A new Section 2.14 is added which reads as follows:
2.14 Stock Repurchase Facility. Subject to the terms and provisions
hereof, including, without limitation, that no Event of Default or Potential
Default has occurred and is continuing, upon Borrower's request, made at any
time and from time to time during the term hereof, Bank shall make Advances up
to Five Million Dollars ($5,000,000) in aggregate principal amount for the
purpose of financing Borrower's purchase of Capital Stock, without regard as to
whether the Borrowing Base formula is in effect (such facility is hereinafter
referred to as the "Stock Repurchase Facility"). The proceeds of Stock
Repurchase Facility Advances shall be used solely to finance Borrower's purchase
of Capital Stock. Amounts advanced under the Stock Repurchase Facility which
have been repaid may not be reborrowed by Borrower hereunder.
Whenever Borrower desires an Advance under the Stock Repurchase
Facility, it shall notify Bank by facsimile transmission or telephone no later
than 3:00 p.m. California time, on the Business Day that the Advance is to be
made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit A hereto. Bank is authorized to make
Advances hereunder, based upon instructions received from a Responsible Officer.
Bank shall be entitled to rely on any telephonic notice given by a person who
Bank reasonably believes to be a Responsible Officer, and Borrower shall
indemnify and hold Bank harmless for any damages or loss suffered by Bank as a
result of such reliance. Bank shall credit the amount of Advances made under
this Section 2.14 to Borrower's deposit account.
The Stock Repurchase Facility shall terminate on the Maturity Date, at
which time all Advances under this Section 2.14 and other amounts due hereunder
shall be immediately due and payable.
Section 7.5 is amended to read as follows:
7.5 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any Capital
Stock other than (i) the purchase of Capital Stock from former employees,
consultants or agents of Borrower, and (ii) the purchase of Capital Stock under
the stock repurchase program
2
<PAGE> 3
adopted and approved by the Board of Directors of Borrower on February 3, 1998,
with either Borrower's internally generated funds or with proceeds of Advances
under the Stock Repurchase Facility.
Conditions Precedent. This Amendment shall not take effect unless
and until all of the following conditions precedent are satisfied:
Execution and Delivery. It is executed by Borrower and accepted
and executed by Bank;
Fee. Borrower shall pay to Bank a facility fee in the amount of
Ten Thousand Dollars ($10,000); and
No Event of Default. No Event of Default or Potential Default
shall exist and the execution, delivery and performance of this Amendment by the
parties hereto shall not cause an Event of Default or a Potential Default to
occur.
Continued Validity of Agreement. Except as amended by this
Amendment, the Agreement shall continue in full force and effect as originally
constituted and is ratified and affirmed by the parties hereto.
Authorization. Each party represents to the other that the
individual executing this Amendment on its behalf is the duly appointed
signatory of such party to this Amendment and that such individual is authorized
to execute this Amendment by or on behalf of such party and to take all action
required by the terms of this Amendment.
Amendment Expenses. All expenses, including, but not limited to,
reasonable attorneys' fees, incurred by Bank in the preparation and
implementation of this Amendment constitute Bank Expenses and as such are
payable by Borrower.
Waiver of Claims.
(a) Borrower hereby releases and forever discharges Bank and
Bank's directors, officers, employees and agents, from all actions, and causes
of action, judgments, executions, suits, debts, claims, demands, liabilities,
counterclaims and offsets of every character, known or unknown, direct and/or
indirect, at law or in equity, of whatever kind or nature which have arisen or
accrued through the date of this Amendment and in any way directly or indirectly
arising out of or in any way connected with the Loan Documents and the Revolving
Facility through such date.
(b) Borrower hereby waives all rights which it may have under
the provisions of California Civil Code Section 1542, which reads as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
Captions. Section headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Amendment.
No Novation. This Amendment is not intended to be, and shall not
be construed to create, a novation or accord and satisfaction, and, except as
otherwise provided herein, the Agreement shall remain in full force and effect.
Construction of Amendment. Neither this Amendment nor any
uncertainty or ambiguity herein shall be construed or resolved against Bank on
the basis that this Amendment was drafted by Bank. On the contrary, this
Amendment has been negotiated and reviewed by both parties and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of the parties hereto.
Severability. Each provision of this Amendment shall be severable
from every other provision of this Amendment for the purpose of determining the
legal enforceability of any specific provision.
Entire Agreement. This Amendment constitutes the entire agreement
between Borrower and Bank with respect to the subject matter hereof and
supersedes all prior and contemporaneous negotiations, communications,
discussions and agreements concerning such subject matter. Borrower acknowledges
and agrees that Bank has not made any representation, warranty or covenant in
connection with this Amendment.
3
<PAGE> 4
Counterparts. This Amendment may be executed in any number of
counterparts, and by Bank and Borrower in separate counterparts, each of which
shall be an original, but all of which shall together constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first set forth above.
VANS, INC.
By: /s/ Craig E. Gosselin
-------------------------------------
Title: Vice President and General Counsel
----------------------------------
BANK OF THE WEST
By: /s/ Dale J. Kobsar
-------------------------------------
Dale J. Kobsar
Regional Vice President
4
<PAGE> 1
EXHIBIT 10.2
VANS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ( "Agreement" herein) is entered into as of
February 3, 1998 by and between VANS, INC., a Delaware corporation (the
"Company"), and MICHAEL JONTE ("Employee").
1. Employment and Duties. The Company hereby employs Employee as
Vice President-Merchandising of the Company on the terms and subject to the
conditions contained in this Agreement. Employee shall be responsible for
determining, managing and implementing the merchandising strategies and programs
of the Company. Employee hereby accepts such employment and agrees to perform in
good faith and to the best of Employee's ability all services which may be
required of Employee hereunder, to do what is asked of him, and to be available
to render services at all times and places in accordance with such directions,
requests, rules and regulations made by the Company in connection with
Employee's employment. Employee hereby acknowledges and understands the duties
and services that are expected of him hereunder, and he hereby represents that
he has the experience and knowledge to perform such duties and services.
Employee shall, during the term hereof, devote Employee's full time and energy
to performing his duties. Employee shall report to the President and Chief
Executive Officer. Employee shall be based at the Company's corporate offices.
Employee understands, however, that Employee may be required to travel within
and out of the State of California to discharge his duties hereunder.
2. Term of Employment. The term of this Agreement shall commence as
of the date hereof and shall terminate on February 2, 2001, unless sooner
terminated as provided herein. This Agreement does not give Employee any
enforceable right to employment beyond this term, and Employee agrees that he
shall have no rights hereunder thereafter. AS PROVIDED FURTHER IN PARAGRAPH 11.1
BELOW, THIS AGREEMENT CONSTITUTES AN EMPLOYMENT AT-WILL THAT MAY BE TERMINATED
AT ANY TIME BY COMPANY OR EMPLOYEE, WITH OR WITHOUT CAUSE, NOTWITHSTANDING THE
THREE - YEAR TERM OF THIS AGREEMENT. IF EMPLOYEE IS TERMINATED WITHOUT CAUSE
DURING THE TERM HEREOF, OR AFTER A "CHANGE IN MANAGEMENT OR CONTROL," AS DEFINED
IN PARAGRAPH 11.5 BELOW, OR TERMINATES THIS AGREEMENT FOR "GOOD REASON," AS
DEFINED IN PARAGRAPH 11.3 BELOW, EMPLOYEE'S SOLE REMEDY SHALL BE THE
COMPENSATION SET FORTH IN PARAGRAPH 11.4 BELOW.
Initial /s/CEG Initial /s/MJ
---------------------- ---------------------
Representative Employee
of the Company
5
<PAGE> 2
3. Salary Compensation. As salary compensation for Employee's
services hereunder and all the rights granted hereunder by Employee to the
Company, the Company shall pay Employee a gross salary of $90,000.00 per annum
from the date hereof until May 31, 1998. The Company shall thereafter pay
Employee a gross salary of $100,000.00 per annum. Employee's salary shall be
payable in bi-weekly increments in accordance with the Company's payroll
practices for salaried employees, upon the condition that Employee fully and
faithfully performs Employee's services hereunder in accordance with the terms
and conditions of this Agreement. The Company shall deduct and withhold from the
compensation payable to Employee hereunder any and all amounts required to be
deducted or withheld by the Company under the provisions of any statute,
regulation, ordinance, or order and any and all amendments hereinafter enacted
requiring the withholding or deducting from compensation payable to employees.
4. Expense Reimbursement. Employee shall be reimbursed by the
Company for all traveling, hotel, entertainment and other expenses that are
properly and necessarily incurred by Employee, pursuant to the Company's
policies on the same.
5. Death or Disability of Employee.
5.1 General. In the event of Employee's death or "disability"
(as such term is defined in Paragraph 5.2 hereof) while in the employ of the
Company, this Agreement, and the compensation due to Employee pursuant to
Paragraph 3 hereof, shall terminate upon the date of death or disability and the
Company shall thereafter be required to make payments only to Employee, as
provided in Paragraph 11.2 hereof. If Employee shall recover from such
disability prior to the expiration date of the Agreement, this Agreement and
Employee's employment hereunder shall be reinstated for the balance of the term
of this Agreement.
5.2 Definition of Disability. Employee shall be deemed
disabled if, in the sole opinion of the Company, Employee is unable to
substantially perform the services required of Employee hereunder for a period
in excess of 60 consecutive work days or 60 work days during any 90 work day
period. In such event, Employee shall be deemed disabled as of such 60th work
day.
6. Restrictive Covenant. During the term of this Agreement, Employee
shall (i) devote his full time and energy solely and exclusively to the
performance of his duties described herein; (ii) not directly or indirectly
provide services to or through any company or firm except the Company unless
otherwise instructed by the Company; (iii) not directly or indirectly own,
manage, operate, join, control, contribute to, or participate in the ownership,
management, operation or control of or be employed by or connected in any manner
with any enterprise which is engaged in any business competitive with or similar
to that of the Company; and (iv) not render any services of any kind or
character for Employee's own account of for any other person, firm or
corporation without first obtaining the Company's consent in writing; provided,
however, Employee shall have the right to perform such incidental services as
are necessary in connection with Employee's (a) private passive investments
where he is not obligated or required to, and shall not in fact, devote any
managerial efforts, as long as such investments are not in companies which are
in competition in any way with the Company; or (b) charitable or community
activities, or in trade or professional organizations, provided that such
incidental services do not interfere with the performance of Employee's services
hereunder.
6
<PAGE> 3
7. Non-Solicitation. Employee shall not, during the full term of
this Agreement and for a period of one (1) year thereafter, for himself or on
behalf of any other person, partnership, corporation or entity, directly or
indirectly, or by action in concert with others, solicit, induce, suggest or
encourage any person known to him to be an employee of the Company or any
affiliate of the Company to terminate his or her employment or other contractual
relationship with the Company or any of its affiliates.
8. Trade Secrets and Related Matters
8.1 Definitions. For purpose of this Section 8:
(a) "Records" means files, accounts, records, log
books, documents, drawings, sketches, designs, diagrams, models, plans,
blueprints, specifications, manuals, books, forms, notes, reports, memoranda,
studies, surveys, software, flow charts, data, computer programs, listing of
source code, calculations, recordings, catalogues, compilations of information,
correspondence, confidential data of customers and all copies, abstracts or
summaries of the foregoing in any storage medium, as well as instruments, tools,
storage devices, disks, equipment and all other physical items related to the
business of the Company (other than merely personal items of a general
professional nature), whether of a public nature or not, and whether prepared by
Employee or not.
(b) "Trade Secrets" means confidential business or
technical information or trade secrets of the Company which Employee acquires
while employed by the Company, whether or not conceived of, developed or
prepared by Employee or at his direction and includes:
(i) Any information or compilation of
information concerning the Company's financial position, financing, purchasing,
accounting, marketing, merchandising, sales, salaries, pricing, investments,
costs, profits, plans for future development, employees, prospective employees,
research, development, formulae, patterns, inventions, plans, specifications,
devices, products, procedures, processes, operations, techniques, software,
computer programs or data;
(ii) Any information or compilation of
information concerning the identity, plans, requirements, preferences, practices
and methods of doing business on specific customers, suppliers, prospective
customers and prospective suppliers of the Company;
(iii) Any other information or "know how" which is
related to any product, process, service, business or research of the Company;
and
(iv) Any information which the Company acquires
from another party and treats as its proprietary information or designates as
"Confidential," whether or not owned or developed by the Company.
Notwithstanding the foregoing, "Trade Secrets" do not include any of the
following:
(i) Information which is publicly known or which
is generally employed by the trade, whether on or after the date that Employee
first acquires the information;
7
<PAGE> 4
(ii) General information or knowledge which
Employee would have learned in the course of similar work elsewhere in the
trade; or
(iii) Information which Employee can prove was
known by Employee before the commencement of Employee's engagement by the
Company;
8.2 Acknowledgments. Employee acknowledges that:
(a) Employee's relationship with the Company will be a
confidential relationship in which Employee will have access to and may create
Trade Secrets.
(b) The Company uses the Trade Secrets in its business
to obtain a competitive advantage over its competitors who do not know or use
that information.
(c) The protection of the Trade Secrets against
unauthorized disclosure or use is of critical importance in maintaining the
competitive position of the Company.
8.3 Protection of Trade Secrets. Employee shall not at any
time, without the prior written consent of the Company, which may be withheld by
it in its sole and absolute discretion, disclose any Trade Secret in any way
except to employees of the Company, and shall not use any Trade Secret in any
way except in connection with his or her duties to the Company.
8.4 Records.
(a) Ownership. All Records are and shall remain the
exclusive property of the Company.
(b) Return of Records. At the termination of this
Agreement, Employee shall promptly return to the Company all records in
Employee's possession or over which Employee has control.
8.5 Prohibited Use of Trade Secrets. During the term of this
Agreement and for 12 months following termination of this Agreement, Employee
shall not undertake any employment or consulting relationship (the "New
Activity") if the loyal and complete fulfillment of his or her duties in the New
Activity would inherently call upon Employee to reveal any Trade Secret.
9. Ownership of Material and Ideas. Employee agrees that all
material, ideas, and inventions pertaining to the business of the Company or of
any client of the Company, including but not limited to, all patents and
copyrights thereon and renewals and extensions thereof, trademarks and trade
names, and the names, addresses and telephone numbers of customers, distributors
and sales representatives of the Company, belong solely to the Company. Employee
hereby assigns any rights he may have to any such property to the Company, and
agrees to execute and deliver any documents which evidence such assignment.
10. Employee Plans, etc. Employee shall be entitled to participate,
to the same extent as most other officers of the Company, in any bonus
compensation plan, stock purchase or stock option plan, group life insurance
plan, group medical insurance plan and other compensation or employee benefit
plans (collectively, "Plans") which are generally available to a majority of the
other officers of the Company during the term hereof and for which Employee
shall qualify. Employee
8
<PAGE> 5
further understands, however, that the Board of Directors, or such committee or
person or persons designated by the Board of Directors, shall determine in its
sole discretion (i) whether any Plans are made available to a majority of the
officers of the Company; (ii) whether one or more Plans are adopted solely for
the Chief Executive Officer and/or one or more (but not a majority) of the
officers of the Company; (iii) whether one or more Plans are made available to a
majority of the officers; and (iv) the amounts payable or the benefits provided
thereunder to each participant in whole or in part. Employee agrees and
acknowledges that he has no vested interest in the continuance of any Plan, and
that no Plan in existence on the date of the Agreement has acted as a material
inducement to Employee in entering into this Agreement.
11. Termination.
11.1 "At Will" Employment. This Agreement, and Employee's
employment, is at will, and the Company may, with or without notice, terminate
this Agreement and all of the Company's obligations hereunder with or without
"Cause." Employee may also terminate this Agreement at any time, for any reason,
upon the giving of thirty (30) days' written notice to the Company; provided,
however, the Company may waive all or any portion of such notice period in its
sole and absolute discretion. Termination by the Company for "Cause" means
termination due to (i) Employee's conviction of a felony ( which, through the
lapse of time or otherwise is not subject to appeal); (ii) Employee's material
refusal, failure or neglect without proper cause to perform adequately his
obligations under this Agreement or follow the instructions of his
supervisor(s); (iii) any negligence or willful misconduct by Employee; (iv)
Employee's material breach of any of his fiduciary obligations as an executive
officer of the Company; (v) Employee's material failure to adhere to the code of
conduct and rules set forth in the Company's Employee Handbook, as amended or in
existence from time to time; (vi) the death or disability of Employee; or (vii)
the voluntary termination by Employee of his employment, except for "Good
Reason" (as defined in Paragraph 11.3 hereof).
11.2 Termination for Cause. Upon termination for Cause, the
Company shall only be required to pay Employee (i) accrued salary compensation
due to Employee as compensation for services rendered hereunder and not
previously paid; (ii) accrued vacation pay; and (iii) any appropriate business
expenses incurred by Employee in connection with his duties hereunder and
approved pursuant to Section 4 hereof, all through the date of termination.
Employee shall not be entitled to any severance compensation; bonus
compensation, whether "vested" or unvested; or any other compensation, benefits
or reimbursement of any kind.
11.3 Termination for "Good Reason." Employee may terminate this
Agreement for "Good Reason" (as hereinafter defined) upon thirty (30) days
written notice to the Company. The term "Good Reason" means (i) Employee is not
appointed or is removed from the position of Vice President Merchandising
without Cause during the term of this Agreement; or (ii) without Employee's
consent, a majority of the duties defined in Section 1 hereof are removed from
Employee's responsibilities. The term Good Reason does not include a situation
where certain of the duties defined in Section 1 hereof are removed from
Employee's responsibilities and are replaced with duties which have greater
responsibility and/or authority than the duties which are removed. Unless
Employee terminates this Agreement within thirty (30) days of learning from any
source that the Company has acted so as to provide Good Reason for Employee to
terminate this Agreement, and gives thirty (30) days' written notice of such
termination, Employee's right to receive severance compensation pursuant to
Paragraph 11.4 for such event shall be forever lost.
9
<PAGE> 6
11.4 Severance Compensation. In the event (i) Employee
terminates this Agreement for Good Reason in accordance with Paragraph 11.3
hereof; (ii) Employee is terminated for any reason (except death or disability)
upon, or within six months following, a "Change in Management or Control (as
such term is defined in Paragraph 11.5 hereof);" or (iii) Employee is terminated
without Cause, the Company shall be obligated to pay severance compensation to
Employee in an amount equal to his salary compensation (at the rate payable at
the time of such termination) for a period of the lesser of (i) the remaining
portion of the term of this Agreement, or (ii) six (6) months from the date of
termination; provided, however, if Employee is employed by a new employer, or as
a consultant during such period, the severance compensation payable to Employee
hereunder shall be reduced by the amount of compensation that Employee actually
receives from the new employer, or as a consultant. However, Employee shall have
a duty to inform the Company that he has obtained such new employment, and the
failure to do so is a material breach of this Agreement. In such event, the
Company shall be entitled to (i) cease all payments to Employee under this
Paragraph 11.4; and (ii) recover any unauthorized payments to Employee in an
action for breach of contract. Notwithstanding anything else in this Agreement
to the contrary, solely in the event of a termination upon or following a Change
in Management or Control, the amount of severance compensation paid to Employee
hereunder shall not include any amount that the Company is prohibited from
deducting for federal income tax purposes by virtue of Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor provision. In
addition to the foregoing severance compensation, the Company shall pay Employee
(i) all compensation for services rendered hereunder and not previously paid;
(ii) accrued vacation pay; and (iii) any appropriate business expenses incurred
by Employee in connection with his duties hereunder and approved pursuant to
Section 4 hereof, all through the date of termination. Employee shall not be
entitled to any bonus compensation, whether vested or unvested; or any other
compensation, benefits or reimbursement of any kind.
11.5 Definition of "Change in Management or Control." The term
"Change in Management or Control" means (i) the time that the Company first
determines that any person and all other persons who constitute a group (within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
("Exchange Act")) have acquired direct or indirect beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of twenty percent (20%) or
more of the Company's outstanding securities, unless a majority of the
"Continuing Directors" (as such term is hereinafter defined) approves the
acquisition not later than ten (10) business days after the Company makes that
determination, or (ii) the first day on which a majority of the members of the
Company's Board of Directors are not "Continuing Directors." The term
"Continuing Directors" means, as of any date of determination, any member of the
Board of Directors of the Company who (i) was a member of that Board of
Directors on the date of this Agreement, (iii) has been a member of that Board
of Directors for the two years immediately preceding such date of determination,
or (iv) was nominated for election or elected to the Board of Directors with the
affirmative vote of the greater of (x) a majority of the Continuing Directors
who were members of the Board at the time of such nomination or election, or (y)
at least four Continuing Directors.
11.6 Exclusive Remedy. The payments referred to in this Section
11 shall be exclusive and shall be the only remedy available to Employee for
termination of his employment with the Company, regardless of the circumstances,
reasons or motivation for any such termination. If Employee gives notice of
termination of this Agreement, or if it becomes known that this Agreement will
otherwise terminate in accordance with its provisions, the Company may, in its
sole discretion, relieve Employee of his duties under this Agreement or assign
Employee other duties and responsibilities to be performed until the termination
becomes effective.
10
<PAGE> 7
12. Services Unique. It is agreed that the services to be rendered by
Employee hereunder are of a special, unique, unusual, extraordinary and
intellectual character which gives them a peculiar value, the loss of which
cannot be reasonably or adequately compensated in damages in an action at law
and that a breach by Employee of any of the provisions contained herein will
cause the Company irreparable injury and damage. Employee expressly agrees that
the Company shall be entitled to injunctive or other equitable relief to prevent
a breach hereof. Resort to any such equitable relief shall not be construed as a
waiver of any of the rights or remedies which the Company may have against
Employee for damages or otherwise.
13. Key Man Life Insurance. During the term of this Agreement, the
Company may at any time effect insurance on Employee's life and/or health in
such amounts and in such form as the Company may in its sole discretion decide.
Employee shall not have any interest in such insurance, but shall, if the
Company requests, submit to such medical examinations, supply such information
and execute such documents as may be required in connection with, or so as to
enable the Company to effect, such insurance.
14. Vacation. Employee shall have the right during each one year
period of the term of this Agreement to take an aggregate of three weeks of
vacation, with pay, at such times as are mutually convenient to Employee and to
the Company.
15. Notices. Any and all notices, demands or other communications
required or desired to be given hereunder by any party shall be in writing and
shall be validly given or made to another party if given by personal delivery,
telex, facsimile, telegram or if deposited in the United States mail, certified
or registered, postage prepaid, return receipt requested. If such notice, demand
or other communication is given by personal delivery, telex, facsimile or
telegram, service shall be conclusively deemed made at the time of such personal
service. If such notice, demand or other communication is given by mail, such
notice shall be conclusively deemed given forty-eight (48) hours after the
deposit thereof in the United States mail addressed to the party to whom such
notice, demand or other communication is to be given as hereinafter set forth:
To the Company: VANS, INC.
15700 Shoemaker Avenue
Santa Fe Springs, California 90670
Attn: General Counsel
562/565-8402 - facsimile
TO EMPLOYEE: MICHAEL JONTE
(at the address set forth below his signature)
Any party hereto may change his or its address for the purpose of receiving
notices, demands and other communications as herein provided by a written notice
given in the manner aforesaid to the other party or parties hereto.
16. Applicable Law and Severability. This Agreement shall, in all
respects, be governed by the laws of the State of California applicable to
agreements executed and to be wholly performed within the State of California.
Nothing contained herein shall be construed so as to require the commission of
any act contrary to law, and wherever there is any conflict between any
provision
11
<PAGE> 8
contained herein and any present or future statute, law, ordinance or regulation
contrary to which the parties have no legal right to contract, the latter shall
prevail but the provision of this Agreement which is affected shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law.
17. Attorneys' Fees. In the event any action is instituted by a party
to enforce any of the terms and provisions contained herein, the prevailing
party in such action shall be entitled to such reasonable attorneys' fees, costs
and expenses as may be fixed by the Court.
18. Modifications or Amendments. No amendment, change or modification
of this Agreement shall be valid unless in writing and signed by all of the
parties hereto. Further, any amendment, change or modification of this Agreement
(including but not limited to the at-will nature of this Agreement as set forth
in Section 2 and Paragraph 11.1 hereof) must be approved in advance by the Board
of Directors of Company and reflected in the minutes of such Board's meetings or
in an action by unanimous written consent.
19. Successors and Assigns. All of the terms and provisions contained
herein shall inure to the benefit of and shall be binding upon the parties
hereto and their respective heirs, personal representatives, successors and
assigns.
20. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter of
this Agreement, and any and all prior agreements, understandings or
representations are hereby terminated and canceled in their entirety and are of
no further force or effect. 21. Counterparts. This Agreement may be executed in
counterparts.
22. Arbitration of Employment Disputes. Any dispute, claim or
controversy arising out of this Agreement, the meaning, interpretation or
application of this Agreement, or the employment relationship between Employee
and the Company shall be submitted to final and binding arbitration that shall
comply with the applicable arbitration rules of the American Arbitration
Association or the Judicial Arbitration and Mediation Service
("JAMS")/Endispute, and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Additionally, all issues
regarding the scope of the arbitration; whether an agreement to arbitrate exists
and, if so, whether it covers the disputes in question; or any other question of
arbitrability or form of disagreement or conflict among the parties to this
Agreement, shall be submitted to final and binding arbitration. The cost of
arbitration (including reasonable attorneys' fees) shall be borne by the losing
party. The arbitration shall occur in Los Angeles, California and the parties
hereby consent to the jurisdiction of the arbitrator and to service of process.
EMPLOYEE HEREBY UNDERSTANDS THAT, BY SIGNING THIS AGREEMENT, HE IS AGREEING TO
HAVE ANY CLAIM HEREUNDER DECIDED BY NEUTRAL ARBITRATION AND IS GIVING UP THE
RIGHT TO A JURY OR COURT TRIAL.
23. Survival of Certain Provisions. Sections 7,8,9, and 22 of this
Agreement shall survive the termination hereof.
12
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
EMPLOYEE: THE COMPANY:
VANS, INC.,
a Delaware corporation
/s/Michael Jonte By:/s/Craig E. Gosselin
- ------------------------------ --------------------------------------
Michael Jonte
Title: Vice President and General Counsel
- ------------------------------ ----------------------------------
Address
13
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