<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 November 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: 13,419,901 shares of Common
Stock, $.001 par value, as of January 11, 1999.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 28, 1998 (UNAUDITED) AND MAY 31, 1998
<TABLE>
<CAPTION>
NOVEMBER 28, MAY 31,
1998 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 9,397,583 $ 16,779,528
Accounts receivable, net of allowance for doubtful accounts of
$1,426,280 and $1,117,695 at November 28, 1998,and May 31, 1998,
respectively 29,961,740 17,253,102
Inventories 38,987,454 29,841,235
Deferred tax assets 5,469,456 5,469,456
Prepaid expenses 5,851,815 4,884,184
------------- -------------
Total current assets 89,668,048 74,227,505
Property, plant and equipment, net 14,763,897 12,994,043
Property held for lease 4,691,438 4,789,314
Excess of cost over the fair value of net assets acquired, net of
accumulated amortization of $35,061,494 and $34,513,349 at November
28, 1998,and May 31, 1998, respectively 23,510,686 18,500,327
Other assets 2,976,783 2,826,491
------------- -------------
Total Assets $ 135,610,853 $ 113,337,680
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 15,935,869 $ 5,514,664
Accounts payable 5,917,875 5,726,595
Accrued payroll and related expenses 3,232,592 2,672,047
Restructuring costs 2,331,279 6,412,758
Income taxes payable 5,889,253 2,124,680
------------- -------------
Total current liabilities 33,306,868 22,450,744
------------- -------------
Deferred tax liabilities 1,685,258 1,862,452
Capital lease obligation 264,159 135,143
Long term debt, excluding current obligations 4,672,238 1,874,153
------------- -------------
Total Liabilities 39,928,523 26,322,492
------------- -------------
Minority interest 750,001 867,530
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized (1,500,000 shares designated as Series A
Participating Preferred Stock), none issued and outstanding -- --
Common stock, $.001 par value, 20,000,000 shares authorized,
13,623,224 and 13,849,848 shares issued and outstanding at
November 28, 1998, and May 31, 1998, respectively 13,416 13,290
Cumulative foreign translation adjustment 2,571 (60,159)
Additional paid-in capital 103,287,168 101,836,186
Accumulated deficit (8,370,826) (15,641,659)
------------- -------------
Total Shareholders' Equity 94,932,329 86,147,658
------------- -------------
Total Liabilities and Shareholders' Equity $ 135,610,853 $ 113,337,680
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE EARNINGS
THIRTEEN WEEKS ENDED NOVEMBER 28, 1998 AND NOVEMBER 29, 1997
(unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
NOVEMBER 28, NOVEMBER 29,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 45,558,943 $ 44,202,974
Cost of sales 25,680,119 26,793,308
------------ ------------
Gross profit 19,878,825 17,409,666
Operating expenses:
Selling and distribution 10,335,448 8,136,639
Marketing, advertising and promotion 3,716,568 3,425,243
General and administrative 1,783,396 1,780,285
Provision for doubtful accounts 64,156 148,551
Amortization of intangibles 345,159 228,931
------------ ------------
Total operating expenses 16,244,727 13,719,649
------------ ------------
Earnings from operations 3,634,097 3,690,017
Interest income (45,159) (125,650)
Interest and debt expense 119,672 83,329
Other income (820,342) (1,065,584)
------------ ------------
Earnings before taxes and extraordinary items 4,379,925 4,797,922
Income tax expense 1,576,773 1,622,063
Minority share of income 270,514 292,192
------------ ------------
Net earnings 2,532,638 2,883,667
Other comprehensive expense, net of tax:
Foreign currency translation adjustment (19,665) (113,307)
------------ ------------
Comprehensive net earnings $ 2,512,973 $ 2,770,360
============ ============
Earnings per share information:
Basic:
Weighted average shares 13,313,316 13,280,812
Net earnings per share $ 0.19 $ 0.22
============ ============
Diluted:
Weighted average shares 13,623,224 13,947,952
Net earnings per share $ 0.19 $ 0.21
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE EARNINGS
TWENTY-SIX WEEKS ENDED NOVEMBER 28, 1998 AND NOVEMBER 29, 1997
(unaudited)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
NOVEMBER 28, NOVEMBER 29,
1998 1997
------------- -------------
<S> <C> <C>
Net sales $ 111,062,462 $ 98,158,169
Cost of sales 63,078,765 58,980,308
------------- -------------
Gross profit 47,983,698 39,177,861
Operating expenses:
Selling and distribution 20,966,592 17,007,952
Marketing, advertising and promotion 10,911,569 8,760,406
General and administrative 4,660,266 3,489,356
Provision for doubtful accounts 228,001 276,051
Amortization of intangibles 610,310 457,862
------------- -------------
Total operating expenses 37,376,738 29,991,627
------------- -------------
Earnings from operations 10,606,959 9,186,234
Interest income (125,318) (237,431)
Interest and debt expense 277,590 150,854
Other income (1,564,113) (1,840,855)
------------- -------------
Earnings before taxes 12,018,799 11,113,666
Income tax expense 4,326,768 3,844,249
Minority share of income 421,200 435,196
------------- -------------
Net earnings 7,270,831 6,834,221
Other comprehensive income (expense), net of tax:
Foreign currency translation adjustment 40,147 (38,335)
------------- -------------
Comprehensive net earnings $ 7,310,978 $ 6,795,886
============= =============
Earnings per share information:
Basic:
Weighted average shares 13,307,476 13,229,624
Net earnings per share $ 0.55 $ 0.52
============= =============
Diluted:
Weighted average shares 13,634,049 13,880,993
Net earnings per share $ 0.53 $ 0.49
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
TWENTY-SIX WEEKS ENDED NOVEMBER 28, 1998 AND NOVEMBER 29, 1997
(unaudited)
<TABLE>
<CAPTION>
NOVEMBER 28, NOVEMBER 29,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,270,831 $ 6,834,221
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 2,467,205 2,016,917
Net gain on sale of equipment (44,017) --
Minority Share of Income 421,200 435,196
Provision for losses on accounts receivable and sales returns 228,001 276,051
Changes in assets and liabilities, net of effects of business acquisition
Accounts receivable (12,608,748) (7,279,648)
Inventories (8,129,422) (7,677,716)
Deferred income taxes (177,194) 115,630
Prepaid expenses (842,436) (39,437)
Other assets (320,562) (1,593,785)
Accounts payable (1,178,799) 229,444
Accrued payroll and related expenses (126,072) 311,975
Accrued interest -- 31,000
Restructuring costs (4,494,732) --
Income taxes payable 3,764,573 (1,292,995)
------------ ------------
Net cash used in operating activities (13,770,172) (7,633,147)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (3,290,415) (2,561,672)
Investments in other companies, net of cash received (214,310) (1,501,991)
Proceeds from sale of property, plant and equipment 808,033 --
------------ ------------
Net cash used in investing activities (2,696,692) (4,063,663)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on short term borrowings 9,594,610 2,316,212
Payments on capital lease obligations (97,071) (16,753)
Proceeds from long term debt 1,412,813 1,446,945
Consolidated subsidiary dividends paid to minority shareholders (413,548) (309,023)
Proceeds from issuance of common stock 1,219,025 884,648
Payment for repurchase of common stock (2,693,639) --
------------ ------------
Net cash provided by financing activities 9,022,190 4,322,029
Effect of exchange rate changes on cash 62,730 (59,899)
------------ ------------
Net decrease in cash and cash equivalents (7,381,944) (7,434,680)
Cash and cash equivalents, beginning of period 16,779,528 15,350,175
------------ ------------
Cash and cash equivalents, end of period $ 9,397,584 $ 7,915,495
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION - AMOUNTS PAID FOR:
Interest $ 181,038 $ 49,739
Income taxes $ 648,800 $ 5,058,900
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Increase in investment in consolidated subsidiary
Stock issued $ 926,342 $ 597,280
Consolidated subsidiary dividend payable to minority shareholder $ -- --
Business Acquisition
Common stock issued for business acquisition $ 1,999,380 --
Note payable issued for business acquisition $ 1,483,479 --
Fair value of net liabilities assumed, excluding cash received $ 1,144,044 --
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
VANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. 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>
NOVEMBER 28, 1998 MAY 31, 1998
----------------- ------------
<S> <C> <C>
Raw materials $ -- $ 646,957
Work-in-process 192,233 378,300
Finished goods 40,102,797 29,453,524
----------- -----------
40,295,030 25,843,497
Less: Valuation allowance (1,307,576) (637,546)
----------- -----------
$38,987,454 $29,841,235
=========== ===========
</TABLE>
3. Basic earnings per share represents net earnings divided by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share represents net earnings divided by the weighted-average
number of shares outstanding, inclusive of the dilutive impact of common
stock equivalents. During the twenty-six week periods ended November 28,
1998, and November 29, 1997, the difference between the weighted average
number of shares used in the basic computation compared to that used in the
diluted computation was due to the dilutive impact of options to purchase
common stock.
The reconciliations of basic to diluted weighted average shares are as
follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
NOVEMBER 28, NOVEMBER 29, NOVEMBER 28, NOVEMBER 29,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net earnings $ 2,532,638 $ 2,883,667 $ 7,270,831 $ 6,834,221
=========== =========== =========== ===========
Weighted average shares
used in basic computation 13,313,316 13,280,812 13,307,476 13,229,624
Dilutive stock options 309,908 667,140 326,573 651,369
----------- ----------- ----------- -----------
Weighted average shares
used for dilutive
computation 13,623,224 13,947,952 13,634,049 13,880,993
=========== =========== =========== ===========
</TABLE>
4. Income taxes for the interim periods were computed using the effective tax
rate estimated to be applicable for the full fiscal year, which is subject to
ongoing review and evaluation by management.
5. In Q4 Fiscal 1998, the Company provided $8,212,238 ($6,048,950 after tax, or
$0.45 per share) for restructuring related to the closure of its Vista,
California manufacturing facility and the restructuring of its European
distributor system. See Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Overview." The estimated
provision includes approximately $2,949,000 for terminated international
agreements and related costs, $2,184,000 for estimated loss on sale of plant
equipment, $1,433,000 in terminated raw material contracts, $893,000 for
involuntary termination benefits for approximately 300 employees, and
$753,000 for costs to close the plant and prepare the site for a new tenant.
During Q2 Fiscal 1999, the reserve was reduced by cash payments of
$1,578,000, and the realization of non-cash losses totaling $1,326,000. As of
November 28, 1998, $2,331,279 remained in the restructuring reserve.
6
<PAGE> 7
(footnotes to prior page)
6. On July 21, 1998, the Company acquired all of the outstanding capital stock
of Switch Manufacturing, a California corporation ("Switch"), through a
merger (the "Merger") with and into a wholly-owned subsidiary of the Company.
The Merger was accounted for under the purchase method of accounting and,
accordingly, the purchase price was allocated to the net assets acquired
based on their values. Switch is the manufacturer of the Autolock(TM) step-in
boot binding system, one of the leading snowboard boot bindings systems in
the world. The Merger consideration paid by the Company consisted of: (i)
133,292 shares of the Company's Common Stock; (ii) $2,000,000 principal
amount of unsecured, non-interest bearing promissory notes due and payable on
July 20, 2001; and (iii) contingent consideration up to $12,000,000 based on
the performance of Switch during the Fiscal year ending May 31, 2001, and due
to be settled on July 20, 2001. The results of Switch are consolidated in the
Company's financial statements.
7. During Q2 Fiscal 1999, the Company acquired an additional 10% of the common
shares of Global Accessories Limited, an international distributor based in
the United Kingdom ("Global") to bring the Company's total investment in
Global to 70%. The purchase price of $926,000 consisted of the issuance of
106,649 shares of the Company's common stock. 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 November 28, 1998, condensed
consolidated balance sheet.
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 8 to 13
of the Company's Annual Report on Form 10-K for the year ended May 31, 1998,
which is filed with the Securities and Exchange Commission.
OVERVIEW
The Company is a leading designer, distributor and retailer of high quality
stylish-casual and active-casual footwear and apparel, 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.
During the fourth quarter of Fiscal 1998 ("Q4 Fiscal 1998") the Company took
the last steps to complete its repositioning as a marketing-driven company by
announcing the closure of its last U.S. manufacturing facility, located in
Vista, California (the "Vista Facility") and to restructure its operations in
Europe. The Company incurred a one-time restructuring charge of $8.2 million and
a write-down of domestic inventory of $9.4 million in connection with these
matters in Q4 Fiscal 1998. The Vista Facility was closed on August 6, 1998, and
the Company surrendered the lease for such Facility on September 30, 1998.
On July 21, 1998, the Company acquired all of the outstanding capital stock
of Switch Manufacturing, a California corporation ("Switch"), through a merger
(the "Merger") with and into a wholly-owned subsidiary of the Company. The
Merger was accounted for under the purchase method of accounting and,
accordingly, the purchase price was allocated to the net assets acquired based
on their values. Switch is the manufacturer of the Autolock(TM) step-in boot
binding system, one of the leading snowboard boot bindings systems in the world.
The Merger consideration paid by the Company consisted of: (i) 133,292 shares of
the Company's Common Stock; (ii) $2,000,000 principal amount of unsecured,
non-interest bearing promissory notes due and payable on July 20, 2001; and
(iii) contingent consideration up to $12,000,000 based on the performance of
Switch during the Fiscal year ending May 31, 2001, and due to be settled on July
20, 2001. The results of Switch are consolidated in the Company's financial
statements.
- ------------
* VANS is a registered trademark of Vans, Inc.
7
<PAGE> 8
On November 20, 1996, the Company acquired 51% of the outstanding common
shares of Global Accessories Limited, the Company's exclusive distributor for
the United Kingdom ("Global"), in a stock-for-stock transaction. During Q2
Fiscal 1998 and Q2 Fiscal 1999, the Company acquired another 9% and 10%,
respectively, of the Global common shares in exchange for Common Stock of the
Company. The remaining 30% of the Global common shares are expected to be
acquired by the Company over the next three years. The results of Global are
consolidated in the Company's financial statements.
The Company has also established the following foreign subsidiaries: Vans
Latinoamericana (Mexico), S.A. de C.V. ("Vans Latinoamericana"), Vans Argentina
S.A. ("Vans Argentina"), Vans Brazil S.A., ("Vans Brazil"), Vans Uruguay, S.A.
("Vans Uruguay"), and Vans Footwear Ltd. ("VFL"). 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 NOVEMBER 28, 1998 ("Q2 FISCAL 1999") VERSUS THE
THIRTEEN-WEEK PERIOD ENDED NOVEMBER 29, 1997 ("Q2 FISCAL 1998")
NET SALES
Net sales for Q2 Fiscal 1999 increased 3.1% to $45,559,000, compared to
$44,203,000 for the same period in Fiscal 1998. The sales increase was primarily
driven by increases in sales to the Company's domestic wholesale accounts and
through the Company's own retail stores, as discussed below.
Total U.S. sales, including sales through the Company's U.S. retail stores,
increased 15.2% to $33,960,000 for Q2 Fiscal 1999, versus $29,470,000 for the
same period a year ago. Total international sales decreased 21.3% to $11,599,000
for Q2 Fiscal 1999, versus $14,733,000 for Q2 Fiscal 1998.
The increase in total U.S. sales resulted from (i) a 10.2% increase in
domestic wholesale sales as the Company increased penetration of existing
accounts, (ii) a 24.9% increase in sales through the Company's U.S. retail
stores, and (iii) an increase in sales of snow-related products, including the
addition of sales of Switch(TM) step-in binding systems. The increase in U.S.
retail store sales was driven by sales from four new stores versus a year ago,
and a 9.4% increase in comparable store sales (sales at stores open one year or
more). Domestic wholesale sales for the balance of Fiscal 1999 likely will be
adversely impacted by the continuing slowdown in sales of athletic footwear by
large retailers, which are likely to lead to the cancellation of orders and the
inability to obtain orders by or from such retailers.
The decrease in international sales through the Company's wholly-owned Hong
Kong subsidiary, Vans Far East Limited ("VFEL"), was primarily due to a 79.3%
decrease in sales to Japan, versus a year ago. The Company anticipates that
international sales for the balance of Fiscal 1999 will continue to be adversely
affected by the economic situation in Japan and the rest of the Far East, and
may also be impacted by the growing economic instability in Mexico and South
America.
GROSS PROFIT
Gross profit increased 14.2% to $19,879,000 in Q2 Fiscal 1999 from
$17,410,000 in the same period of Fiscal 1998. As a percentage of net sales,
gross profit increased to 43.6% for Q2 Fiscal 1999 from 39.4% for the same
period of Fiscal 1998. The increase in gross profit as a percentage of net sales
was primarily due to: (i) a shift in sales mix to higher-margin retail and
domestic wholesale business; and (ii) the benefits of better sourcing prices
from factories in Asia.
EARNINGS FROM OPERATIONS
Earnings from operations decreased slightly to $3,634,000 in Q2 Fiscal 1999
from $3,690,000 in the same period of Fiscal 1998. Operating expenses in Q2
Fiscal 1999 increased 18.4% to $16,245,000 from $13,720,000 in Q2 Fiscal 1998,
primarily due to a $2,199,000 increase in selling and distribution expense, as
discussed below. As a percentage of net sales, operating expenses increased to
35.7% from 31.0%, on a period-to-period basis.
8
<PAGE> 9
Selling and distribution. Selling and distribution expenses increased 27.0%
to $10,335,000 in Q2 Fiscal 1999 from $8,137,000 in Q2 Fiscal 1998, primarily
due to: (i) an increase in the number of Company-owned retail stores, the
opening of a 46,000 square foot skate park in Orange, California (the "Skate
Park") and activities to support the Company's sales growth; (ii) the inclusion
of Vans Uruguay, Vans Brazil, VFL and Switch in the Company's results of
operations, which entities were not included in the Company's results of
operations for Q2 Fiscal 1998; and (iii) the start-up costs related to the
Company's conversion of its European operations from a distributor system to a
direct sales and distribution system utilizing sales agents (the "European
Conversion").
Marketing, advertising and promotion. Marketing, advertising and promotion
expenses increased 8.5% to $3,717,000 in Q2 Fiscal 1999 from $3,425,000 in Q2
Fiscal 1998, primarily due to: (i) increased co-op advertising to support U.S.
wholesale sales; (ii) increased direct advertising and promotional expense in
Europe resulting from the European Conversion; and (iii) increased royalty
expense related to footwear, snowboard boots and clothing which bear the
licensed names and logos of certain of the Company's athletes.
General and administrative. General and administrative expenses were flat at
$1,783,000 in Q2 Fiscal 1999, versus $1,780,000 in Q2 Fiscal 1998, and decreased
slightly as a percentage of net sales, on a period-to-period basis, from 4.0% to
3.9%.
Provision for doubtful accounts. The amount that was provided for bad debt
expense in Q2 Fiscal 1999 was $64,000 versus $149,000 in Q2 Fiscal 1998, due to
improvements in the management of past due 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.
INTEREST AND DEBT EXPENSE
Interest expense increased to $120,000 in Q2 Fiscal 1999 from $83,000 in Q2
Fiscal 1998 due to increased borrowings to support increased sales and to
finance purchases of stock pursuant to the Company's stock repurchase program.
See "--Liquidity and Capital Resources--Borrowings."
OTHER INCOME
Other income decreased to $820,000 in Q2 Fiscal 1999 from $1,066,000 in the
same period of Fiscal 1998 primarily due to a decrease in royalty income
received from the Company's distributor for Japan.
INCOME TAX EXPENSE
Income tax expense decreased slightly to $1,577,000 in Q2 Fiscal 1999 from
$1,622,000 in Q2 Fiscal 1998 as a result of the lower earnings discussed under
the caption "--Earnings from operations" above. The effective tax rate increased
from 33.8% in Q2 Fiscal 1998 to 36.0% in Q2 Fiscal 1999 due to the
reclassification of minority interest to a net-of-tax basis in the current year
as opposed to a before-tax basis that was used in the prior fiscal year.
MINORITY SHARE OF INCOME
Minority interest decreased to $271,000 in Q2 Fiscal 1999 versus $292,000 in
Q2 Fiscal 1998 primarily due to the decreased profitability of the Company's
Latin America subsidiaries and the change in treatment of taxes related to the
minority interest discussed in the preceding paragraph. This decrease was
partially offset by the increase in minority interest related to Global as a
result of Global's increased profitability, offset by the decrease in the
minority ownership of Global. See "--Overview."
9
<PAGE> 10
TWENTY-SIX WEEK PERIOD ENDED NOVEMBER 28, 1998 ("FISCAL 1999 SIX MONTHS") VERSUS
THE TWENTY-SIX WEEK PERIOD ENDED NOVEMBER 29, 1997 ("FISCAL 1998 SIX MONTHS")
NET SALES
Net Sales for the Fiscal 1999 Six Months increased 13.1% to $111,062,000,
compared to $98,158,000 for the same period in Fiscal 1998. The sales increase
was primarily driven by increased sales through the Company's retail and
domestic wholesale sales channels, as discussed below.
Total U.S. sales, including sales through the Company's U.S. retail stores,
increased 28.0% to $84,445,000 for the Fiscal 1999 Six Months from $65,969,000
for the same period a year ago. Total international sales decreased 17.3% to
$26,617,000 for the Fiscal 1999 Six Months, as compared to $32,189,000 for the
same period a year ago.
The increase in total U.S. sales resulted from (i) a 28.5% increase in
domestic wholesale sales as the Company increased penetration of existing
accounts, (ii) a 27.1% increase in sales through the Company's U.S. retail
stores, and (iii) an increase in sales of snow-related products including the
addition of sales of Switch(TM) step-in binding systems. The increase in U.S.
retail store sales was driven by sales from a net eight new stores versus a year
ago, and a 9.7% increase in comparable store sales. The decrease in
international sales through VFEL was primarily due to a 71.6% decrease in sales
to Japan.
GROSS PROFIT
Gross profit increased 22.5% to $47,984,000 in the Fiscal 1999 Six Months
from $39,178,000 in the same period of Fiscal 1998. As a percentage of net
sales, gross profit increased to 43.2% for the Fiscal 1999 Six Months from 39.9%
for the same period of Fiscal 1998. The increase in gross profit was primarily
due to: (i) increased sales through the Company's retail stores; (ii) a shift in
sales mix to higher-margin retail and domestic wholesale business; and (iii) the
benefits of better sourcing prices from factories in Asia.
EARNINGS FROM OPERATIONS
Earnings from operations increased 15.5% to $10,607,000 in the Fiscal 1998
Six Months from $9,186,000 in the same period of Fiscal 1998. Operating expenses
in the Fiscal 1999 Six Months increased to $37,377,000 from $29,992,000 in the
same period a year ago, primarily due to a $3,959,000 increase in selling and
distribution expense and a $2,151,000 increase in marketing, advertising and
promotion expenses, each as discussed below. As a percentage of sales, operating
expenses increased from 30.6% to 33.7%, on a period-to-period basis.
Selling and distribution. Selling and distribution expenses increased 23.3%
to $20,967,000 in the Fiscal 1999 Six Months from $17,008,000 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 eight new stores; (ii) the inclusion of
operating costs related to certain of the Company's subsidiaries, including
Switch, which were not included for the entire period in the Fiscal 1998 Six
Months consolidated financial statements; and (iii) costs required to support
the Company's U.S. sales growth.
Marketing, advertising and promotion. Marketing, advertising and promotion
expenses increased 24.6% to $10,912,000 in the Fiscal 1999 Six Months from
$8,760,000 in the same period a year ago, primarily due to: (i) higher print and
television advertising expenditures related to the back-to-school selling
season; (ii) increased co-op advertising to support U.S. wholesale sales; (iii)
increased costs associated with the Vans Warped Tour '98; (iv) increased royalty
expense related to footwear, snowboard boots and clothing which bear the
licensed names and logos of certain of the Company's athletes; and (v) increased
direct advertising and promotional expense in Europe resulting from the European
Conversion.
General and administrative. General and administrative expenses increased
33.6% to $4,660,000 in the Fiscal 1999 Six Months from $3,489,000 in the same
period a year ago, primarily due to: (i) increased labor, recruiting and other
employee-related expenses to support the Company's sales growth; (ii) increased
legal expenses related to the Company's ongoing worldwide efforts to protect and
preserve its intellectual property rights; and (iii) increased depreciation
expense associated with new equipment and tenant improvements at the Company's
Santa Fe Springs, California facility (the "Santa Fe Springs Facility").
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<PAGE> 11
Provision for doubtful accounts. The amount that was provided for bad debt
expense in the Fiscal 1999 Six Months decreased to $228,000 from $276,000 in the
same period a year ago due to improvements in the management of past due
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.
INTEREST AND DEBT EXPENSE
Interest expense increased to $278,000 for the Fiscal 1999 Six Months from
$151,000 in the same period a year ago for the same reasons discussed under the
caption "--Interest and debt expense" for Q2 Fiscal 1999.
OTHER INCOME
Other income decreased 15.0% to $1,564,000 for the Fiscal 1999 Six Months
from $1,841,000 for the same period a year ago, primarily due to a decrease in
royalty income from the Company's distributor for Japan.
INCOME TAX EXPENSE
Income tax expense increased to $4,327,000 in the Fiscal 1999 Six Months from
$3,844,000 in the same period in Fiscal 1998 as a result of the higher earnings
discussed above. The effective tax rate increased from 34.6% in the Fiscal 1998
Six Months to 36.0% in the Fiscal 1999 Six Months for the same reasons discussed
under the caption "--Income tax expense" for Q2 Fiscal 1999.
MINORITY SHARE OF INCOME
Minority interest decreased to $421,000 for the Fiscal 1999 Six Months from
$435,000 for the same period a year ago for the same reasons discussed under the
caption "--Minority interest" for Q2 Fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company finances its operations with a combination of cash flows from
operations and borrowings under a bank revolving line of credit. See
"--Borrowings" below.
The Company experienced an outflow of cash from operating activities of
$13,770,000 during the Fiscal 1999 Six Months, compared to an outflow of
$7,633,000 for the Fiscal 1998 Six Months. Cash used by operations for the
Fiscal 1999 Six Months resulted primarily from (i) an increase in net accounts
receivable to $29,962,000 at November 28, 1998, from $17,253,000 at May 31,
1998, as described below; (ii) an increase in net inventory to $38,987,000 at
November 28, 1998, from $29,841,000 at May 31, 1998, as described below; and
(iii) the decrease in the restructuring cost accrual. Cash outflows from
operations in the Fiscal 1999 Six Months were partially offset by the Company's
earnings and an increase in taxes payable. Cash used in operating activities in
the Fiscal 1998 Six Months was primarily the result of increases in inventories
and accounts receivable, partially offset by earnings.
The Company had a net cash outflow from investing activities of $2,697,000 in
the Fiscal 1999 Six Months, compared to a net cash outflow of $4,064,000 in the
Fiscal 1998 Six Months. The Fiscal 1999 Six Months outflows were primarily due
to capital expenditures related to new retail store openings, and were partially
offset by $808,000 of proceeds from the sale of assets associated with the
closing of the Vista Facility. Cash used in investing activities for the same
period a year ago was primarily related to new retail store openings, tenant
improvements at the Santa Fe Springs Facility and investments in other
companies.
The Company incurred a net cash inflow from financing activities of
$9,022,000 for the Fiscal 1999 Six Months, compared to a net cash inflow of
$4,322,000 for the Fiscal 1998 Six Months, primarily due to short-term
borrowings under the bank revolving line of credit, proceeds from long-term debt
incurred by the Company's Latin America subsidiaries and proceeds from the
issuance of common stock. See "--Borrowings" below. The cash inflow from
financing activity was partially offset by the repurchase of $2,694,000 of
Common Stock pursuant to the Company's stock repurchase program. Cash provided
by financing activities in the
11
<PAGE> 12
Fiscal 1998 Six Months was also related to proceeds from short-term borrowings
under the bank revolving line of credit, and proceeds from long-term debt
incurred by Vans Latinoamericana.
Accounts receivable, net of allowance for doubtful accounts, increased from
$17,253,000 at May 31, 1998, to $38,987,000 at November 28, 1998, primarily due
to the increase in net sales the Company experienced in Q2 Fiscal 1999 and the
timing of such sales. Inventories increased to $38,987,000 at November 28, 1998,
from $29,841,000 at May 31, 1998, primarily due to: (i) an increased number of
finished goods held for sale at the Company's retail stores to support increased
sales; (ii) increased apparel inventory to support the Company's apparel
division; and (iii) the consolidation of Vans Brazil and Vans Uruguay in the
Company's financial statements.
Borrowings
The Company has a revolving line of credit (the "Revolving Line of Credit")
with Bank of the West (the "Bank"). The Revolving Line of Credit permits the
Company to borrow up to $25,000,000. Effective as of May 31, 1998, in order to
assist the Company with seasonal needs for cash, the Revolving Line of Credit
was increased to $38,500,000. Such increase expired on December 31, 1998. The
Revolving Line of Credit is unsecured; however, if certain events of default
occur by the Company under the loan agreement establishing the Revolving 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 Revolving Line of Credit at the prime rate established
by the Bank from time to time (7.75% as of November 28, 1998), 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. As
of November 28, 1998, the Company was in compliance or had obtained waivers of
non-compliance with respect to all of its financial covenants. All amounts under
the Revolving Line of Credit are due and owing on November 1, 1999. At November
28, 1998, the Company had drawn down $12,950,000 under the Revolving Line of
Credit, and had $4,159,000 in open letters of credit.
The Company also maintains a $5,000,000 facility with the Bank to fund the
Company's stock repurchase program which was adopted on February 3, 1998 (the
"Stock Repurchase Line"). At November 28, 1998, the Company had not drawn down
any amounts under the Stock Repurchase Line, but had repurchased 388,500 shares
of stock pursuant to the stock repurchase program utilizing funds drawn down
under the Revolving Line of Credit.
Vans Latinoamericana and Vans Argentina maintain a two-year 12% note payable
to Tavistock Holdings A.G., a 49.99% owner of such companies ("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 and Vans Argentina. The loan is secured by the
assets of Vans Latinoamericana and Vans Argentina. At November 28, 1998,
$3,079,000 was the aggregate outstanding balance under this facility.
Current Cash Position
The Company's cash position was $9,398,000 as of November 28, 1998, compared
to $16,780,000 at May 31, 1998. The Company believes that cash from operations,
together with borrowings under the Revolving Line of Credit, should be
sufficient to meet its working capital needs for the next 12 months.*
- ----------
*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 footwear and snowboard boots; (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; (vi) timing differences in
payment for product which is sourced from countries which have longer shipping
lead times, such as China; and (vii) the undertaking of capital-intensive
projects, such as the opening of additional skate parks and a larger number of
retail stores.
12
<PAGE> 13
Capital Resources
As of November 28, 1998, the Company's material commitments for capital
expenditures were primarily related to the opening of new retail stores. In the
remainder of Fiscal 1999, the Company plans to open approximately three new
factory outlet retail stores and up to three Vans Triple Crown full-price
stores. The Company estimates the aggregate cost of all of these new stores to
be approximately $1,000,000.
The Company continues to explore other projects which may involve significant
capital expenditures, including the possible opening of up to five skate parks
in the next 24 months, but cannot currently estimate the aggregate cost of these
projects.
The Company intends to utilize cash generated from operations and funds drawn
down under the Revolving Line of Credit to fulfill its capital expenditure
requirements for the balance of Fiscal 1999.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("FAS") No. 131, "Disclosure about Segments of an
Enterprise and Related Information." FAS No. 131 supersedes previous reporting
requirements for reporting on segments of a business enterprise. FAS No. 131 is
effective for fiscal years beginning after December 15, 1997. As FAS No. 131 is
not required for interim reporting in the year of adoption, the Company plans to
adopt this standard in the preparation of its annual financial statements to be
included in its Fiscal 1999 Form 10-K. As FAS No. 131 only requires additional
disclosures, the Company expects there will be no impact on its financial
position or results of operations from the implementation.
In June 1998, the FASB issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." FAS No. 133 modifies the accounting for
derivative and hedging activities and is effective for fiscal years beginning
after December 15, 1999. Since the Company does not presently invest in
derivatives or engage in hedging activities, FAS No. 133 will not impact the
Company's financial position or results of operations.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The Company will adopt SOP
98-1 effective June 1, 1999. The adoption of SOP 98-1 will require the Company
to modify its method of accounting for software. Based on information currently
available, the Company does not expect the adoption of SOP 98-1 to have a
significant impact on its financial position or results of operations.
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" selling months. In addition, because
snowboarding is a winter sport, sales of the Company's snowboard boots, and
Switch's Autolock(TM) step-in boot binding system, 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.
Year 2000 Compliance
General. The Company is dependent upon complex information technology ("IT")
systems for many phases of its operations, including production, sales,
distribution and delivery. Many existing IT 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
Issue"). The Company has commenced a program intended to timely identify,
mitigate and/or prevent the adverse effects of the Year 2000 Issue through an
analysis of its own IT systems and non-IT systems, and pursue Year 2000
compliance by its vendors, creditors and financial service organizations.
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<PAGE> 14
State of Readiness. The Company has completed the analysis of its internal IT
systems and has received certifications of Year 2000 compliance from its IT
systems vendors. The Company is in the process of testing such systems to ensure
compliance. The Company is still analyzing its non-IT systems for Year 2000
compliance and expects to complete substantially all of such analyses by June
1999.* With respect to third party vendors, creditors and financial services
organizations, the Company has identified over 160 such third parties who the
Company believes are material to its business. The Company has inquired as to
the Year 2000 readiness of each of such parties and has sought certifications of
Year 2000 compliance from them. To date, the Company has received responses from
approximately 80% of such third parties which indicate either Year 2000
compliance or that they have instituted programs to assure such compliance. The
Company is pursuing answers from all third parties who have, to date, failed to
respond to the Company's inquiries. The Company expects to receive substantially
all of such answers by June 1999, and is updating its list of such third parties
to reflect any required additions thereto.*
Costs; Contingency Plans. Since the Company has not completed the data
gathering phase of its Year 2000 compliance program, it cannot yet quantify the
aggregate costs, if any, that may be required to fix the Year 2000 Issue or any
losses to the Company which might result therefrom. However, to date, the
Company has not incurred any material expenses on fixing the Year 2000 Issue or
experienced any losses therefrom. In the event the Company discovers that either
internal IT or non-IT systems or the systems of key third party vendors,
creditors or financial service organizations will not be Year 2000 compliant,
the Company will either obtain alternative IT systems that are Year 2000
compliant or systems that do not rely on computers, and, in the case of third
parties, switch to other vendors which have Year 2000 compliant systems. The
Company intends to develop a more specific contingency plan upon completion of
the data-gathering phase of its compliance program.
Risks. The Company presently does not anticipate that a material business
disruption will occur as a result of the Year 2000 Issue. However, to the extent
the Company is unable to resolve the Year 2000 Issue, the Company's business,
financial position and results of operations could be materially adversely
affected.
The Company believes that the greatest potential risk is the failure of its
external business partners or federal, state or local governments to achieve
Year 2000 compliance in a timely manner. Among other things, the company's
footwear manufacturers could be unable to manufacture or deliver materials and
products in a timely manner, and customers may lose the capability to order
products via electronic data interchange (EDI).
The Company's Year 2000 compliance efforts are subject to additional risks,
including, among others: unexpected problems identified in testing results;
delays in system conversion or implementation; the Company's failure to identify
fully all Year 2000 dependencies in its machinery, equipment, systems and in the
systems of its external business partners; and the failure of parts of the
global infrastructure, including national banking systems, power, transportation
facilities, communications and governmental activities, to be fully functional
after 1999.
As the Company's testing and implementation of its business systems and
assessment of its technical systems and departmental applications are underway,
and as responses from many of its external business partners are pending, the
Company cannot fully and accurately quantify the impact of its most reasonably
likely worst case Year 2000 scenario at the present time.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established a fixed conversion rate between their existing sovereign currencies
and the euro, and adopted the euro as their common legal currency on that date
(the "Euro Conversion"). Existing currencies are scheduled to remain legal
tender in the participating countries until January 1, 2002. During the
transition period, parties may pay for goods and services using either the euro
or the existing currency, but retailers are not required to accept the euro as
payment.
- ----------
* These are forward-looking statements regarding the completion date of the data
gathering phase of the Company's Year 2000 compliance program. The actual date
of completion may be different depending on a number of important factors,
including but not limited to (i) the complexity of the analyses needed to
determine Year 2000 compliance for non-IT systems embedded in items such as
machinery and equipment, and (ii) the level of cooperation the Company receives
from third parties with respect to its compliance inquiries.
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Since the Company primarily does business in U.S. dollars, it is currently
not anticipated that the Euro Conversion will have a material adverse impact on
its business or financial condition.* The Company is aware that the information
systems for its three European stores are not currently able to recognize the
Euro Conversion, however, since two of the Company's European stores are located
in the United Kingdom, which is not currently participating in the Euro
Conversion, and the Barcelona, Spain store may continue to accept the Spanish
peseta until 2002, the Company does not expect its European store operations to
be adversely impacted by the Euro Conversion in the near future. The Company has
confirmed that the information systems utilized by its European sales agents
will recognize the Euro Conversion, but the Company is still analyzing whether
the information systems of its European distributors will do the same.
- ----------
* This is a forward-looking statement regarding the currencies in which the
Company does business. The Company's actual results regarding the Euro
Conversion could differ materially if the Company begins to accept currencies
other than the U.S. dollar.
15
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PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 16, 1998, the Company issued an aggregate of 155,000 shares of
Common Stock to two entities and two individuals in connection with the
termination of two international distributor agreements. Such shares were issued
without registration under the Securities Act of 1933, as amended, pursuant to
the exemption therefrom provided by Regulation S thereunder. Each recipient of
such shares represented to the Company that they were not "U.S. Persons," as
defined under Regulation S. Additionally, "offering restrictions" were imposed
on the shares issued, as defined under Regulation S, the offering was made
outside the United States, and no "directed selling efforts" were made by the
Company, as defined under Regulation S. The shares were subsequently registered
by the Company for resale in the United States on a Form S-3 Registration
Statement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On October 20, 1998, the Company held its 1998 Annual Meeting of
Stockholders. The following matters were voted on at the meeting: (i) the
election of directors; and (ii) the ratification and approval of KPMG Peat
Marwick LLP as the Company's independent auditors for Fiscal 1999.
The results of the voting on these matters (including the names of all persons
elected as directors) are set forth below:
<TABLE>
<CAPTION>
PROPOSAL VOTES FOR VOTES AGAINST/WITHHELD ABSTENTIONS BROKER-NON VOTES
-------- --------- ---------------------- ----------- ----------------
<S> <C> <C> <C> <C>
Proposal No. 1 -- Election of Directors
Nominees
o Walter E. Schoenfeld 11,334,463 68,577 0 0
o Gary H. Schoenfeld 11,334,463 68,577 0 0
o George E. McCown 11,334,963 68,077 0 0
o Wilbur J. Fix 11,325,513 77,527 0 0
o Philip H. Schaff, Jr. 11,325,413 77,627 0 0
o Gerald Grinstein 11,334,613 68,427 0 0
o James R. Sulat 11,334,963 68,077 0 0
o Kathleen M. Gardarian 11,326,663 76,377 0 0
o Lisa M. Douglas 11,326,063 76,977 0 0
o Charles G. Armstrong 11,334,771 68,269 0 0
o Leonard R. Wilkens 11,333,813 69,227 0 0
Proposal No. 2--Ratification of KPMG
Peat Marwick LLP as Independent
Auditors for Fiscal 1999 11,370,092 19,880 13,068 0
</TABLE>
ITEM 5. OTHER INFORMATION
Third Phase of Global Acquisition. Effective as of September 30, 1998, the
Company completed the third phase of the acquisition of Global. The Company
acquired 10% of the common shares of Global held by the shareholders of Global
in exchange for the issuance of an aggregate of 106,649 shares of the Common
Stock of the Company. See Note 6 of "Notes to Condensed Consolidated Financial
Statements."
Executive Officer Changes. Effective as of December 7, 1998, Gary L. Dunlap
resigned from the Company as Vice President - Management Information Services.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement, dated October 21, 1998, by and between the
Registrant and Stephen M. Murray
27 Financial Data Schedule
(b) Reports on 8-K.
The Company did not file any Reports on Form 8-K during Q2 Fiscal 1999.
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VANS, INC.
(Registrant)
Date: January 12, 1999 By: /s/ Gary H. Schoenfeld
------------------------------------
GARY H. SCHOENFELD
President and Chief
Executive Officer
Date: January 12, 1999 By: /s/ Kyle B. Wescoat
-----------------------------------
KYLE B. WESCOAT
Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
DOCUMENT PAGE NO.
-------- --------
<S> <C> <C>
10.1 Employment Agreement, dated October 21, 1998, by and between the
Registrant and Stephen M. Murray
27 Financial Data Schedule
</TABLE>
19
<PAGE> 1
EXHIBIT 10.1
VANS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement" herein) is entered into
as of October 21, 1998, by and between VANS, INC., a Delaware corporation (the
"Company"), and STEPHEN M. MURRAY ("Employee").
1. EMPLOYMENT AND DUTIES. The Company hereby employs Employee
as Senior Vice President International Sales and Apparel of the Company on the
terms and subject to the conditions contained in this Agreement. Employee shall
be responsible for managing all aspects of the Company's international sales and
apparel sales operations. 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 of the Company. 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 October 20, 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 _________ Initial__________
Representative Employee
of the Company
<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 no less than
$225,000.00 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
workday.
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,
2
<PAGE> 3
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.
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;
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<PAGE> 4
(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;
(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.
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<PAGE> 5
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 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. Notwithstanding anything to the contrary contained herein, the
Company shall use its best efforts to cause the Compensation Committee of the
Board of Directors to grant Employee an incentive stock option for 40,000 shares
of the Company's Common Stock. Such option shall contain a five-year vesting
schedule. Employee shall be entitled to
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<PAGE> 6
participate in the Company's Fiscal 1999 Bonus Plan at a rate equal to 50% of
his salary, with one-third of his Fiscal 1999 bonus guaranteed.
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 Senior Vice
President International Sales and Apparel 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
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<PAGE> 7
severance compensation pursuant to Paragraph 11.4 for such event shall be
forever lost.
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
7
<PAGE> 8
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.
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. OTHER BENEFITS.
15.1 EXPENSE REIMBURSEMENT FOR RELOCATION OF RESIDENCE. The
Company shall, upon receipt of appropriate documentation from Employee,
reimburse Employee for all actual and reasonable expenses incurred by Employee
in relocating his residence from Massachusetts to Southern California, including
the closing costs incurred by him in the sale of his Massachusetts residence.
The Company shall have no obligation to purchase a new residence in Southern
California for Employee or contribute to, or reimburse him for, the purchase
price thereof, but in the event such
8
<PAGE> 9
purchase price exceeds $500,000, the Company shall contribute up to two percent
(2%) of such purchase price to be applied toward the down payment of such
purchase, and shall increase the principal amount of the "Loan" (defined in
paragraph 15.2) by ten percent (10%).
15.2 LOAN. The Company shall, upon the request of
Employee, provide Employee with a loan of $50,000 which shall not bear interest
and which shall be repaid by Employee in five equal annual installments.
15.3 ANNUAL TRIP TO THE U.K.. The Company shall
pay for one (1) round-trip coach-class airfare to the United Kingdom for
Employee and each member of his immediate family each year during the term of
this Agreement.
15.4 CAR ALLOWANCE. The Company shall provide
Employee with a monthly car allowance of $500.00.
16. 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
562/565-8413 - facsimile
To Employee: Stephen M. Murray
(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.
17. 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,
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<PAGE> 10
and wherever there is any conflict between any provision 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.
18. 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.
19. 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.
20. 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.
21. 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. Employee specifically acknowledges and agrees that
the Company has not made any promises, assurances or guarantees regarding his
employment or the Company's business or future prospects, and he has not relied
on any such promises, assurances or guarantees in making his decision to become
employed by the Company and relocate his residence to Southern California.
22. COUNTERPARTS. This Agreement may be executed in
counterparts.
23. ARBITRATION OF EMPLOYMENT DISPUTES. Any dispute or
controversy arising out of this Agreement or the employment relationship between
Employee and the Company, including but not limited to, claims by Employee for
wrongful termination, race discrimination, sex discrimination, age
discrimination, discrimination based on nationality or religion, violation of
Title VII of the Civil Rights Act of 1964, as amended, the Americans with
Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, as
amended, and the California Fair Housing and Employment Act, as amended, shall,
at any time following the termination of Employee's employment, be submitted to
final and binding arbitration that shall comply with the applicable arbitration
rules of either the American Arbitration Association or the Judicial Arbitration
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<PAGE> 11
and Mediation Service ("JAMS")/Endispute, and judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof. 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, OR UNDER HIS EMPLOYMENT RELATIONSHIP WITH
THE COMPANY, DECIDED BY NEUTRAL ARBITRATION AND IS GIVING UP THE RIGHT TO A JURY
OR COURT TRIAL.
24. SURVIVAL OF CERTAIN PROVISIONS. Sections 7,8,9, and 23 of
this Agreement shall survive the termination hereof.
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
___________________________ By:________________________
Stephen M. Murray
___________________________ ________________________
Address Title
11
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<PERIOD-START> AUG-30-1998
<PERIOD-END> NOV-28-1998
<CASH> 9,397,584
<SECURITIES> 0
<RECEIVABLES> 29,961,740
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0
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