<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 27, 1999 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: 13,650,203 shares of
Common Stock, $.001 par value, as of January 10, 2000.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 27, 1999 (UNAUDITED) AND MAY 31, 1999
<TABLE>
<CAPTION>
NOVEMBER 27, MAY 31,
1999 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,557,064 $ 7,777,192
Accounts receivable, net of allowance for doubtful accounts of
$1,692,351 and $1,432,214 at November 27, 1999, and May 31, 1999,
respectively 36,210,602 30,056,150
Inventories 49,384,587 37,024,553
Deferred tax assets 1,627,926 1,378,456
Prepaid expenses 8,877,219 7,823,767
------------- -------------
Total current assets 107,657,398 84,060,118
Property, plant and equipment, net 22,785,835 15,809,950
Property held for lease 4,572,265 4,601,326
Excess of cost over the fair value of net assets acquired, net of
accumulated amortization of $36,320,610 and $35,695,857 at November
27, 1999, and May 31, 1999, respectively 24,019,554 23,126,700
Other assets 2,829,873 2,939,623
------------- -------------
Total Assets $161,864,925 $130,537,717
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 24,439,310 $ 9,184,836
Accounts payable 6,311,954 10,600,870
Accrued payroll and related expenses 3,830,191 2,132,446
Accrued interest 775,060 479,210
Restructuring costs 627,617 730,141
Income taxes payable 4,334,007 343,698
------------- -------------
Total current liabilities 40,318,139 23,471,201
------------- -------------
Deferred tax liabilities 1,789,605 2,090,536
Capital lease obligations 83,123 90,893
Long term debt 13,393,526 8,712,129
------------- -------------
Total Liabilities 55,584,393 34,364,759
------------- -------------
Minority interest 1,262,571 1,021,754
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, 13,643,779 and 13,238,567 shares issued and
outstanding at November 27, 1999, and May 31, 1999,
respectively 13,650 13,235
Accumulated other comprehensive income 25,197 (37,774)
Additional paid-in capital 103,687,263 102,092,026
Retained earnings (accumulated deficit) 1,291,851 (6,916,283)
------------- -------------
Total Stockholders' Equity 105,017,961 95,151,204
------------- -------------
Total Liabilities and Stockholders' Equity $161,864,925 $130,537,717
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THIRTEEN WEEKS ENDED NOVEMBER 27,1999 AND NOVEMBER 28,1998
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------------
NOVEMBER 27, NOVEMBER 28,
1999 1998
------------ -------------
<S> <C> <C>
Net sales $ 57,822,778 $ 45,558,943
Cost of sales 32,600,041 25,680,119
------------ ------------
Gross profit 25,222,737 19,878,824
Operating expenses:
Selling and distribution 14,309,011 10,335,448
Marketing, advertising and promotion 3,668,400 3,716,568
General and administrative 2,421,180 1,783,396
Provision for doubtful accounts 346,279 64,156
Amortization of intangibles 336,877 345,159
------------ ------------
Total operating expenses 21,081,747 16,244,727
------------ ------------
Earnings from operations 4,140,990 3,634,096
Interest income (49,914) (45,159)
Interest and debt expense 755,424 119,672
Other income (1,265,487) (820,342)
------------ ------------
Earnings before income taxes and minority
interest in income of consolidated subsidiaries 4,700,967 4,379,925
Income tax expense 1,598,329 1,576,773
Minority share of income 436,563 270,514
------------ ------------
Net earnings 2,666,075 2,532,638
Other comprehensive income, net of tax:
Foreign currency translation adjustment 23,722 (19,665)
------------ ------------
Comprehensive net income $ 2,689,797 $ 2,512,973
============ ============
Earnings per share information: (Note 3)
Basic:
Weighted average common shares 13,538,197 13,313,316
Net earnings per share $ 0.20 $ 0.19
============ ============
Diluted:
Weighted average common shares 14,270,342 13,623,224
Net earnings per share 0.19 0.19
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
TWENTY-SIX WEEKS ENDED NOVEMBER 27,1999 AND NOVEMBER 28,1998
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
--------------------------------
NOVEMBER 27, NOVEMBER 28,
1999 1998
------------- -------------
<S> <C> <C>
Net sales $ 139,973,557 $ 111,062,462
Cost of sales 80,187,140 63,078,765
------------- -------------
Gross profit 59,786,417 47,983,697
Operating expenses:
Selling and distribution 28,940,926 20,966,592
Marketing, advertising and promotion 11,202,502 10,911,569
General and administrative 5,412,537 4,660,266
Provision for doubtful accounts 761,147 228,001
Amortization of intangibles 670,592 610,310
------------- -------------
Total operating expenses 46,987,704 37,376,738
------------- -------------
Earnings from operations 12,798,713 10,606,959
Interest income (83,276) (125,318)
Interest and debt expense 1,178,300 277,590
Other income (2,446,621) (1,564,113)
------------- -------------
Earnings before income taxes and minority interest
in income of consolidated subsidiaries 14,150,311 12,018,800
Income tax expense 4,811,106 4,326,768
Minority share of income 737,776 421,200
------------- -------------
Net earnings 8,601,429 7,270,832
Other comprehensive income, net of tax:
Foreign currency translation adjustment 41,561 40,147
------------- -------------
Comprehensive net income $ 8,642,990 $ 7,310,979
============= =============
Earnings per share information: (Note 3)
Basic:
Weighted average common shares 13,511,941 13,307,476
Net earnings per share $ 0.64 $ 0.55
============= =============
Diluted:
Weighted average common shares 14,240,529 13,634,049
Net earnings per share $ 0.61 $ 0.53
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
TWENTY-SIX WEEKS ENDED NOVEMBER 27,1999 AND NOVEMBER 28,1998
(UNAUDITED)
<TABLE>
<CAPTION>
NOVEMBER 27, NOVEMBER 28,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,601,429 $ 7,270,831
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 2,878,024 2,467,205
Net loss (gain) on sale of equipment 30,498 (44,017)
Minority share of income 737,776 421,200
Provision for losses on accounts receivable and sales returns 346,219 228,001
Changes in assets and liabilities, net of effects of business
acquisition:
Accounts receivable (6,500,671) (12,608,748)
Inventories (12,348,265) (8,129,422)
Deferred income taxes (550,401) (177,194)
Prepaid expenses (839,823) (842,436)
Other assets (368,796) (320,562)
Accounts payable (4,380,450) (1,178,799)
Accrued payroll and related expenses 852,383 (126,072)
Restructuring costs (102,524) (4,499,732)
Income taxes payable 3,990,309 3,764,573
------------ ------------
Net cash used in operating activities (7,654,292) (13,770,172)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (7,621,240) (3,290,415)
Net cash proceeds (payments) from investments in other companies 47,769 (214,310)
Proceeds from sale of property, plant and equipment 11,255 808,033
------------ ------------
Net cash used in investing activities (7,562,216) (2,696,692)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term borrowings 14,791,058 9,594,610
Payments on capital lease obligations (108,918) (97,071)
Proceeds from long term debt 4,219,066 1,412,813
Consolidated subsidiary dividends paid to minority shareholders (360,992) (413,548)
Proceeds from issuance of common stock 393,196 1,219,025
Payment for repurchase of common stock -- (2,693,639)
------------ ------------
Net cash provided by financing activities 18,933,410 9,022,190
Effect of exchange rate changes 62,970 62,730
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,779,872 (7,381,944)
Cash and cash equivalents, beginning of period 7,777,192 16,779,528
------------ ------------
Cash and cash equivalents, end of period $ 11,557,064 $ 9,397,584
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION - AMOUNTS PAID FOR:
Interest $ 686,774 $ 181,038
Income taxes 1,137,729 648,800
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Increase in investment in consolidated subsidiary
Fair value of net assets acquired 145,967 121,181
Stock issued 1,273,339 976,342
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 condensed 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 27, MAY 31,
1999 1999
------------ ------------
<S> <C> <C>
Work-in-process $ 305,635 $ 138,004
Finished goods 49,801,385 37,568,147
Less: valuation allowance (722,433) (681,598)
------------ ------------
$ 49,384,587 $ 37,024,553
============ ============
</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 thirteen-week and
twenty-six week periods ended November 27, 1999, and November 28, 1998,
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 27, NOVEMBER 28, NOVEMBER 27, NOVEMBER 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net earnings $ 2,666,076 $ 2,532,638 $ 8,601,429 $ 7,270,832
=========== =========== =========== ===========
Weighted average shares
used in basic computation 13,538,197 13,313,316 13,511,941 13,307,476
Dilutive stock options 732,145 309,908 728,588 326,573
----------- ----------- ----------- -----------
Weighted average shares
used for dilutive computation 14,270,342 13,623,224 14,240,529 13,634,049
=========== =========== =========== ===========
</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 for restructuring
related to the closure of the Vista Facility and the restructuring of
its European operations. 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.
The following table outlines the beginning balance of, and expenditures
and adjustments to, the restructuring accrual during the second quarter
of Fiscal 2000 ("Q2 Fiscal 2000"):
<TABLE>
<CAPTION>
AUGUST 29, NOVEMBER 27,
1999 1999
BALANCE CASH NON-CASH BALANCE
---------- --------- -------- ------------
<S> <C> <C> <C> <C>
European Restructuring:
Termination of international distributors $ 730,000 $(102,000) $ -- $ 628,000
U.S.Restructuring:
Plant closure costs -- -- -- --
--------- --------- -------- ---------
Total Restructuring Cost $ 730,000 $(102,000) $ -- $ 628,000
========= ========= ======== =========
</TABLE>
During Q2 Fiscal 2000, the Company incurred cash expenditures of
$102,000 related to the termination of two of the Company's international
distributors in Europe. The Company did not incur any cash expenditures related
to the closure of the Vista facility.
6
<PAGE> 7
The remaining restructuring cost was incurred at the end of December 1999 and
represents cash payments to be made to one of the terminated international
distributors. Such expenditures will be funded out of operations and are payable
on or before January 31, 2000.
6. The Company's operations are classified into three reportable segments:
retail, wholesale and international. The Company evaluates performance
based on segment revenues and consolidated operating income. The Company's
reportable segments have distinct sales channels. Revenues for each
business segment are summarized as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
NOVEMBER 27, NOVEMBER 28, NOVEMBER 27, NOVEMBER 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Retail $17,325,000 $12,713,000 $37,045,000 $ 29,151,000
Wholesale 23,268,000 21,247,000 58,394,000 55,294,000
International 17,230,000 11,599,000 44,535,000 26,617,000
----------- ----------- ------------ ------------
$57,823,000 $45,559,000 $139,974,000 $111,062,000
=========== =========== ============ ============
</TABLE>
The Company does not have any individual customers representing more than 10% of
sales.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS GENERAL
The following discussion contains forward-looking statements about the
Company's revenues, earnings, spending, margins, orders, products, plans,
strategies and objectives that involve risk and uncertainties. Forward-looking
statements include any statement that may predict, forecast or imply future
results, and may contain words like "believe," "anticipate," "expect,"
"estimate," "project," or words similar to those. 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
in footnotes accompanying certain forward-looking statements, as well as those
discussed under the caption "Certain Considerations" on page 9 of the Company's
Annual Report on Form 10-K for the year ended May 31, 1999, as amended.
The Company is a leading lifestyle, retail and entertainment-based
company which targets 10-24 year-old consumers through the sponsorship of Core
Sports,(TM) which consist of alternative and enthusiast sports such as
skateboarding, snowboarding, surfing and wakeboarding, and through major
entertainment events and venues, such as the VANS Triple Crown(TM) Series, the
VANS Warped Tour,(TM) the VANS World Amateur Skateboarding Championships, the
world's largest VANS skateparks, and the High Cascade Snowboard Camp,(TM)
located at the base of Mt. Hood. The Company was founded in 1966 in Southern
California as a domestic manufacturer of vulcanized canvas shoes. The Company is
incorporated in Delaware.
On November 20, 1996, the Company acquired 51% of the outstanding shares
of Global Accessories Limited, the Company's exclusive distributor for the
United Kingdom ("Global"), in a stock-for-stock transaction. During Fiscal 1998
and 1999, the Company acquired another 19% of the Global common shares in
exchange for Common Stock of the Company. In Q2 Fiscal 2000 the Company acquired
an additional 10% of the Global common shares in exchange for Company Common
Stock. The remaining 20% of the Global common shares are expected to be acquired
by the Company over the next two years. The results of Global are consolidated
in the Company's financial statements.
On July 21, 1998, the Company acquired all of the outstanding capital
stock of Switch Manufacturing, a California corporation ("Switch"), through a
merger (the "Switch Merger") with and into a wholly-owned subsidiary of the
Company. The Switch 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 fair values. Switch is the manufacturer of the
Autolock(R) step-in boot binding system (the "Switch Autolock System"), one of
the leading snowboard boot binding systems in the world. The Switch 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) $12,000,000 principal amount of unsecured, non-interest bearing promissory
notes which are subject to potential downward adjustment based on the financial
performance of Switch during the fiscal year ending May 31, 2001, and are also
due and payable on July 20, 2001. The operating results of Switch were
consolidated in the Company's financial statements from the date of acquisition.
On July 29, 1999, the Company acquired all of the outstanding capital
stock of High Cascade Snowboard Camp, Inc., an Oregon corporation ("High
Cascade"), and its sister company, Snozone Boarding and Video, Inc., an Oregon
corporation, through mergers of
7
<PAGE> 8
the two companies with and into a wholly-owned subsidiary of the Company. High
Cascade, located at the base of Mount Hood in Oregon, is the leading summer
snowboarding camp in the world. The consideration exchanged by the Company
primarily consisted of the issuance of 236,066 shares of the Company's Common
Stock. The results of the two companies are consolidated in the Company's
financial statements.
The Company has also established a subsidiary in Mexico, Vans
Latinoamericana (Mexico), S.A. de C.V. ("Vans Latinoamericana"), a subsidiary in
Argentina, Vans Argentina S.A. ("Vans Argentina"), a subsidiary in Brazil, Vans
Brazil S.A., ("Vans Brazil"), a subsidiary in Uruguay, Vans Uruguay, S.A. ("Vans
Uruguay"), a subsidiary in Hong Kong, Vans Far East Limited ("VFEL"), and a
subsidiary in England, Vans Footwear Limited ("VFL"). The Company also co-owns
two joint venture subsidiaries, Van Pac LLC and VASH, LLC, with Pacific Sunwear
of California, Inc. and Sunglass Hut International, Inc. respectively. The
results of these subsidiaries are also consolidated in the Company's financial
statements.
RECENT RESTRUCTURINGS
During the fourth quarter of Fiscal 1998 ("Q4 Fiscal 1998"), the Company
restructured its U.S. operations and announced the closure of its last U.S.
manufacturing facility, located in Vista, California (the "Vista Facility"). The
closure of the Vista Facility was primarily due to a significant reduction in
orders for footwear produced at such Facility. Additionally, during Q4 Fiscal
1998, the Company commenced the restructuring of its European operations by
terminating certain distributor relationships and replacing them with sales
agents and a European-based operational structure designed to directly support
such agents (the "European Conversion").
The closure of the Vista Facility has resulted in the following benefits
to the Company: (i) decreased cost of goods for product produced at the Vista
Facility versus foreign-sourced product; (ii) the elimination of variances in
the manufacturing cost-per-unit which resulted from increases and decreases in
production levels at the Vista Facility; and (iii) increased management focus on
marketing and distribution rather than Facility management and cost accounting.
The European Conversion will enable the Company to recognize the sales and
income previously recognized by the distributors, and the Company believes that
the establishment of a Company-owned European operational structure should
enable it to more efficiently coordinate its sales and marketing efforts and
control its distribution. The Company has experienced increased operating
expenses in connection with the European Conversion, as discussed below.
The Company incurred an infrequent restructuring charge of $8.2 million
(the "Restructuring Costs") and a write-down of domestic inventory of $9.4
million (the "Inventory Write-Down") in connection with these matters in Q4
Fiscal 1998. The majority of the costs for these restructurings were incurred in
Fiscal 1999, with the exception of final cash payments for one of the terminated
distributors which are payable by January 31, 2000. Such cash expenditures will
be funded out of operations. See Note 5 to Notes to the Company's Condensed
Consolidated Financial Statements. The Vista Facility was closed on August 6,
1998.
8
<PAGE> 9
RESULTS OF OPERATIONS
QUARTERLY PERIOD ENDED NOVEMBER 27, 1999 ("Q2 FISCAL 2000") AS COMPARED
TO QUARTERLY PERIOD ENDED NOVEMBER 28, 1998 ("Q2 FISCAL 1999")
Net Sales
Net sales for Q2 Fiscal 2000 increased 26.9% to $57,823,000 from
$45,559,000 for Q2 Fiscal 1999. The sales increase was driven by increased sales
through each of the Company's sales channels, as discussed below.
Total U.S. sales, including sales through the Company's U.S. retail
stores, increased 19.5% to $40,593,000 for Q2 Fiscal 2000 from $33,960,000 for
Q2 Fiscal 1999. Total international sales increased 48.5% to $17,230,000 for Q2
Fiscal 2000, as compared to $11,599,000 for Q2 Fiscal 1999.
The increase in total U.S. sales resulted from (i) a 36.3% increase in
sales through the Company's U.S. retail stores, and (ii) a 9.5% increase in
domestic wholesale sales. The increase in U.S. retail store sales was driven by
sales from a net 20 new stores versus a year ago, and a 15.0% increase in
comparable store sales. The increase in international sales through VFEL was
primarily due to a 49.3% increase in sales in Europe in connection with the
European Conversion, increased sales to Central and South America primarily
through the Company's Latin America subsidiaries, and increased sales to Canada
and Japan through the Company's distributors for those countries.
Gross Profit
Gross profit increased 26.9% to $25,223,000 in Q2 Fiscal 2000 from
$19,879,000 in Q2 Fiscal 1999. As a percentage of net sales, gross profit was
even year-over-year at 43.6%. Gross profit increased primarily due to the
increase in sales discussed above.
Earnings from Operations
Earnings from operations increased 13.9% to $4,141,000 in Q2 Fiscal 2000
versus $3,634,000 in Q2 Fiscal 1999. Operating expenses in Q2 Fiscal 2000
increased 29.8% to $21,082,000 from $16,245,000 in Q2 Fiscal 1999, primarily due
to the increases in selling and distribution and general and administrative
expenses discussed below. As a percentage of sales, operating expenses increased
from 35.7% to 36.5% on a year-to-year basis.
Selling and distribution. Selling and distribution expenses increased
38.4% to $14,309,000 in Q2 Fiscal 2000 from $10,335,000 in Q2 Fiscal 1999,
primarily due to: (i) operating costs related to the European Conversion which
did not exist in Q2 Fiscal 1999 because such Conversion was not yet fully
implemented; and (ii) increased personnel costs, rent expense and other
operating costs associated with the expansion of the Company's retail division
by the net addition of 20 new stores.
Marketing, advertising and promotion. Marketing, advertising and
promotion expenses decreased 1.3% to $3,668,000 in Q2 Fiscal 2000 from
$3,717,000 in Q2 Fiscal 1999. The net decrease in marketing, advertising and
promotion expenses was the result of increased third party sponsorship of the
Company's major entertainment events and venues, partially offset by increased
direct advertising and promotional expense in Europe resulting from the European
Conversion and increased costs associated with new events included in the VANS
Triple Crown(TM) Series.
General and administrative. General and administrative expenses
increased 35.8% to $2,421,000 in Q2 Fiscal 2000 from $1,783,000 in Q2 Fiscal
1999, primarily due to: (i) operating costs related to the European Conversion
which did not exist in Q2 Fiscal 1999 because such Conversion was not yet fully
implemented; (ii) increased labor, recruiting and other employee-related
expenses to support the Company's sales growth; (iii) the inclusion of operating
costs related to High Cascade which were not included in the Q2 Fiscal 1999
Condensed Consolidated Financial Statements because it was not yet owned by the
Company; and (iv) increased legal expenses related to the Company's ongoing
worldwide efforts to protect and preserve its intellectual property rights.
Provision for doubtful accounts. The amount that was provided for bad
debt expense in Q2 Fiscal 2000 increased to $346,000 from $64,000 in Q2 Fiscal
1999 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.
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<PAGE> 10
Interest Income
Interest income increased slightly to $50,000 in Q2 Fiscal 2000 versus
$45,000 in Q2 Fiscal 1999 due to large cash balances held by Global during Q2
Fiscal 2000. The Company had no investment accounts at November 27, 1999.
Interest and Debt Expense
Interest and debt expense increased to $755,000 for Q2 Fiscal 2000 from
$120,000 in Q2 Fiscal 1999, primarily due to increased borrowings under the
Company's new credit facility to support sales growth. See "-Liquidity and
Capital Resources, Borrowings."
Other Income
Other income primarily consists of royalty payments from the licensing
of the Company's trademarks to its distributor for Japan. Other income increased
to $1,265,000 for Q2 Fiscal 2000 from $820,000 for Q2 Fiscal 1999, primarily due
to increases in royalties received from such distributor.
Income Tax Expense
Income tax expense increased slightly to $1,598,000 in Q2 Fiscal 2000
from $1,577,000 in Q2 Fiscal 1999 as a result of the increase in earnings
discussed above. The effective tax rate decreased from 36.0% in Q2 Fiscal 1999
to 34.0% in Q2 Fiscal 2000 primarily due to the tax benefit derived from the
operation of VFEL.
Minority Share of Income
Minority share of income increased to $437,000 for Q2 Fiscal 2000 from
$271,000 for Q2 Fiscal 1999, primarily due to the addition of the Van Pac LLC
joint venture, which did not exist in the same period of the prior year, and
increased earnings of Vans Latinoamericana and Vans Argentina. See "--General."
TWENTY-SIX WEEK PERIOD ENDED NOVEMBER 27,1999 ("FISCAL 2000 SIX MONTHS") AS
COMPARED TO THE TWENTY-SIX WEEK PERIOD ENDED NOVEMBER 28, 1998 ("FISCAL 1999 SIX
MONTHS")
Net Sales
Net Sales for the Fiscal 2000 Six Months increased 26.0% to $139,974,000
compared to $111,062,000 for the same period in Fiscal 1999. The sales increase
was driven by increased sales through all of the Company's sales channels, as
discussed below.
Total U.S. sales, including sales through the Company's U.S. retail
stores, increased 13.0% to $95,439,000 for the Fiscal 2000 Six Months from
$84,445,000 for the same period a year ago. Total international sales increased
67.3% to $44,535,000 for the Fiscal 2000 Six Months, as compared to $26,617,000
for the same period a year ago.
The increase in total U.S. sales resulted from (i) a 5.6% increase in
domestic wholesale sales as the Company increased penetration of existing
accounts, and (ii) a 27.1% increase in sales through the Company's U.S. retail
stores. The increase in U.S. retail store sales was driven by sales from a net
20 new stores versus a year ago, and a 9.8% increase in comparable store sales.
The increase in international sales through VFEL was primarily due to a $9.0
million increase in sales in Europe in connection with the European Conversion
and a $5.3 million increase in sales to Pacific Rim countries (primarily Japan).
Gross Profit
Gross profit increased 24.6% to $59,786,000 in the Fiscal 2000 Six
Months from $47,984,000 in the same period of Fiscal 1999. As a percentage of
net sales, gross profit decreased to 42.7% for the Fiscal 2000 Six Months from
43.2% for the same period of Fiscal 1999. The decrease in gross profit, as a
percentage of sales, was primarily due to higher air freight costs associated
with meeting increased product demand in Q1 Fiscal 2000.
10
<PAGE> 11
Earnings From Operations
Earnings from operations increased 20.7% to $12,799,000 in the Fiscal
2000 Six Months from $10,607,000 in the same period of Fiscal 1999. Operating
expenses in the Fiscal 2000 Six Months increased 25.7% to $46,988,000 from
$37,377,000 in the same period a year ago, primarily due to a $7,974,000
increase in selling and distribution expense and a $752,000 increase in general
and administrative expenses, as discussed below. As a percentage of sales,
operating expenses decreased slightly from 33.7% to 33.6% on a year-to-year
basis.
Selling and distribution. Selling and distribution expenses increased
38.0% to $28,941,000 in the Fiscal 2000 Six Months from $20,967,000 in the same
period a year ago, primarily due to: (i) operating expenses related to the
European Conversion which did not exist in the Fiscal 1999 Six Months because
such Conversion was not yet fully implemented; (ii) increased personnel costs,
rent expense and other operating costs associated with the expansion of the
Company's retail division by the net addition of 20 new stores; and (iii) costs
required to support the Company's U.S. sales growth.
Marketing, advertising and promotion. Marketing, advertising and
promotion expenses increased 2.7% to $11,203,000 in the Fiscal 2000 Six Months
from $10,912,000 in the same period a year ago, primarily due to: (i) increased
direct advertising and promotional expense in Europe resulting from the European
Conversion; (ii) higher print and television advertising expenditures related to
the back-to-school selling season; and (iii) increased costs associated with new
events included in the VANS Triple Crown(TM) Series.
General and administrative. General and administrative expenses
increased 16.2% to $5,413,000 in the Fiscal 2000 Six Months from $4,660,000 in
the same period a year ago, primarily due to: (i) operating costs related to the
European Conversion which did not exist in the Fiscal 1999 Six Months because
such Conversion was not yet fully implemented; (ii) increased labor, recruiting
and other employee-related expenses to support the Company's sales growth; (iii)
increased legal expenses related to the Company's ongoing worldwide efforts to
protect and preserve its intellectual property rights; and (iv) the inclusion of
operating costs related to High Cascade which were not included in the Fiscal
1999 Six Months because it was not yet owned by the Company.
Provision for doubtful accounts. The amount that was provided for bad
debt expense in the Fiscal 2000 Six Months increased to $761,000 from $228,000
in the same period a year ago due to an increase in the general allowance for
doubtful accounts to correspond to the increase in accounts receivable which
resulted from higher sales.
Interest Income
Interest income decreased to $83,000 during the Fiscal 2000 Six Months
from $125,000 in the same period of the prior year because the Company utilized
a portion of interest-bearing investments to fund sales growth. As a result, the
Company's investment accounts decreased to zero at November 27, 1999.
Interest And Debt Expense
Interest and debt expense increased to $1,178,000 for the Fiscal 2000
Six Months from $278,000 in the same period a year ago for the same reasons
discussed under the caption "--Interest and Debt Expense" for Q2 Fiscal 2000.
Other Income
Other income increased 56.4% to $2,447,000 for the Fiscal 2000 Six
Months from $1,564,000 for the same period a year ago, primarily due to a
significant increase in royalty income from the Company's distributor for Japan.
Income Tax Expense
Income tax expense increased to $4,811,000 in the Fiscal 2000 Six
Months from $4,327,000 in the same period in Fiscal 1999 as a result of the
higher earnings discussed above. The effective tax rate decreased from 36.0% in
the Fiscal 1999 Six Months to 34.0% in the Fiscal 2000 Six Months for the same
reasons discussed under the caption "--Income Tax Expense" for Q2 Fiscal 2000.
11
<PAGE> 12
Minority Share Of Income
Minority interest increased to $738,000 for the Fiscal 2000 Six Months
from $421,000 for the same period a year ago for the same reasons discussed
under the caption "--Minority Share of Income" for Q2 Fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company finances its operations with a combination of cash flows
from operations and borrowings under a credit facility. See "--Borrowings"
below.
The Company experienced an outflow of cash from operating activities of
$7,463,000 during the Fiscal 2000 Six Months, compared to an outflow of
$13,770,000 for the Fiscal 1999 Six Months. Cash used by operations for the
Fiscal 2000 Six Months primarily resulted from: (i) an increase in net inventory
to $49,385,000 at November 27, 1999, from $37,025,000 at May 31, 1999, as
described below; (ii) an increase in net accounts receivable to $36,211,000 at
November 27, 1999, from $30,056,000 at May 31, 1999, as described below; and
(iii) a decrease in accounts payable. Cash outflows from operations for the
Fiscal 2000 Six Months were partially offset by the Company's earnings, the
add-back for depreciation and amortization, and the increase in income taxes
payable. Cash outflows from operations in the Fiscal 1999 Six Months primarily
resulted from increases in accounts receivable and inventories and a decrease in
the restructuring costs accrual.
The Company had a net cash outflow from investing activities of
$7,753,000 in the Fiscal 2000 Six Months, compared to a net cash outflow of
$2,697,000 in the Fiscal 1999 Six Months. The Fiscal 2000 Six Months outflows
were primarily due to capital expenditures related to new retail store openings
and skateparks. Cash used in investing activities for the Fiscal 1999 Six Months
was primarily related to new retail store openings, tenant improvements at the
Santa Fe Springs Facility, and investments in other companies, offset by
proceeds from the sale of assets in connection with the closing of the Vista
Facility.
The Company incurred a net cash inflow from financing activities of
$18,933,000 for the Fiscal 2000 Six Months, compared to a net cash inflow of
$9,022,000 for the Fiscal 1999 Six Months, primarily due to short-term
borrowings under the Company's new credit facility and long-term debt incurred
by the Company and the Company's Latin America subsidiaries. See "--Borrowings"
below. Cash provided by financing activities in the Fiscal 1999 Six Months was
related to proceeds from short-term borrowings under the Company's former bank
revolving line of credit, and proceeds from long-term debt incurred by Vans
Latinoamericana, partially offset by the repurchase of $2,694,000 of common
stock pursuant to the Company's stock repurchase program.
Inventories increased to $49,385,000 at November 27, 1999, from
$37,025,000 at May 31, 1999, primarily due to: (i) increased inventory held at
the Company's distribution center in Holland (established in connection with the
European Conversion); and (ii) an increased number of finished goods held for
sale at the Company's retail stores to support the net addition of 20 new stores
and increased sales. Accounts receivable, net of allowance for doubtful
accounts, increased from $30,056,000 at May 31, 1999, to $36,211,000 at
November 27, 1999, primarily due to the inclusion of accounts receivable for
sales in Europe due to the European Conversion which did not exist in the Fiscal
1999 Six Months because such Conversion was not yet fully implemented.
Borrowings
In July 1999, the Company obtained a $63.5 million credit facility (the
"New Credit Facility") pursuant to a credit agreement (the "Credit Agreement")
with several lenders (the "Lenders"). The New Credit Facility replaced the
Company's former $30.0 million revolving line of credit with Bank of the West
(the "Bank of the West Facility"). The New Credit Facility permits the Company
to utilize the funds thereof for general corporate purposes, capital
expenditures, acquisitions and stock repurchases.
Of the $63.5 million amount of the New Credit Facility, $53.0 million is
in the form of an unsecured revolving line of credit (the "Revolver"), and $10.5
million is in the form of an unsecured term loan (the "Term Loan"). The Revolver
expires on October 31, 2002. The Company has the option to pay interest on
Revolver advances at a rate equal to either (i) LIBOR, or (ii) a base rate plus
a margin which will be based on the Company's ratio of "Funded Debt" to
"EBITDA," each as defined in the Credit Agreement.
Of the $10.5 million Term Loan: (i) approximately $5.0 million was
disbursed at the closing of the New Credit Facility to replace a portion of the
Bank of the West Facility used for the Company's stock repurchase program, which
was completed in Fiscal 1999; (ii) approximately $3.0 million was disbursed in
Q2 Fiscal 2000 for capital expenditures; and (iii) the remaining portion must be
12
<PAGE> 13
disbursed on or before January 31, 2001, or it will expire. The Term Loan
expires May 31, 2004, and the principal thereof is payable in 14 quarterly
installments beginning February 28, 2001, and ending May 31, 2004. The Company
has the option to pay interest on the Term Loan at LIBOR for advances of one,
two, three or six months, or a base rate for U.S. dollar advances.
Under the Credit Agreement, the Company must maintain certain financial
covenants and is prohibited from engaging in certain transactions or taking
certain corporate actions, such as the payment of dividends, without the consent
of the Lenders. At November 27, 1999, the Company had drawn down $23,034,000
under the New Credit Facility.
Vans Latinoamericana and Vans Argentina maintain notes 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. At November 27, 1999, the
aggregate outstanding balance under the notes was $3,570,000.
Current Cash Position
The Company's cash position was $11,557,000 at November 27, 1999,
compared to $7,777,000 at May 31, 1999. The Company believes that cash generated
from operations, coupled with the New Credit Facility, should be sufficient to
meet its cash requirements for the next 12 months.*
Capital Resources
As of November 27, 1999, the Company's material commitments for capital
expenditures were primarily related to the opening and remodeling of retail
stores and the opening of skateparks. In the remainder of Fiscal 2000, the
Company plans to open approximately one new factory outlet retail store, three
full-price stores, and two VANS Triple Crown(TM) stores, and remodel five
existing stores. The Company estimates the aggregate cost of all of these new
stores and remodels to be between $1.5 million and $2.5 million.
The Company currently intends to open two additional skateparks in
Fiscal 2000 and estimates the aggregate cost of its portion of these projects to
be approximately $250,000, since the landlords for these skateparks have agreed
to pay substantially all of the capital costs associated with the construction
of the parks.
The Company intends to utilize cash generated from operations and funds
drawn down under the New Credit Facility to fulfill its capital expenditure
requirements for Fiscal 2000.
Recent Accounting Pronouncements
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 June 15, 2000. Since the Company and its subsidiaries do not presently
engage in significant hedging activities or invest in other derivatives, FAS No.
133 does not currently 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-l"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company adopted
SOP 98-1 effective June 1, 1999. The adoption of SOP 98-1 required the Company
to modify its method of accounting for software, however, it did not have a
significant impact on the Company's financial position or results of operations.
- --------------
* Note: This is a forward-looking statement. The Company's actual cash
requirements could differ materially. Important factors that could cause the
Company's need for additional capital to change include: (i) the Company's rate
of growth; (ii) the number of new VANS Triple Crown(TM) stores the Company
decides to open; (iii) the number of new skateparks the Company decides to open
which must be financed in whole, or in part, by the Company; (iv) the Company's
product mix between footwear and snowboard boots; (v) the Company's ability to
effectively manage its inventory levels; (vi) timing differences in payment for
the Company's foreign-sourced product; (vii) the increased utilization of
letters of credit for purchases of foreign-sourced product; and (viii) timing
differences in payment for product which is sourced from countries which have
longer shipping lead times, such as China.
13
<PAGE> 14
Seasonality
The Company's business is seasonal, with the largest percentage of net
income, U.S. sales, and all revenues generated from High Cascade realized in the
first Fiscal quarter (June through August), the "back to school" selling months.
As the Company increases sales to Europe due to the European Conversion, the
Company is recognizing more of such sales in the first Fiscal quarter due to
seasonal demand for product in Europe. In addition, because snowboarding is a
winter sport, sales of the Company's snowboard boots, and the Switch Autolock(R)
System, have historically been strongest in the first and second Fiscal
quarters. Such sales are now being recognized earlier in the first Fiscal
quarter since industry retailers are demanding earlier shipments of product.
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 Update
As of the date of this report, the Company has not experienced any
material Year 2000-related problems with any of its systems and has not received
any reports of such problems from any of its sales agents, distributors,
customers, landlords, financial partners, or third-party vendors.
14
<PAGE> 15
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. 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 five European stores are not currently able to
recognize the Euro Conversion, however, since three of the Company's European
stores are located in the United Kingdom, which is not currently participating
in the Euro Conversion, and the Spain and Austria stores may continue to accept
local currencies until 2002, the Company does not expect its current overall
European store operations to be materially 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, and all of its European distributors have represented to the Company
that their systems will do the same.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company's exposure to market risk associated with changes in
interest rates relates primarily to its debt obligations. The Revolver bears
interest at a rate equal to either (i) LIBOR, or (ii) a base rate plus a margin
which will be based on the Company's rate of "Funded Debt" to "EBITDA," each as
defined in the Credit Agreement. See Item 2--"Management's Discussion and
Analysis of Financial Condition and Results of Operations, Liquidity and Capital
Resources." The Company does not use derivative financial instruments to hedge
its interest rate risks.
Foreign Currency Risk
The Company sells its products in a number of countries throughout the
world and, as a result, is exposed to movements on foreign currency exchange
rates. Although the Company has most of its products manufactured outside of the
United States on a per order basis, these purchases are made in U.S. dollars.
The major foreign currency exposures involve Japan and Europe. In order to
protect against the volatility associated with earnings currency translations of
foreign subsidiaries and royalty income from sources outside the United States,
the Company may, from time to time, utilize forward foreign exchange contracts
and/or foreign currency options with durations of generally from three to twelve
months. As of November 27, 1999, the Company had no outstanding foreign exchange
forward contracts.
- ------------
* Note: 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
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On October 26, 1999, the Company held its 1999 Annual Meeting of
Stockholders. The following matters were voted on at the meeting: (i) the
election of directors; (ii) an amendment to the Company's 1991 Long-Term
Incentive Plan to increase the number of shares available for issuance
thereunder by 300,000; and (iii) the ratification and approval of KPMG LLP as
the Company's independent auditors for Fiscal 2000.
The results of the voting on these matters (including the names of all
persons elected as directors) are set forth below:
<TABLE>
<CAPTION>
VOTES
PROPOSAL VOTES FOR AGAINST/WITHHELD ABSTENTIONS BROKERNON-VOTES
-------- --------- ---------------- ----------- ---------------
Proposal No. 1 --
Election of Directors
Nominees
<S> <C> <C> <C> <C>
Walter E. Schoenfeld 10,332,315 827,025 0 0
Gary H. Schoenfeld 10,332,415 826,925 0 0
George E. McCown 10,333,115 826,225 0 0
Wilbur J. Fix 10,332,815 826,525 0 0
Gerald Grinstein 10,332,315 827,025 0 0
James R. Sulat 1O,222,112 826,228 0 0
Kathleen M. Gardarian 10,252,054 907,286 0 0
Lisa M. Douglas 10,333,115 826,225 0 0
Charles G. Armstrong 10,332,915 826,425 0 0
Leonard R. Wilkens 10,333,115 826,225 0 0
Proposal No. 2 --
Amendment No. 7 to 1991
Long-Term Incentive Plan 6,667,126 4,345,726 146,488 0
Proposal No. 3 --
Ratification of KPMG LLP
as Independent Auditors
for Fiscal 2000 11,135,548 8,941 14,851 0
</TABLE>
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 7 to the 1991 Long-Term Incentive Plan
10.2 Employment Agreement of Jay E. Wilson, dated December 3, 1999, superseding
previous agreement
27 Financial Data Schedule
(b) Reports on 8-K.
The Company did not file any reports on Form 8-K during the quarterly period
ended November 27, 1999.
16
<PAGE> 17
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 11, 2000 By: /s/ Gary H. Schoenfeld
------------------------------------
GARY H. SCHOENFELD
President and Chief
Executive Officer
Date: January 11, 2000 By: /s/ Kyle B. Wescoat
------------------------------------
KYLE B. WESCOAT
Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
<S> <C>
10.1 Amendment No. 7 to the 1991 Long-Term Incentive Plan
10.2 Employment Agreement of Jay E. Wilson, dated December 3, 1999, superseding
previous agreement
27 Financial Data Schedule
</TABLE>
18
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 7
TO
VANS, INC.
1991 LONG-TERM INCENTIVE PLAN
The purpose of this Amendment is to increase the maximum number of
shares of the Company's Common Stock, par value $.001 per share ("Common
Stock"), that may be issued upon the exercise of options granted under the Plan.
The Plan is hereby amended as follows:
1. Section 3 (a) of the Plan is hereby deleted in its entirety and the
following is substituted in lieu thereof:
"(a) Subject to the provisions of paragraph 9 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options
granted under the Plan shall not exceed in the aggregate Two Million
Three Hundred Thousand (2,300,000) shares of the Company's Common
Stock, $.001 par value per share ("Common Stock"), plus any and all
shares of Common Stock available for grants of options under the
Company's 1988 Incentive Stock Option Plan (the "1988 Plan"). If any
option granted under the Plan or the 1988 Plan shall for any reason
expire or otherwise terminate without having been exercised in full,
the Common Stock not purchased under such option shall again become
available for issuance under the Plan."
2. Except as provided herein, the Plan shall be unmodified and remain
in full force and effect.
Dated: July 20, 1999
<PAGE> 1
EXHIBIT 10.2
VANS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement" herein) is entered into
as of December 3, 1999, by and between VANS, INC., a Delaware corporation (the
"Company"), and JAY E. WILSON ("Employee").
1. Employment and Duties. The Company hereby employs Employee
as Vice President - World Marketing of the Company on the terms and subject to
the conditions contained in this Agreement. Employee shall be responsible for
managing the Company's global marketing and advertising efforts. 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, or such other
executive officer as may be designated by 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 December 2, 2002, 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/ JEW
------------ ----------
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 $175,000 during the
term of this Agreement. 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,
however, Employee shall have the right to perform such incidental services as
are necessary in connection
2
<PAGE> 3
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;
(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;
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<PAGE> 4
(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.
8.4 Records.
(a) Ownership. All Records are and shall remain
the exclusive property of the Company.
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<PAGE> 5
(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, including specifically the Company's annual bonus
plan for executive officers pursuant to which Employee shall have the
opportunity to earn an annual bonus equal to thirty percent (30%) of his salary
compensation, subject to the terms and conditions of the plan. 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.
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."
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<PAGE> 6
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 -
World Marketing 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.
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
6
<PAGE> 7
his salary compensation (at the rate payable at the time of such termination)
for a period of six (6) months from the date of termination. Notwithstanding the
foregoing, if Employee is employed by a new employer, or as a consultant after
the termination of this Agreement, 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
7
<PAGE> 8
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. 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
8
<PAGE> 9
To Employee: Jay E. Wilson
(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 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 or
controversy arising out of this Agreement or the employment relationship between
Employee and the Company, including but not limited to, claims by the Company
against Employee and claims by Employee against the Company, including but not
limited to claims for
9
<PAGE> 10
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
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 (except for Employee's attorneys' fees and costs) shall be
borne by the Company. The arbitration shall occur in Los Angeles, California and
the parties hereby consent to the jurisdiction of the arbitrator and to service
of process. The arbitrator shall issue a written opinion regarding his/her
decision. 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. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS PROVISION IS
INTENDED TO AFFECT OR RESTRICT ANY RIGHTS OR REMEMDIES EMPLOYEE MIGHT HAVE IF
HIS CLAIMS WERE BOURGHT IN COURT.
23. 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
/s/ Jay E. Wilson By: /s/ Craig E. Gosselin
- ------------------------------ --------------------------------
V.P. and General Counsel
- ------------------------------ -----------------------------------
Address Title
10
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