<PAGE> 1
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 DRAFT:
________________
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
For the fiscal year ended December 31, 1996 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________________ to _________________
Commission file number 0-19790
VARSITY SPIRIT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Tennessee 62-1169661
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2525 Horizon Lake Drive 38133
Memphis, Tennessee (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: 901-387-4300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock, $.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 10, 1997 was approximately $39,169,000.
____________
Shares of Common Stock outstanding at March 10, 1997: 4,560,083
________________________________________________________________________________
<PAGE> 2
PART I
Item 1. Business.
GENERAL
Varsity Spirit Corporation (the "Company" or "VSC") sells products and
services to the school spirit industry. The Company designs and markets
cheerleader, dance team and booster club uniforms and accessories and is an
operator of youth, junior high, high school and college cheerleader and dance
team camps, clinics and competitions. The Company promotes its products and
services, as well as the school spirit industry, by organizing and producing
various nationally-televised cheerleading and dance team championships and
other special events. The Company targets the youth market and sells
custom-made uniforms and accessories to customers, and operates cheerleader and
dance team camps and clinics, in all 50 states, Canada, Japan and Germany. The
Company also operates a travel company that organizes group travel tours within
the United States and abroad, including tours for school spirit groups.
VARSITY CHEERLEADER UNIFORMS AND ACCESSORIES
Through its subsidiary, Varsity Spirit Fashions & Supplies, Inc.
("Varsity"), the Company designs and markets cheerleader, dance team and
booster club uniforms and accessories, including sweaters, sweatshirts,
jumpers, vests, skirts, shorts, warm-up suits, t-shirts, socks, pompons,
jackets, pins and gloves. Varsity employs two full-time fashion designers,
both of whom are former college cheerleaders, and one of whom received
additional training at the Fashion Institute of Technology in New York City.
Varsity also utilizes specialized computer software to create its new fashion
designs and patterns.
Cheerleading and dance team uniforms designed and marketed by Varsity are
custom-made. During 1996, Varsity contracted for its production requirements
with seven independent garment manufacturers utilizing ten manufacturing
facilities. Varsity has exclusive contracts with these manufacturers, under
which the manufacturers provide knitting, cutting, sewing, finishing and
shipping for all orders. Varsity provides these manufacturers with patterns,
fabrics, yarn and manufacturing specifications and quality control supervision.
Varsity also provides some cutting, knitting and lettering for the
manufacturers at its specialized production facility located at the Company's
Memphis headquarters. The use of independent manufacturing facilities to
fulfill the Company's production needs affords the Company flexibility to
adjust its production output to meet its highly seasonal selling cycle. The
use of independent manufacturers also reduces the Company's fixed costs, which
the Company believes is beneficial in a highly seasonal business. The Company
believes that the loss or termination of its relationship with any single
independent manufacturer would not have a material adverse effect on the
Company's operations.
Varsity purchases from various suppliers many of the cheerleading
accessories that it markets, including shoes, pompons and campwear. Varsity
purchases products from Nike, Capezio and Converse, among others. Varsity has
expanded the variety and number of accessories it markets, which has
contributed to the increase in merchandise sales revenue experienced by Varsity
in the past
<PAGE> 3
five fiscal years. The Company believes that the loss or termination of its
relationship with any single supplier would not have a material adverse effect
on the Company's operations.
The Company markets its Varsity(TM) uniforms, accessories and other
merchandise through sales representatives and, to a lesser extent, through its
direct mail catalog and telemarketing programs. As of December 31, 1996,
Varsity had over 135 sales representatives operating in a total of 50 states.
The Company's representatives are employed directly by the Company or are
representatives of one of the two marketing firms with which the Company has
contracted for marketing services. These sales representatives, who typically
cover one or more major metropolitan areas on an exclusive basis, call on
substantially all of the junior high, high school and college accounts within
their respective territories. The sales representatives are typically
compensated on a percentage of sales basis. Varsity closely and continuously
monitors the performance of its sales representatives and periodically meets
with the representatives to discuss and review sales goals.
CHEERLEADER AND DANCE TEAM OPERATIONS
Through its Universal Cheerleaders Association ("UCA") division and its
wholly owned subsidiary, Varsity USA, Inc. ("USA"), the Company operates
cheerleader and dance team camps in the United States. During the 1996 summer
camp season, approximately 188,000 participants (consisting of students and
their coaches) attended UCA and USA camps, including over 6,300 participants
representing colleges and junior colleges. During the summer of 1996,
cheerleading and/or dance team squads from approximately 65% of the
universities comprising the Atlantic Coast, Big East, Big Ten, Big Twelve,
Pac-10 and Southeastern collegiate athletic conferences attended UCA and USA
camps. On May 15, 1996, USA acquired the camp business of United Spirit
Association from United Special Events, Inc. This business consists of
instructional spirit camps and clinics primarily in the western United States.
Camp sessions for high school and junior high school students are held
primarily in June and July; camp sessions for college cheerleaders and dance
team participants are held primarily in August. Mascot training clinics are
also provided at certain of the Company's cheerleader and dance team camps.
A significant majority of the Company's cheerleader and dance team camps
are conducted on college or junior college campuses. The camps generally are
conducted over a four-day period and are attended by resident and commuting
students. The Company generally markets the camp, establishes registration
fees, registers students, collects the registration fees, provides instruction
and performs all related administrative services. The Company contracts with
the colleges and universities for provision of housing, food and conference
facilities. During the summer of 1996, resident fees for high school
cheerleader and dance team camps sponsored by the Company ranged from $70 to
$236, with commuter fees ranging from $40 to $139. In addition to registration
fees, the Company also generates revenues at cheerleading and dance team camps
through the sale of t-shirts, shorts, caps, patches and various other
accessories.
The staff of the Company's summer camps includes instructors,
administrators and trainers. On average, one instructor was provided for
every 23 students during 1996. Camp staff, including administrators and
trainers, were provided at the ratio of approximately one to 75 students
during 1996. The
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<PAGE> 4
Company's instructors, all of whom are required to complete an intensive
training session prior to each summer season, typically are college
cheerleaders who have also attended camps in the past.
The Company also operates two cheerleading practice facilities. These
cheer gyms are year-round facilities at which cheerleaders and other spirit
group participants can enroll in instructional and recreational programs
offered by the Company.
OTHER OPERATIONS
The Company, through a wholly-owned subsidiary, Varsity/Intropa Tours,
Inc. ("Varsity/Intropa"), operates a travel company that specializes in
organizing tours primarily for cheerleaders, bands, choirs and other
school-affiliated groups. Most tours are planned around a performance event;
therefore, the revenues from this business are seasonal. Prices are negotiated
on a tour-by-tour basis and fluctuate based on factors such as the availability
of discounts on air fares and the exchange rates, in the case of international
tours.
TRAINING AND EMPLOYEES
The Company emphasizes the training of its instructors. Prior to the
commencement of the camps, the instructors participate in an intensive
seven-day training session where they are taught new cheerleading and dance
material, as well as up-to-date teaching and safety techniques. The Company
hires its instructors by utilizing applications given to talented camp
participants, participant surveys of camp personnel, supervisor evaluations and
numerous nationwide tryouts.
During the year ending December 31, 1996, the Company employed 428
full-time employees and 219 part-time employees. In addition, during the
summer of 1996, the Company employed approximately 1,660 summer camp
instructors, trainers and administrators. None of the Company's employees is
covered by a collective bargaining agreement. The Company considers its
relationship with its employees to be satisfactory.
COMPETITION
VSC is one of two major companies that designs and markets cheerleader,
dance team and booster club uniforms and accessories on a national basis. In
addition to VSC and its major national competitor, there are other smaller
national and regional competitors serving the uniform and accessories market in
the United States. The Company believes that the principal factors governing
the selection of cheerleader and dance team uniforms and accessories are the
quality, variety, design, delivery, service and, to a lesser extent, price of
the merchandise.
VSC is one of three companies that annually operate a significant number
of cheerleader and dance team camps in the United States and is one of two
major national operators of camps. There are also many other companies and
schools that operate camps and clinics on a regional basis. The Company
believes the principal factors governing the selection of a cheerleader or
dance team camp or clinic are the reputation of the camp operator for providing
quality instruction and supervision, accessibility of camp locations, timing of
the camps and the tuition charged for camp participation.
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TRADEMARKS AND SERVICE MARKS
The Company has registered various trademarks with the U.S. Patent and
Trademark Office, including the following: the Universal Cheerleaders
Association logo, the Varsity logo, the United Spirit Association logo, the
National High School Cheerleading Championship logo, the Universal Dance
Association logo, Universal Dance Camps, Varsity Spirit Fashions and The
National Dance Team Championship. The Company believes that these trademarks
have significant value and are important to its marketing efforts.
Item 2. Properties.
The Company leases the following facilities for its operations. These
facilities are considered suitable and adequate for their intended uses.
<TABLE>
<CAPTION>
Description of Facility Square Footage Lease Expiration Date
----------------------- -------------- ---------------------
<S> <C> <C>
Office/Warehouse/Prduction,
Memphis, TN 63,700 November 14, 1997
Warehouse, Memphis, TN 21,500 October 31, 1997
Office/Warehouse,
Sunnyvale, CA 10,030 November 30, 2000
Sport Gym, Decatur, GA 12,000 July 31, 1998
Sport Gym, Carrollton, TX 11,050 January 31, 2000
Office, Bellaire, TX 2,984 November 30, 1997
</TABLE>
Item 3. Legal Proceedings.
The Company is not a party to any litigation that is expected to have a
material adverse effect on its business.
Item 4. Submissions of Matters To a Vote of Security Holders.
Not applicable.
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<PAGE> 6
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
MARKET AND DIVIDEND INFORMATION
The Company's common stock trades on The Nasdaq Stock Market's National
Market under the symbol "VARS". The number of shareholders of record as of
March 10, 1997, was approximately 247.
The Company paid a quarterly dividend of $0.03, or $0.12 annually, and
$0.04, or $0.16 annually, for each of the years ended December 31, 1995 and
1996, respectively. On February 13, 1997, the Company declared a quarterly
dividend of $0.055 per share, which was paid on March 6, 1997.
The following tables set forth the reported high and low sales prices for
Varsity's common stock as reported by Nasdaq:
<TABLE>
<CAPTION>
1996 HIGH LOW
- ------------------------------------------------------------
<S> <C> <C>
For the quarter ended:
March 31 15 3/4 14 1/2
June 30 16 3/4 14 1/2
September 30 16 3/4 15 3/4
December 31 16 15
1995 HIGH LOW
- ------------------------------------------------------------
For the quarter ended:
March 31* 13 3/4 11 3/4
June 30 14 1/4 12 3/4
September 30 18 1/8 13 1/2
December 31 18 13 1/2
</TABLE>
- --------------------------
* The sales prices reflect a 3-for-2 stock split effected as a 50% stock
dividend, distributed on February 24, 1995, to shareholders of record at the
close of business on February 14, 1995.
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Item 6. Selected Financial Data.
SELECTED CONSOLIDATED FINANCIAL DATA
================================================================================
The following selected consolidated financial data are derived from the
consolidated financial statements of the Company. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements, related
notes and other financial information included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Nine Months
Ended Year Ended YEAR ENDED
(In thousands, except per share data) Year Ended March 31, December 31, December 31, DECEMBER 31,
-------------------- ------------ ------------ ------------
1993 1994 1994 1995 1996
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (1)
Revenues:
Uniforms and accessories $25,765 $31,193 $35,866 $44,049 $49,472(3)
Camps and events 15,822 18,560 23,721(2) 31,449(2) 38,977(3)(2)
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 41,587 49,753 59,587 75,498 88,449
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit 17,509 20,831 24,102 29,005 34,836
- --------------------------------------------------------------------------------------------------------------------------------
Operating income 3,987 4,837 7,985 6,326 8,448
Other income (expense) 37 121 150 178 166
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,427 $ 3,022 $ 4,917 $ 4,163 $ 5,200
- --------------------------------------------------------------------------------------------------------------------------------
Net income per share (4) $ 0.53 $ 0.66 $ 1.07 $ 0.89 $ 1.10
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
and equivalents outstanding 4,550 4,565 4,587 4,679 4,734
- --------------------------------------------------------------------------------------------------------------------------------
Cash dividends per share $ - $ - $ - $ 0.12 $ 0.16
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (at period-end):
Total assets $16,045 $18,701 $24,870 $29,243 $37,791
Shareholders' equity 12,678 15,736 20,741 24,794 29,897
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The business and results of operations of the Company are highly
seasonal. A substantial portion of the Company's annual revenues and all
of the Company's net income are generated in the quarters ended June 30
and September 30. The quarters ended March 31 and December 31 have
historically resulted in net losses. See "Management Discussion and
Analysis of Financial Condition and Results of Operations."
(2) Includes travel tour revenues of $2,065, $5,814 and $5,814, respectively,
as a result of the December 1, 1994, acquisition of the assets of Intropa
International U.S.A., Inc.
(3) Includes camp revenues $261 and $4,199, respectively, as a result of the
May 15, 1996 acquisition of the camp business of United Special Events,
Inc.
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<PAGE> 8
(4) All references with regard to the numbers of shares of common stock and
per share amounts have been retroactively adjusted to reflect the
three-for-two stock split effected by a 50% stock dividend on February 24,
1995.
ADDITIONAL SELECTED CONSOLIDATED FINANCIAL DATA
PRESENTED FOR COMPARATIVE PURPOSES
================================================================================
Effective April 1, 1994, the Company changed its fiscal year-end from March 31
to December 31. To aid in annual comparisons, selected unaudited consolidated
financial data have also been presented for the twelve-month periods ended
December 31, 1993 and 1994.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except per share data) Twelve Months Ended December 31,
-------------------------------------------
1993 1994 1995 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Uniforms and accessories $30,775 $37,635 $44,049 $49,472
Camps and events 18,284 24,968 31,449 38,977
- --------------------------------------------------------------------------------------
Total revenues 49,059 62,603 75,498 88,449
- --------------------------------------------------------------------------------------
Gross profit 20,678 25,040 29,005 34,836
- --------------------------------------------------------------------------------------
Operating income 5,064 6,120 6,326 8,448
Other income 95 183 178 166
- --------------------------------------------------------------------------------------
Net income $ 3,115 $ 3,818 $ 4,163 $ 5,200
- --------------------------------------------------------------------------------------
Net income per share (1) $ 0.68 $ 0.83 $ 0.89 $ 1.10
- --------------------------------------------------------------------------------------
Weighted average shares
outstanding 4,551 4,587 4,679 4,734
- --------------------------------------------------------------------------------------
Cash dividends per share $ - $ - $ 0.12 $ 0.16
- --------------------------------------------------------------------------------------
BALANCE SHEET DATA (at period-end):
Total assets $21,057 $24,870 $29,243 $37,791
Shareholders' equity 16,821 20,741 24,794 29,897
- --------------------------------------------------------------------------------------
</TABLE>
(1) All references with regard to the numbers of shares of common stock and
per share amounts have been adjusted to reflect the three-for-two stock
split effected by a 50% stock dividend on February 14, 1995.
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<PAGE> 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Over the past three years, the Company's revenues and net income have
grown substantially. Revenues have grown from $62.6 million in the
twelve-month period ended December 31, 1994 to $88.4 million in the twelve
months ended December 31, 1996, and net income has grown from $3.8 million in
the twelve months ended December 31, 1994 to $5.2 million in the twelve months
ended December 31, 1996. This growth is due to the Company's strategy of
expanding its school spirit product lines and sales force, increasing the
number of its cheerleader and dance team camp sessions and visibly promoting
its business, as well as the school spirit industry, primarily through
nationally televised cheerleading and dance team championships. In addition,
in December 1994, the Company acquired the group tour business of Intropa
International/USA, Inc., with whom the Company had worked in the past in
promoting its international and domestic travel events, further contributing to
revenue growth from the Company's special events. In May 1996, through its
subsidiary, Varsity USA, Inc. ("USA"), the Company purchased the camp business
of United Special Events, Inc., a California-based company with a strong
position in the western region of the United States, which complemented the
Company's existing camp operations. The Company plans to increase its revenues
and market penetration in the future by continuing to implement its growth
strategy (primarily focusing on the youth, junior high, high school, and junior
college markets) and by utilizing its reputation for quality, design, and
on-time delivery of its cheerleading and dance uniforms and for professional
instruction and supervision at its cheerleader and dance team camps. The
Company is also analyzing new growth opportunities in the school spirit and
cheerleading industries.
Effective April 1994, the Company changed its fiscal year-end from March
31 to December 31. Therefore, the fiscal period ended December 31, 1994
consists of a nine-month period as compared to the twelve-month period ended
December 31, 1995. Accordingly, a discussion of significant changes between
the twelve-month periods ended December 31, 1995 and 1994, have also been
included herein. Each of these discussions should be read with the discussion
set forth below under "Seasonality."
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Total revenues increased 17.1% to $88.4 million in the year ended December
31, 1996 from $75.5 million in the year ended December 31, 1995.
Revenues from the sale of uniforms and accessories increased by 12.3% to
$49.5 million in the year ended December 31, 1996 from $44.0 million in the
year ended December 31, 1995. The increase was primarily attributable to a
strong increase in shoe and accessory sales combined with an 8.5% sales growth
in other product lines. Other factors contributing to the sales increase
include a combination of expansion within existing product lines and the
introduction of new designs, and, to a much lesser extent, a small price
increase on certain items. In addition, the Company increased its inventory
levels in an effort to service greater anticipated demand. The increased
availability of inventory further contributed to the sales volume increases by
improving on-time delivery.
Camp and event revenues increased by $7.5 million, or 23.9%, to $39.0
million in the year ended December 31, 1996 from $31.5 million in the year
ended December 31, 1995. This increase
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<PAGE> 10
was primarily attributable to $4.2 million of 1996 revenues associated with the
USA camp business acquired in May 1996, combined with higher incremental
revenues derived from a 21.4% increase in camp participants (or 7.1% exclusive
of USA participants), and a 3.7% increase in the average gross tuition per camp
participant during the 1996 summer season.
The revenue increase was also attributable to an increase in the number of
participants in the 1996 National High School Dance and Cheerleading
Championships as compared to the same events held in 1995 and to two new
Company sponsored championships, the All-Star Championship in March 1996 and
the National Jumprope Championship in June 1996.
Gross profit increased by 20.1% to $34.8 million in the year ended
December 31, 1996 from $29.0 million in the year ended December 31, 1995.
Gross profit as a percentage of total revenues increased to 39.4% in the year
ended December 31, 1996 from 38.4% in the year ended December 31, 1995.
Gross profit from sales of uniforms and accessories as a percentage of
such sales decreased to 45.7% in the year ended December 31, 1996 from 46.9% in
the year ended December 31, 1995. As a significant portion of the overall
sales increase related to purchased product lines, such as shoes and
accessories, which have lower margins than custom manufactured goods, such as
uniforms, a decrease in margin is to be expected. Specifically, 46.4% of the
revenues from merchandise was attributable to the sale of uniforms and 53.6% to
the sale of accessories in the year ended December 31, 1996, compared with
47.7% of such revenue attributable to uniforms, and 52.3% to accessories in the
year ended December 31, 1995. The Company expects this shift in mix to
continue for the foreseeable future.
Gross profit margins associated with camps and special events increased to
31.3% in the year ended December 31, 1996 from 26.5% in the year ended December
31, 1995. This increase was primarily due to more efficient staffing at summer
camps, resulting in savings in instructor payroll, travel and training costs.
The increase is also attributable to economies of scale realized from spreading
certain administrative costs over a larger number of camp participants and to
decreased travel costs associated with the Company's group tour business. The
gross profit margins were negatively impacted in 1996 by the lower gross profit
margins realized by the camp business acquired in May 1996 by USA, as compared
to the Company's other camp business.
Selling, general and administrative expenses in the year ended December
31, 1996 were $26.4 million as compared to $22.7 million in the year ended
December 31, 1995. Selling, general and administrative expenses as a
percentage of sales decreased to 29.8% for the year ended December 31, 1996
from 30.0% for the year ended December 31, 1995, primarily due to the economies
of scale realized by spreading all of the Company's fixed administrative costs
over a greater revenue base. The increase of $3.7 million in selling, general
and administrative was partially due to increases of $2.8 million in payroll
and personnel costs, including $667,000 in additional selling commissions and
related expenses, $267,000 in additional consulting fees, partially associated
with the additional championships and $487,000 attributable to USA personnel.
There were also increases of $364,000 of operating costs (excluding payroll)
incurred by USA, $126,000 of additional costs associated with the publication
and distribution of annual catalogs and brochures, and $262,000 in additional
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<PAGE> 11
telephone expenses. Additional depreciation expense of $272,000, primarily
related to recent acquisitions of computer equipment and software, contributed
to the increase.
As a result of the above, income before income taxes increased by 32.4% to
$8.6 million for the year ended December 31, 1996 from $6.5 million for the
year ended December 31, 1995. The effective income tax rate was 39.6% for the
year ended December 31, 1996 compared with 36.0% for the year ended December
31, 1995. The increase in the effective tax rate primarily results from the
favorable settlement of a tax matter in the year ended December 31, 1995. Net
income increased 25.0% to $5.2 million in the year ended December 31, 1996 from
$4.2 million in the year ended December 31, 1995 and net income per share
increased by 23.6% to $1.10 per share in the year ended December 31, 1996 from
$0.89 per share in the year ended December 31, 1995. The weighted average
common shares and equivalent shares increased to 4,734,000 in the year ended
December 31, 1996 from 4,679,000 in the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE NINE MONTHS ENDED DECEMBER 31,
1994
Total revenues increased by 26.7% to $75.5 million in the year ended
December 31, 1995 ("calendar 1995") from $59.6 million in the nine months ended
December 31, 1994 ("short period").
Revenues from the sale of uniforms and accessories increased by 22.8% to
$44.0 million in calendar 1995 from $35.9 million in the short period. The
increase in uniform and accessory revenues was due to a combination of new
designs and expansion within existing product lines, increased unit sales, and,
to a much lesser extent, a small price increase on certain items. The Company
also continued its early order sales incentive program (first implemented in
March 1994 and made available to all customers who submitted orders prior to
April 15), resulting in an increased response over the prior year. In
addition, the Company increased its inventory levels in an effort to service
greater anticipated demand. The increased availability of inventory further
contributed to the sales volume increase by improving on-time delivery.
Camp and event revenues increased by 32.6% to $31.4 million in calendar
1995 from $23.7 million in the short period. This increase was due to (1)
incremental revenues of $3.8 million recognized from the group travel business
of Intropa, which was acquired by the Company in December, 1994, and (2) higher
revenues derived from a combination of a 13.9% increase in camp participants,
to approximately 156,000 in the 1995 summer season from approximately 137,000
in the 1994 summer season and an increase of 1.8% in gross tuition per camp
participant during the 1995 summer season. In addition, calendar 1995 included
revenues from the National Dance Team Championship held in February, which were
not included in the short period. These increases were partially offset by
decreases in participation in certain of the Company-sponsored holiday parade
and bowl game performances in the last quarter of 1995, as compared to record
participation that it experienced at certain of these events in the prior
period.
Gross profit increased by 20.3% to $29.0 million in calendar 1995 from
$24.1 million in the short period. Gross profit as a percentage of total
revenues decreased to 38.4% in calendar 1995 from 40.5% in the short period.
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<PAGE> 12
Gross profit from sales of uniforms and accessories as a percentage of
such sales decreased to 46.9% in calendar 1995 from 48.0% in the short period.
The percentage decrease was partially attributable to increases in overhead,
including additional facilities and warehouse space required to service
increased sales volumes. A portion of the remaining decrease was attributable
to a shift in the mix of products sold between uniforms, which have higher
margins, and accessories, which have lower margins. Specifically, 47.7% of the
revenues from merchandise were attributable to the sale of uniforms and 52.3%
to the sale of accessories in calendar 1995, compared to 49.4% of such revenue
attributable to uniforms and 50.6% to accessories in the short period. The
Company expects this shift in mix to continue in the future.
Gross profit margins associated with camps and special events decreased to
26.5% in calendar 1995 from 29.1% in the short period. This percentage
decrease was partially attributable to greater than anticipated increases in
instructor payroll, travel, and training costs, which resulted from the 1995
regionalization of certain administrative functions in the summer camp program.
In addition, the gross margin generated by Intropa has historically been and
is expected to continue to be lower than the margin generated by the Company in
its camps and other special events. Finally, the Company incurred additional
student housing costs resulting from camp closings due to Hurricane Erin in the
Southeast and intense summer heat in the Midwest and Northeast. In certain
instances, the Company was also required to pay guaranteed student housing
costs resulting from last-minute cancellations of camp reservations in excess
of cancellation fees received from the camp participants. These decreases were
partially offset by improved margins earned on certain of the company-sponsored
1995 holiday parade and bowl game performances.
Selling, general, and administrative expenses in calendar 1995 were $22.7
million, or 30.0% of revenues, as compared to $16.1 million, or 27.1% of
revenues in the short period. This increase as a percentage of revenues
primarily reflects that the short period figures do not include the months of
January, February, and March, during which revenues are generally nominal and
during which considerable fixed selling, general, and administrative expenses
are incurred. The increase of $6.6 million in selling, general, and
administrative expenses was partially due to an increase of $2.4 million in
payroll and personnel costs, including $1.3 million in increased selling
commissions, sales representative training, and other expenses which are
impacted by increased sales volume, as well as $514,000 in payroll costs
attributable to Intropa personnel. The Company's results also include
increases of $654,000 attributable to additional fixed costs (including rent,
depreciation, and insurance) relating to the expansion of office and storage
space, $317,000 associated with the publication and distribution of annual
catalogs and brochures, and $452,000 of operating costs (excluding payroll)
incurred by Intropa. Postage/express mail and travel increased $400,000 and
$290,000, respectively, relating to an increased revenue and customer base.
As a result of the above, income before income taxes decreased by 20.0% to
$6.5 million in calendar 1995 from $8.1 million in the short period. The
effective income tax rate was 36.0% in calendar 1995 compared to 39.6% in the
short period. The decrease in the effective tax rate primarily results from
the favorable conclusion of an income tax examination and a corresponding
reversal reduction in the related tax accrual liability recognized in the short
period. Net income decreased by 15.3% to $4.2 million from $4.9 million in the
short period and net income per share decreased by 16.8% to $.89 per share in
calendar 1995 from $1.07 per share in the short period. The weighted
-11-
<PAGE> 13
average common shares and equivalent shares outstanding increased to 4,679,000
in calendar 1995 from 4,587,000 in the short period.
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1994 (UNAUDITED)
Total revenues increased by 20.6% to $75.5 million in the year ended
December 31, 1995 ("calendar 1995") from $62.6 million in the year ended
December 31, 1994 ("calendar 1994").
Revenues from the sale of uniforms and accessories increased by 17.0% to
$44.0 million in calendar 1995 from $37.6 million in calendar 1994. The
increase in uniform and accessory revenues was due to a combination of new
designs and expansion within existing product lines, increased unit sales, and,
to a much lesser extent, a small price increase on certain items. The Company
also continued its early order sales incentive program (first implemented in
March, 1994 and made available to all customers who submitted orders prior to
April 15), resulting in an increased response over the prior year. In
addition, the Company has increased its inventory levels in an effort to
service greater anticipated demand. The increased availability of inventory
has further contributed to the sales volume increase by improving on-time
delivery.
Camp and event revenues increased by 26.0% to $31.4 million in calendar
1995 from $25.0 million in calendar 1994. The increase was due to (1)
incremental revenues of $3.8 million recognized from the group travel business
of Intropa, which was acquired by the Company in December, 1994, and (2) higher
incremental revenues derived from a combination of a 13.9% increase in camp
participants, to approximately 156,000 in the 1995 summer season from
approximately 137,000 in the 1994 summer season, and an increase of 1.8% in
gross tuition per camp participant during the 1995 summer season. These
increases were partially offset by decreases in participation in certain of the
Company-sponsored holiday parade and bowl game performances in the last quarter
of 1995, as compared to record participation that it had at certain of these
events in the prior year.
Gross profit increased by 15.8% to $29.0 million in calendar 1995 from
$25.0 million in calendar 1994. Gross profit as a percentage of total revenues
decreased to 38.4% in calendar 1995 from 40.0% in calendar 1994.
Gross profit from sales of uniforms and accessories as a percentage of
such sales decreased to 46.9% in calendar 1995 from 47.2% in calendar 1994.
The percentage decrease was partially attributable to increases in overhead,
resulting from additional facilities and warehouse space required to service
increased sales volumes. A portion of the remaining decrease was attributable
to a shift in the mix of products sold between uniforms, which have higher
margins, and accessories, which have lower margins. Specifically, 47.7% of the
revenues from merchandise were attributable to the sale of uniforms and 52.3%
to the sale of accessories in calendar 1995, compared to 49.1% of such revenue
attributable to uniforms and 50.9% to accessories in calendar 1994. The
Company expects this shift in mix to continue in the future.
Gross profit margins associated with camps and special events decreased to
26.5% in calendar 1995 from 29.1% in calendar 1994. This percentage decrease
was partially attributable to greater
-12-
<PAGE> 14
than anticipated increases in instructor payroll, travel, and training costs,
resulting from the 1995 regionalization of certain administrative functions in
the summer camp program. In addition, the gross margin generated by Intropa
has historically been and is expected to continue to be lower than the margin
generated by the Company in its camps and other special events. Finally, the
Company incurred additional housing costs resulting from camp closings due to
Hurricane Erin in the Southeast and intense summer heat in the Midwest and
Northeast. In certain instances, the Company was also required to pay
guaranteed student housing costs resulting from last-minute cancellations of
camp reservations in excess of cancellation fees received from the camp
participants. These decreases were partially offset by improved margins earned
on certain of the 1995 Company-sponsored holiday parade and bowl game
performances.
Selling, general, and administrative expenses in calendar 1995 were $22.7
million, or 30.0% of revenues, as compared to $18.9 million, or 30.2% of
revenues in calendar 1994. The increase of $3.8 million in selling, general,
and administrative expenses was partially due to an increase of $1.7 million in
payroll and personnel costs, including $876,000 in increased selling
commissions, sales representative training, and other related selling expenses
which are impacted by increased sales volume, as well as $514,000 in payroll
costs attributable to Intropa personnel. The Company incurred increases of
$282,000 attributable to additional fixed costs (including rent, depreciation,
and insurance) relating to the expansion of office and storage space, $278,000
associated with the publication and distribution of annual catalogs and
brochures, and $452,000 of operating costs (excluding payroll) incurred by
Intropa. Postage/express mail and travel increased $248,000 and $183,000,
respectively, relating to an increased revenue and customer base.
As a result of the above, income before income taxes increased by 3.2% to
$6.5 million in calendar 1995 from $6.3 million in calendar 1994. The
effective income tax rate was 36.0% in calendar 1995 compared to 39.4% in
calendar 1994. The decrease in the effective tax rate primarily results from
the favorable conclusion of an income tax examination. Net income increased by
9.0% to $4.2 million from $3.8 million in calendar 1994 and net income per
share increased by 7.2% to $.89 per share in calendar 1995 from $.83 per share
in calendar 1994. The weighted average common shares and equivalent shares
outstanding increased to 4,679,000 in calendar 1995 from 4,587,000 in calendar
1994.
SEASONALITY
The Company's business and the results of its operations are highly
seasonal. The Company's cheerleader and dance team camps are held exclusively
in the summer months, and sales of uniforms and accessories occur primarily in
the six months prior to the beginning of the school year. A substantial
portion of the Company's annual revenues and all of the Company's net income
are generated in the quarters ending June 30 and September 30, while the
quarters ended March 31 and December 31 have historically resulted in net
losses.
The following table sets forth certain unaudited operating results for
each of the eight consecutive quarters in the period ending December 31, 1996.
This information is unaudited but, in the opinion of management of the Company,
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations for such
periods.
-13-
<PAGE> 15
This information should be read in conjunction with the Company's consolidated
financial statements and the notes included thereto.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
First Second Third Fourth
(In thousands) Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Twelve months ended December 31, 1996:
Total revenues $6,416 $29,653 $39,442 $12,938
Operating income (loss) (2,546) 4,704 6,693 (403)
Net income (loss) (1,507) 2,827 4,061 (181)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Twelve months ended December 31, 1995:
Total revenues $4,078 $27,801 $32,382 $11,237
Operating income (loss) (2,348) 3,996 5,300 (622)
Net income (loss) (1,386) 2,418 3,237 (106)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company's current assets had increased 28.6%
to $25.1 million from $19.5 million as of December 31, 1995, and the Company's
current liabilities increased 64.9% to $7.0 million from $4.3 million as of
December 31, 1995. The related increase of $2.8 million in working capital is
principally attributable to an increase in cash and cash equivalents arising
from current year increases in net income, offset by the investment of $1.9
million of cash to acquire the camp business of USA from United Special Events,
as well as the purchase of $1.8 million in equipment, primarily computer
equipment.
In the year ended December 31, 1996, operating activities generated net
cash of $8.3 million compared to $1.8 million of net cash provided in the year
ended December 31, 1995. The increase was due in part to an increase in net
income from $4.2 million in the year ended December 31, 1995 to $5.2 million in
the year ended December 31, 1996. A change in the timing of the receipt of
customer deposits for the Company's national championship competitions
accounted for a large portion of the increase in customer deposits of $1.7
million. The remainder of the increase is primarily due to the following: an
increase of $741,000 in accruals (primarily compensation and payroll
taxes); $1.1 million related to smaller increases in accounts receivable, as
compared to 1995; $797,000 related to smaller increases in inventory levels as
compared to 1995; $650,000 related to smaller increases in prepaid expenses as
compared to 1995; and $326,000 related to increases in depreciation and
amortization expenses as compared to 1995.
-14-
<PAGE> 16
In the year ended December 31, 1996, cash flows from investing activities
used cash in the amount of $3.7 million, as compared to $2.3 million in the
year ended December 31, 1995. This increase was primarily attributable to cash
consideration of $1.9 million related to the acquisition of the camp business
of USA, partially offset by a decrease of $156,000 in capital expenditures and
a $326,000 decrease in the acquisition of other assets for the year ended
December 31, 1996.
Cash flows used by financing activities in the year ended December 31,
1996 included the payment of quarterly cash dividends totalling $724,000 offset
by proceeds of $459,000 received from the exercise of employee stock options.
Historically, the Company's primary source of liquidity has been cash flow
generated from its operations. The Company also currently has a line of credit
that provides for seasonally adjusted borrowings of up to $9.0 million, of
which, none was outstanding at December 31, 1996. Borrowings under the line of
credit bear interest at the lower of prime or LIBOR plus 100 basis points. The
line of credit is unsecured, but the Company has agreed not to subordinate the
line of credit to future debt obligations. The line of credit also requires
that the Company maintain certain financial ratios and meet a minimum tangible
net worth.
Because of the seasonality of its operating cycle, the Company's working
capital needs are highest in its quarter ended March 31 (during which the
Company generates only nominal revenues) and in the months of April and May
(during which the Company generates only nominal revenues and incurs
substantial prepaid expenses as it prepares for the approaching business
season). Any outstanding borrowings that may be incurred under the Company's
line of credit during these periods are subsequently eliminated in the quarter
ending June 30 as the Company receives prepayments on camp tuition and fees.
Average borrowings on the line for calendar 1996 were $337,000 and the maximum
borrowings outstanding at any month-end were $3.4 million. Average borrowings
on the line for calendar 1995 were $359,000, and the maximum borrowings
outstanding at any month-end were $2.5 million.
Although the Company periodically evaluates business expansion
opportunities, the Company presently has no commitments to make material
additional capital expenditures. The Company's Board of Directors declared a
quarterly cash dividend of $.055 per share, or $251,000, payable on March 6,
1997. The dividend will be paid from available cash flows.
FORWARD LOOKING STATEMENTS
Certain statements in this form 10-K and in the future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made by an authorized executive officer
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements may include projections of
revenues, income or losses, capital expenditures, plans for future operations,
financing plans or requirements, and plans relating to products or services of
the Company, as well as assumptions relating to the foregoing.
The forward-looking statements made by the Company are subject to known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to differ materially from
any future results, performance or achievements expressed or implied by the
forward-looking statements. The known risks,
-15-
<PAGE> 17
uncertainties and other factors include, among others, the following: the
continuing popularity of school spirit programs in the youth, junior high, high
school and college markets; the ability of the Company to adequately anticipate
the changing tastes and requirements of its customers; the highly seasonal
nature of the Company's operations; the success of the Company's competitors in
sponsoring spirit camps and selling uniforms and other accessories; the ability
of the Company to secure desirable camp locations and camper accommodations at
competitive prices; and the ability of the Company to conduct its camps and
events safely and to minimize the incidents of personal injury.
IMPACT OF INFLATION
Management does not believe that inflation has a material impact on the
Company's results of operations. Management believes that it is able to
reflect inflationary cost increases in its prices to customers.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
This statement simplifies the standards for computing EPS previously found in
APB Opinion No. 15, "Earnings Per Share" as the presentation of primary and
fully-diluted EPS is replaced with Basic and Diluted EPS. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, and applies to entities with publicly-held common
stock or potential common stock. The Company will adopt SFAS 128 in financial
statements issued for the year ending December 31, 1997. If the provisions of
SFAS 128 had been applied to the year ended December 31, 1996, estimated Basic
EPS and Diluted EPS would have been $1.15 and $1.10, respectively.
Item 8. Financial Statements and Supplementary Data.
The Company's financial statements and report thereon of BDO Seidman, LLP
dated February 12, 1997, are contained on pages F-1 to F-15 of this Annual
Report.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
-16-
<PAGE> 18
DIRECTORS
The following table sets forth the name, age, position with the Company,
business experience during the past five years and certain other directorships
of the current members of the Board of Directors.
CLASS 1 DIRECTOR
(TERMS EXPIRE IN 1999)
GREGORY C. WEBB (45), Senior Vice President and Director of
Company (since 1989); General Manager of Universal
Cheerleaders Association (since 1986).
ROY F. KRAMER (67), Director of Company (since 1995);
Commissioner of the Southeastern Athletic Conference (since
1990); Athletic Director of Vanderbilt University (from
1978 to 1990); Head Football Coach of Central Michigan
University (from 1967 to 1977).
RICHARD F. STRUP (45), Director of Company (since 1995); Senior
Vice President - International and Global Properties of
Miller Brewing Company (since 1994); various senior
executive positions in Marketing, Miller Brewing Company
(1990-1994); Vice President, Marketing of PepsiCo Foods
International, Inc. (1988-1989); Director, Miller Brewing
Company and Associated Bank, Inc.
CLASS 2 DIRECTORS
(TERMS EXPIRE IN 1997)
ALAN D. GORDON (41), Director of Company (since 1989);
President of Richland, Gordon & Company, an investment
banking concern based in Chicago, Illinois (since 1983).
RANDALL S. STURGES (42), Director of Company (since 1989);
investor in operating companies (from 1988 to date);
General Partner (from 1984 to 1988) with First Chicago
Venture Capital.
CLASS 3 DIRECTORS
(TERMS EXPIRE IN 1998)
JEFFREY G. WEBB (47), Chairman, President, Chief Executive
Officer and Director of Company (since 1983). Gregory C.
Webb and Jeffrey G. Webb are brothers.
WILLIAM C. WILLIS, JR. (45), Director of Company (since 1992);
Chairman and Chief Executive Officer, Willis & Associates,
Inc., a management consulting firm (since December 1995);
Executive Vice President and Chief
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<PAGE> 19
Operating Officer, North America of Tiger Eye Investments
Holdings, Ltd. (from May 1995 to June 1996); President, Chief
Operating Officer and Director of MBf USA, Inc. (from April
1994 to April 1995); President and Chief Executive Officer
(from 1990 to December 1993) of Insituform Technologies, Inc.;
President of Paper Art Company, a division of The Mennen
Company (from 1986 to 1990).
The Company has executed a Consulting Agreement with Willis & Associates,
Inc. ("Willis"), a company owned by Mr. William Willis, a director of the
Company, pursuant to which Willis provides strategic planning as well as
business and product development consulting services. As of March 15, 1997,
the Company has paid $54,000 in fees to Willis pursuant to the agreement. For
each month that the agreement is extended beyond March 15, 1997, Mr. Willis
will receive $10,000 per month. Varsity has the right to terminate the
agreement at any time upon 30 days' written notice.
OFFICERS
The following table sets forth certain information concerning each of the
Company's executive officers:
<TABLE>
<CAPTION>
Name Age Position with Company
- ------------------- --- ----------------------
<S> <C> <C>
Jeffrey G. Webb 47 Chairman, President,
Chief Executive Officer
and Director
Gregory C. Webb 45 Senior Vice President,
UCA General
Manager and Director
W. Kline Boyd 43 Senior Vice President
and Varsity Spirit Fashions
General Manager
John M. Nichols 45 Senior Vice President,
Finance and Chief
Financial Officer
J. Kristyn Shepherd 41 Senior Vice President, UCA
Robert Dunseath 43 Secretary
Deana Roberts 55 Senior Vice President,
Varsity/Intropa Tours
</TABLE>
-18-
<PAGE> 20
<TABLE>
<S> <C> <C>
Richard R. Bowers 47 Senior Vice President,
Marketing and Strategic Planning
</TABLE>
Jeffrey G. Webb has been Chairman, President and Chief Executive Officer
and a director of the Company since its formation in 1983 and was the founder
and sole general partner of the Company's predecessor, Universal Sports Camps,
Ltd., a Texas limited partnership formed in 1974. Prior to founding the
Company, Mr. Webb was Vice President/General Manager of the National
Cheerleaders Association from January 1972 to September 1974.
Gregory C. Webb has been with the Company for over seventeen years, has
been a director and a Senior Vice President of the Company since 1989, and
General Manager of Universal Cheerleaders Association since 1986. Prior to
being named to his present position, Mr. Webb served in various similar
capacities for the Company. Jeffrey G. Webb and Gregory C. Webb are brothers.
W. Kline Boyd has been with the Company in his present position since
March 1989 and has been an investor in the Company and its predecessor since
1974. Prior to joining the Company, Mr. Boyd was, and he continues to be, a
partner of Boyd & McWilliams Oil & Gas Properties of Midland, Texas.
John M. Nichols joined the Company on April 1, 1992 as Vice President,
Accounting and Income Taxes and has been Senior Vice President, Finance since
July 1992 and Chief Financial Officer since April 1994. From October 1988
through March 1992, Mr. Nichols owned and operated an independent certified
public accounting practice, during the course of which he provided accounting
and financial consulting services to the Company. Prior to October 1988, Mr.
Nichols was Chief Financial Officer of French Quarter Inn, Inc. and a partner
with the independent certified public accounting firm of BDO Seidman, LLP. In
the late 1980's, Mr. Nichols acquired minority general partnership interests in
certain land development and hotel operating partnerships and, in connection
with his interest in the land development partnership, guaranteed the repayment
of certain bank loans that were made to the partnership. The land development
and hotel operating partnerships were not as successful as planned and the
partnerships filed petitions under Chapter 11 of the federal bankruptcy laws
and, as a consequence of his involvement in the land development partnership,
on July 1, 1992, Mr. Nichols filed a petition under Chapter 7 of the federal
bankruptcy laws, which petition was certified on February 13, 1997.
J. Kristyn Shepherd has been Senior Vice President, UCA since 1989 and has
served in various other capacities since joining the Company in 1979. Ms.
Shepherd oversees UCA's special events, television productions and video
marketing materials.
Robert Dunseath has been with the Company for over ten years and has been
Secretary since September 1989. From September 1989 to April 1994, Mr.
Dunseath also served as Chief Financial Officer of the Company, and, from
September 1989 to September 1996, Mr. Dunseath also served as Senior Vice
President of the Company, a position which Mr. Dunseath relinquished for
medical reasons. Prior to September 1989, Mr. Dunseath served in various other
executive capacities with the Company. Prior to affiliating with the Company
in 1983, Mr. Dunseath served in various capacities with Taco Hut, Inc. and was
a financial analyst with Dobbs Houses, Inc.
-19-
<PAGE> 21
Deana Roberts joined the Company in December, 1994 as a Senior Vice
President concurrent with the acquisition by the Company of the Varsity/Intropa
Tours business. Ms. Roberts' responsibilities include the oversight of
Varsity/Intropa's operations in San Jose, California and Houston, Texas. Prior
to her current position, Ms. Roberts served as President of Intropa from
October 1992 to December 1994. From August 1986 to September 1992, she was
Director of Sales and Marketing for Intropa International USA, Inc. Prior
thereto, she was Vice President of Ace Group Travel for three years and,
earlier still, was employed by various airline companies.
Richard R. Bowers joined the Company in June 1993 as Senior Vice President
- - Marketing and Strategic Planning. Prior to joining the Company, Mr. Bowers
served as Senior Vice President with World Cup USA from February 1993 to July
1993. From August 1992 to February 1993, he was Director of Marketing for
World Cup USA. Prior thereto, Mr. Bowers spent seven years in international
marketing with Mattel Toys, with his most recent position being Director of
International Marketing. Mr. Bowers also spent ten years in marketing and
operations with Kimberly-Clark's Consumer Products Group.
Item 11. Executive Compensation.
The table below presents certain specific information regarding the
compensation of the Chief Executive Officer and the other four most highly
compensated executive officers of the Company for the Company's last three
fiscal years (including the nine month transition period ended December 31,
1994).
-20-
<PAGE> 22
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
===========================================================================================================
Long Term
Compensation
Annual Compensation Awards
-------------------------------------------------------------
Securities
----------
Name and Underlying All Other
- -------- ---------- ---------
Principal Fiscal Salary Bonus Options/ Compensation
- --------- ------ ------ ----- -------- ------------
Position Period (1) ($) ($)(2) SARs (#) ($)(3)
- -------- ---------- ------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Jeffrey G. Webb 1996 143,534 30,000 14,000 500
President & Chief 1995 135,940 - 18,000 250
Executive Officer SY 1994 101,250 38,000 - 700
Gregory C. Webb 1996 107,700 25,000 9,000 500
Senior Vice 1995 105,940 - 10,500 250
President SY 1994 78,000 21,000 - 700
W. Kline Boyd 1996 107,700 25,000 9,000 500
Senior Vice 1995 105,940 - 10,500 250
President SY 1994 77,500 21,000 - 700
John M. Nichols 1996 97,128 22,000 10,000 500
Senior Vice 1995 96,940 - 12,000 250
President SY 1994 71,500 20,500 - 700
J. Kristin 1996 97,128 22,000 7,000 500
Shepherd 1995 96,940 - 9,000 250
Senior Vice
President SY 1994 71,500 22,750 - 700
</TABLE>
- ---------------------
(1) The fiscal years ended December 31, 1996 and December 31, 1995, are
denoted "1996" and "1995", respectively; the nine month period ended
December 31, 1994, is denoted "SY 1994". In March 1994, the Board of
Directors elected to change the end of the Company's fiscal year from
March 31 to December 31. Thus, the period between April 1, 1994 and
December 31, 1994, was treated as a shortened fiscal year.
(2) Represents discretionary cash bonuses granted by the Company for
services rendered in the corresponding fiscal year. The amount and
timing of bonuses granted to executive officers are determined by the
Compensation Committee and approved by the Board of Directors.
(3) Represents amount contributed or accrued by the Company during the
corresponding fiscal year on behalf of the named executive officers
with respect to the Varsity Spirit Corporation 401(K) Profit Sharing
Plan.
-21-
<PAGE> 23
The Company has written employment agreements with certain of its key
officers, including each of the executive officers identified in the above
table. Each of these agreements provides for an annual base salary, which is
reviewed and adjusted on an annual basis, and an annual bonus to be determined
by the Compensation Committee and approved by the Board of Directors. Except
for the agreement with Mr. Nichols, each of the agreements with the named
executive officers was executed by the Company and the officer upon the
consummation of the recapitalization of the Company in 1989 and continues in
effect through September 28, 1997. The agreement with Mr. Nichols was executed
as of February 28, 1997 and continues in effect until February 28, 1998 and
contains, in addition to provisions similar to the agreements with the named
executive officers, a one-time bonus of $250,000 payable upon a change in
control of the Company, as defined in the agreement. The Company has also
executed certain agreements with employees in connection with certain
acquisitions by Varsity, which agreements range in term from three to seven
years. All the agreements generally contain confidentiality and
non-competition provisions and entitle officers whose employment is terminated
by the Company without cause to continue to receive their base salary for six
months following the termination.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information as to individual option grants
to such executive officers during the year ended December 31, 1996, and the
potential realized value of the option grants.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
------------------------------------------------------------------------------------ ---------------------
Number of Percent of Total
--------- ---------------
Securities Options Granted to
----------- -------------------
Underlying Employees in Fiscal Exercise or Base
---------- ------------------- ----------------
Name Options Granted Year (1) Price ($/sh.) (2) Expiration Date (3) 5% ($) (4) 10% ($) (4)
---- --------------- -------- ----------------- ------------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey G. Webb 14,000 7.8% 15.95 3/14/01 100,309 $254,202
Gregory C. Webb 9,000 5.0% 14.50 3/14/06 82,071 207,983
W. Kline Boyd 9,000 5.0% 14.50 3/14/06 82,071 207,983
John M. Nichols 10,000 5.6% 14.50 3/14/06 91,190 231,093
J. Kristin
Shepherd 7,000 3.9% 14.50 3/14/06 63,833 161,765
</TABLE>
(1) The total number of options granted to employees during calendar year
1996 was 179,890.
(2) The exercise price is equal to the closing price of the Company's
stock on the date of the grant, except for those granted to Mr. Jeffrey
G. Webb, which are priced at 110% of the closing price.
-22-
<PAGE> 24
(3) Options granted under the Company's 1991 Stock Option Plan typically
have a ten-year term from the date of the grant and become exercisable
over a three-year period from the date of the grant. Options granted
to Mr. J. Webb have a five-year term.
(4) Potential realizable value is based on an assumption that the market
price of the stock appreciates at the stated rate, compounded annually,
from the date of grant until the end of the applicable option term.
These values are calculated based on requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price appreciation.
The following table sets forth information as to option exercises by such
executive officers during the fiscal year ended December 31, 1996, and the
number and total value of unexercised options as of December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Year
at Year End(#) End($)(1)
-------------------------- -------------------------
Shares
Acquired on Value Un- Un-
Name Exercise(#) Realized($) Exercisable Exercisable Exercisable Exercisable
----- ------------------ ----------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey G. Webb -- -- 65,325 26,000 597,989 36,580
Gregory C. Webb -- -- 30,875 16,000 281,314 42,690
W. Kline Boyd -- -- 30,875 16,000 281,314 42,690
John M. Nichols 3,250 23,213 4,000 18,000 16,680 48,360
J. Kristin
Shepherd -- -- 40,050 13,000 387,030 35,520
</TABLE>
(1) Based on the December 31, 1996 closing price of the Company's Common
Stock as reported on the National Association of Securities Dealers
Automated Quotation National Market System ($16.00).
-23-
<PAGE> 25
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Company's compensation policies applicable to its executive officers
are administered by the Compensation Committee (the "Committee") of the Board
of Directors. There are four members of the Compensation Committee, three of
which are non-employee directors and the fourth of which is Mr. Jeffrey G.
Webb, the Company's President and Chief Executive Officer. These policies are
designed to enhance the overall strength and financial performance of the
Company by aligning the financial interests of the Company's executive officers
with those of its shareholders.
The three primary components of executive compensation are base salary,
cash bonuses and stock option grants. The Committee recommends to the Board of
Directors the salaries, bonuses and stock option grants for the executive
officers.
BASE SALARY AND CASH BONUSES
Base salaries for the fiscal year ended December 31, 1996 were determined
by the Committee in January 1996 and cash bonuses for fiscal 1996 were
determined by the Committee in March 1997. In determining the appropriate base
salary for each executive officer, the Committee considers the recommendations
of management, the individual contribution of the officer, compensation of the
Company's other executives, external pay practices, overall level of
responsibility, time in position, prior experience and knowledge, and the
financial performance of the Company.
Cash bonuses are paid to executive officers each year from a discretionary
bonus pool that is provided throughout the year depending on the financial
performance of the Company. The Committee bases individual bonus decisions on
the same criteria used to determine an executive officer's base salary.
The Chief Executive Officer's current base salary and cash bonus were
established based on the foregoing principles, with a particular emphasis on
increases in the Company's revenues and net income.
-24-
<PAGE> 26
STOCK OPTION PLANS
In contrast to base salary and cash bonuses, the value to each executive
officer of stock option grants is tied directly to stock price performance.
Grants of stock options under the Company's two shareholder-approved option
plans may be made in the future at an exercise price of not less than the
market price of the stock at the time of grant. If there is no appreciation in
the market price for the Company's Common Stock, the options are valueless.
Compensation Committee
Alan D. Gordon
Randall S. Sturges
Jeffrey G. Webb
William C. Willis, Jr.
-25-
<PAGE> 27
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of March 10, 1997,
regarding the beneficial ownership of Common Stock by the shareholders who own
more than 5% of the outstanding shares, by each director of the Company, by the
Chief Executive Officer and the other executive officers of the Company
identified under "Executive Compensation," and by all directors and executive
officers of the Company as a group. Except as otherwise noted, the persons
named in the table below have sole voting and investment power with respect to
all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT OF
NAME (1) BENEFICIALLY OWNED COMMON STOCK
- ---- ------------------- ------------
<S> <C> <C>
Alan D. Gordon 648,500 14.2 %
Randall S. Sturges 460,000 10.1 %
William C. Willis, Jr.(2) 8,833 *
Roy F. Kramer 666 *
Richard F. Strup 666 *
Jeffrey G. Webb (3) 635,624 13.9 %
Gregory C. Webb (4) 113,950 2.5 %
W. Kline Boyd (5) 98,875 2.1 %
John M. Nichols (6) 11,333 *
J. Kristin Shepherd(7) 77,885 1.7 %
All Directors and Executive
Officers as a Group (11 persons) (8) 2,151,515 47.2 %
Wasatch Investors 748,455 16.5 %
Fidelity Management and Research Company 439,750 9.67 %
Sun Trust Banks, Inc. 263,078 5.78 %
Robert Fleming, Inc. 229,500 5.04 %
</TABLE>
- --------------
-26-
<PAGE> 28
* Does not exceed 1%.
(1) With respect to matters concerning the Company, the address of the
Company's Directors and Executive Officers is 2525 Horizon Lake Drive,
Memphis, Tennessee 38133; the address of Wasatch Investors is 68 South
Main Street, Suite 400, Salt Lake City, Utah 84101; the address of
Fidelity Management and Research Company is 82 Devonshire Street, Boston,
Massachusetts 02109-3614; the address of Sun Trust Banks, Inc. is 25 Park
Place, N.E., Atlanta, Georgia 30303; and the address of Robert Fleming,
Inc. is 320 Park Avenue, 11th Floor, New York, New York 10022.
(2) Includes 5,833 shares which as of March 10, 1997, could be acquired by
Mr. Willis within 60 days upon the exercise of stock options.
(3) Includes 6,178 shares held in trust for the benefit of Mr. Webb's minor
children and for which Mr. Webb is the trustee; Mr. Webb disclaims
beneficial ownership of such shares. Also includes 75,991 shares which as
of March 10, 1997, could be acquired by Mr. Webb within 60 days upon the
exercise of stock options.
(4) Includes 37,375 shares which as of March 10, 1997, could be acquired by
Mr. Webb within 60 days upon the exercise of stock options.
(5) Includes 1,500 shares owned by Boyd Enterprises, Inc., the majority
shareholder and President of which is Mr. Boyd. Also includes 37,375
shares which as of March 10, 1997, could be acquired by Mr. Boyd within 60
days upon the exercise of stock options.
(6) Includes 11,333 shares which as of March 10, 1997, could be acquired by
Mr. Nichols within 60 days upon the exercise of stock options.
(7) Includes 45,383 shares which as of March 10, 1997, could be acquired by
Ms. Shepherd within 60 days upon the exercise of stock options.
(8) Includes 246,955 shares, which as of March 10, 1997, could be acquired by
such directors and executive officers within 60 days upon the exercise of
stock options.
-27-
<PAGE> 29
Item 13. Certain Relationships and Related Transactions.
Please refer to "Item 10 -- Directors and Officers of the Registrant" and
"Item 11 -- Executive Compensation."
PART IV
-------
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a)(1) The consolidated financial statements and report thereon of BDO
Seidman, LLP dated February 12, 1997 are contained on pages F-1 to
F-15 of this Report.
(a)(2) The following supplemental financial data should be read in
conjunction with the financial statements and comments thereto as
included in this Form 10-K Report. Schedules not included with this
supplemental financial data have been omitted because they are not
applicable, immaterial or the required information is included in the
financial statements or the notes thereto.
<TABLE>
<CAPTION>
Schedule No. Page No.
------------ ------
<S> <C>
Report of Independent Certified Public S-1
Accountants on Financial Statement
Schedule
Schedule II - Valuation and Qualifying S-2
Accounts
</TABLE>
(a)(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- ------- -----------------------
<S> <C>
3(a) Amended and Restated Charter of Company filed as Exhibit 3.2 to Amendment
No. 1 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on January 21, 1992, is incorporated herein by reference.
3(b) Amended and Restated By-Laws of Company filed as Exhibit 3.4 to Amendment
No. 1 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on January 21, 1992, is incorporated herein by reference.
4(a) Amended and Restated Charter and By-Laws of Company (see Exhibits 3(a)
and 3(b) above).
10(a) Registration Rights Agreement between Company and Alan D. Gordon, Randall
S. Sturges, Charles Tracy, John Bessone, Bernice Jakstas, Jeffrey G.
Webb, Gregory C. Webb, Robert Dunseath, Kline Boyd, Donald Trandem, Kris
Shepherd and Kraig Tallman dated September 29, 1989, filed as Exhibit
10.1 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(b) Employment Agreement between Company and W. Kline Boyd, filed as Exhibit
10.2 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
</TABLE>
-28-
<PAGE> 30
<TABLE>
<S> <C>
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(c) Employment Agreement between Company and Robert Dunseath, filed as
Exhibit 10.3 to the Company's Registration Statement on Form S-1
(Registration Statement No. 33-44431) filed with the Securities and
Exchange Commission on December 10, 1991, is incorporated herein by
reference.
10(d) Employment Agreement between Company and Kris Shepherd, filed as Exhibit
10.4 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(e) Employment Agreement between Company and Kraig Tallman, filed as Exhibit
10.5 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(f) Employment Agreement between Company and Gregory Webb, filed as Exhibit
10.7 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(g) Employment Agreement between Company and Jeffrey Webb, filed as Exhibit
10.8 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(h) 1989 Non-Qualified Stock Option Plan of Company, filed as Exhibit 10.12
to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(i) 1991 Stock Option Plan of Company filed as Exhibit 10.13 to Amendment No.
1 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(j) Sales Representative Agreement between Varsity Spirit Fashions &
Supplies, Inc. and Stuart Educational Products, Inc., along with Security
Agreement between Varsity Spirit Fashions & Supplies, Inc. and Gary
Stuart and Patti Stuart, both individually and collectively doing
business as Stuart Educational Products, filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-1 (Registration Statement No.
33-44431) filed with the Securities and Exchange Commission on December
10, 1991, is incorporated herein by reference.
10(k) Programming Agreement between Universal Cheerleaders Association and
ESPN, Inc., filed as Exhibit 10.16 to the Company's Registration
Statement on Form S-1 (Registration Statement No. 33-44431) filed with
the Securities and Exchange Commission on December 10, 1991, is
incorporated herein by reference.
10(l) Varsity Spirit Corporation 401(k) Profit Sharing Plan, filed as Exhibit
10(m) to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993 (File No. 0-19790), is incorporated herein by
reference.
10(m) Asset Purchase Agreement dated as of December 1, 1994 by and between
Intropa International U.S.A., Inc., Elisabeth Polsterer and
Varsity/Intropa Tours, Inc.,
</TABLE>
-29-
<PAGE> 31
<TABLE>
<S> <C>
filed as Exhibit 10(m) to the Company's Transition Report on Form
10-K for the transition period from April 1, 1994 to December 31,
1994 (File No. 0-19790), is incorporated herein by reference.
10(n) Employment Agreement between the Company and Deana Roberts, filed
as Exhibit 10(n) to the Company's Transition Report on Form 10-K
for the transition period from April 1, 1994 to December 31, 1994
(File No. 0-19790), is incorporated herein by reference.
10(o) Asset Purchase Agreement dated as of May 15, 1996 by and between
United Special Events, Inc., Michael Olmstead and Varsity USA,
Inc., filed as Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996 (File No. 0-19790),
is incorporated herein by reference.
10(p) Service Agreement dated as of May 15, 1996 between the Company and
Michael Olmstead, filed as Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996
(File No. 0-19796), is incorporated herein by reference.
10(q) Form of Loan Agreement dated as of July 1, 1996 between the
Company and NationsBank of Tennessee, N.A., filed as Exhibit 10(c)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (File No. 0-19790), is incorporated
herein by reference.
10(r) Employment Agreement between the Company and John M. Nichols.
10(s) Amendment to Employment Agreement between the Company and
Jeffrey Webb.
10(t) Amendment to Employment Agreement between the Company and
Gregory Webb.
10(u) Amendment to Employment Agreement between the Company and
J. Kristyn Shepard.
10(v) Amendment to Employment Agreement between the Company and
W. Kline Boyd.
10(w) Amendment to Employment Agreement between the Company and
Kraig Zallman.
10(x) Amendment No. 1 to 1991 Stock Option Plan of Company.
10(y) Amendment No. 2 to 1991 Stock Option Plan of Company.
21 Subsidiaries of the Company.
23 Consent of BDO Seidman, LLP.
24 Powers of Attorney.
27 Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
Not applicable.
</TABLE>
-30-
<PAGE> 32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Varsity Spirit Corporation
Memphis, Tennessee
We have audited the accompanying consolidated balance sheets of Varsity Spirit
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years ended December 31, 1996 and 1995 and the nine-month period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Varsity Spirit
Corporation and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years ended December 31,
1996 and 1995 and the nine-month period ended December 31, 1994, in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Memphis, Tennessee
February 12, 1997
F-1
<PAGE> 33
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except shares) December 31,
--------------------
1995 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 5,080 $ 9,360
Accounts receivable, less allowance of $170 and $220 for
possible losses 6,650 7,162
Inventories (Note 2) 4,926 5,419
Prepaid expenses (Note 3) 2,272 2,616
Refundable income taxes 383 238
Deferred tax benefit (Note 8) 176 259
- ------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 19,487 25,054
PROPERTY AND EQUIPMENT, less accumulated depreciation (Note 4) 3,127 4,010
GOODWILL, less accumulated amortization of $972 and $1,193 (Note 1) 5,929 7,928
OTHER ASSETS 700 799
- ------------------------------------------------------------------------------------------
$ 29,243 $ 37,791
==========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,678 $ 1,993
Accruals:
Compensation and payroll taxes 266 849
Income taxes (Note 8) 167 117
Other 99 156
Customer deposits 2,065 3,813
Current maturities of long-term debt (Note 6) -- 120
- ------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,275 7,048
DEFERRED INCOME TAXES (Note 8) 174 366
LONG-TERM DEBT (Notes 1 and 6) -- 480
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,449 7,894
- ------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 10)
SHAREHOLDERS' EQUITY (Notes 7 and 11)
Preferred stock, $.01 par value - shares authorized 5,000,000;
none issued -- --
Common stock, $.01 par value - shares authorized 10,000,000;
shares issued 4,710,386 and 4,735,961 47 47
Additional paid-in capital 13,523 14,144
Excess of purchase price over predecessor basis (2,517) (2,517)
Retained earnings 13,777 18,253
- ------------------------------------------------------------------------------------------
24,830 29,927
Treasury stock, at cost, 215,504 and 179,378 shares (36) (30)
- ------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 24,794 29,897
- ------------------------------------------------------------------------------------------
$ 29,243 $ 37,791
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 34
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Nine months Year ended
ended December 31,
December 31, ----------------
1994 1995 1996
- ---------------------------------------------------------------------------
REVENUES:
Uniforms and accessories $35,866 $44,049 $49,472
Camps and events 23,721 31,449 38,977
- ---------------------------------------------------------------------------
59,587 75,498 88,449
- ---------------------------------------------------------------------------
COSTS OF REVENUES:
Uniforms and accessories 18,659 23,379 26,849
Camps and events 16,826 23,114 26,764
- ---------------------------------------------------------------------------
35,485 46,493 53,613
- ---------------------------------------------------------------------------
Gross profit 24,102 29,005 34,836
- ---------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 16,117 22,679 26,388
- ---------------------------------------------------------------------------
Operating income 7,985 6,326 8,448
OTHER
Interest income - net 150 178 166
- ---------------------------------------------------------------------------
Income before taxes on income 8,135 6,504 8,614
TAXES ON INCOME (Note 8) 3,218 2,341 3,414
- ---------------------------------------------------------------------------
NET INCOME $ 4,917 $ 4,163 $ 5,200
===========================================================================
WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENT
SHARES OUTSTANDING (Note 7) 4,587 4,679 4,734
===========================================================================
NET INCOME PER SHARE (Note 7) $ 1.07 $ 0.89 $ 1.10
===========================================================================
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 35
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(In thousands)
Excess of
purchase
price
Common Stock Additional over pre-
-------------- paid-in decessor Retained Treasury
Shares Amount capital basis earnings stock TOTAL
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, March 31, 1994 4,699 $ 47 $ 13,016 $ (2,517) $ 5,234 $ (44) $ 15,736
Net income for the period -- -- -- -- 4,917 -- 4,917
Issuance of common stock
upon exercise of stock
options -- -- 62 -- -- 2 64
Tax benefit related to
exercise of stock options -- -- 24 -- -- -- 24
- ----------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 1994 4,699 47 13,102 (2,517) 10,151 (42) 20,741
Net income for the period -- -- -- -- 4,163 -- 4,163
Issuance of common stock
upon exercise of stock
options 11 -- 279 -- -- 6 285
Tax benefit related to
exercise of stock options -- -- 142 -- -- -- 142
Cash dividends ($.12 per share) -- -- -- -- (537) -- (537)
- -----------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 1995 4,710 47 13,523 (2,517) 13,777 (36) 24,794
Net income for the period -- -- -- -- 5,200 -- 5,200
Issuance of common stock
upon exercise of stock
options 26 -- 453 -- -- 6 459
Tax benefit related to
exercise of stock options -- -- 168 -- -- -- 168
Cash dividends ($.16 per share) -- -- -- -- (724) -- (724)
- -----------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 1996 4,736 $ 47 $ 14,144 $ (2,517) $ 18,253 (30) $ 29,897
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 36
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(In thousands)
Nine months
ended Year ended December 31,
December 31, --------------------------
1994 1995 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,917 $ 4,163 $ 5,200
Deferred income taxes (15) 21 109
Depreciation and amortization 577 992 1,318
Changes in operating assets and liabilities,
net of effect of businesses
acquired (Note 1)
Accounts receivable (3,073) (1,544) (482)
Inventories 61 (1,039) (242)
Prepaid expenses 3,778 (859) (209)
Refundable income taxes - (383) 145
Accounts payable (193) 210 62
Accruals 100 (695) 741
Customer deposits (3,103) 890 1,650
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,049 1,756 8,292
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of USE (Note 1) - - (1,926)
Net cash received upon acquisition of Intropa (Note 1) 764 - -
Purchase of property and equipment (667) (1,984) (1,828)
Decrease (increase) in other assets 19 (319) 7
- -----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 116 (2,303) (3,747)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 64 285 459
Cash dividends - (537) (724)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 64 (252) (265)
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (Note 9) 3,229 (799) 4,280
CASH AND CASH EQUIVALENTS, at beginning of period 2,650 5,879 5,080
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, at end of period $ 5,879 $ 5,080 $ 9,360
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 37
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
BUSINESS
Varsity Spirit Corporation (the "Company") is involved in the business of
organizing, administering, and producing instructional camps, clinics, and
special events predominantly in the United States for spirit groups associated
with secondary schools, colleges, and universities through its divisions,
Universal Cheerleaders Association ("UCA"), Universal Dance Association ("UDA"),
Varsity Sports Gyms ("VSG") and Varsity Deutschland ("VSD") and its wholly-owned
subsidiary, Varsity USA, Inc. ("USA"), which acquired the camp business assets
of United Special Events, Inc., on May 15, 1986. Instructional camps and clinics
include large residential camps and smaller private individual squad level
camps. Its wholly-owned subsidiary, Varsity Spirit Fashions & Supplies, Inc.
("Varsity"), designs and markets cheerleader uniforms and accessories to spirit
groups associated with secondary schools, colleges and universities primarily in
the United States. The selling cycle of the Company is highly seasonal.
Varsity/Intropa Tours, Inc. ("Intropa"), a wholly-owned subsidiary acquired
December 1, 1994, organizes group performance tours, primarily in Europe, for
cheerleaders, bands, orchestras and choirs.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany accounts and transactions are
eliminated.
BUSINESS ACQUISITIONS
Effective May 15, 1996, the Company's subsidiary, USA, acquired certain of the
assets of United Special Events, Inc. ("USE"), a company which specializes in
organizing, administering, and producing instructional camps, clinics, and
special events, predominately in the western United States, for spirit groups
associated with secondary schools, colleges, and universities. The purchase
price was approximately $1.95 million, of which $1.35 million was paid at
closing and the $600,000 balance was financed by a five-year unsecured
convertible promissory note, bearing interest at 8%. The acquisition was
accounted for using the purchase method. The purchase price and liabilities
assumed were allocated to assets acquired based on their estimated fair values,
as follows:
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------------------
<S> <C>
Purchase price, including out of pocket expenses of $88 $ 2,038
Current liabilities assumed 369
Bank debt retired at closing 644
Current assets (530)
Fixed assets (120)
Covenant not to compete (120)
- -----------------------------------------------------------------------
Goodwill $ 2,281
=======================================================================
</TABLE>
The USA operations since the date of acquisition have been included in the
Company's consolidated results of operations. The operating results would not
have been materially different, if the acquisition had occurred on January 1,
1996.
Effective December 1, 1994, a subsidiary acquired certain of the assets of
Intropa International U.S.A., Inc. ("Intropa"), a tour company which specializes
in performance tours for cheerleaders, bands, orchestras and choruses. Total
cash consideration was approximately $1.25 million, of which $961,000 was paid
at closing. $240,000 of the balance was included in accounts payable at December
31, 1994 and was paid 120 days after the closing date. The acquisition was
accounted for using the purchase method.
The Intropa operations since the date of acquisition have been included in the
Company's consolidated results of operations.
F-6
<PAGE> 38
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, trade receivables, other
current assets, accounts payable and accruals meeting the definition of a
financial instrument approximate fair value.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out method.
SAMPLES
The Company provides samples of merchandise carried in the catalogs to its sales
representatives. All costs related to samples used in the sale of the Company's
uniforms and accessories are amortized ratably over three years.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed using the
straight-line and accelerated methods for financial reporting purposes over the
following estimated useful lives:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Years
- ---------------------------------------------------------------------
<S> <C>
Computer equipment 5
Computer software 3
Machinery and equipment 5-7
Furniture and fixtures 5
Leasehold improvements 2-6
Vehicles 3-5
- ---------------------------------------------------------------------
</TABLE>
For income tax purposes, depreciation is computed using primarily accelerated
methods.
GOODWILL
Goodwill, stated at cost less accumulated amortization, represents the purchase
cost allocated to the earning capacity of acquired companies, and is amortized
over periods from 35 to 40 years on the straight-line basis. The Company
continually evaluates the market coverage and earning capacity of its acquirees
to determine if the unamortized goodwill can be recovered from their
undiscounted future cash flows over the remaining amortization period. Should
this evaluation indicate that goodwill will not be recoverable, the Company's
carrying value of the goodwill will be reduced by the estimated shortfall of
undiscounted cash flows.
CATALOG COSTS
Cost of producing catalogs are deferred and amortized over the selling season
for uniforms and accessories.
REVENUE RECOGNITION
Revenue is recognized on sales of uniforms at the time of shipment and on camps,
clinics, special events and tours on the start date of the respective activity.
Expenses incurred and payments received that are associated with the camps,
clinics, events or tours are deferred until the revenue is recognized.
F-7
<PAGE> 39
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
TAXES ON INCOME
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109").
NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of common
shares outstanding during each period, after giving effect to the exercise of
dilutive options (see Note 7) and assuming the repurchase, at fair market value
of shares using the proceeds from such exercise.
STOCK OPTIONS
Stock options are granted to certain officers, employees, directors and
consultants generally at the prevailing market price on the date of the grant.
The Company makes no charge to earnings with respect to stock options, except
where the option price is less than the market price at date of grant. Proceeds
from the sale of unissued common stock under these options are credited to
common stock and additional paid-in capital at the time the options are
exercised. If treasury stock is issued, the Company's treasury stock is reduced
by the cost of the treasury shares reissued and additional paid-in capital is
increased for the excess of the option price over the cost of the treasury
stock.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") issued by the Financial Accounting Standards
Board is effective for transactions entered into in fiscal years that begin
after December 15, 1995. As allowed under the provisions of SFAS No. 123, the
Company will continue to measure compensation cost for employee stock-based
compensation plans using the intrinsic value based method of accounting
prescribed by the Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and has made pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting had been
applied (see Note 7).
EMPLOYEE BENEFITS
The Company provides a defined contribution retirement plan for substantially
all of its full-time employees which meets the requirements of Section 401(k) of
the Internal Revenue Code. The Company's policy is to fund the retirement plan
costs accrued.
FISCAL YEAR END
Effective April 1, 1994, the Company's Board of Directors approved a change in
the Company's fiscal year from March 31 to December 31.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). This statement
simplifies the standards for computing EPS previously found in APB Opinion No.
15, "Earnings Per Share" as the presentation of primary and fully-diluted EPS is
replaced with Basic and Diluted EPS. Basic EPS excludes dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, and applies to entities with publicly-held common stock or
potential common stock. The Company will adopt SFAS 128 in financial statements
issued for the year ending December 31, 1997. If the provisions of SFAS 128 had
been applied to the year ended December 31, 1996, estimated Basic EPS and
Diluted EPS would have been $1.15 and $1.10, respectively.
F-8
<PAGE> 40
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 2 - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
(In thousands) December 31,
---------------
1995 1996
- ------------------------------------------------------------
<S> <C> <C>
Finished products $3,217 $3,608
Raw materials 1,709 1,811
- ------------------------------------------------------------
Inventories $4,926 $5,419
============================================================
</TABLE>
NOTE 3 - PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
(In thousands) December 31,
--------------
1995 1996
- ------------------------------------------------------------
<S> <C> <C>
Deferred costs:
Catalogs $ 250 $ 330
Camps, clinics and championships 575 612
Prepaid insurance 413 218
Supplies and samples 342 414
Prepaid commissions 164 450
Prepaid tour costs 339 207
Other 189 385
- ------------------------------------------------------------
Prepaid expenses $2,272 $2,616
============================================================
</TABLE>
Deferred catalog costs consist of the Company's expenses associated with
planning, processing, and distributing the Company's uniform and accessory,
danceware and youth catalogs to schools and universities throughout the United
States. The catalogs are mailed in the Company's first quarter of the following
year and the costs of the catalogs are amortized over the Company's selling
season for uniforms and accessories.
Deferred camps and clinics costs are costs incurred in connection with the
organization of the Company's summer cheerleader camp and clinic programs for
the following summer season. These costs are amortized during June, July and
August, which are the months in which the cheerleading camps and clinics are
held.
Deferred championship costs comprise costs associated with organizing and
producing the National Dance Team High School and College Cheerleading
Championships sponsored by the Company. These costs and associated revenues are
recognized in the month the event occurs.
Direct costs related to organizing, scheduling and arranging upcoming group
tours are recorded as prepaid tour costs and the costs and revenues associated
with the tour are recognized when the tour begins.
F-9
<PAGE> 41
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 4 - PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(In thousands) December 31,
---------------
1995 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Computer equipment and software $ 2,735 $ 4,013
Machinery and equipment 1,786 1,999
Furniture and fixtures 1,347 1,665
Leasehold improvements 278 414
Vehicles 68 69
- ---------------------------------------------------------------------
6,214 8,160
Less accumulated depreciation (3,087) (4,150)
- ---------------------------------------------------------------------
Net property and equipment $ 3,127 $ 4,010
=====================================================================
</TABLE>
Depreciation expense charged to operations was $793,000 and $1,065,000,
respectively, for each of the years ended December 31, 1995 and 1996 and
$444,000 for the nine months ended December 31, 1994.
NOTE 5 - REVOLVING CREDIT AGREEMENT
The Company has a revolving credit agreement with a bank which is available
through June 30, 1997, and provides for maximum borrowings of $9,000,000. Under
the agreement, outstanding borrowings bear interest at the lower of prime (8.25%
at December 31, 1996) or LIBOR plus 1% (6.53% at December 31, 1996). The line of
credit is unsecured, but the Company has agreed not to subordinate any
additional assets except in the ordinary course of business without the bank's
approval. The line of credit also requires that the Company maintain certain
financial ratios and meet a minimum tangible net worth. There were no amounts
outstanding under this revolving line of credit agreement at December 31, 1995
or 1996.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------------
<S> <C>
Promissory note bearing interest at 8%, payable
in annual installments of $120,000, plus interest,
through May 2001 $ 600
Current portion (120)
- ------------------------------------------------------------------------------
Long-term debt $ 480
==============================================================================
</TABLE>
On any payment date, the holder of the note shall be entitled, at their
discretion, to convert not less than 75% of any installment of unpaid principal
amount of the note into shares of the Company's common stock based upon a
conversion price of $14.97 per share.
Management believes the carrying value of the Company's long-term debt
approximates fair value based on the current rates offered to the Company.
F-10
<PAGE> 42
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 7 - COMMON STOCK
On January 31, 1995, the Company's Board of Directors authorized a three-for-two
stock split to be effected in the form of a 50% stock dividend to be distributed
on February 24, 1995 to shareholders of record on February 14, 1995.
Shareholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying from retained earnings to
common stock the par value of the additional shares arising from the split. In
addition, all references in the financial statements to number of shares, per
share amounts and stock option data of the Company's common stock have been
restated.
The Company maintains two stock option plans, the 1989 Stock Option Plan and the
1991 Stock Option Plan. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in APB
Opinion 25, Accounting for Stock Issued to Employees, and related
Interpretations. Under APB Opinion 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation cost is recognized. Under the 1989 plan,
270,000 options were granted to certain employees at an initial exercise price
of $5.00 per share. The options vested in three equal annual installments ending
April 1, 1995 and expire ten years from date of grant. The Company acquired the
shares to cover the exercise of the 1989 options from its two largest
stockholders for $.17 per share. In November 1991, the 1989 plan was amended to
provide that cancelled options would become available for additional grants at
an exercise price equal to fair market value of the shares at the date of such
grants.
The 1991 plan, as amended, provides options to acquire 600,000 shares that may
be granted to officers, directors and key employees at an exercise price equal
to fair market value at date of grant (110% of fair market value for options
issued to holders of more than 10% of Company stock). Options may be exercised
for a term determined by the Board of not less than one year or more than ten
years from the date of grant.
At December 31, 1996, 21,049 options are available for grant under the 1989
plan, and 159,408 options remain available for grants under the 1991 plan, as
amended.
SFAS No. 123, "Accounting for Stock-Based Compensation" requires the Company to
provide pro forma information regarding net income and earnings per share as if
compensation cost for the Company's stock option plans had been determined in
accordance with the fair value based method prescribed in SFAS 123. The Company
estimates the fair value of each stock option on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the years ended December 31, 1995 and 1996,
respectively; dividend yield of 1.8597% for both years; expected volatility of
40.59% for both years; risk-free interest rates of 6.5% for both years; and
expected option lives of 7 years for both years.
Under the accounting provisions of SFAS No. 123, the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Year ended December 31,
-------------------------
1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income - as reported $ 4,163 $ 5,200
Net income - pro forma $ 4,012 $ 4,867
Earnings per share, as reported $ 0.89 $ 1.10
Earnings per share - pro forma $ 0.86 $ 1.03
================================================================================
</TABLE>
F-11
<PAGE> 43
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 7 - COMMON STOCK (Continued)
Information regarding the status of the Company's two fixed stock option plans
as of December 31, 1994, 1995 and 1996 and changes during the nine months ended
December 31, 1994 and the years ending December 31, 1995 and 1996 is presented
below:
<TABLE>
<CAPTION>
December 31, 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
average average
exercise exercise
Shares Shares price Shares price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Options outstanding,
beginning of period 373,055 353,533 $ 6.40 457,508 $ 8.35
Options granted - 162,475 11.96 179,890 14.63
Options exercised (12,224) (47,878) 5.97 (61,701) 7.44
Options cancelled (7,298) (10,622) 9.23 (7,251) 12.71
- --------------------------------------------------------------------------------------------------------------------
Options outstanding,
end of period 353,533 457,508 $ 8.35 568,446 $ 10.36
Option price range at
end of period $5.00 to $5.00 to $5.00 TO
$9.50 $13.50 $15.95
Option price range for
exercised shares $5.00 to $5.00 to $5.00 TO
$8.67 $9.34 $9.34
Options available for grant
at end of period 204,949 203,096 180,457
- --------------------------------------------------------------------------------------------------------------------
Weighted-average fair value
of options, granted during
the period $ 5.82 $ 7.14
====================================================================================================================
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------------- ----------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of exercise price Outstanding Life Price Exercisable Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.00-8.67 226,206 5.3 years $ 6.07 226,206 $ 6.07
9.50-9.54 20,475 6.5 years 9.53 20,475 9.53
11.83-13.01 145,775 8.0 years 11.98 48,592 11.98
14.50-15.95 175,990 9.2 years 14.64 N/A
- --------------------------------------------------------------------------------------------------------------------
$5.00-15.95 568,446 295,273
====================================================================================================================
</TABLE>
F-12
<PAGE> 44
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 - TAXES ON INCOME
Under FAS 109, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Taxes on income in the consolidated statements of income are made up of the
following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(In thousands)
Nine months Year ended
ended December 31,
December 31, ----------------
1994 1995 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 2,763 $ 1,950 $ 2,802
State 470 370 499
- --------------------------------------------------------------------
3,233 2,320 3,301
- --------------------------------------------------------------------
Deferred:
Federal (13) 19 96
State (2) 2 17
- --------------------------------------------------------------------
(15) 21 113
- --------------------------------------------------------------------
Taxes on income $ 3,218 $ 2,341 $ 3,414
===================================================================
</TABLE>
Significant components of the Company's deferred tax liabilities and assets are
as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
December 31,
-------------------------
1995 1996
- ----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory $ 109 $ 172
Bad debt allowance 67 87
- ----------------------------------------------------------------
Total deferred tax assets 176 259
Deferred tax liabilities:
Property and equipment (174) (329)
Goodwill and other assets - (37)
- ----------------------------------------------------------------
Total deferred tax liabilities (174) (366)
- ----------------------------------------------------------------
Net deferred tax asset (liability) $ 2 $ (107)
================================================================
</TABLE>
F-13
<PAGE> 45
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
NOTE 8 - TAXES ON INCOME (Continued)
The effective tax rate on income was different from the federal statutory tax
rate. The following summary reconciles taxes at the federal statutory tax rate
with the effective rate:
<TABLE>
<CAPTION>
Year
Nine months ended
ended December 31,
December 31, ---------------
1994 1995 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes on income at federal statutory rate 34.0% 34.0% 34.0%
Increase resulting from:
State income taxes, net of federal tax benefit 3.8 3.8 3.9
Amortization of goodwill .5 .7 .6
Non-deductible meals and entertainment 1.3 1.9 1.7
Other items -- (4.4) (.6)
- ------------------------------------------------------------------------------------------------
Taxes on income at effective rate 39.6% 36.0% 39.6%
================================================================================================
</TABLE>
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the consolidated statements of cash flows, the Company considers
cash on hand and in checking, savings and money market accounts to be cash
equivalents.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(In thousands)
Nine months
ended Year ended December 31,
December 31, --------------------------
1994 1995 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for:
Income taxes $ 3,186 $ 2,826 $ 3,035
Interest $ 1 $ 28 $ 27
==========================================================================
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the years ended December 31, 1996 and 1995, and the nine-month period
ended December 31, 1994, additional paid-in capital was increased by a reduction
in income taxes payable of $168,000, $142,000, and $24,000, respectively,
arising from the exercise of stock options.
In May 1996, the Company purchased certain assets of United Special Events, Inc.
for cash consideration of approximately $1.95 million. In conjunction with the
acquisition, liabilities were assumed as follows:
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------------
<S> <C>
Fair value of assets acquired $ 3,051
Cash paid to seller and transaction costs (2,082)
Deferred consideration (Note 6) (600)
- ------------------------------------------------------------------------------
Liabilities assumed $ 369
==============================================================================
</TABLE>
In December 1994, the Company purchased all of the assets of Varsity/Intropa
Tours for cash consideration of approximately $1.25 million. In conjunction with
the acquisition, liabilities were assumed as follows:
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------------------------
<S> <C>
Fair value of assets acquired $ 5,394
Cash paid to the seller and transactions costs (1,018)
Deferred consideration (292)
- -------------------------------------------------------------------------------
Liabilities assumed $ 4,084
===============================================================================
</TABLE>
F-14
<PAGE> 46
VARSITY SPIRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES
A. LEASES
The Company's office facilities and warehouse space are leased under
noncancellable operating leases which expire at various times from October 1997
through November 2000. Rent expense for the years ended December 31, 1996 and
1995, and the nine-month period ended December 31, 1994 was $739,000, $684,000,
and $388,000, respectively.
As of December 31, 1996, future net minimum rental payments required under
operating leases that have initial or remaining noncancellable terms in excess
of one year are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year ending December 31, (In thousands)
- -------------------------------------------------------------------------------
<S> <C>
1997 $ 591
1998 155
1999 142
2000 89
- -------------------------------------------------------------------------------
Total minimum lease payments $ 977
===============================================================================
</TABLE>
B. CONCENTRATION OF CREDIT RISK
The Company earns substantially all of its revenues from sales to and events and
activities sponsored primarily by secondary schools, colleges and universities
throughout the United States. The Company generally requires deposits for mail
order sales of merchandise and for camp registrations. The Company maintains
reserves for potential losses and such losses have not exceeded management's
expectations.
C. LITIGATION
The Company is involved in various legal matters in the ordinary course of its
business. None of these matters are expected to have a material adverse effect
on the Company's consolidated financial statements.
D. SUPPLIER AGREEMENTS
The Company has multi-year agreements with independent manufacturers to produce
its uniforms under which garment prices and production levels are negotiated
annually.
E. RETIREMENT PLAN
Effective January 1, 1993, the Company adopted a tax-qualified employee benefit
plan which meets the criteria of Section 401(k) of the Internal Revenue Code.
Under the Plan, participants may elect to defer from 2% to 15% of their
compensation and the Company may make discretionary contributions, as determined
annually by the Company's management, of up to 1.25% of the employees'
compensation. Each participant is fully vested at all times in their respective
contribution. Participants become fully vested in contributions made by the
Company on a graduated scale over a seven-year period. Operations were charged
with $35,000 related to this plan in the nine-month period ended December 31,
1994, $25,000 for the year ended December 31, 1995 and $27,500 for the year
ended December 31, 1996.
NOTE 11 - SUBSEQUENT EVENT
On February 13, 1997, the Company's Board of Directors declared a $.055 per
share cash dividend to be paid on March 6, 1997, to shareholders of record as of
February 24, 1997.
F-15
<PAGE> 47
Report of Independent Certified Public
Accountants on Financial Statement Schedule
To the Shareholders and Board of Directors of
Varsity Spirit Corporation
Memphis, Tennessee
The audits referred to in our report dated February 12, 1997 relating to the
consolidated financial statements of Varsity Spirit Corporation, which is
contained in Item 8 of this Form 10-K including the audit of the financial
statement schedule listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
Memphis, Tennessee
February 12, 1997
S-1
<PAGE> 48
SCHEDULE II
VARSITY SPIRIT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and end of
of period expenses Deductions period
------------ ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Transition year ended December 31, 1994:
Allowance for possible
losses on accounts
receivable $ 140 $ 106 $ 106 $ 140
============= ============= ============= =============
Year ended December 31, 1995:
Allowance for possible
losses on accounts
receivable $ 140 $ 156 $ 126 $ 170
============= ============= ============= =============
Year ended December 31, 1996:
Allowance for possible
losses on accounts
receivable $ 170 $ 270 $ 220 $ 220
============= ============= ============= =============
</TABLE>
S-2
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Memphis, State of Tennessee, on March 31, 1997.
VARSITY SPIRIT CORPORATION
By: /s/ JEFFREY G. WEBB
---------------------------
Jeffrey G. Webb
Chairman, President and Chief Executive
Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
/s/ JEFFREY G. WEBB Principal Executive March 31, 1997
- ------------------------- Officer and Director
Jeffrey G. Webb
*GREGORY C. WEBB Senior Vice President March 31, 1997
- ------------------------- and Director
Gregory C. Webb
/s/ JOHN M. NICHOLS Principal Financial & March 31, 1997
- ------------------------- Accounting Officer
John M. Nichols
*ALAN D. GORDON Director March 31, 1997
- -------------------------
Alan D. Gordon
*RANDALL S. STURGES Director March 31, 1997
- -------------------------
Randall S. Sturges
*WILLIAM C. WILLIS, JR. Director March 31, 1997
- -------------------------
William C. Willis, Jr.
*ROY F. KRAMER Director March 31, 1997
- -------------------------
Roy F. Kramer
*RICHARD F. STRUP Director March 31, 1997
- -------------------------
Richard F. Strup
*By: /s/ JEFFREY G. WEBB
----------------------
Jeffrey G. Webb
Attorney-in-Fact
</TABLE>
Original powers of attorney authorizing John M. Nichols, Gregory C. Webb and
Jeffrey G. Webb to sign this Annual Report on Form 10-K and amendments thereto
on behalf of the above-named directors and officers of the registrant have been
filed with the Securities and Exchange Commission as part of this Annual Report
on Form 10-K (Exhibit 24).
<PAGE> 50
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Index
- ------- -----------------------
<S> <C>
3(a) Amended and Restated Charter of Company filed as Exhibit 3.2 to Amendment
No. 1 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on January 21, 1992, is incorporated herein by reference.
3(b) Amended and Restated By-Laws of Company filed as Exhibit 3.4 to Amendment
No. 1 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on January 21, 1992, is incorporated herein by reference.
4(a) Amended and Restated Charter and By-Laws of Company (see Exhibits 3(a)
and 3(b) above).
10(a) Registration Rights Agreement between Company and Alan D. Gordon, Randall
S. Sturges, Charles Tracy, John Bessone, Bernice Jakstas, Jeffrey G.
Webb, Gregory C. Webb, Robert Dunseath, Kline Boyd, Donald Trandem, Kris
Shepherd and Kraig Tallman dated September 29, 1989, filed as Exhibit
10.1 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(b) Employment Agreement between Company and W. Kline Boyd, filed as Exhibit
10.2 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(c) Employment Agreement between Company and Robert Dunseath, filed as
Exhibit 10.3 to the Company's Registration Statement on Form S-1
(Registration Statement No. 33-44431) filed with the Securities and
Exchange Commission on December 10, 1991, is incorporated herein by
reference.
10(d) Employment Agreement between Company and Kris Shepherd, filed as Exhibit
10.4 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(e) Employment Agreement between Company and Kraig Tallman, filed as Exhibit
10.5 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(f) Employment Agreement between Company and Gregory Webb, filed as Exhibit
10.7 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(g) Employment Agreement between Company and Jeffrey Webb, filed as Exhibit
10.8 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(h) 1989 Non-Qualified Stock Option Plan of Company, filed as Exhibit 10.12
to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(i) 1991 Stock Option Plan of Company filed as Exhibit 10.13 to Amendment No.
1 to the Company's Registration Statement on Form S-1 (Registration
Statement No. 33-44431) filed with the Securities and Exchange Commission
on December 10, 1991, is incorporated herein by reference.
10(j) Sales Representative Agreement between Varsity Spirit Fashions &
Supplies, Inc. and Stuart Educational Products, Inc., along with Security
Agreement between Varsity Spirit Fashions & Supplies, Inc. and Gary
Stuart and Patti Stuart, both individually and collectively doing
business as Stuart Educational Products, filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-1 (Registration Statement No.
33-44431) filed with the Securities and Exchange Commission on December
10, 1991, is incorporated herein by reference.
10(k) Programming Agreement between Universal Cheerleaders Association and
ESPN, Inc., filed as Exhibit 10.16 to the Company's Registration
Statement on Form S-1 (Registration Statement No. 33-44431) filed with
the Securities and Exchange Commission on December 10, 1991, is
incorporated herein by reference.
10(l) Varsity Spirit Corporation 401(k) Profit Sharing Plan, filed as Exhibit
10(m) to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993 (File No. 0-19790), is incorporated herein by
reference.
10(m) Asset Purchase Agreement dated as of December 1, 1994 by and between
Intropa International U.S.A., Inc., Elisabeth Polsterer and
Varsity/Intropa Tours, Inc.,
filed as Exhibit 10(m) to the Company's Transition Report on Form
10-K for the transition period from April 1, 1994 to December 31,
1994 (File No. 0-19790), is incorporated herein by reference.
10(n) Employment Agreement between the Company and Deana Roberts, filed
as Exhibit 10(n) to the Company's Transition Report on Form 10-K
for the transition period from April 1, 1994 to December 31, 1994
(File No. 0-19790), is incorporated herein by reference.
10(o) Asset Purchase Agreement dated as of May 15, 1996 by and between
United Special Events, Inc., Michael Olmstead and Varsity USA,
Inc., filed as Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996 (File No. 0-19790),
is incorporated herein by reference.
10(p) Service Agreement dated as of May 15, 1996 between the Company and
Michael Olmstead, filed as Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996
(File No. 0-19796), is incorporated herein by reference.
10(q) Form of Loan Agreement dated as of July 1, 1996 between the
Company and NationsBank of Tennessee, N.A., filed as Exhibit 10(c)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (File No. 0-19790), is incorporated
herein by reference.
10(r) Employment Agreement between the Company and John M. Nichols.
10(s) Amendment to Employment Agreement between the Company and
Jeffrey Webb.
10(t) Amendment to Employment Agreement between the Company and
Gregory Webb.
10(u) Amendment to Employment Agreement between the Company and
J. Kristyn Shepard.
10(v) Amendment to Employment Agreement between the Company and
W. Kline Boyd.
10(w) Amendment to Employment Agreement between the Company and
Kraig Zallman.
10(x) Amendment No. 1 to 1991 Stock Option Plan of Company.
10(y Amendment No. 2 to 1991 Stock Option Plan of Company.
21 Subsidiaries of the Company.
23 Consent of BDO Seidman, LLP.
24 Powers of Attorney.
27 Financial Data Schedule (For SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 10(R)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of February 28,
1997, by and between John M. Nichols ("Employee") and Varsity Spirit
Corporation, a Tennessee corporation (the "Company").
R E C I T A L S:
A. The Company is a publicly owned entity in the business of (i) designing,
marketing and selling products to the school spirit industry, including
cheerleader, dance team and booster club uniforms and accessories, (ii)
operating high school and college cheerleader and dance team camps and (iii)
organizing and facilitating special events, including travel programs, made
available to school spirit groups (collectively, the "Business").
B. Employee has been employed by and a financial officer of the Company
since April 1992 and has been a Senior Vice President of the Company since July
1992 and the Chief Financial Officer of the Company since April 1994.
C. The Company desires to continue to employ Employee as a Senior Vice
President and the Chief Financial Officer of the Company and Employee desires to
be so employed by the Company on the terms and conditions set forth herein.
D. The Company desires to bind Employee to certain restrictive covenants
and Employee agrees to be so bound on the terms and conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Term of Employment. Subject to the terms and conditions set forth
herein, including Section 10, the Company will employ Employee and Employee will
serve as a Senior Vice President and the Chief Financial Officer of the Company
for a term commencing on February 28, 1997 (the "Effective Date") and ending on
February 28, 1998 (the "Employment Term").
2. Employment Duties.
During the Employment Term, Employee will serve as a Senior Vice President
and the Chief Financial Officer of the Company, subject to the terms of this
Agreement and the direction and control of the President and the Board of
Directors of the Company. Employee shall, during the Employment Term, serve the
Company faithfully, diligently and competently and to the best of his/her
ability.
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<PAGE> 2
3. Compensation. The Company shall have the following compensation
obligations, which shall be cumulative:
(a) During the Employment Term, the Company shall pay to Employee, as
salary (the "Salary") for services rendered by Employee under this
Agreement, $115,000 per annum ($9583.33 per month). Such Salary shall be
payable in arrears not less frequently than monthly, but otherwise in
accordance with the Company's ordinary payment practices; and
(b) After the end of each fiscal year of the Company during the
Employment Term, Employee shall be eligible for an annual performance
bonus, the nature and amount of which shall be determined by the Board of
Directors (or any committee thereof) or the President of the Company after
reviewing Employee's performance and the Company's results of operations
during and for such fiscal year and such other matters deemed appropriate
by the Board of Directors (or any committee thereof) or the President;
notwithstanding anything else in this Agreement, the declaration and
payment of any performance bonus to Employee shall be in the discretion of
the Company and Employee shall have no absolute right to a performance
bonus in any year.
(c) In the event of a Change in Control (as defined below) of the
Company during the Employment Term, Employee shall be entitled to and the
Company shall pay Employee upon the occurrence of the Change in Control a
special one time bonus of $250,000 (payable at Employee's election in full
immediately after the Change in Control or in equal monthly installments
over the period commencing with the first full month after the date of the
Change in Control and continuing through the twenty-fourth (24th) full
month after the Change in Control), which bonus (the "Change in Control
Bonus") shall be in consideration for (i) services rendered to the Company
by Employee prior to and in connection with the Change in Control and (ii)
Employee's commitment that, to the extent requested, he will continue his
employment after the Change in Control and through February 28, 1998 (the
date on which the audit period for fiscal 1997 is expected to be completed)
on terms not less favorable to Employee as in existence immediately prior
to the Change in Control. For purposes of this paragraph, a "Change in
Control" shall be deemed to arise if any one or more of the following has
occurred: (a)'the Company is merged, consolidated or reorganized into or
with another corporation or other entity and, as a result thereof, less
than 50% of the outstanding stock or other capital interests of the
surviving, resulting or acquiring corporation, person or other entity is
owned, in the aggregate, by the stockholder or stockholders of the Company
immediately prior to such merger, consolidation or reorganization or (b)
the Company sells all or substantially all of its business or assets (or
both) to any other corporation, person or other entity, less than 50% of
the outstanding voting stock or other capital interests of which are owned,
in the aggregate, by the stockholders of the Company, directly or
indirectly, immediately prior to or after such sale.
Payments made pursuant to (a), (b) and (c) above while Employee is an employee
of the Company shall be treated as wages for withholding and employment tax
purposes.
-2-
<PAGE> 3
4. Insurance. During the Employment Term, the Company shall be entitled to
obtain as the beneficiary "key man" or similar other life insurance on Employee
in an amount that the Company shall in its discretion deem necessary. Employee
shall cooperate with all requirements necessary for obtaining such insurance,
including, without limitation, submitting to any tests or physicals reasonably
required by the insurers in order to obtain such insurance.
5. Benefits.
(a) Employee shall be entitled during the Employment Term to participate in
such employee benefit plans and programs, including, without limitation,
profit sharing, cafeteria and health insurance plans, as are maintained
from time to time for employees of the Company to the extent that his/her
position, tenure, compensation, age, health and other qualifications make
him eligible to participate. The Company does not promise the adoption or
continuance of any particular plan or program during the Employment Term,
and Employee's (and his/her dependents') participation in any such plan or
program shall be subject to the provisions, rules, regulations and laws
applicable thereto.
(b) During each twelve month period during the Employment Term, Employee
shall be entitled to that number of weeks of paid vacation as authorized
under the Company's normal vacation policy to be taken at times mutually
acceptable to Employee and the Company, and such holidays as are observed
by the Company from time to time.
6. Reimbursement of Expenses. To the extent consistent with the general
expense reimbursement policies maintained by the Company from time to time,
Employee shall be entitled to prompt reimbursement for ordinary, necessary and
reasonable out-of-pocket trade or business expenses which Employee incurs in
connection with performing his/her duties under this Agreement, including
reasonable travel and meal expenses. The reimbursement of all such expenses
shall be made upon presentation of evidence reasonably satisfactory to the
Company of the amounts and nature of such expenses and shall be subject to the
reasonable approval of the Company's President or Board of Directors, or both.
7. Restrictive Covenants. Employee acknowledges and agrees that (i) through
his/her position as a Senior Vice President of the Company, he/she will learn
valuable trade secrets and other proprietary information relating to the
Business, (ii) Employee's services to the Company are unique in nature, (iii)
the Company's Business is international in scope and (iv) the Company would be
irreparably damaged if Employee were to provide services to any person or entity
in violation of the restrictions contained in this Agreement. Accordingly, as an
inducement to the Company to enter into this Agreement, Employee agrees that
during the Employment Term and, except as otherwise provided in Sections 10(b)
and 10(c) hereof or the last paragraph of this Section 7, for an additional
twenty-four (24) months thereafter (such period being referred to herein as the
"Restricted Period"), neither Employee nor any Affiliate (as defined below in
Section 8) of Employee shall, directly or indirectly, either for himself/herself
or for any other person or entity:
-3-
<PAGE> 4
(a) anywhere in the United States of America or Canada or any other
location in which the Company is then doing business, engage or participate
in, or assist, advise or be connected with (including as an employee,
owner, partner, shareholder, officer, director, advisor, consultant, agent
or otherwise), or permit his/her name to be used by or render services for,
any person or entity engaged in a Competing Business (as hereinafter
defined); provided, however, that nothing in this Agreement shall prevent
Employee from acquiring or owning, as a passive investment, up to two
percent (2%) of the outstanding voting securities of an entity engaged in a
Competing Business which are publicly traded on any recognized national
securities market;
(b) take any action, in connection with a Competing Business, which
might divert from the Company or an Affiliate of the Company any
opportunity which would be within the scope of the Company's or such
Affiliate's then business;
(c) solicit or attempt to solicit any person or entity who is or has
been (i) a customer of the Company at any time (A) up to the date hereof or
(B) during the Restricted Period to purchase Competing Products or Services
(as herein defined) from any person or entity (other than the Company) or
(ii) a customer, supplier, licensor, licensee or other business relation of
the Company at any time (A) up to the date hereof or (B) during the
Restricted Period to cease doing business with the Company; or
(d) solicit or hire any person or entity who is a director, officer,
employee or agent of the Company or any Affiliate of the Company to perform
services for any entity other than the Company and its Affiliates.
As used herein, a "Competing Business" shall mean a business which engages
or is making plans to engage, in whole or in part, in the manufacturing,
marketing or distributing of products, or the performance, marketing and sale of
services, which are competitive with, are similar to, may be used as substitutes
for, or may detract from any products or services of the Company or any
Affiliate thereof during the Restricted Period, whether, in the case of
products, such products are or were manufactured by or for the Company for sale
by the Company or purchased as finished goods for resale by the Company, or, in
the case of services, such services were performed by the Company or by another
company or person on behalf of the Company; the products and services subject to
these restrictive covenants being herein referred to as "Competing Products and
Services."
Notwithstanding the provisions of the first paragraph of this Section 7, in
the event of a termination of employment as a result of the expiration of the
full term of employment contemplated by Section 1 hereof, the Restricted Period
shall not extend beyond but rather shall terminate on the last date of the
Employment Term except in the case where the Company delivers to Employee not
less than ten (10) days prior to the last day of the Employment Term a written
offer of continued employment on substantially similar terms (or on terms more
favorable to Employee) as then exist, in which case the Restricted Period shall
extend to the earlier of (i) twenty-four (24) months after the last day of the
Employment Term and (ii) the last day of the term of employment as proposed in
such written offer of continued employment.
-4-
<PAGE> 5
8. Disclosure of Confidential Information. Employee recognizes that he/she
possesses or as a result of his/her employment by the Company will become in
possession of Confidential Information (as defined below). Accordingly, as an
inducement for the Company to enter into this Agreement, Employee agrees that:
(a) for the longest period permitted by law from the date of
this Agreement, Employee and each Affiliate of Employee shall hold in
strictest confidence and shall not, other than as required by law,
without the prior written consent of the Company, use for his/her own
benefit or that of any third party or intentionally or negligently
disclose in a manner which could be harmful to the Company to any
person, firm or corporation except the Company, an Affiliate of the
Company or employees of the Company or an Affiliate of the Company any
Confidential Information (as defined below). For purposes of this
Agreement, intending that the term shall be broadly construed to include
anything protectible as a trade secret under applicable law,
"Confidential Information" shall mean all information, and all documents
and other tangible items which record information, relating to the
manufacturing and marketing by the Company of products and services,
from time to time, which at the time or times concerned is protectible
as a trade secret under applicable law, and which has been or is from
time to time disclosed to or known by Employee. As used herein, an
"Affiliate" shall mean and include any person or entity which controls a
party, which such party controls or which is under common control with
such party. "Control" means the power, direct or indirect, to influence
or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise;
(b) Employee and each Affiliate of Employee (and if deceased,
his/her legal representative, who shall be the person set forth as such
in Section 12(a) until written notice of a successor is delivered to the
Company (the "Representative")) shall promptly following a request
therefor from the Company return to the Company, without retaining
copies, all tangible items which are or which contain Confidential
Information, it being agreed by Employee on behalf of his/her heirs,
successors and assigns that the Company shall be entitled to rely on any
action taken by the Representative in connection with this paragraph
(b); and
(c) at the request of the Company made at any time or from
time to time hereafter, Employee and each Affiliate of Employee (and if
deceased, the Representative) shall make, execute and deliver all
applications, papers, assignments, conveyances, instruments or other
documents and shall perform or cause to be performed such other lawful
acts as the Company may reasonably deem necessary or desirable to
implement any of the provisions of this Agreement, and shall give
testimony and cooperate with the Company, its Affiliates or its
representatives in any controversy or legal proceedings involving the
Company, its Affiliates or its representatives with respect to any
Confidential Information.
-5-
<PAGE> 6
9. Specific Performance. Employee agrees that any violation by him/her of
Sections 7 or 8 of this Agreement, as applicable, would be highly injurious to
the Company and would cause irreparable harm to the Company. By reason of the
foregoing, Employee consents and agrees that if he/she violates any provision of
Sections 7 or 8 of this Agreement the Company shall be entitled, in addition to
any other rights and remedies that it may have, to apply to any court of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce, or prevent any continuing violation of, the
provisions of such Section. In the event Employee breaches a covenant contained
in this Agreement, the Restricted Period applicable to Employee with respect to
such breached covenant shall be extended for the period of such breach. Employee
also recognizes that the territorial, time and scope limitations set for in
Section 7 and 8, as applicable, are reasonable and are properly required for the
protection of the Company and in the event that any such territorial, time or
scope limitation is deemed to be unreasonable by a court of competent
jurisdiction, the Company and Employee agrees, and Employee submits, to the
reduction of any or all of said territorial, time or scope limitations to such
an area, period or scope as said court shall deem reasonable under the
circumstances.
10. Termination; Severance.
(a) Notwithstanding the provisions of Section 1 and the other
provisions of this Agreement, Employee's employment with the Company may be
terminated at any time by the Company's President or Board of Directors
"for cause," which shall include (i) Employee's conviction for, or plea of
nolo contendere to, a felony, (ii) Employee's commission of an act
involving self-dealing, fraud or personal profit materially injurious to
the Company, (iii) Employee's commission of an act of willful misconduct or
gross negligence in the conduct of his/her duties hereunder, (iv) habitual
absenteeism or any form of drug addiction or abuse on the part of Employee,
(v) Employee's failure to perform his/her duties hereunder in a manner
reasonably satisfactory to the Company, (vi) Employee's breach or violation
of any internal policies or rules of the Company, including those rules
adopted by the Company concerning the purchase and sale of the Company's
common stock or other securities by employees of the Company, or (vii)
Employee's breach of any material provision of this Agreement. Any
termination by the Company under this Section 10(a) shall be in writing and
shall set forth the reason for such termination. In the event of
termination under this Section 10(a), the Company's obligations under this
Agreement shall cease and Employee shall forfeit all right to receive any
future compensation or benefits under this Agreement, including, without
limitation, any unpaid performance bonus, except that Employee shall be
entitled to his/her Salary and benefits (under Section 5) for services
already performed as of the date of termination of this Agreement. Without
limitation, termination of Employee pursuant to this Section 10(a) shall
not relieve Employee of his/her obligations under Sections 7 or 8 hereof.
(b) Notwithstanding the provisions of Section 1 and the other
provisions of this Agreement, Employee's employment with the Company may be
terminated at any time by the Company's President or Board of Directors
without cause, provided that in the event of such a termination, Employee
shall be entitled to continuation of his/her
-6-
<PAGE> 7
Salary and benefits (under Section 5) through the period ending three (3)
months after the date of such termination (the "Severance Period"). Except
as otherwise specifically provided above, the Company's obligations under
this Agreement shall cease upon termination and Employee shall forfeit all
rights to receive any compensation or benefits under this Agreement.
Without limitation, a termination of Employee pursuant to this Section
10(b) shall not relieve Employee of his/her obligations under Sections 7 or
8 hereof, except that the restrictions of Section 7 shall be terminated at
the earlier of the termination of the Restricted Period established under
Section 7 and any Severance Period established hereby. Any termination by
the Company or election by Employee under this Section 10(b) shall be in
writing.
(c) Notwithstanding the provisions of Section 1 and the other
provisions of this Agreement, Employee's employment with the Company may be
terminated by the Employee at any time, including after the occurrence of a
Change in Control of the Company, provided that Employee agrees to the
extent practicable that he/she will provide notice of termination to the
Company not less than three (3) weeks prior to the effective date of the
termination. Upon any termination of employment by Employee pursuant to
this Section 10(c), Employee shall be entitled to his/her Salary and
benefits (under Section 5) for services already performed as of the
effective date of the termination of this Agreement. A termination of
employment by Employee pursuant to this Section 10(c) shall not relieve
Employee of his/her obligations under Sections 7 or 8 hereof and, if the
effective date of the Employee's termination of employment pursuant to this
Section 10(c) is prior to February 28, 1998, Employee shall be obligated to
return to the Company any Change in Control Bonus paid to Employee pursuant
to Section 3 of this Agreement. Any termination by Employee under this
Section 10(c) shall be in writing.
(d) The severance payment provisions of this Section 10 (including any
Change in Control Bonus payable under Section 3(c)) are intended to comply
with Sections 280G and 4999 of the Code and all regulations thereto so that
the deductibility by the Company of the severance payments will not be
subject to limitation by Section 280G and so that Employee will not be
subject to an excise tax upon the receipt of the severance payments under
Section 4999. The Company and Employee agree that, prior to the payment by
the Company of any severance payments pursuant to this Section 10, the
Company's independent public accountants shall review the amounts proposed
to be paid, the conformity of the proposed payments with the provisions of
this Section 10 and the treatment of the proposed payments under Sections
280G and 4999 of the Code.
11. Death or Disability.
(a) If Employee becomes permanently disabled (determined as provided
below) during the Employment Term, his/her employment shall terminate as of
the date such permanent disability is determined. Employee shall be
considered to be permanently disabled for purposes of this Agreement if
he/she is unable by reason of accident or illness (including mental
illness) to perform the material duties of his/her
-7-
<PAGE> 8
regular position with the Company and not expected to recover from his/her
disability within a period of three (3) months from the commencement of the
disability. If at any time Employee claims or is claimed to be permanently
disabled, a physician acceptable to both Employee, or the Representative,
and the Company (which acceptances shall not be unreasonably withheld)
shall be retained by the Company and shall examine Employee. Employee shall
cooperate fully with the physician. If the physician determines that
Employee is permanently disabled, the physician shall deliver to the
Company a certificate certifying both that Employee is permanently disabled
and the date upon which the condition of permanent disability commenced.
The determination of the physician shall be conclusive.
(b) Employee's right to his/her compensation and benefits under this
Agreement shall cease upon his/her death or disability, except that (i)
Employee (or his/her estate or heirs) shall be entitled to his/her Salary
and benefits (under Section 5) for services performed as of the date of
his/her death or permanent disability and (ii) in addition, with respect to
termination due solely to Employee's permanent disability as determined
pursuant to this Section 11, he/she shall also be entitled to his/her
Salary and benefits (under Section 5) through the period ending six (6)
months after the date such permanent disability began; provided, however,
that any such amounts for Salary continuation shall be reduced by any
amount received by Employee under any disability insurance policy.
12. Miscellaneous.
(a) All notices hereunder shall be in writing and shall be deemed
given when delivered in person or when telecopied with hard copy to follow,
or three (3) business days after being deposited in the United States mail,
postage prepaid, registered or certified mail, or two (2) business days
after delivery to a nationally recognized express courier, expenses
prepaid, addressed as follows:
If to Employee:
John M. Nichols
7871 Meadow Trail Drive
Cordova, Tennessee 38018
If to the Company:
Varsity Spirit Corporation
2525 Horizon Lake Drive
Memphis, Tennessee 38133
Attention: Jeffrey G. Webb
-8-
<PAGE> 9
and/or at such other addresses and/or to such other addressees as may be
designated by notice given in accordance with the provisions hereof.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors and permitted
assigns. No party shall assign this Agreement or its rights hereunder
without the prior written consent of the other party hereto; provided,
however, that the Company may assign this Agreement to any person or entity
acquiring all or substantially all of the Business of the Company (whether
by sale of stock, sale of assets, merger, consolidation or otherwise).
(c) This Agreement contains all of the agreements between the parties
with respect to the subject matter hereof and this Agreement supersedes all
other agreements, oral or written, between the parties hereto with respect
to the subject matter hereof.
(d) No change or modification of this Agreement shall be valid unless
the same shall be in writing and signed by all of the parties hereto. No
waiver of any provisions of this Agreement shall be valid unless in writing
and signed by the waiving party. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver, unless so provided in the waiver.
(e) If any provisions of this Agreement (or portions thereof) shall,
for any reason, be invalid or unenforceable, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions of this Agreement (or
portions thereof) shall nevertheless be valid, enforceable and of full
force and effect. The Company's rights under this Agreement shall not be
exclusive and shall be in addition to all other rights and remedies
available at law or in equity.
(f) The section or paragraph headings or titles herein are for
convenience of reference only and shall not be deemed a part of this
Agreement.
(g) This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which when taken
together shall constitute a single instrument.
(h) This Agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects
by the laws of the State of Tennessee applicable to contracts made in that
State (other than any conflict of laws rule which might result in the
application of the laws of any other jurisdiction). Employee hereby
expressly submits and consents in advance to the jurisdiction of the
federal and state courts of the State of Tennessee for all purposes in
connection with any action or proceeding arising out of or relating to this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
-9-
<PAGE> 10
VARSITY SPIRIT CORPORATION
By: /s/ Jeffrey J. Webb
------------------------------------
Name: Jeffrey J. Webb
Title: President
JOHN M. NICHOLS
/s/ John M. Nichols
--------------------------------------
-10-
<PAGE> 1
EXHIBIT 10(S)
VARSITY SPIRIT CORPORATION
2525 Horizon Lake Drive
Memphis, TN 38133
Memphis, TN 38184-1609
901-387-4370
Fax: 901-387-4356
June 4, 1996
Jeffrey G. Webb
2525 Horizon Lake Drive
Memphis, TN 38133
RE: Extension of Employment Agreement
Dear Jeff:
This is to confirm the extension of the term of the Employment Agreement,
dated as of September 29, 1989, by and between you and Varsity Spirit
Corporation. Section 1 of the Employment Agreement is hereby amended to provide
as follows:
1. Employment. The Company agrees to employ Executive and Executive accepts
such employment for the initial period beginning as of the date hereof
(September 29, 1989) and ending on September 28, 1997, subject to possible
earlier termination pursuant to paragraph 1(d) hereof (the "Employment Period").
Please indicate your agreement with the amendment set forth above by
executing this extension agreement in the space provided below and returning an
executed copy of this agreement to the undersigned.
Very truly yours,
/s/ Jeffrey G. Webb
Jeffrey G. Webb
President
Varsity Spirit Corporation
Accepted and agreed to this day of June, 1996
[NAME OF EMPLOYEE]
/s/ Jeffrey G. Webb
- ---------------------
(Signature)
<PAGE> 1
EXHIBIT 10(T)
VARSITY SPIRIT CORPORATION
2525 Horizon Lake Drive
Memphis, TN 38133
Memphis, TN 38184-1609
901-387-4370
Fax: 901-387-4356
June 4, 1996
Gregory C. Webb
2525 Horizon Lake Drive
Memphis, TN 38133
RE: of Employment Agreement
Dear Greg:
This is to confirm the extension of the term of the Employment Agreement,
dated as of September 29, 1989, by and between you and Varsity Spirit
Corporation. Section 1 of the Employment Agreement is hereby amended to provide
as follows:
1. Employment. The Company agrees to employ Executive and Executive accepts
such employment for the initial period beginning as of the date hereof
(September 29, 1989) and ending on September 28, 1997, subject to possible
earlier termination pursuant to paragraph 1(d) hereof (the "Employment Period").
Please indicate your agreement with the amendment set forth above by
executing this extension agreement in the space provided below and returning an
executed copy of this agreement to the undersigned.
Very truly yours,
/s/ Jeffrey G. Webb
Jeffrey G. Webb
President
Varsity Spirit Corporation
Accepted and agreed to this 22nd day of June, 1996
[NAME OF EMPLOYEE]
/s/ Gregory C. Webb
- -----------------------
(Signature)
<PAGE> 1
EXHIBIT 10(U)
VARSITY SPIRIT CORPORATION
2525 Horizon Lake Drive
Memphis, TN 38133
P.O. Box 341609
Memphis, TN 38184-1609
901-387-4370
Fax: 901-387-4356
June 4, 1996
J. Kristyn Shepherd
2525 Horizon Lake Drive
Memphis, TN 38133
RE: Extension of Employment Agreement
Dear Kris:
This is to confirm the extension of the term of the Employment Agreement,
dated as of September 29, 1989, by and between you and Varsity Spirit
Corporation. Section 1 of the Employment Agreement is hereby amended to provide
as follows:
1. Employment. The Company agrees to employ Executive and Executive accepts
such employment for the initial period beginning as of the date hereof
(September 29, 1989) and ending on September 28, 1997, subject to possible
earlier termination pursuant to paragraph 1(d) hereof (the "Employment Period").
Please indicate your agreement with the amendment set forth above by
executing this extension agreement in the space provided below and returning an
executed copy of this agreement to the undersigned.
Very truly yours,
/s/ Jeffrey G. Webb
Jeffrey G. Webb
President
Varsity Spirit Corporation
Accepted and agreed to this day of June, 1996
[NAME OF EMPLOYEE]
/s/ J. Kristyn Shepherd
- -------------------------
(Signature)
<PAGE> 1
EXHIBIT 10(V)
VARSITY SPIRIT CORPORATION
2525 Horizon Lake Drive
Memphis, TN 38133
Memphis, TN 38184-1609
901-387-4370
Toll Free: 800-238-0286
Fax: 901-387-4356
June 4, 1996
W. Kline Boyd
2525 Horizon Lake Drive
Memphis, TN 38133
RE: Extension of Employment Agreement
Dear Kline:
This is to confirm the extension of the term of the Employment Agreement,
dated as of September 29, 1989, by and between you and Varsity Spirit
Corporation. Section 1 of the Employment Agreement is hereby amended to provide
as follows:
1. Employment. The Company agrees to employ Executive and Executive accepts
such employment for the initial period beginning as of the date hereof
(September 29, 1989) and ending on September 28, 1997, subject to possible
earlier termination pursuant to paragraph 1(d) hereof (the "Employment Period").
Please indicate your agreement with the amendment set forth above by
executing this extension agreement in the space provided below and returning an
executed copy of this agreement to the undersigned.
Very truly yours,
/s/ Jeffrey G. Webb
Jeffrey G. Webb
President
Varsity Spirit Corporation
Accepted and agreed to this 20th day of June, 1996
[NAME OF EMPLOYEE]
/s/ W. Kline Boyd
- --------------------
(Signature)
<PAGE> 1
EXHIBIT 10(W)
VARSITY SPIRIT CORPORATION
2525 Horizon Lake Drive
Memphis, TN 38133
Memphis, TN 38184-1609
901-387-4370
Fax: 901-387-4356
June 4, 1996
Kraig Tallman
2525 Horizon Lake Drive
Memphis, TN 38133
RE: Extension of Employment Agreement
Dear Kraig:
This is to confirm the extension of the term of the Employment Agreement,
dated as of September 29, 1989, by and between you and Varsity Spirit
Corporation. Section 1 of the Employment Agreement is hereby amended to provide
as follows:
1. Employment. The Company agrees to employ Executive and Executive accepts
such employment for the initial period beginning as of the date hereof
(September 29, 1989) and ending on September 28, 1997, subject to possible
earlier termination pursuant to paragraph 1(d) hereof (the "Employment Period").
Please indicate your agreement with the amendment set forth above by
executing this extension agreement in the space provided below and returning an
executed copy of this agreement to the undersigned.
Very truly yours,
/s/ Jeffrey G. Webb
Jeffrey G. Webb
President
Varsity Spirit Corporation
Accepted and agreed to this 4th day of June, 1996
[NAME OF EMPLOYEE]
/s/ Kraig Tallman
- -------------------
(Signature)
<PAGE> 1
EXHIBIT 10(X)
AMENDMENT NO. 1 TO VARSITY SPIRIT CORPORATION
1991 STOCK OPTION PLAN
The Varsity Spirit Corporation 1991 Stock Option Plan, and more
particularly Section 5.01 of such Plan, is amended to increase the number of
shares of the Company's Common Stock which may be issued or transferred under
the Plan from 300,000 shares (after giving effect to a 3-for-2 stock split
effected as a 50% stock dividend) to 450,000 shares.
<PAGE> 1
EXHIBIT 10(Y)
AMENDMENT NO. 2 TO VARSITY SPIRIT CORPORATION
1991 STOCK OPTION PLAN
The Varsity Spirit Corporation 1991 Stock Option Plan, as amended, and more
particularly Section 5.01 of such Plan, is amended to increase the number of
shares of the Company's Common Stock which may be issued or transferred under
the Plan from 450,000 shares to 600,000 shares.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF VARSITY SPIRIT CORPORATION
Varsity Spirit Fashions & Supplies, Inc., a Minnesota corporation.
International Logos, Inc., a Tennessee corporation.
Varsity/Intropa Tours, Inc., a Tennessee corporation.
Varsity USA, Inc., a Tennessee corporation.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
VARSITY SPIRIT CORPORATION
MEMPHIS, TENNESSEE
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-57974) and the Registration Statement on Form S-8
(No. 33-84940) of our reports dated February 12, 1997, related to the
consolidated financial statements and schedule of Varsity Spirit Corporation
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
BDO SEIDMAN, LLP
Memphis, Tennessee
March 28, 1997
<PAGE> 1
EXHIBIT 24
POWERS OF ATTORNEY
<PAGE> 2
VARSITY SPIRIT CORPORATION
Form 10-K Annual Report
------------------------
POWER OF ATTORNEY
------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned whose signature
appears below constitutes and appoints John M. Nichols, Gregory C. Webb
and Jeffrey G. Webb, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign the Company's Form 10-K Annual Report and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed this power or attorney
this day of 1997.
------ ---------------
___________________________
(signature)
___________________________
(printed name)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AS
INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 9,360
<SECURITIES> 0
<RECEIVABLES> 7,382
<ALLOWANCES> 220
<INVENTORY> 5,419
<CURRENT-ASSETS> 25,054
<PP&E> 8,160
<DEPRECIATION> 4,150
<TOTAL-ASSETS> 37,791
<CURRENT-LIABILITIES> 7,048
<BONDS> 600
0
0
<COMMON> 47
<OTHER-SE> 29,850
<TOTAL-LIABILITY-AND-EQUITY> 37,791
<SALES> 49,472
<TOTAL-REVENUES> 88,449
<CGS> 26,849
<TOTAL-COSTS> 53,613
<OTHER-EXPENSES> 26,388
<LOSS-PROVISION> 270
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 8,614
<INCOME-TAX> 3,414
<INCOME-CONTINUING> 5,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,200
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
