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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-13042
RIDE, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1571027
- -------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8160 304TH AVENUE SOUTHEAST
PRESTON, WASHINGTON 98050
- ---------------------------------------- ------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 222-6015
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK NASDAQ NATIONAL MARKET
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 (229.405 of this chapter) 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. [ ]
As of March 9, 1998, the aggregate market value of the registrant's common
stock held by nonaffiliates of the registrant was $25,984,077 based on the
closing sale price of the registrant's Common Stock on the Nasdaq Stock Market.
As of March 9, 1998, the number of shares of the registrant's Common Stock
outstanding was 12,136,035.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) PORTIONS OF THE REGISTRANT'S DEFINITIVE 1998 PROXY STATEMENT TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION ARE INCORPORATED BY REFERENCE
INTO PART III HEREOF.
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Items 1,2,3 and 7 of this Form 10-K contain forward-looking statements within
the meaning of that term in the Private Securities Litigation Reform Act of 1995
(Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934). Statements contained herein that are not historical facts
are forward-looking statements made pursuant to the safe harbor provisions
referenced above. Forward-looking statements may include, but are not limited
to, projections of revenue, income or loss and capital expenditures, statements
regarding future operations, financing needs, compliance with financial
covenants in loan agreements, plans for acquisitions or sales of assets or
businesses and consolidation of operations of newly acquired businesses, and
plans relating to products or services of the Company, assessments of
materiality, predictions of future events and the effects of pending and
possible litigation, as well as assumptions relating to the foregoing. In
addition, the words "anticipates," "believes," "estimates," "expects,"
"intends," "plans" and variations thereof and similar expressions are intended
to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified based on current expectations.
Consequently, future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward-looking
statements contained in this Annual Report. Factors that could cause such future
events or actual results to differ include, but are not limited to, those set
forth in "Item 1. Business -- Risk Factors" below.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of unexpected
events.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Ride, Inc. (the "Company") is a leading designer, manufacturer and marketer of
contemporary sporting goods equipment and apparel for snowboard and wakeboard
consumers. The Company markets its equipment and apparel throughout the world
under multiple brands specifically targeted to serve certain price points,
product lines and distribution channels.
The Company was founded in September 1992 and acts as a holding company for the
following subsidiaries: Ride Snowboard Company ("Ride Snowboards"), Ride
Manufacturing, Inc. ("Ride Manufacturing"), Ride Canada, Inc. ("Ride Canada"),
SMP Clothing, Inc. ("SMP"), Smiley Hats, Inc. ("Smiley"), and Carve, Inc. d/b/a
US2 Sports ("US2"). The Company acquired C.A.S. Sports International, Inc. and
C.A.S. Sports Agency, Inc. (collectively, "CAS") in August 1994. The Company
acquired Ride Manufacturing and 5150 Snowboards, Inc. ("5150") and SMP in
September and October 1995, respectively. The Company later merged 5150 with and
into Ride Snowboards. In October 1996, the Company transferred certain of its
assets and liabilities of the CAS business to Ride Canada and Ride Snowboards,
and sold the CAS entities. In June 1997, the Company acquired substantially all
of the assets (except cash and accounts receivable) and liabilities of Device
Mfg Corp. ("Device") and transferred those assets and liabilities to Ride
Snowboards. In July 1997, the Company purchased substantially all of the assets
of Galena Creek Trading Company, Inc., d/b/a Smiley Hats, and transferred those
assets to Smiley Hats, Inc., a newly-formed corporation. Finally, in December
1997, the Company acquired US2 Sports Group, Inc. d/b/a FullTilt Wakeboards,
through a merger of that company with and into Carve, Inc., a newly-formed
corporation.
Ride Snowboards sells premium to mid-range snowboards and related products
primarily through specialty snowboard and ski shops. Ride Manufacturing is a
manufacturer of premium snowboards principally for Ride Snowboards and, to a
lessor extent, a limited number of other snowboard companies on an OEM
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basis. SMP designs and manufactures snowboard, surf, skate, motocross and street
apparel which is sold primarily through specialty shops. Ride Canada acts as the
Company's Canadian distributor. Smiley designs and manufactures premium head and
neck wear for the winter sports industry and its products are sold through
specialty shops. US2 designs, manufactures and distributes wakeboards, wakeboard
bindings and accessories under the "FullTilt" and "Sub Rosa" brand names through
sporting goods, marine and specialty retailers. Until its disposition in October
1996, CAS marketed entry-level snowboards and related products under various
brand names and on a private label basis, primarily to regional sporting goods
stores and large-format sporting goods retailers. In addition, CAS sold
snowboards and related products on an OEM basis to other snowboard companies and
bought excess snowboard and sporting goods inventories from manufacturers and
sold such products to retailers throughout the world. The OEM and excess
inventory portions of the CAS business were sold in October 1996 while the
branded and private label portions of the business were retained by the Company
and are being operated as the Company's Special Products Group ("SPG").
In 1998, the Company began operating under the d/b/a "Ride Sports" to reflect
the expanded scope of sporting goods products currently offered by the Company
for outdoor sports enthusiasts.
INDUSTRY BACKGROUND
Snowboarding
Tracing its roots to surfing and skateboarding, snowboarding was invented in the
late 1970's. The first products available were unsophisticated in design and
were made almost entirely by small "backyard" manufacturers. In the early
1990's, snowboard design advanced to higher performance standards and the sport
began to attract broader demographic participation.
The majority of snowboarders continue to be young males, however, the sport is
growing in popularity among females and older sports enthusiasts, especially
downhill skiers. The sport is now welcome and promoted at nearly all of the ski
areas worldwide. Snowboarding recently made its debut with four full medal
events at the 1998 Winter Olympic Games in Nagano, Japan.
The Company believes that the growth of snowboarding is attributable in large
part to advantages that the sport holds over alpine skiing. Many people find
that snowboarding not only is more natural and easier to learn than alpine
skiing, but also provides a greater degree of excitement over more diverse
terrain. For many, snowboarding equipment is also less cumbersome and more
comfortable than alpine ski equipment; poles are unnecessary and the boots are
softer and lighter than ski boots. Moreover, recent design improvements are
making step-in snowboard bindings a more attractive option for crossover skiers
and others seeking the functionality and ease of use of alpine ski step-in
products.
The Company believes the snowboard industry is dominated by approximately seven
major competitors, including one industry market share leader, three
predominantly snowboard-related companies, including Ride, and three ski
manufacturers. The remainder of the market is highly fragmented among scores of
competitors. The Company believes that recent acquisitions of smaller brands by
larger competitors represents a broader consolidation trend in the industry as
weaker brands are either absorbed by larger companies or cease business
operations.
Industry data shows continued growth in snowboard participation. The Company
believes that similar growth continues in the European and Japanese markets.
However, the Company believes sales at the wholesale level in the 1995 and 1996
winter seasons outpaced retail growth and that there remains an oversupply of
product at the retail level. While the Company believes that this oversupply of
product is declining, this condition persists to the greatest degree in the
Japanese market. The Company anticipates current oversupply conditions may
continue to adversely affect worldwide wholesale sales growth opportunities in
the 1998-1999 season. See "--Risk Factors -- Industry-wide Oversupply of
Snowboard Products; Goodwill Writedown; Excess Inventory."
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Wakeboarding
The Company believes that the relatively new sport of wakeboarding shares many
functional and demographic characteristics with snowboarding and snowboarders.
In function, wakeboarding is comparable to waterskiing in the same manner that
snowboarding is comparable to alpine skiing. Appealing predominantly to young
outdoor enthusiasts, wakeboard riders are typically pulled behind a power boat
or personal water craft and perform aerial tricks and other maneuvers on the
wake of the towing vessel for recreational or competitive purposes. While the
current market for wakeboards is relatively small in comparison to snowboarding,
the Company believes that the sport is growing in popularity. The Company
believes the wakeboard market is dominated by a single competitor while four or
five other competitors, including the Company, share a smaller but growing
segment of the market, with the balance divided among twenty to thirty smaller
companies. With relatively low barriers to entry, the Company expects there to
be additional entrants into the market in the short term similar to what
occurred in the snowboard industry.
OPERATING STRATEGY
The Company's operating strategy is to creatively market high quality,
technologically innovative contemporary sports products and extend its position
in the sporting goods equipment market into the apparel marketplace.
Brand Marketing of Sporting Goods Equipment: Ride uses a multiple brand strategy
to serve the product needs, price points and demographics of its diverse
consumer base. The "Ride" brand is specifically positioned to appeal to a broad
range of snowboard enthusiasts at mid to higher price points; "5150" is targeted
at the Company's more aggressive counterculture snowboard consumers; "Liquid"
produces entry level products at moderate price points; and "FullTilt" and "Sub
Rosa" serve the wakeboard and wakeboard binding markets.
Technology Based Products: The Company utilizes its in-house production
capabilities at Ride Manufacturing, an extensive engineering staff and its team
of world-class professional snowboarders and wakeboarders to develop
high-performance snowboard and wakeboard equipment incorporating the most
advanced technologies currently available. The Company believes that the
products designed by these professional athletes, with production and management
oversight provided by Company engineers, gives its snowboard brands competitive
advantages in the consumer marketplace. This strategy was rewarded in 1997 with
snowboardingonline's first ever product review in which the Company's "Ride"
Timeless and Jeff Brushie snowboards were selected as the best in their
respective product categories.
Expansion into Apparel: The Company seeks to broaden its revenue base by
marketing accessories and softgoods specifically targeted to snowbaord and
wakeboard enthusiasts. The Ride Snowboard Apparel brand is targeted at the high
end snowboard enthusiast who requires extensive technical features such as
waterproof breathable fabrics. The "SMP" brand, originating in Southern
California, is marketed to the Company's more fashion oriented motocross, snow,
skate and wakeboard consumers. The Company intends to expand the recognition of
its equipment brands with accessories such as backpacks, snowboard bags, gloves
and hats. Recently acquired Smiley produces high-quality head and neck-wear for
winter sports enthusiasts, further increasing the Company's presence in the
winter sports accessories marketplace.
PRODUCTS
Snowboard Equipment
"Ride"
The "Ride" brand is designed for high performance, capitalizes on the Company's
most advanced technologies and has historically been positioned towards the
higher price points in the snowboard market. In 1997, the Company began offering
moderate price point products under the "Ride" brand to target entry and
intermediate level consumers, thus expanding recognition of the Ride brand name.
Designed to
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connect the snowboarder to the snowboard, the "Ride" product line includes both
traditional "strap" snowboard bindings and boots and a complete line of
"Device-compatible step-in" snowboard bindings and boots. Included in the
Company's products for the first time in 1997, step-in snowboard bindings
provide an increased level of convenience by allowing the user to simply step-in
to the binding to connect themselves to the snowboard as opposed to sitting down
in the snow to "strap-in" to traditional snowboard bindings. In order to
maximize the strength and positioning of the "Ride" product series, the Company
merged its "Preston" high end strap-in bindings into the "Ride" product line for
1998. The mounting features of all of the Company's bindings are compatible with
the Company's snowboards and those offered by virtually all competitors.
The "Ride" product line currently includes 44 sizes of snowboards within nine
board series with suggested retail prices ranging from $300 to $500, 4 models of
traditional "strap" snowboard bindings with suggested retail prices ranging from
$110 to $170, seven models of "Device-compatible-step-in" snowboard bindings
with suggested retail prices from $120 to $185 and 14 and 16 models,
respectively, of "Device-compatible-step-in" and traditional snowboard boots
with suggested retail prices ranging from $130 to $270.
"5150"
Incorporating many of the technologies available under the "Ride" brand, the
"5150" brand is targeted at the counter-culture niche of the snowboarding
market. The "5150" product line currently includes 15 sizes of snowboards within
four board series with suggested retail prices ranging from $330 to $430, two
models of "Device-compatible-step-in" snowboard bindings with suggested retail
prices from $125 to $160 and five models of "Device-compatible-step-in"
snowboard boots with suggested retail prices ranging from $140 to $125.
"Liquid."
The "Liquid" product line managed by the Company's Special Products Group and is
aimed at entry level snowboarders who require quality products at a competitive
price. The line currently includes 28 sizes of snowboards within seven board
series with suggested retail prices ranging from $230 to $300, three models of
traditional "strap" snowboard bindings with suggested retail prices ranging from
$60 to $100, one model of "Device-compatible-step-in" snowboard bindings with a
suggested retail price of $120 and one and four models, respectively, of
"Device-compatible-step-in" and traditional snowboard boots with suggested
retail prices ranging from $80 to $140.
Apparel
The Company believes that clothing is an important element of the snowboarding
subculture and that the demand for snowboarding apparel will grow with the
popularity of the sport. In addition, snowboard apparel has crossed over into
everyday fashion, thereby increasing the potential market for the Company's
apparel products.
The Company has developed and introduced in 1998 a new line of technical
snowboard outerwear and apres snowboard apparel under the "Ride Snowboard
Apparel" brand name. Previously produced under the "Cappel" brand name, this
product line extends the "Ride" brand's reputation for equipment quality and
performance to the snowboard apparel market. "Ride" brand apparel is intended
for the consumer who desires technology and function in his or her snowboard
clothing. Retail value for outerwear ranges from $90 for an entry level pair of
pants to $270 for the line's full featured waterproof, breathable parka.
Developed by San Diego-based SMP Clothing, the "SMP" product line includes
clothing and accessory items used in snowboarding, surfing, skateboarding, and
motocross, as well as pants, shirts, sweaters and other street and beach wear.
SMP apparel is targeted at a more fashion conscious consumer desirous of
technically advanced features with retail prices ranging from $15 for fashion
T-shirts to $240 for a high-end snowboard jacket.
Accessories
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The Company offers a variety of snow and wakeboarding accessories, including
snowshoes, gloves, bags, packs, hats and caps under the "Ride," "5150,"
"Liquid,", "SMP, "FullTilt" and "Smiley" brands. The Company's subsidiary,
Smiley, offers high quality head and neck wear for wintersports enthusiasts
ranging from basic wool hats to alternative synthetic fleece hats and headbands.
Smiley's products generally retail for $10 to $40. The Company also offers a
line of "Slim" snowboard tools for adjustment of snowboard bindings and
maintenance during use.
Wakeboards and Wakeboard Bindings
The Company's December 1997 acquisition of US2 Sports Group extended the
Company's product line to wakeboards and wakeboard bindings. The Company offers
15 models of wakeboards under the "FullTilt" brand with suggested retail prices
ranging from $270 to $700 and five models of wakeboard bindings under the "Sub
Rosa" brand with suggested retail prices ranging from $100 to $280. These
products are distributed through specialty retailers, marine dealerships and
large format sporting goods chains. The Company expects to further enhance the
technological features of its wakeboard products as it moves wakeboard
production to its state-of-the-art Ride Manufacturing facility in Corona,
California.
The following table sets forth the contribution to net sales (in thousands and
as a percentage of net sales) attributable to each of the Company's product
groups for the year ended December 31, 1997.
<TABLE>
<S> <C> <C>
Snowboards ............................ $12,520 34%
Bindings............................... 8,287 23%
Boots.................................. 3,714 10%
Skate, wake and other.................. 971 3%
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Total hard goods....................... 25,492 70%
Apparel................................ 8,387 23%
Accessories............................ 2,596 7%
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Total soft goods....................... 10,983 30%
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Net sales.............................. $36,475 100%
==================
</TABLE>
TIERED DISTRIBUTION STRATEGY
The Company's worldwide distribution strategy is centered around a policy of
limited distribution and market segmentation. Although the Company believes that
more rapid sales growth might be achieved in the short term by selling all
brands across all distribution channels, the Company believes that continued
growth and brand loyalty can be best achieved by selling each of the Company's
brands primarily through those retailers that best serve the market segment to
which the particular brand is targeted.
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North America
The Company distributes its branded products to retailers through its
independent sales representatives and a limited number of employee sales
representatives. The following table details the Company's tiered distribution
strategy for each of its brands:
<TABLE>
<CAPTION>
Primary Retail Outlets
---------------------------------------------------------
Regional Sporting Large-Format
Specialty Snow, Goods and Apparel Sporting Goods
and Ski Shops Chains Retailers
----------------- ----------------- -----------------
<S> <C> <C> <C>
Snowboard Equipment & Accessories Ride, 5150 & Ride & Liquid Liquid
Smiley
Apparel Ride & SMP SMP
</TABLE>
The three main retail channels of distribution for the Company's branded
products in North America are defined as follows:
Specialty Snowboard and Ski Shops. These retailers generally operate one to
three relatively small sized shops specifically targeted at the core of their
respective markets. Providing the highest amount of customer service and
significantly influencing the purchasing decisions of consumers, they tend to
cater to experienced snowboarders, a majority of whom are repeat buyers, as well
as intermediate snowboarders, cross-over skiers and other winter sports
enthusiasts. These retailers primarily sell the Company's premium and mid-priced
snowboards, including "Ride," and "5150" snowboards, bindings, boots and
accessories and "Ride Snowboard Apparel" and "SMP".
Regional Sporting Goods Stores and Apparel Chains. These retailers typically
have 10 or more large to moderate size stores within a large geographical area,
target their product lines at specific sport sectors and generally appeal to
intermediate and novice sports enthusiasts. Accordingly, they offer trained
sport specific sales assistance for their customers at the moderate to upper
price points. These stores primarily sell the Company's "Ride" and "Liquid"
product lines. The Company's "SMP" brand is widely distributed through this
channel by multiple location young men's apparel chains typically found in most
major shopping malls.
Large-Format Sporting Goods Retailers. These retailers sell primarily to
first-time and price-sensitive buyers. Offering the broadest range of sporting
goods equipment, these stores maximize volume based on providing price point
products and offer a modest amount of sales and service support for their
customers. These retailers typically carry the Company's "Liquid" product line.
International
The Company has historically generated the largest portion of its international
revenues in the Japanese marketplace through sales of its "Ride", "5150", and
"SMP" brands to independent distributors who, in turn, sell these product lines
to Japanese retailers. Due to the oversupply of snowboard equipment in the
Japanese marketplace, the Company determined that its ability to maintain market
share and control its "Ride" brand image is directly related to the level of
control the Company has over its distribution channels in that marketplace.
During 1997, the Company implemented a two-tiered distribution strategy in
Japan for the "Ride" brand whereby it sells directly to the top retailers in
that market and distributes to specialty retailers through a subdistributor.
Throughout the rest of the world, the Company sells to independent distributors
who in turn market and sell its products to retailers in their respective
markets, except in France, where the Company sells directly to retailers. The
Company works closely with its international distributors to ensure that its
policies of
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limited distribution and market segmentation are followed worldwide. SPG
distributes its products worldwide through its in-house sales force.
The Company's North American and export sales (in thousands) are set forth below
for the year ended December 31, 1997. No customer accounted for more than 10% of
sales in 1997. See "--Risk Factors--Risks of International Business."
<TABLE>
<S> <C> <C>
North America...................... $24,907 68%
Japan.............................. 7,989 22%
Europe and other................... 3,579 10%
--------------
Net sales.......................... $36,475 100%
==============
</TABLE>
INNOVATIVE PRODUCT DESIGNS
A key component of the Company's progressive image and operating strategy is its
commitment to be the industry leader in technologically innovative product
design. Unlike many other snowboard companies, which rely largely on third-party
design technicians and engineers, the Company uses its in-house product
development team in collaboration with the Company's team riders to develop
high-performance products that incorporate the most advanced snowboarding
technology. The Company continues advances in the use of light weight, durable
materials in the construction of its snowboards. For the 1998/1999 snowboard
product line, the Company has introduced several new construction styles,
including the "Concept" board, designed especially for freestyle riding, which
is lighter than any board the Company has produced to date, and the "Enigma"
board that incorporates an innovative variable angle cap. The Company intends to
apply this same approach to wakeboard development in 1998. The Company pioneered
the use of lightweight and durable aircraft-grade aluminum in traditional
"strap-in" snowboard bindings. Research and development expenses totaled
approximately $217,000, $417,000 and $338,000 in 1995, 1996 and 1997,
respectively. The Company expects to spend comparable amounts in 1998 as it did
in 1997 on research and development efforts for snowboard equipment and apparel
while increasing its expenditures on wakeboards and wakeboard bindings.
IN-HOUSE MANUFACTURING CAPABILITY
The Company's September 1995 acquisition of Ride Manufacturing significantly
expanded its snowboard development, production and quality assurance
capabilities. To date, the Company has been able to lower its snowboard
production costs, reduce reliance on outside suppliers and enhance product
development efforts. In 1997, approximately 80% of the Company's branded
snowboards were produced in this facility. The Company's anticipates producing
virtually all of its snowboards in this factory during 1998. In 1997, the
Company devoted the majority of the Ride Manufacturing production efforts toward
construction of "Ride," "5150" and "Liquid" brand snowboards. The Company
expects a similar production mix in 1998 with the addition of a limited number
of OEM snowboards. The Company also expects to begin moving the "FullTilt"
wakeboard production to the factory in April 1998. The Company anticipates that
this production shift will consume production time and capacity in the fall and
early winter months when the factory would otherwise be idle due to the
seasonality of snowboard production. See "-- Risk Factors -- Manufacturing."
MARKETING
The Company has established its flagship "Ride" brand name as an aggressive,
technologically advanced brand on the leading edge of snowboarding. The Company
has established different brands for other target markets and seeks to increase
consumer awareness of these brands without jeopardizing the "Ride" brand image.
An important element of this strategy are the Company's "Ride," "5150," "SMP,"
and "FullTilt" professional snowboard and wakeboard riders, who are prominently
featured in the Company's print advertising in leading industry magazines and
several "underground" snow/surf/skate/wakeboard publications. Participating in
their respective sports approximately 250 days a year, the Company's
professional teams provide significant brand exposure through photographic and
editorial coverage in
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major industry magazines and at organized events. The Company also sponsors top
local riders in various markets with free products. Additionally, the Company's
product demo program, "Ride More Talk Less," provides trial rides to customers
and potential customers at ski areas around the country through the Company's
five demo vans. The Company has also increased its efforts to bring industry
media attention to the technological features of its products through
Company-sponsored tours of its state-of-the-art Ride Manufacturing factory and
on-hill demonstration events. The Company now employs a public relations firm to
further enhance the Company's exposure in important industry media and events.
These programs are each designed to improve the visibility of the Company's
products while enhancing the high-performance reputation of the "Ride," "5150,"
and "FullTilt" brands. The Company also markets its products through regular
attendance at industry trade shows.
SUPPLIERS
In 1997, the Company sourced all of its strap-in snowboard bindings from the
Taiwan-based Snowboard Factory, Inc. ("SFI"). The Company intends to expand this
relationship in 1998 by transferring all of its "Device-compatible-step-in"
binding production to this supplier in order to capitalize on lower product cost
opportunities available in the Far East. The Company's apparel, boot and
accessory products will continue to be sourced through a variety of U.S. and
foreign manufacturers.
In 1997, Pale Ski & Sport GmbH & Co. KG of Austria ("Pale") was the Company's
largest third-party manufacturer of snowboards, producing approximately 14% of
its snowboards, down from 34% in 1996. For 1998, the Company anticipates further
reducing its external sourcing of snowboards from Pale and other third party
manufacturers.
The Company generally does not have contracts with its manufacturing sources and
competes with other companies for the production capacity of certain
manufacturers. Although the Company believes that it has established close
relationships with its principal manufacturing sources, its future success may
depend on its ability to maintain such relationships. If the Company's
relationship with any of its binding, boot, apparel or other product
manufacturers were interrupted, the Company could find it difficult to locate
another source with sufficient production capacity to meet the Company's
short-term needs, and the Company could miss the retailing season for that
product. The establishment of new manufacturing relationships involves numerous
uncertainties, including those relating to payment terms, costs of
manufacturing, adequacy of manufacturing capacity, quality control and
timeliness of delivery, and the Company is unable to predict whether such
relationships would be on terms that the Company regards as satisfactory. Should
an unexpected change in binding, boot, apparel or other product suppliers become
necessary, the Company would likely experience increased costs, as well as a
substantial disruption and a potential loss of sales. In addition, from time to
time manufacturers in the snowboard industry have experienced shortages and, in
some cases, price increases in certain raw materials, and such shortages or
price increases may recur. At times, the Company has also experienced delays in
the receipt of products from its suppliers as a result of shortages in raw
materials, including fiberglass and P-Tex. Although the Company believes that it
is well-positioned to minimize the impact of raw material shortages and delays
in supplier shipments, such shortages and delays could have a material adverse
affect on the Company's business, financial condition and results of operations.
See "-- Risk Factors -- Dependence on Outside Manufacturers."
COMPETITION
Both the snowboarding and wakeboarding businesses are highly competitive and
have relatively few technological or manufacturing barriers to entry. The
Company's technology is generally not proprietary. The Company competes with a
number of established manufacturers and distributors whose brand names enjoy
recognition that exceeds that of the Company's brand names. In all its product
categories, the Company competes with numerous manufacturers and distributors
that have significantly greater financial, distribution, advertising and
marketing resources than the Company. There can be no assurance that the Company
will continue to compete successfully in the future. Moreover, the current
industry oversupply
<PAGE> 10
position, future events affecting the Company or its competitors, consumer
buying patterns, the introduction of new products by the Company or its
competitors, weather patterns that may affect the demand for the Company's
products, product supply fluctuations in the Company's markets, regulations
affecting the Company's products, the financial condition of the Company's
suppliers and the entry of additional competitors in the Company's markets,
among other factors, could result in insufficient or excess inventory levels,
missed market opportunities or higher markdowns, any of which could have a
material adverse effect on the Company's financial condition and results of
operations. See "-- Risk Factors -- Competition."
LICENSING
The Company is currently licensing its recently acquired "Device
Compatible-step-in" snowboard binding technology to another competitor in the
snowboard boot market and anticipates licensing this technology to additional
snowboard boot makers in the future. The Company expects that these licensing
arrangements will increase the market penetration of its "Device Compatible"
snowboard boot and binding system in North America, Europe and Japan. The
Company is also licensing its "Liquid" brand name for worldwide apparel
distribution and the "SMP" brand for distribution in specific regions outside
the United States.
INTELLECTUAL PROPERTY
The Company aggressively seeks to protect its intellectual property rights such
as trademarks, product designs and new concepts. These rights are protected
through trademark registrations, the maintenance of trade secrets, the
development of trade dress and, when necessary, appropriate action against those
who are, in the Company's opinion, unfairly competing. In addition, the Company
is seeking and, when appropriate, will continue to seek patent protection for
product function and design innovations.
The Company has applied for or been granted trademark registration in the United
States and certain foreign jurisdictions for "Ride," "Liquid," "5150,"
"Preston," "Cappel," "SMP," "Device," "Smiley," "FullTilt," and "Sub Rosa" as
well as certain associated logos. The Company also claims rights to the
foregoing and to various other trademarks arising out of use of such marks.
Although the Company believes these rights are enforceable, there can be no
assurance that any of these trademarks are enforceable or that the Company is
otherwise capable of protecting the goodwill associated with them. The Company
believes that the failure to protect its trademarks could have a material
adverse effect on the Company's business. See "-- Risk Factors -- Limited
Protection of Technology;" "Item 3. Legal Proceedings."
RECENT DEVELOPMENTS
The Company's net sales for 1997 were substantially and negatively impacted by
soft market conditions throughout the industry due to an oversupply of snowboard
products. Adjusting for the sale of the CAS entities in October 1996, the
Company's sales declined by $23.9 million or 40% in 1997 from 1996. The Company
believes the oversupply of snowboard products was a result of new entrants to
the industry and supplier overproduction in 1995 and 1996. The oversupply of
product in the market place has made it more difficult for the Company to sell
new product, has put pressure on the Company to lower prices especially on
lower-end products, and has made it possible for retailers to receive more
favorable ordering terms. These changes in current market conditions resulted in
under-utilization of the Company's production capacity and infrastructure. Based
upon this evaluation, the Company determined that the $13.9 million of goodwill
associated with its acquisitions of CAS, SMP and Ride Manufacturing was impaired
and wrote it down by $8.6 million. The Company's estimates of the discounted
cash flows expected to be generated from these entities indicate that the
remaining carrying amounts are expected to be recovered. However, it is possible
that the current industry oversupply of snowboard products may be a sign of a
permanent demand shift and that the estimated future cash flows may decline in
the future resulting in the need to write down the goodwill associated with
these assets further. To the extent any writedowns were
<PAGE> 11
substantial, they could have a material adverse effect on the Company's results
of operations. See "-- Risk Factors -- Industry-wide Oversupply of Snowboard
Products; Goodwill Writedown; Excess Inventory."
EMPLOYEES
As of March 1, 1998, the Company had 277 full-time (including seasonal)
employees. None of the Company's employees are subject to a collective
bargaining agreement. The Company considers its employee relations to be good.
<PAGE> 12
RISK FACTORS
In evaluating the Company's business, careful consideration should be given to
the following factors in addition to the other information presented in this
Annual Report on Form 10-K:
Competition. The snowboarding and wakeboarding businesses are highly competitive
and have relatively few technological or manufacturing barriers to entry. The
Company's technology is generally not proprietary. The Company competes with a
number of established manufacturers and distributors whose brand names enjoy
recognition that exceeds that of the Company's brand names. In all its product
categories, the Company competes with numerous manufacturers and distributors
that have significantly greater financial, distribution, advertising and
marketing resources than the Company. There can be no assurance that the Company
will continue to compete successfully in the future. Moreover, the current
industry oversupply position, future events affecting the Company or its
competitors, consumer buying patterns, the introduction of new products by the
Company or its competitors, weather patterns that may affect the demand for the
Company's products, product supply fluctuations in the Company's markets,
regulations affecting the Company's products, the financial condition of the
Company's suppliers and the entry of additional competitors in the Company's
markets, among other factors, could result in insufficient or excess inventory
levels, missed market opportunities or higher markdowns, any of which could have
a material adverse effect on the Company's financial condition and results of
operations.
Industry-wide Oversupply of Snowboard Products; Goodwill Writedown; Excess
Inventory. The Company's net sales for 1997 were substantially and negatively
impacted by soft market conditions throughout the industry due to an oversupply
of snowboard products. Adjusting for the sale of the CAS entities in October
1996, the Company's sales declined by $23.9 million or 40% in 1997 from 1996.
The Company believes the oversupply of snowboard products was a result of new
entrants to the industry and supplier overproduction in 1995 and 1996. The
oversupply of product in the market place has made it more difficult for the
Company to sell new product, has put pressure on the Company to lower prices
especially on lower-end products, and has made it possible for retailers to
receive more favorable ordering terms. These changes in current market
conditions resulted in under-utilization of the Company's production capacity
and infrastructure. Based upon this evaluation, the Company determined that the
$13.9 million of goodwill associated with its acquisitions of CAS, SMP and Ride
Manufacturing was impaired and wrote it down by $8.6 million. The Company's
estimates of the discounted cash flows expected to be generated from these
entities indicate that the remaining carrying amounts are expected to be
recovered. However, it is possible that the current industry oversupply of
snowboard products may be a sign of a permanent demand shift and that the
estimated future cash flows may decline in the future resulting in the need to
write down the goodwill associated with these assets further. To the extent any
writedowns were substantial, they could have a material adverse effect on the
Company's results of operations. In addition, the Company believes that there is
potential for oversupply in the wakeboard industry, which could cause issues for
the Company similar to those that it has experienced in the snowboard area.
During 1997, the Company sold a significant amount of 1996 close-out products
(both hard goods and soft goods) at reduced prices primarily through its normal
distribution channels. In addition, the Company continues to carry quantities of
this older product on its books with appropriate obsolescence reserves. The sale
of this excess product could negatively effect the Company's ability to sell new
product into these same distribution channels which could have a material
adverse impact on the Company's future operating results and financial position.
<PAGE> 13
Liquidity; Dependence on Line of Credit. The Company operates a seasonal
business and generates the majority of its sales in the third and fourth
quarters. In order to manufacture product during the remainder of the year, the
Company has a revolving line of credit arrangement with a bank to finance import
letters of credit and working capital needs. The maximum amount available under
the line was $5.5 million prior to January 31, 1998, is $2.0 million through
March 31, 1998, and $8.0 million through June 30, 1998. At December 31, 1997 the
Company had approximately $740,000 in outstanding import letters of credit and
direct advances of approximately $ 2.0 million drawn against the line. The line
of credit expires June 30, 1998 and contains certain operating covenants,
including financial ratios, working capital restrictions and restrictions on the
payment of dividends on the Company's Common Stock. There can be no assurance
that the Company will be able to renew its line of credit on favorable terms or
at all. To the extent that the Company is unable to renew its line of credit in
June 1998, the Company will seek other sources of working capital financing
including, but not limited to, other bank lines of credit, asset-based
borrowing, long-term debt or additional equity. There can be no assurance that
such alternative sources of working capital will be available on favorable terms
or at all. The Company's inability to successfully renew or replace its line of
credit could have a material adverse impact on the Company's financial condition
and could result in a substantial reduction in the scope of the Company's
business.
Issuance of Preferred Stock; Dilution. The Company's Restated Articles of
Incorporation authorize the issuance of 10,000,000 shares of "blank check"
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. In December 1997, the
Company issued 3,000 shares of Series B 5% Cumulative Convertible Preferred
Stock (the "Series B Preferred Stock") to a single institutional investor.
Portions of the Series B Preferred Stock may by converted into the Company's
Common Stock beginning in March 1998. All of the Series B Preferred Stock
converts automatically in December 2000. Subject to certain adjustments, the
Series B Preferred Stock converts to Common Stock at the lesser of $2.68 per
share or 90% of the market price (as defined) of the Common Stock at the time of
the conversion. As of March 12, 1998, approximately 1,626,000 shares of Common
Stock would have been issuable upon conversion of all of the Series B Preferred
Stock. Accounting rules require that the 10% discount-from-market-price feature
of the Series B Preferred Stock's conversion price be accounted for as a
preferred stock dividend. The dividend is required to be included in the
Company's earnings per share computations over the period from the date of
issuance through the date the security is first convertible. The Company has
therefore included a $30,000 preferred stock dividend in its net loss per share
calculations for the year ended December 31, 1997 and will include an additional
$270,000 preferred stock dividend in its net income (loss) per share for the
quarter ending March 31, 1998 and the year ending December 31, 1998.
The Board of Directors may, without shareholder approval, issue additional
preferred stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the voting power and other rights of the holders of
the Common Stock. In the event of additional issuances, the preferred stock
could be utilized, under certain conditions, as a method of delaying, deterring
or preventing a change in control of the Company. Although the Company has no
current plans to issue any additional shares of preferred stock, there can be no
assurance that it will not do so in the future.
<PAGE> 14
Legal Proceedings. In March 1997, a shareholder filed a lawsuit against the
Company and four of its current or former officers and directors, styled Murray
v. Ride, Inc. et al. The lawsuit alleges violations of certain federal
securities laws and state laws, and purports to seek unspecified monetary
damages on behalf of a class of shareholders who purchased the Company's common
stock during the period of August 10, 1995 through December 30, 1996. The
Company intends to defend itself vigorously, however, there can be no assurance
the Company will be successful in its defense against the action. An award of
monetary damages against the Company in excess of applicable insurance, if any,
the expenditure of significant sums in the defense thereof or diversion of
management's attention from other business concerns, could each have a material
adverse effect on the Company's financial condition and results of operations.
The Company is also engaged in legal proceedings against Switch Manufacturing,
Inc. alleging patent infringement and seeking monetary damages. While the
Company intends to vigorously prosecute the lawsuit, there can be no assurance
that the Company will prevail in the action. The expenditure of significant sums
in the prosecution of the action could have a material adverse effect on the
Company's financial condition and results of operations.
Industry and Product Concentration. The Company's current product offerings
consist predominantly of snowboards and related products. As a result of this
concentration, the Company's future success will depend in large part on the
continued growth of the snowboard market. Snowboarding is a relatively new
sport, and there can be no assurance that the sport will continue to grow at the
rate experienced in recent years, or that its popularity will not decline.
Moreover, the market for snowboards is characterized largely by image-conscious,
brand-driven younger consumers, and the Company's future success depends on its
ability to regularly update its products and maintain its progressive,
cutting-edge image, particularly with respect to its flagship "Ride" brand. Any
failure by the Company to accurately predict and target future trends or to
maintain its progressive image could have a material adverse effect on its
results of operations.
The Company believes that controlling its channels of distribution is critical
to maintaining the premium image of its brands. While the Company can control
the initial wholesale distribution of its products, it has limited ability to
monitor or control the resale of its products through alternative channels.
Failure to adequately control distribution of its products could have an adverse
effect on its brand image and sales which in turn could have a material impact
on the Company's financial position and results of operations. In addition,
supply and demand imbalances in the snowboard industry could also have a
material adverse effect on the Company's growth prospects, financial condition
and results of operations. The Company believes that its future success will
depend, among other things, on its ability to introduce innovative,
well-received products, and there can be no assurance of its ability to do so.
In addition, a major innovation by one or more of the Company's competitors
could have a negative effect on the sales of one or more of the Company's
product lines or brands.
<PAGE> 15
Acquisition-Related Risks; Ability to Manage Change. During 1997 the Company
completed three acquisitions. In June, the Company purchased substantially all
of the assets (except cash and accounts receivable) and the liabilities of
Device Mfg Corp., a manufacturer of step-in snowboard bindings. In July, the
Company purchased substantially all of the assets of Galena Creek Trading
Company, Inc. (dba Smiley Hats), a manufacturer of winter head and neckwear.
In December, the Company purchased the stock of US2 Sports Group, Inc., a
manufacturer of wakeboards and related products. Acquisitions involve numerous
risks, including difficulties in the assimilation of the operations,
technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks associated with
entering markets or conducting operations with which the Company has no or
limited direct prior experience, and the potential loss of key employees of the
acquired company. Moreover, there can be no assurance that the anticipated
benefits of an acquisition will be realized. Acquisitions also place
considerable demands on existing financial and management control systems.
Acquired operations entail transition of key systems, establishment of new
systems and often require improvement, upgrade or replacement of existing
financial and management control systems. Failure to adequately absorb acquired
operations into the Company's systems or difficulties encountered during such
improvements and upgrades could adversely affect the Company's financial
condition and results of operations. The Company may, when and if the
opportunity arises, acquire other businesses. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expense related
to goodwill and other tangible assets, all of which could materially adversely
affect the Company's financial condition and results of operations.
Dependence on Outside Manufacturers. Many of the Company's products are
manufactured by outside suppliers. In 1997, the Company sourced its entire line
of "Ride," "Liquid" and "Slim" bindings from Taiwan-based Snowboard Factory,
Inc. The Company intends to expand this relationship in 1998 by transferring its
"Device-compatible" step-in binding production to this supplier. In addition,
all of the Company's snowboard boots and the majority of its apparel are
manufactured to the Company's specifications by independent contractors. The
Company generally does not have contracts with its manufacturing sources and
competes with other companies for the production capacity of certain
manufacturers. Although the Company believes that it has established close
relationships with its principal manufacturing sources, its future success may
depend on its ability to maintain such relationships. If the Company's
relationship with any of its binding, boot, apparel or other product
manufacturers were interrupted, the Company could find it difficult to locate
another source with sufficient production capacity to meet the Company's
short-term needs, and the Company could miss the retailing season for that
product. The establishment of new manufacturing relationships involves numerous
uncertainties, including those relating to payment terms, costs of
manufacturing, adequacy of manufacturing capacity, quality control and
timeliness of delivery, and the Company is unable to predict whether such
relationships would be on terms that the Company regards as satisfactory. Should
an unexpected change in binding, boot, apparel or other product suppliers become
necessary, the Company would likely experience increased costs, as well as a
substantial disruption and a potential loss of sales. In addition, from time to
time manufacturers in the snowboard industry have experienced shortages and, in
some cases, price increases in certain raw materials, and such shortages or
price increases may recur. At times, the Company has also experienced delays in
the receipt of products from its suppliers as a result of shortages in raw
materials, including fiberglass and P-Tex. Although the Company believes that it
is well-positioned to minimize the impact of raw material shortages and delays
in supplier shipments, such shortages and delays could have a material adverse
affect on the Company's business, financial condition and results of operations.
<PAGE> 16
Risks of International Business. In 1997, approximately 32% of the Company's
sales were outside of North America. The Company's business is subject to the
risks generally associated with doing business internationally, such as
fluctuations in exchange rates, foreign governmental regulation, product
distribution patterns and changes in economic conditions. These factors, among
others, could influence the Company's ability to sell its products in
international markets, as well as its ability to procure products or components.
The Company purchases many of its products and components from sources outside
of the United States, with purchase prices often denominated in foreign
currencies. From time to time, the Company enters into foreign currency forward
contracts to either buy or sell foreign currencies at future dates in order to
minimize currency risk. Despite this hedging program, unanticipated or long-term
changes in the value of the U.S. dollar relative to that of certain foreign
currencies could have a material adverse effect on the Company's results of
operations through either higher product costs or reduced export sales prices
and/or export sales volumes. The Company is also subject to Risks inherent in
hedging programs and in 1997 and 1996 the Company recognized losses on foreign
currency contracts totalling $17,000 and $160,000, respectively. In addition,
the Company's business is subject to the risks associated with the imposition
of legislation and regulation relating to imports, including quotas, duties or
taxes and other charges, restrictions or retaliatory actions on imports to the
United States and other countries in which the Company's products are sold or
manufactured. The Company cannot predict whether the foregoing legislation and
regulation will be imposed by the United States or other countries, nor can it
predict what effect such imposition would have on its business or results of
operations.
Seasonality; Fluctuations in Quarterly Operating Results. Because snowboarding
is traditionally a winter sport and the Company's sales are concentrated in the
northern hemisphere, sales of the Company's products predominantly occur in the
third and fourth quarters. Although the Company believes that its recent entry
into the wakeboard industry should reduce overall seasonality, the Company
expects that for the foreseeable future the majority of net sales will continue
to be generated in the third and fourth quarters. Since much of the Company's
operating expenses are fixed in nature and are budgeted based on higher third
and fourth quarter net sales, a decline in net sales relative to internal
expectations would have a significant adverse effect on results of operations.
Because relatively lower net sales are realized in the first and second quarters
of each year, the Company expects to incur operating losses in such quarters for
the foreseeable future. Apart from seasonal factors, demand for the Company's
products fluctuates in response to consumer buying patterns, weather conditions,
discretionary spending habits, general economic conditions in the United States
and abroad, product supply fluctuations in the United States and abroad and
other factors. In addition to seasonal fluctuations, the Company's operating
results fluctuate from quarter to quarter as a result of the timing of order
shipments, new product introductions and new retailer openings. Furthermore, the
Company's gross margins will fluctuate with product mix, the timing of product
price adjustments, the mix of international and domestic sales and in-house
production cost fluctuations. The Company's operating results for any interim
period may not be indicative of the results for the entire year.
Risks Associated With the Apparel Business. Fashion trends are volatile, and
there can be no assurance that the Company will accurately anticipate shifts in
fashion trends and adjust its merchandise mix to appeal to changing consumer
tastes in a timely manner. If the Company is unsuccessful in responding to
changes in fashion trends or market demand, the Company could experience
insufficient or excess inventory levels, missed market opportunities or higher
markdowns, any of which would have a material adverse effect on the Company's
financial condition and results of operations.
Manufacturing. As a manufacturer of certain of the Company's products, the
Company continually faces risks regarding the availability and cost of raw
materials and labor, the potential need for additional capital equipment,
increased manufacturing costs, potential organized labor issues, plant and
equipment obsolescence, worker's safety and compensation issues and quality
control. A disruption in the Company's production or distribution could have a
material adverse effect on the Company's results of operations. Like certain of
its suppliers, the Company has experienced delays in the receipt of raw
materials used in the manufacturing process.
<PAGE> 17
Dependence on Third-Party Selling Efforts. The Company primarily relies on third
parties to sell, and in some cases to distribute, its products to retailers. In
the United States and Canada, the Company generally uses independent sales
representatives who work under contract. Generally, such contracts may be
terminated by either party upon 30 days' notice. The Company uses distributors
under long-term contractual arrangements in certain international markets. Loss
of services, poor performance or difficulties encountered with any of the
Company's independent sales representatives or distributors could each have a
material adverse effect on the Company's results of operations.
Dependence on Key Individuals. The Company's future success depends in large
part on the continued service of Robert E. Hall, the Company's President and
Chief Executive Officer, Robert Marcovitch, the Company's Senior Vice President
of Apparel and International, Bruce Manke, the Company's Senior Vice President
of Board Sports and Administration and Scott Stewart, the Company's Chief
Financial Officer. The loss of the services of any of these officers could have
a material adverse effect on the Company's business. Further, the Company
believes that the market for key personnel in its industry is highly
competitive. There can be no assurance that the Company will be able to attract
and retain key personnel with the skills and expertise necessary to manage the
Company's business, both in the United States and abroad.
Product Liability. The Company's products are often used in relatively high-risk
recreational settings. Consequently, the Company is exposed to the risk of
product liability claims in the event that users of the Company's products are
injured in connection with such use. In many cases, users of the Company's
products may engage in imprudent or even reckless behavior while using such
products, thereby increasing the risk of injury. The Company maintains product
liability, general liability and excess liability insurance coverage. There can
be no assurance that such coverages will continue to be available on acceptable
terms, or will be available in sufficient amounts to cover one or more large
claims, or that the insurer will not disclaim coverage as to any claim. The
successful assertion of one or more large claims against the Company that exceed
available insurance coverage or changes in the Company's insurance policies,
including premium increases or the imposition of large deductible or
co-insurance requirements, could have a material adverse effect on the Company's
financial condition and results of operations.
Limited Protection of Technology. Most of the Company's products are not based
on proprietary technology. As a result, there are relatively few technological
or other barriers to entry, and the Company's products may be replicated by
competitors. There can be no assurance that current or future competitors will
not offer products substantially identical to the Company's products, or
competing products to customers at lower prices. The Company has filed for
trademark and patent registration in the United States and certain foreign
countries for certain of its trademarks and product designs and/or functions.
There can be no assurance that trademark or patent protection, as the case may
be, will be granted in any or all of the countries in which applications are
currently pending, or granted on the breadth of the current description of goods
or designs. The Company has substantial international sales; the laws of foreign
countries treat the protection of proprietary rights and intellectual property
differently from, and may not protect the Company's proprietary or intellectual
property rights to the same extent as do, the laws in the United States.
Volatility of Stock Price. The market price of the Common Stock has fluctuated
substantially in the past. There can be no assurance that the market price of
the Common Stock will not significantly fluctuate from its current level. Future
announcements concerning the Company or its competitors, quarterly variations in
operating results, the introduction of new products or changes in product
pricing policies by the Company or its competitors, weather patterns that may be
perceived to affect the demand for the Company's products, changes in earnings
estimates by analysts, changes in accounting policies, future inventory supply
situations and events in current or future legal proceedings, among other
factors, could cause the market price of the Common Stock to fluctuate
substantially. In addition, stock markets have experienced extreme price and
volume volatility in recent years. This volatility has had a substantial effect
on the market prices of securities of many smaller public companies for reasons
frequently unrelated to the
<PAGE> 18
operating performance of the specific companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock.
Potential Applicability of "Penny Stock Restrictions"; Potential to Fail to Meet
Continuing Nasdaq Listing Requirements. Stocks selling for less than $5.00 per
share, excluding broker or dealer commissions, may be designated as "penny
stocks" and may be subject to certain requirements imposed by Rules 15g-1
through 15g-9 under the Exchange Act. The net effect of these regulations may be
to delay transactions in stocks that are deemed to be penny stocks. The
Company's Common Stock is currently trading for less than $5.00 per share,
however the "penny stock restrictions" are not applicable based on exemptions
provided in Rule 3a51-1 under the Exchange Act, which among other things
provides an exemption from the penny stock restrictions for securities that are
quoted on the Nasdaq and for those that have tangible assets in excess of $2.0
million. If the Company's Common Stock were to be delisted from Nasdaq and its
net worth drop below $2.0 million at a time when its stock price was less than
$5.00 per share, and if no other exemption from the penny stock restrictions
were available to the Company, then its Common Stock could be subject to such
restrictions and sales of the Company's Common Stock by brokers and dealers and
resales by investors would likely be adversely affected. To meet the continued
listing requirements for the Nasdaq National Market, among other things, the
minimum bid price of the Common Stock must be $1.00. If the minimum bid price of
the Common Stock were for a continuing period of time to be less than $1.00, the
Common Stock could be delisted from the Nasdaq National Market which would
adversely affect the ability of shareholders to buy and sell shares of Common
Stock.
Potential Adverse Effect of Environmental Regulations. The Company is subject to
federal, state and local governmental regulations relating to the storage, use,
discharge and disposal of toxic, volatile or otherwise hazardous chemicals used
in its manufacturing process. There can be no assurance that changes in
environmental regulations or in the kinds of raw materials used by the Company
will not impose the need for additional capital equipment or other requirements.
Any failure by the Company to control the use of, or adequately restrict the
discharge of, hazardous substances under present or future regulations could
subject the Company to substantial liability or could cause its manufacturing
operations to be suspended. Such liability or suspension of manufacturing
operations could have a material adverse effect on the Company's results of
operations.
ITEM 2. PROPERTIES
Ride Snowboards leases approximately 82,400 square feet of office and warehouse
space in Preston, Washington, under a lease that expires December 31, 2003. The
Company is currently subleasing approximately 3,900, 12,600, and 4,300 square
feet under agreements which expire in May 1998, May 2002, and September 2002,
respectively, and is seeking to sublet additional office space.
Ride Canada leases approximately 13,000 square feet of warehouse and office
space in Etobicoke, Ontario, pursuant to a lease that expires on November 30,
2001.
Ride Manufacturing occupies a 25,000 square foot manufacturing and office
facility in Corona California under a lease expiring August 31, 2001.
SMP leases approximately 26,250 square feet of office, warehouse and light
manufacturing space in Chula Vista, California, pursuant to a lease that expires
June 30, 1999.
Smiley Hats leases approximately 21,000 square feet of office, warehouse and
light manufacturing space in Sparks, Nevada, under a lease that expires in
November 2000. Smiley Hats subleases roughly 5,000 square feet of this space
under an agreement expiring in November 2000.
US2 leases approximately 11,300 square feet of office, warehouse and
manufacturing space in Woodinville, Washington under an agreement which expires
in September 2001. The Company intends to
<PAGE> 19
sublease this facility once it has completed the transfer of wakeboard
production to its Corona, California facility. This transfer is expected to be
completed in April 1998.
In connection with the Company's acquisition of Device Mfg Corp, the Company
assumed a lease for approximately 5,100 square feet of office and manufacturing
space expiring in January 2000. The Company has subleased this space for the
remaining term of the lease.
The Company anticipates that its current facilities will satisfy its needs
through at least 1998.
ITEM 3. LEGAL PROCEEDINGS
On March 14, 1997, a shareholder filed a lawsuit against the Company and four of
its current or former officers and directors in the United States District Court
for the Western District of Washington at Seattle, styled Murray v. Ride, Inc.
et al., Civil Action No. C97-0402-Z. The lawsuit alleges violations of certain
federal securities laws and state laws, and purports to seek unspecified
monetary damages on behalf of a class of shareholders who purchased the
Company's common stock during the period August 10, 1995 through December 30,
1996. The Company intends to defend itself vigorously. However, there can be no
assurance the Company will be successful in defending the action. An award of
monetary damages against the Company in excess of applicable insurance, if any,
the expenditure of significant sums in the defense thereof, or diversion of
management's attention from other business concerns, could each have a material
adverse effect on the Company's financial condition and results of operations.
In 1996, the Company initiated legal proceedings against Switch Manufacturing,
alleging infringement by Switch of certain of the Company's patented binding
technologies and seeking monetary damages. The case is pending in the United
States District Court for the Northern District of California as Raines, et al.
v. Switch Manufacturing, Civil Action No. C96-2648-DLJ. The Company intends to
vigorously prosecute this lawsuit. However, there can be no assurance that the
Company will prevail in the action. An expenditure of significant sums in the
prosecution of the Switch action could have a material adverse effect on the
Company's financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the holders of the Company's securities during
the fourth quarter of the Company's fiscal year ended December 31, 1997.
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
STOCK TABLE
The following table sets forth for the calendar quarters indicated the high and
low closing bid prices as reported by NASDAQ:
<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
HIGH LOW HIGH LOW
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Quarter Ended:
March 31 $ 33.5000 $ 13.8750 $ 7.1250 $ 3.1250
June 30 14.1875 10.3750 5.1250 3.3750
September 30 13.3750 9.2500 3.9375 2.8125
December 31 12.4375 5.8125 3.1875 1.7813
</TABLE>
The prices quoted reflect inter-dealer quotations, without retail mark-ups,
mark-downs or commissions, and do not necessarily represent actual transactions.
As of March 9, 1998, there were 647 record holders of the Company's common
stock.
Except for distributions paid to shareholders when the Company was an S
Corporation, the Company has never paid dividends on its common stock and does
not anticipate paying regular cash dividends in the foreseeable future. The
Company's bank loan agreement restricts the payment of dividends.
SALES OF UNREGISTERED SECURITIES
In 1997 the Company sold unregistered securities in the amounts, at the dates
and for the aggregate amounts of consideration given below. The sales were made
in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the
"Act"), and/or Regulation 506 promulgated under the Act.
On December 19, 1997, the Company issued 3,000 shares of Series B 5% Cumulative
Convertible Preferred Stock (the "Series B Preferred Stock") to a single
institutional accredited investor for $3,000,000. In connection with the
transaction, the Company also issued warrants to purchase 283,720 shares of
common stock for an exercise price of $2.68 per share. Portions of the Series B
Preferred Stock may be converted into the Company's Common Stock beginning in
March 1998. All of the Series B Preferred Stock converts automatically in
December 2000. Subject to certain adjustments, the Series B Preferred Stock
converts to Common Stock at the lesser of $2.68 per share or 90% of the market
price (as defined) of the Common Stock at the time of the conversion. As of
March 12, 1998, approximately 1,626,016 shares of Common Stock would have been
issuable upon conversion of all of the Series B Preferred Stock.
On December 19, 1997, the Company issued 605,263 shares of common stock valued
at $910,000 to seven accredited individuals in connection with the Company's
acquisition of US2 Sports Group, Inc.
On July 22, 1997, the Company issued 320,000 shares of common stock valued at
$910,000 to two accredited individuals in connection with the Company's
acquisition of Galena Creek Trading Company, Inc. (d.b.a. Smiley Hats).
On June 12, 1997, the Company issued 285,265 shares of common stock valued at
$790,000 to a number of accredited and unaccredited individuals in connection
with the Company's acquisition of Device Mfg Corp.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
1993 1994 (1) 1995 (2) 1996 (3) 1997 (4)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales $ 5,877 $ 25,349 $ 74,850 $ 75,728 $ 36,475
Cost of goods sold 3,879 18,398 54,988 61,641 26,656
-------- -------- -------- -------- --------
Gross profit 1,998 6,951 19,862 14,087 9,819
Selling, general and
administrative expenses 1,373 4,022 10,868 20,487 18,278
Goodwill writedown -- -- -- -- 8,600
Restructuring charges -- -- -- 2,500 --
-------- -------- -------- -------- --------
Operating income (loss) 625 2,929 8,994 (8,900) (17,059)
Interest expense (130) (1) (18) (268) (426)
Interest income 2 72 406 333 195
Gain on sale of subsidiary -- -- -- 482 --
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item 497 3,000 9,382 (8,353) (17,290)
Income taxes provision (benefit) -- 1,134 3,427 (2,863) (595)
-------- -------- -------- -------- --------
Income (loss) before extraordinary item 497 1,866 5,955 (5,490) (16,695)
Extraordinary item (83) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) $ 414 $ 1,866 $ 5,955 $ (5,490) $(16,695)
======== ======== ======== ======== ========
Pro Forma net income (loss) (5) $ 343
========
Net income (loss) per share: (6)
Basic -- $ 0.29 $ 0.67 $ (0.52) $ (1.51)
Diluted -- $ 0.28 $ 0.59 $ (0.52) $ (1.51)
Pro forma $ 0.08 -- -- -- --
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1993 1994 1995 (2) 1996 (3) 1997 (4)
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital $ 1,046 $ 7,663 $26,104 $20,941 $15,208
Total assets 2,431 15,718 57,599 50,655 40,995
Long-term obligations -- -- -- 832 1,582
Shareholders' equity 1,152 11,524 46,495 42,309 31,070
</TABLE>
- ---------------
(1) Results for the year ended December 31, 1994 reflect the Company's August
18, 1994 acquisition of CAS Sports.
(2) Results for the year ended December 31, 1995 reflect the Company's September
1, 1995 acquisitions of Ride Manufacturing, Inc. and 5150 Snowboards, Inc.
and the October 20, 1995 acquisition of SMP Clothing, Inc.
(3) Results for the year ended December 31, 1996 include the CAS Sports excess
inventory and OEM businesses from January 1, 1996 through October 11, 1996,
the date those businesses were sold.
(4) Results for the year ended December 31, 1997 reflect the Company's June 12,
1997 acquisition of the assets and liabilities of Device Mfg Corp, the July
22, 1997 acquisition of the assets of Galena Creek Trading Company (dba
Smiley Hats), and the December 19, 1997 acquisition of US2 Sports Group,
Inc.
(5) For the year ended December 31, 1993, the Company was exempt from the
payment of federal income taxes as a result of its election to be treated as
an S Corporation. The pro forma net income (loss) per share for these
periods include pro forma provisions for income taxes as if the Company had
been subject to such taxes for the periods presented. Historical net income
(loss) per share data is not presented because per share amounts of an S
Corporation may not be meaningful.
(6) Basic and diluted net income (loss) per share for 1993, 1994, 1995 and 1996
have been restated to comply with FASB Statement No. 128, "Earnings per
Share," which was adopted by the Company in 1997.
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company is a leading designer, manufacturer and marketer of snowboards and
related products through its subsidiaries: Ride Snowboard Company ("Ride
Snowboards"), Ride Manufacturing, Inc. ("Ride Manufacturing"), Ride Canada, Inc.
("Ride Canada"), SMP Clothing, Inc. ("SMP"), Smiley Hats, Inc. ("Smiley") and
Carve, Inc. ("US2"). The Company was founded in September 1992 and acquired
C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. (collectively,
"CAS") in August 1994, Ride Manufacturing in September 1995 and SMP in October
1995. The Company also acquired 5150 Snowboards, Inc. ("5150") in September 1995
and later merged 5150 with and into Ride Snowboards. In October 1996, the
Company transferred substantially all of the Canada-based operating assets and
liabilities of CAS (other than fixed assets) into Ride Canada, a newly formed
corporation, and all of the US-based operating assets and liabilities of CAS
into Ride Snowboards, and sold the CAS entities. In June 1997, the Company
acquired substantially all of the assets and liabilities of Device Mfg Corp. and
transferred those assets and liabilities to Ride Snowboards. In July 1997, the
Company's newly formed Smiley subsidiary acquired substantially all of the
assets of Galena Creek Trading Corp. In December 1997, the Company acquired US2
Sports Group Inc. through a merger of that company with and into Carve, Inc., a
newly formed corporation. The results of operations of these acquired
subsidiaries are included in the Company's financial statements from their
respective dates of acquisition through their applicable dates of disposition.
Ride Snowboards sells premium to mid-range snowboards and related products
primarily through specialty snowboard and ski shops and to regional sporting
goods stores under the "Ride," "5150," "Device" and "Liquid" brand names. Ride
Manufacturing is a manufacturer of premium snowboards which are produced
principally for Ride Snowboards. Ride Manufacturing also produces a limited
number of snowboards for other companies on an OEM basis. SMP designs,
manufactures and markets young men's snowboard, surf, wakeboard, motocross and
street apparel which is sold through specialty shops under the "SMP" brand name.
Ride Canada acts as the Company's Canadian distributor for its "Ride," "5150",
"Liquid," "Smiley" and "SMP" branded products. Smiley designs, manufactures and
markets winter head and neck wear sold primarily through ski shops under the
"Smiley" and "Court Jester" brand names. Smiley also produces hats for other
winter products companies on an OEM basis. US2 designs, manufactures and markets
wakeboards and related products under the "FullTilt" and "Sub Rosa" brand names
primarily through specialty retailers, regional sporting goods stores and marine
sports stores. Until its disposition in October 1996, CAS marketed entry-level
snowboards and related products under various brand names, including "Marvel,"
"Slim," "Burnt," and "PL" and on a private label basis, primarily to regional
sporting goods stores and large-format sporting goods retailers. In addition,
CAS sold snowboards and related products on an OEM basis to other snowboard
companies and bought excess snowboard and sporting goods inventories from
manufacturers and sold such products to retailers throughout the world. The OEM
and excess inventory portions of the CAS business were sold in October 1996
while the branded and private label portions of the business were retained by
the Company and are being operated as the Company's Special Products Group
("SPG").
Because snowboarding traditionally is a winter sport and the Company's sales are
concentrated in the northern hemisphere, sales of the Company's products
predominantly occur in the third and fourth quarters. Since much of the
Company's operating expense is fixed in nature and is budgeted based on higher
third and fourth quarter net sales, a decline in net sales relative to internal
expectations would have a significant adverse effect on results of operations.
Because relatively lower net sales are realized in the first and second quarters
of each year, the Company expects to incur operating losses in the first two
quarters of the year for the foreseeable future. The Company expects the
addition of wakeboarding products to its product line-up through its acquisition
of US2 will help to supplement sales in the first and second quarters of the
year in future periods. In addition to seasonal fluctuations, the Company's
operating results fluctuate from quarter to quarter as a result of the timing of
order shipments, new product introductions, new retailer openings, consumer
buying patterns, weather conditions, discretionary spending habits, general
economic conditions in the United States and abroad and other factors.
Furthermore, the Company's gross margins fluctuate with product mix, the timing
of product price adjustments and the mix of international and domestic sales.
See "Business - Risk Factors - Seasonality; Fluctuations in Quarterly Operating
Results."
<PAGE> 23
The Company accumulates a backlog of orders beginning in February as a result of
preseason orders placed in connection with winter sports trade shows. The
backlog decreases beginning in late spring as product begins to be shipped and
is usually insignificant by the end of the year. Backlog in the snowboarding
industry is subject to delay or cancellation.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net sales decreased 52% to $36.5 million in 1997 from $75.7 million in 1996.
Device, Smiley and US2 contributed a total of $2.5 million to net sales in 1997,
subsequent to their respective acquisition dates. The CAS excess inventory and
OEM businesses contributed $15.4 million to sales in 1996 through their October
11, 1996 disposition date. The remaining net decrease was due primarily to soft
market conditions throughout the industry due to an oversupply of snowboard
products.
<TABLE>
<CAPTION>
SALES BY PRODUCT GROUP 1996 1997
------------------- -------------------
(dollars in 000's)
<S> <C> <C> <C> <C>
Snowboards $39,926 53% $12,520 34%
Bindings 12,241 16% 8,287 23%
Boots 4,458 6% 3,714 10%
Skate, wake and other 3,464 5% 971 3%
------- ------- ------- -------
Total hard goods 60,089 80% 25,492 70%
------- ------- ------- -------
Apparel 13,597 18% 8,387 23%
Accessories 2,042 2% 2,596 7%
------- ------- ------- -------
Total soft goods 15,639 20% 10,983 30%
------- ------- ------- -------
Total $75,728 100% $36,475 100%
======= ======= ======= =======
</TABLE>
Net sales of hard goods (snowboards, bindings, boots, wakeboards and
skateboards) represented 70% of total sales in 1997 while soft goods (apparel
and accessories) made up 30%. In 1996, hard goods comprised 80% of total sales
and soft goods 20%. The increase in percentage of soft goods sales to total
sales is attributable to additional sales added by the Smiley acquisition and to
relatively smaller declines in sales of soft goods as compared to hard goods due
to relatively less severe oversupply conditions. In the hard goods categories,
snowboards declined to 34% of sales in 1997 from 53% in 1996 due to the
disposition of the CAS entities. Snowboard bindings increased to 23% of sales in
1997 from 16% in 1996 due to the relative strength of the Company's "Preston"
brand strap-in series of bindings and the step-in binding sales added from the
acquisition of Device. Boots increased to 10% of sales in 1997 compared to 6% in
the prior year due to the 1997 introduction of boots under the Ride label as
well as the step-in boot sales added as a result of the acquisition of Device.
Skate, wake and other hard goods declined to 3% of sales in 1997 from 5% in 1996
primarily due to the disposition of the CAS excess inventory business which was
involved in numerous non-snowboard close-out categories. Apparel increased to
23% of sales in 1997 from 18% in 1996 due to smaller net declines than seen in
the hard goods categories. Accessories increased to 7% of net sales in 1997 due
primarily to the addition of Smiley in July 1997.
In 1997, net sales in North America made up 68% of total sales with
international sales making up the remaining 32%. In 1996, North American sales
comprised 54% and international sales 46%. The decrease in international sales
in 1997 is attributable to the relatively more severe excess inventory
conditions in the Japanese market.
Gross profit decreased to $9.8 million in 1997 from $14.1 million in 1996 while
gross margins increased to 27% in 1997 from 19% in 1996. The dollar decrease was
due to the large drop in sales volume in 1997. The increase in gross margins was
due to the $6.5 million inventory write down taken by the Company in 1996
related to canceled commitments from the Company's principal Japanese
distributor. Absent the 1996 inventory write down, gross margins would also have
been 27% in 1996. Gross margins in 1997 were positively impacted by the sale of
the CAS businesses, which generally had lower gross margins than other
divisions, the addition of the relatively high gross margin Smiley business, and
cost savings associated with moving the Company's binding operations offshore.
<PAGE> 24
Offsetting these improvements was the sale of lower margin 1996 close out
products and the under-utilization of the Company's manufacturing facility as a
result of the decline in snowboard sales volumes. The Company expects to begin
moving the "FullTilt" wakeboard production to its Corona facility in April 1998.
The Company anticipates that this production shift will consume production time
and capacity in the fall and early winter months when the factory would
otherwise be operating below capacity due to the seasonality of snowboard
production.
Selling, general and administrative expenses decreased 11% to $18.3 million in
1997 from $20.5 million in 1996. This decrease was due primarily to staff
reductions, lower executive salaries, lower variable expenses associated with
the lower sales volumes (primarily commissions and bad debt accruals) and the
disposition of the CAS businesses, offset partly by increased occupancy and
legal expenses as well as the expenses of Device, Smiley and US2 acquired in
1997. The primary components of selling, general and administrative expenses
were salaries, wages, commissions and other compensation ($7.5 million in 1997
and $8.6 million in 1996), advertising, promotion and team ($3.7 million in 1997
and $4.3 million in 1996) and occupancy, depreciation and amortization expense
($2.1 million in 1997 and $1.9 million in 1996).
Also included in operating expenses in 1997 is an $8.6 million loss on
impairment of goodwill. FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, requires the
Company to periodically review the events and circumstances affecting its
operations for indications that the Company's long-lived assets might be
impaired. During 1997, management determined that the world-wide excess
inventory of snowboard products significantly reduced the Company's ability to
sell new product and caused the Company to lower prices on its lower-end
products. These changes in current market conditions resulted in the under
utilization of the Company's production capacity and infrastructure. Based on
this evaluation, the Company determined that the $13.9 million of goodwill
associated with its acquisitions of CAS, SMP and Ride Manufacturing was impaired
and wrote it down by $8.6 million. The Company's estimates of the discounted
cash flows expected to be generated from these entities indicate that the
remaining carrying amounts are expected to be recovered. However, it is possible
that the current industry oversupply of snowboard products may be a sign of a
permanent shift in demand and there can be no assurance that the carrying value
of the goodwill associated with these acquisitions will be fully recoverable.
Operating expenses in 1996 included $2.5 million in restructuring charges
associated with the moving the Company's snowboard binding operations offshore
and the withdrawal of snowboard production from two outside snowboard
manufacturers. The primary components of the restructuring charges are
write-offs of abandoned equipment, tooling and leasehold improvements, accrual
of future lease costs and vendor cancellation fees.
Interest income decreased to $195,000 in 1997 from $333,000 in 1996. The
decrease was due to lower invested cash balances on hand in 1997 as a result of
operating losses incurred in 1996 and 1997. Interest expense increased to
$426,000 in 1997 from $268,000 in 1996. This increase was due principally to
higher seasonal utilization of the Company's line of credit for working capital
purposes. Also included in the 1996 results is a gain of $482,000 on the
disposition of the CAS excess inventory and OEM businesses.
At December 31, 1997, the Company was in a tax loss carryforward position.
Accordingly, the Company's tax benefit is limited to the amount of income taxes
recoverable from prior years, or approximately $0.6 million, resulting in an
effective tax rate of 3.4%. The effective tax rate in 1996 was 34.3% which
reflects full recoverability of tax losses through carryback of such losses
against taxes paid in 1994 and 1995.
As a result of the foregoing, the Company's net loss increased to $16.7 million
in 1997 from $5.5 million in 1996.
<PAGE> 25
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net sales increased 1% to $75.7 million in 1996 from $74.9 million in 1995. Ride
Manufacturing, 5150 and SMP contributed a total of $7.6 million to net sales in
1995, subsequent to their respective acquisition dates, and $16.1 million in
1996. The remaining difference is due to the inclusion of the CAS excess
inventory and OEM businesses for the full year in 1995 as opposed to 1996 when
they were included only through their October 11, 1996 disposition date.
<TABLE>
<CAPTION>
SALES BY PRODUCT GROUP 1995 1996
------------------- -------------------
(dollars in 000's)
<S> <C> <C> <C> <C>
Snowboards $50,304 67% $39,926 53%
Bindings 5,334 7% 12,241 16%
Boots 5,056 7% 4,458 6%
Skate and other 6,437 9% 3,464 5%
------- ------- ------- -------
Total hard goods 67,131 90% 60,089 80%
------- ------- ------- -------
Apparel 6,699 9% 13,597 18%
Accessories 1,020 1% 2,042 2%
------- ------- ------- -------
Total soft goods 7,719 10% 15,639 20%
------- ------- ------- -------
Total $74,850 100% $75,728 100%
======= ======= ======= =======
</TABLE>
Net sales of hard goods represented 80% of total sales in 1996 while soft goods
made up 20%. In 1995, hard goods comprised 90% of total sales and soft goods
10%. As a percentage of sales, snowboards decreased to 53% in 1996 from 67% in
1995. The decline was due to a substantial decrease in OEM snowboard business in
1996, both at Ride Manufacturing where factory production was utilized almost
exclusively for internal production as well as brokered OEM snowboards sold by
CAS. In addition, sales decreased in the retained CAS branded and private label
businesses due to increased competition at the lower price points where these
products were targeted. The increase in snowboard binding sales in 1996 is due
primarily to the market success of the Company's "Preston" brand aluminum
bindings. The decrease in other hard goods was due to the sale of the CAS excess
inventory business which was involved in numerous non-snowboard close-out
categories. The increase in apparel sales is attributable primarily to the
inclusion of SMP for the entire year in 1996 as opposed to 1995 when SMP was
included only from its October 20, 1995 acquisition date.
In 1996, net sales in North America made up 54% of total sales with
international sales making up the remaining 46%. In 1995, North American sales
comprised 67% and international sales 33% of total sales. The increase in
international sales in 1996 was attributable primarily to the addition of SMP
for the entire year in 1996 as a majority of that company's sales were to
international markets.
Gross profit decreased to $14.1 million in 1996 from $19.9 million in 1995 while
gross margins dropped to 19% in 1996 from 27% in 1995. These decreases were due
to a $6.5 million inventory write down taken by the Company in December 1996.
This write down was necessitated by excess inventories resulting primarily from
canceled commitments from the Company's principal Japanese distributor. Without
the inventory write down, gross margins would have been 27% in 1996. The
addition of Ride Manufacturing in September 1995 allowed the Company to
internally manufacture 45% of its branded snowboards in 1996 compared to only
10% in 1995. Cost savings from this change had a positive impact on gross
margins. In addition, the inclusion of a full year of higher-margin SMP sales in
1996 also served to increase gross margins. Offsetting these gains was an
aggressive fourth quarter 1996 discounting program offered by the Company in an
attempt to reduce the amount of excess inventory on hand.
Selling, general and administrative expenses increased 88% to $20.5 million in
1996 from $10.9 million in 1995. The increase was due to the inclusion of the
operations for Ride Manufacturing and SMP for the entire year in 1996 as well as
the increased scope of the Company's operations in 1996. In addition, the
Company incurred $1.0 million in management transition expenses in 1996
associated with the 1996 changes in top management. The primary
<PAGE> 26
components of selling, general and administrative expenses were salaries, wages,
commissions and other compensation ($8.6 million in 1996 and $5.5 million in
1995), advertising, promotion and team ($4.3 million in 1996 and $1.9 million in
1995) and occupancy, depreciation and amortization expense ($1.9 million in 1996
and $735,000 in 1995).
Operating expenses in 1996 also included $2.5 million in restructuring charges
associated with the moving the Company's snowboard binding operations offshore
and the withdrawal of snowboard production from two outside snowboard
manufacturers. The primary components of the restructuring charges are
write-offs of abandoned equipment, tooling and leasehold improvements, accrual
of future lease costs and vendor cancellation fees.
Interest income decreased to $333,000 in 1996 from $406,000 in 1995. The
decrease was due to higher cash balances on hand in 1995 from the Company's
secondary stock offering in August 1995 and the proceeds from exercise of common
stock warrants. Interest expense increased to $268,000 in 1996 from $18,000 in
1995. This increase was due to principally to seasonal utilization of the
Company's line of credit for working capital purposes. Also included in the 1996
results is a gain of $482,000 on the disposition of the CAS excess inventory and
OEM businesses.
The provision for income taxes represents a 36.5% effective tax rate for 1995
compared with a 34.3% effective rate for 1996. The decrease is due primarily to
expense for state income tax purposes lowering the overall tax benefit of the
1996 loss.
As a result of the foregoing factors, including the non-recurring restructuring
charges, inventory write down and management transition expenses, the Company
incurred a net loss of $5.5 million in 1996 compared to net income of $6.0
million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital for the development of its technology and products,
procurement of raw materials and finished goods manufactured by others, and
capital equipment. The Company financed its 1997 operations from seasonal
borrowings under its lines of credit and through a $3.0 million private
placement of convertible preferred stock in December 1997. The Company financed
its 1996 operations through cash and securities remaining from its 1995
secondary stock offering and from seasonal borrowings under its lines of credit.
Net cash used in operating activities totaled $3.8 million in 1997 compared with
$10.8 million in 1996. The decrease in cash used in operations was attributable
primarily to decreases in accounts receivable and inventory balances, net of
amounts received in acquisitions and income tax refunds received. Net inventory
balances increased approximately 10% at December 31, 1997 compared to December
31, 1996, primarily due to inventories received in the Device, Smiley and US2
acquisitions. Due to the seasonal nature of its business, the Company's need for
cash has been greater in its third and fourth quarters, when working capital has
been invested in accounts receivable and inventories.
Net cash used in investing activities totaled $3.0 million in 1997 compared to
$1.2 million in 1996. The 1997 amount included approximately $2.0 million
expended in the Company's acquisitions of Device, Smiley and US2 and $753,000 in
capital expenditures. Net cash used in investing activities in 1996 included
$5.4 million in capital expenditures, offset by liquidation of securities and
investments of $3.8 million and $884,000 in net cash received from the sale of
the CAS businesses. Principal capital expenditures in 1997 included
manufacturing equipment, new business software and snowboard molds and tooling.
The Company expects to invest similar amounts in capital expenditures during
1998. The Company intends to finance 1998 capital expenditures through
internally generated funds, through leasing or from borrowings under its line of
credit.
Net cash provided by financing activities totaled $5.0 million in 1997 compared
with $0.9 million in 1996. Financing sources in 1997 included $2.8 million in
net proceeds received on a private placement of convertible preferred stock,
$300,000 in exercises of stock options and $2.0 million in net advances on the
Company's line of credit. Financing sources in 1996 included $1.1 million in
exercises of stock options and $750,000 in long term debt proceeds associated
with the Company's tenant improvements, offset by $1.0 million in repayments of
acquisition notes payable.
The Company operates in a highly seasonal business, generating the majority of
its sales in the third and fourth calendar quarters. The Company's cash receipts
from its North American customers are received predominantly in the months of
December, January and February while its international customers generally pay
by cash in advance or letter of credit. In order to finance operations and
manufacture and purchase products during the remainder of the year, the
<PAGE> 27
Company has historically utilized a revolving line of credit. The Company has a
$15 million revolving line of credit arrangement with a bank to finance import
letters of credit and working capital needs. The line provides for direct
advances and letters of credit of up to $5.5 million through January 31, 1998,
$2.0 million from February 1 to March 31, 1998 and $8.0 million from April 1 to
June 30, 1998. Advances on the line bear interest at 1% over the bank's prime
rate. At December 31, 1997, the Company had approximately $740,000 in
outstanding import letters of credit and direct advances of $2.0 million drawn
against this line. The line of credit has certain operating covenants, including
financial ratios, working capital restrictions and restrictions on payment of
dividends on the Company's Common Stock. The line of credit expires on June 30,
1998 at which time the Company anticipates renewing or replacing its line of
credit. In the event that the Company is unable to renew its line of credit, the
Company will seek other sources of working capital financing including, but not
limited to, other bank lines of credit, asset-based borrowing, long-term debt or
additional equity. There can be no assurance that such alternative sources will
be available on favorable terms or at all. The Company's inability to
successfully renew or replace its line of credit would have a material adverse
impact on the Company's financial condition and may require the Company to
reduce its expenditures, curtail certain operations, or dispose of operating
assets to enable it to continue its operations. See "Item 1. Business - Risk
Factors - Liquidity; Dependence on Line of Credit."
In December 1997, the Company issued 3,000 shares of Series B 5% Cumulative
Convertible Preferred Stock for $3,000,000 ("Series B Preferred"). In connection
with this transaction, the Company also issued warrants to purchase 283,720
shares of common stock for an exercise price of approximately $2.68 per share
("the Warrants"). Dividends on the Series B Preferred accrue quarterly, are
payable in cash or stock and must be paid before dividends can be declared and
paid on the Company's Common Stock. Portions of the Series B Preferred may be
converted into the Company's Common Stock, at the option of the holders,
beginning in March 1998. All the Series B Preferred automatically converts to
common stock in December 2000. Subject to certain adjustments, the Series B
Preferred converts to Common Stock at the lesser of $2.68 per share or 90% of
the market price (as defined) of the Company's Common Stock at the time of
conversion. The Company has reserved approximately 2,245,000 shares of Common
Stock for issuance upon conversion of the Series B Preferred and exercise of the
warrants. The 10% discount from market price of the conversion of preferred
stock is accounted for as a preferred stock dividend. The dividend is required
to be included in earnings per share computations over the period from the date
of issuance through the date the security is first convertible. The Company has
therefore included a $30,000 preferred stock dividend in its net loss per share
calculations for the year ended December 31, 1997 and will include an additional
$270,000 preferred stock dividend in its net income (loss) per share for the
quarter ending March 31, 1998 and the year ending December 31, 1998.
Although the Company cannot accurately anticipate the effects of inflation, the
Company does not believe inflation has had or is likely to have a material
effect on its results of operations or liquidity.
Except for distributions paid to shareholders when the Company was an S
Corporation, the Company has never paid dividends on its common stock. The
Company's present policy is to retain any earnings to finance the Company's
business. Any future dividends will be dependent upon the Company's financial
condition, results of operations, current and anticipated cash requirements,
acquisition plans and plans for expansion, and any other factors which the
Company's Board of Directors deems relevant. The Company's bank loan agreement
restricts the payment of dividends. The Company has no present intention of
paying dividends on its common stock in the foreseeable future.
The Company has developed a plan to assess and address Year 2000 compliance
issues. The Company is currently implementing new Year 2000 compliant financial
systems to replace its older financial systems as part of the normal course of
business. The implementation of the new systems should be completed during 1998.
The Company does not expect this project to have a significant effect on
operations and does not expect to spend any significant amounts on internal Year
2000 issues. However, there can be no guarantee that the systems of other
companies on which the Company relies will be converted on a timely basis and
would not have an adverse effect on the Company's systems.
MARKET RISK
The Company's Ride Canada subsidiary operates and maintains its accounting
records using the Canadian dollar as its functional currency. In accordance with
generally accepted accounting principles, upon consolidation the assets,
liabilities, revenues and expenses of this subsidiary are translated into US
dollars at the appropriate exchange rate
<PAGE> 28
prevailing during the period and are therefore subject to fluctuations in the
exchange rates between the Canadian dollar and the US dollar.
During 1997, the Company purchased certain finished snowboards and raw materials
from foreign suppliers with payments denominated in foreign currencies,
primarily the German mark. In order to protect against changes in the exchange
rate between the mark and the US dollar, the Company routinely enters into
forward foreign exchange contracts with financial institutions to fix the cost
of these purchases. Although the Company believes that these contracts decrease
the Company's overall exposure to gains and losses from currency fluctuations,
such exposure cannot be entirely eliminated. In addition, during the contractual
periods, the Company is exposed to certain losses in the event of nonperformance
by the counterparties to the forward contracts. At December 31, 1997, the
Company did not have any open forward contracts.
<PAGE> 29
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Ride, Inc.
We have audited the accompanying consolidated balance sheets of Ride, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ride, Inc. and
subsidiaries at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
ERNST & YOUNG LLP
Seattle, Washington
March 3, 1998
1
<PAGE> 30
RIDE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,232 $ 1,332
Accounts receivable, less allowance for doubtful
accounts of $655 in 1996 and $925 in 1997 14,193 12,588
Inventories (Note 7) 5,986 6,564
Prepaid expenses and other current assets 450 728
Income taxes receivable 2,836 1,569
Deferred tax assets (Note 10) 1,423 385
-------- --------
Total current assets 28,120 23,166
Plant and equipment, net (Note 8) 5,757 5,670
Notes receivable, net of discount of $116 in 1996 (Note 5) 1,884 1,600
Goodwill, net of accumulated amortization of $514 in 1996
and $842 in 1997 (Note 3) 14,292 9,358
Other assets 602 1,201
-------- --------
Total assets $ 50,655 $ 40,995
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,631 $ 3,719
Accrued expenses and other current liabilities 2,161 1,555
Accrued restructuring charges (Note 6) 387 --
Short-term borrowings (Note 9) -- 1,995
Notes payable (Note 9) -- 689
-------- --------
Total current liabilities 7,179 7,958
Other long-term liabilities 832 1,582
Deferred income taxes (Note 10) 335 385
Commitments and contingencies (Note 14)
Shareholders' equity:
Convertible preferred stock, no par value, 10,000
shares authorized
Series A: 100 shares issued and outstanding
Aggregate liquidation preference of $500
(Note 11) 500 500
Series B: 3 shares issued and outstanding
Aggregate liquidation preference of $3,000
(Note 11) -- 2,841
Common stock, no par value, 20,000 shares
authorized 10,760 and 12,092 issued and
outstanding, respectively 39,583 42,393
Cumulative translation adjustment -- (125)
Retained earnings (deficit) 2,226 (14,539)
-------- --------
Total shareholders' equity 42,309 31,070
-------- --------
Total liabilities and shareholders' equity $ 50,655 $ 40,995
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 31
RIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 74,850 $ 75,728 $ 36,475
Cost of goods sold (Note 6) 54,988 61,641 26,656
-------- -------- --------
Gross profit 19,862 14,087 9,819
Selling, general and administrative expenses 10,868 20,487 18,278
Loss on impairment of goodwill (Note 3) -- -- 8,600
Restructuring charges (Note 6) -- 2,500 --
-------- -------- --------
Operating expenses 10,868 22,987 26,878
-------- -------- --------
Operating income (loss) 8,994 (8,900) (17,059)
Interest expense (18) (268) (426)
Interest income 406 333 195
Gain on sale of subsidiary (Note 5) -- 482 --
-------- -------- --------
Income (loss) before income taxes 9,382 (8,353) (17,290)
Income tax expense (benefit) (Note 10) 3,427 (2,863) (595)
-------- -------- --------
Net income (loss) $ 5,955 $ (5,490) $(16,695)
======== ======== ========
Net income (loss) per share: (Note 17)
Basic $ 0.67 $ (0.52) $ (1.51)
======== ======== ========
Diluted $ 0.59 $ (0.52) $ (1.51)
======== ======== ========
Share used in the computation of net income
(loss) per share:
Basic 8,872 10,614 11,128
======== ======== ========
Diluted 10,132 10,614 11,128
======== ======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 32
RIDE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK CUMULATIVE
---------------
SERIES A SERIES B COMMON STOCK TRANSLATION RETAINED
-------- -------- ------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ADJUSTMENT EARNINGS TOTAL
--------- -------- --------- --------- ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 100 $500 -- -- 7,710 $9,193 -- $1,831 $11,524
Net income for the year 5,955 5,955
Preferred stock dividends (35) (35)
Secondary public
offering of common
stock, net of
offering costs 1,465 23,311 23,311
Exercise of common stock
warrants 1,239 4,515 4,515
Common stock issued in
SMP acquisition 28 593 593
Stock option exercises
and related tax
benefits 72 571 571
Issuance of common
stock under stock
purchase plan 4 61 61
----- ------- ------ -------- ---------- --------- -------- ---------- ---------
Balances at December 31, 1995 100 500 -- -- 10,518 38,244 -- 7,751 46,495
Net loss for the year (5,490) (5,490)
Preferred stock dividends (35) (35)
Stock option exercises
and related tax
benefits 231 1,258 1,258
Issuance of common
stock under stock
purchase plan 11 81 81
----- ------- ------ -------- ---------- --------- -------- ---------- ---------
Balances at December 31, 1996 100 500 -- -- 10,760 39,583 -- 2,226 42,309
Net loss for the year (16,695) (16,695)
Preferred stock dividends 30 (70) (40)
Stock option exercises
and related tax
benefits 98 307 307
Issuance of common
stock under stock
purchase plan 24 53 53
Issuance of preferred
stock, net of offering
costs 3 2,811 2,811
Common stock issued in
acquisitions 1,210 2,450 2,450
Foreign currency
translation loss (125) (125)
----- ------ ---- -------- ---------- -------- ------- ---------- --------
Balances at December 31, 1997 100 $500 3 $2,841 12,092 $42,393 $(125) $ (14,539) $31,070
===== ====== ==== ======== ========== ======== ======= ========== ========
</TABLE>
See accompanying notes.
4
<PAGE> 33
RIDE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Reconciliation of net income to net cash
provided by (used in) operations:
Net income (loss) $ 5,955 $ (5,490) $(16,695)
Depreciation 196 1,288 1,560
Amortization 190 421 453
Deferred income tax (benefit) expense (27) (876) 1,088
Loss on impairment -- -- 8,600
Non-cash restructuring charges -- 2,397 --
Gain on sale of subsidiary -- (482) --
Amortization of discount on notes receivable -- (34) (116)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivables (8,076) (637) 2,689
(Increase) decrease in inventories (1,316) (1,577) 308
(Increase) decrease in prepaid expenses (590) 294 (227)
(Increase) decrease in income taxes
receivable (15) (2,894) 1,267
Increase (decrease) in accounts payable 3,649 (3,065) (1,652)
Decrease in accrued expenses and other
current liabilities (698) (102) (1,247)
-------- -------- --------
Net cash used in operating activities (732) (10,757) (3,972)
INVESTING ACTIVITIES
Purchases of plant and equipment (1,910) (5,364) (753)
Acquisitions, net of cash acquired (13,039) -- (1,979)
Sales of (purchases) of securities
available-for-sale (3,840) 3,840 --
Proceeds from sale of subsidiary, net of -- 884 --
costs
Increase in other assets (157) (532) (223)
-------- -------- --------
Net cash used in investing activities (18,946) (1,172) (2,955)
FINANCING ACTIVITIES
Net advances on line of credit -- -- 1,995
Proceeds from sale of preferred stock -- -- 2,811
Proceeds from exercise of common stock
options 267 1,087 307
Proceeds from sale of common stock 23,372 -- --
Proceeds from exercise of common stock
warrants 4,515 -- --
Proceeds from Employee Stock Purchase Plan -- 81 53
Proceeds from long-term borrowings -- 750 --
Repayments of notes payable and long-term
borrowings -- (993) (99)
Dividends paid (35) (35) (40)
-------- -------- --------
Net cash provided by financing activities 28,119 890 5,027
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 8,441 (11,039) (1,900)
Cash at beginning of period 5,830 14,271 3,232
-------- -------- --------
Cash at end of period $ 14,271 $ 3,232 $ 1,332
======== ======== ========
SUPPLEMENTAL DISCLOSURE
Cash paid for interest $ 8 $ 275 $ 414
Cash paid for income taxes $ 3,505 $ 910 $ 68
NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock and notes payable issued in
acquisitions $ 1,531 $ -- $ 2,450
Tax benefit of stock option exercises $ 304 $ 171 $ --
</TABLE>
See accompanying notes.
5
<PAGE> 34
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The consolidated financial statements include the accounts of Ride, Inc. ("Ride"
or the "Company") and its subsidiaries: Ride Snowboard Company ("Ride
Snowboards"), Ride Manufacturing, Inc. ("Ride Manufacturing"), Ride Canada, Inc.
("Ride Canada"), SMP Clothing, Inc. ("SMP"), Smiley Hats, Inc. ("Smiley") and
Carve, Inc. ("US2"). The Company was founded in September 1992 and acquired
C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. (collectively,
"CAS") in August 1994, Ride Manufacturing in September 1995 and SMP in October
1995. The Company also acquired 5150 Snowboards, Inc. ("5150") in September 1995
and later merged 5150 with and into Ride Snowboards. In October 1996, the
Company transferred substantially all of the Canada-based operating assets and
liabilities of CAS (other than fixed assets) into Ride Canada, a newly formed
corporation, and all of the US-based operating assets and liabilities of CAS
into Ride Snowboards, and sold the CAS entities. In June 1997, the Company
acquired substantially all of the assets and liabilities of Device Mfg Corp. and
transferred those assets and liabilities to Ride Snowboards. In July 1997, the
Company's newly formed Smiley subsidiary acquired substantially all of the
assets of Galena Creek Trading Corp. In December 1997, the Company acquired US2
Sports Group Inc. through a merger of that company with and into Carve, Inc., a
newly formed corporation. The results of operations of these acquired
subsidiaries are included in the Company's financial statements from their
respective dates of acquisition through their applicable dates of disposition.
See Notes 4 and 5.
Ride Snowboards sells premium to mid-range snowboards and related products
primarily through specialty snowboard and ski shops. Ride Manufacturing is a
manufacturer of premium snowboards which are produced principally for Ride
Snowboards. Ride Manufacturing also produces a limited number of snowboards for
other snowboard companies on an OEM basis. SMP designs and manufactures
snowboard, surf, skate, motocross and street apparel which is sold primarily
through specialty shops. Ride Canada acts as the Company's Canadian distributor
for the Company's branded products. Smiley designs and manufactures premium head
and neck wear for the winter sports industry and is sold through specialty
shops. US2 designs, manufactures and distributes wakeboards, wakeboard bindings
and accessories under the "FullTilt" and "Sub Rosa" brand names through marine
and specialty retailers. Until its disposition in October 1996, CAS marketed
entry-level snowboards and related products under various brand names and on a
private label basis primarily to regional sporting goods stores and large-format
sporting goods retailers. In addition, CAS sold snowboards and related products
on an OEM basis to other snowboard companies and bought excess snowboard and
sporting goods inventories from manufacturers and sold such products to
retailers throughout the world. The OEM and excess inventory portions of the CAS
business were sold in October 1996 (see Note 5) while the branded and private
label portions of the business were retained by the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Intercompany transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
6
<PAGE> 35
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency
The local currency is considered the functional currency of the Company's
Canadian operations. The financial statements of the Company's Canadian
subsidiary are translated into U.S. dollars using the exchange rate at the
balance sheet date for assets and liabilities and the average exchange rate for
the period for revenues and expenses. Resulting translation adjustments are
recorded as a separate component of shareholders' equity.
The Company enters into foreign currency forward contracts, generally with terms
of 270 days or less, as a hedge against some of its foreign currency
commitments. Offsetting gains and losses on these contracts are recognized
concurrently with the exchange gains and losses stemming from the associated
commitments. During the contractual periods, the Company is exposed to certain
losses in the event of nonperformance by the counterparties to the forward
contracts. At December 31, 1997, the Company did not have any open forward
contracts.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are carried at the lower of cost or market using the first-in,
first-out method.
Plant and Equipment
Plant and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
five to ten years. Leasehold improvements are amortized over the lesser of the
estimated useful life of the asset or the term of the related lease. Snowboard
and snowboard binding molds are amortized to cost of goods sold over one to
three years based on the number of related snowboards and bindings sold.
Goodwill
Goodwill is being amortized over 15 to 40 years using the straight-line method.
The Company periodically reviews the carrying value of goodwill to determine if
the facts and circumstances suggest that the value may be impaired. See Note 3.
Revenue Recognition
The Company recognizes revenue from the sale of its products when the products
are shipped to customers.
Research and Development Costs
Research and development costs are charged to expense as incurred and totaled
approximately $217,000 in 1995, $417,000 in 1996 and $338,000 in 1997.
7
<PAGE> 36
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Costs
The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense totaled $528,000 in 1995, $847,000
in 1996 and $1,090,000 in 1997.
Warranty Costs
The Company generally offers a one-year warranty on its products from the time
of retail sale. Anticipated net costs associated with warranties are charged to
expense at the time of the sale of its products. The Company is reimbursed for a
portion of the cost of defective products by the manufacturers.
Income Taxes
The Company accounts for income taxes under the liability method. Deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the tax
rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
Net Income (Loss) Per Share
In 1997, the Financial Accounting Standards Board (FASB) issued Statement No.
128, Earnings Per Share. Statement 128 replaced the calculation of the primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
Stock Based Compensation
The Company has elected to apply the disclosure-only provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation." Accordingly, the
Company accounts for stock-based compensation using the intrinsic method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Compensation cost for stock
options is measured at the excess, if any, of the fair value of the Company's
common stock at the date of the grant over the stock option price.
Reclassifications
Certain reclassifications have been made to prior year balances to conform with
current year presentation.
8
<PAGE> 37
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. LIQUIDITY
The Company operates in a highly seasonal business, generating the majority of
its sales in the third and fourth quarters. The Company's cash receipts from its
North American customers are received predominantly in December, January and
February while its international customers generally pay by cash in advance or
letter of credit. In order to maintain the scope of the Company's operations and
manufacture and purchase product during the remainder of the year, the Company
has historically utilized a revolving line of credit with a bank to finance
import letters of credit and working capital needs. The Company currently has a
revolving line of credit which provides for import letters of credit and direct
cash advances of up to $5.5 million prior to January 31, 1998, $2.0 million from
February 1, 1998 to March 31, 1998 and $8.0 million through June 30, 1998.
The Company has incurred losses of $16.6 million and $5.5 million for the years
ended December 31, 1997 and 1996, respectively. The Company has financed its
operations to date through the issuance of equity and bank lines of credit. The
Company's existing line of credit expires on June 30, 1998. The Company
anticipates renewing or replacing its line of credit. In the event that the
Company is unable to renew its line of credit, the Company will seek other
sources of working capital financing including, but not limited to, other bank
lines of credit, asset-based borrowing, long-term debt or additional equity.
There can be no assurance that such alternative sources will be available on
favorable terms or at all. The Company's inability to successfully renew or
replace its line of credit would have a material adverse impact on the Company's
financial condition and may require the Company to reduce its expenditures,
curtail certain operations, or dispose of operating assets to enable it to
continue its operations at least through December 1998.
3. LOSS ON IMPAIRMENT
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, the Company
periodically reviews the events and circumstances affecting its operations for
indications that the Company's long-lived assets might be impaired. During 1997,
the Company determined that the world-wide excess inventory of snowboard
products significantly impaired its ability to sell new product and caused the
Company to lower prices on its lower-end products. These changes in current
market conditions resulted in the under-utilization of the Company's production
capacity and infrastructure. Based on this evaluation, the Company determined
that the $13.9 million of goodwill associated with its acquisitions of CAS, SMP
and Ride Manufacturing was impaired and wrote it down by $8.6 million. The
Company's estimates of the discounted cash flows expected to be generated from
these entities indicate that the remaining carrying amounts are expected to be
recovered. However, it is possible that the current industry oversupply of
snowboard products may be a sign of a permanent demand shift and there can be no
assurance that the carrying value of the goodwill related to these acquisitions
will be recoverable.
4. ACQUISITIONS
Ride Manufacturing and 5150
On September 1, 1995, the Company acquired all of the capital stock of Ride
Manufacturing, a snowboard manufacturer, and 5150, a marketer of snowboards, for
$11.9 million in cash. The acquisition has been accounted for as a purchase with
the excess of the purchase price over the fair value of the assets acquired
allocated primarily to goodwill.
SMP
On October 20, 1995, SMP, a newly-formed, wholly owned subsidiary of the Company
acquired certain assets (primarily inventories, fixed assets, trademarks and
other intangibles) of Sex Money Power Clothing, Inc., a manufacturer of
snowboard, surf, skate and street apparel. The aggregate purchase price of $2.46
million was comprised of $937,500 in cash, $937,500 in short-term notes payable,
and 28,409 newly-issued shares of Common Stock valued at $593,000. The
transaction has been accounted for as a purchase with the excess of the purchase
price over the fair value of the assets acquired allocated primarily to
goodwill.
9
<PAGE> 38
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Device
On June 12, 1997, the Company purchased substantially all of the assets (except
cash and accounts receivable) and liabilities of Device, a manufacturer of
step-in snowboard bindings and boots based in Boulder, Colorado. The purchase
price was comprised of approximately $1.0 million in assumed liabilities and
285,265 newly-issued shares of Common Stock valued at $790,000. The transaction
has been accounted for as a purchase with the excess of the purchase price over
the fair value of the assets acquired allocated primarily to goodwill.
Smiley Hats
On July 22, 1997, the Company purchased substantially all of the assets of
Galena Creek Trading Company, Inc. (d.b.a. Smiley Hats), a manufacturer of
winter hats based in Sparks, Nevada. The purchase price was comprised of
approximately $550,000 in cash and 320,000 shares of Common Stock valued at
$750,000. Galena Creek Trading Company was majority owned and controlled by the
Company's Chief Executive Officer. The transaction has been accounted for as a
purchase with the excess of the purchase price over the fair value of the assets
acquired allocated primarily to goodwill.
US2
On December 19, 1997, Carve, Inc., a newly-formed, wholly owned subsidiary of
the Company acquired the stock of US2 Sports Group, Inc., a manufacturer of
wakeboards and wakeboard bindings. The purchase price was comprised of 605,263
newly-issued shares of Common Stock valued at $910,000 plus the assumption of
net liabilities of $652,000. The transaction has been accounted for as a
purchase with the excess of the purchase price over the fair value of the assets
acquired allocated primarily to goodwill.
Summarized unaudited pro forma results of operations, assuming the Device,
Smiley Hats and US2 acquisitions took place on January 1 of each year, are as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1996 1997
------- ------- --------
(in thousands)
<S> <C> <C> <C>
Net sales $84,345 $80,569 $40,595
Net income (loss) 6,716 (6,185) (18,743)
Net income (loss) per share - diluted $0.66 $(0.53) $(1.56)
</TABLE>
5. DISPOSITION
On October 11, 1996, the Company sold the stock of CAS to two former Company
executives and a number of CAS employees. The $3.0 million sales price was
comprised of $1,000,000 in cash and short-term notes and $2.0 million in
long-term notes. The Company recognized a pre-tax gain of $482,000 in connection
with this sale.
The long-term notes are secured by the stock of the sold corporations and bear
interest at prime. No interest or payments are due until March 1998 at which
time payments of $100,000 plus interest will be due quarterly through September
2002. The $400,000 current portion of the note due in 1998 is included in
Accounts Receivable.
10
<PAGE> 39
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. RESTRUCTURING AND INVENTORY WRITE-DOWN
On December 12, 1996 the Company's Board of Directors approved a plan to
writedown excess inventories and restructure the Company's manufacturing
operations. Due to canceled commitments from the Company's principal Japanese
distributor and an oversupply of snowboards from other manufacturers, the
Company recognized a $6.5 million write-down of its inventories. This amount has
been included in cost of sales for the year ended December 31, 1996. In
addition, the Company recognized a $2.5 million restructuring charge in
connection with moving the Company's binding production offshore and the
withdrawal of snowboard production from two outside snowboard manufacturers used
in 1996. The primary components of this charge were write-offs of abandoned
equipment, tooling and leasehold improvements, cancellation fees paid to U.S.
vendors and future lease costs. The Company anticipates future cash outlays will
not exceed the $228,000 included in other long-term liabilities for future
minimum lease payments and will be funded through normal operating cash flows.
7. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
------- -------
(in thousands)
<S> <C> <C>
Finished goods $ 9,415 $ 6,186
Work in process 96 228
Raw materials and supplies 2,391 2,189
Obsolescence reserve (5,916) (2,039)
------- -------
$ 5,986 $ 6,564
======= =======
</TABLE>
8. PLANT AND EQUIPMENT
Plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997
------- -------
(in thousands)
<S> <C> <C>
Office equipment $ 1,364 $ 1,609
Production equipment and tooling 2,674 3,147
Leasehold improvements 2,126 2,211
Vehicles and other 588 753
Construction in process -- 205
------- -------
6,752 7,925
Accumulated depreciation (995) (2,255)
------- -------
$ 5,757 $ 5,670
======= =======
</TABLE>
9. LINE OF CREDIT AND LONG-TERM DEBT
Ride has a revolving credit line arrangement with a bank to finance its import
letters of credit and working capital needs. The maximum amount of direct cash
advances available fluctuates based on the seasonality of the Company's cash
flows and cannot exceed $2.0 million prior to March 31, 1998 or $8.0 million
through June 30, 1998. Advances on the line bear interest at the bank's prime
rate. At December 31, 1997, the Company had outstanding advances of $1,995,000
and $740,000 in outstanding import letters of credit drawn against this line.
The line of credit expires on June 30, 1998 and has certain operating covenants,
including financial ratios, working capital restrictions and restrictions on
payment of dividends on the Company's Common Stock. The Company was in
compliance with all such covenants at December 31, 1997. The line is
collateralized by substantially all the assets of the Company.
11
<PAGE> 40
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Company's December 1997 acquisition of US2, the Company
assumed US2's revolving credit line, a term loan and $307,000 of current notes
payable. The balance on the line at December 31, 1997 was $296,000, bore
interest at the bank's prime plus two percent or 10.5% at year end and was
included in notes payable. This revolving line of credit expired on January 13,
1998 and was paid off at that time. The $452,000 balance outstanding on the term
loan at December 31, 1997, less $86,000 current portion, is included in other
long-term liabilities and bears interest at the bank's prime plus 1.25%, or
9.75% at year end. The outstanding balance is due in monthly principle and
interest payments of $10,596 through May 2002. The remaining $307,000 of notes
payable were retired subsequent to year end.
During 1996, the Company's landlord loaned the Company $750,000 to fund a
portion of the expansion and improvement of the Company's Preston, Washington
office and warehouse facilities. The loan has an effective interest rate of
approximately 3% and is due in monthly payments of principal and interest of
$9,100 through December 2003.
10. INCOME TAXES
Deferred tax assets and (liabilities) consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 102 $ 2,931
Goodwill writedown -- 2,924
Inventory reserves 914 641
Allowance for bad debts 213 220
Warranty reserves 119 82
Restructuring reserves 122 68
Other accruals 55 165
------- -------
Total deferred tax assets 1,525 7,031
Less: Valuation allowance for deferred tax assets -- (6,646)
------- -------
1,525 385
Deferred tax liabilities:
Depreciation and amortization (437) (385)
------- -------
Total deferred tax liabilities (437) (385)
------- -------
Net deferred tax assets $ 1,088 $ --
======= =======
Balance sheet classification:
Current assets $ 1,423 $ 385
Noncurrent liabilities (335) (385)
------- -------
$ 1,088 $ --
======= =======
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards for
income tax purposes of $8.5 million, which are available to offset future
federal taxable income, if any. The federal operating loss carryforwards begin
to expire in 2007 through 2017. Recognition of approximately $3.2 million of
the Company's federal operating loss carryforwards may be limited pursuant to
Section 382 of the Internal Revenue Code. The December 31, 1997, a valuation
allowance of $6,646,000 was established for the deferred tax assets in excess
of deferred tax liabilities.
12
<PAGE> 41
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ 3,147 $(1,713) $(1,760)
State 164 106 --
Canada 143 (380) 77
------- ------- -------
3,454 (1,987) (1,683)
------- ------- -------
Deferred:
Federal (48) (928) 996
State 21 52 301
Canada -- -- (209)
------- ------- -------
(27) (876) 1,088
------- ------- -------
Total provision (benefit) $ 3,427 $(2,863) $ (595)
======= ======= =======
</TABLE>
The Company's effective income tax rate varied from the U.S. federal statutory
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory tax rate 34.0% (34.0%) (34.0%)
Change in tax rate resulting from:
State income taxes, net of federal benefit 1.3 1.2 (1.7)
Foreign taxes 0.8 0.5 (0.2)
Nondeductible goodwill amortization 0.3 0.3 0.1
Benefit of foreign sales corporation -- (1.1) --
Valuation allowance -- -- 32.1
Other 0.1 (1.2) 0.3
==== ===== =====
Effective tax rate 36.5% (34.3%) (3.4%)
==== ===== =====
</TABLE>
11. SHAREHOLDERS' EQUITY
Preferred Stock
Series A
On December 31, 1993, the Company issued 100,000 shares of Series A 7%
cumulative convertible nonvoting preferred stock for $500,000 ("Series A
Preferred"). Dividends on the Series A Preferred accrue quarterly and must be
paid before dividends can be declared and paid on the Company's Common Stock. In
the event of liquidation, the holders of the Series A Preferred will be entitled
to $5.00 per share plus unpaid dividends before any payments are made to the
holders of Common Stock. The Series A Preferred is convertible at the holder's
option into 200,000 shares of Common Stock. The Series A Preferred may be
redeemed by the Company at $5.00 per share beginning January 1, 1999 and ending
December 31, 2004. The Company has reserved 200,000 shares of Common Stock for
issuance upon the conversion of the Series A Preferred.
13
<PAGE> 42
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series B
On December 19, 1997, the Company issued 3,000 shares of Series B 5% Cumulative
Convertible Preferred Stock for $3,000,000 ("Series B Preferred"). In connection
with this transaction, the Company also issued warrants to purchase 283,720
shares of common stock for an exercise price of approximately $2.68 per share
("the Warrants"). Dividends on the Series B Preferred accrue quarterly, are
payable in cash or stock and must be paid before dividends can be declared and
paid on the Company's Common Stock. Portions of the Series B Preferred may be
converted into the Company's Common Stock, at the option of the holders,
beginning in March 1998. All the Series B Preferred automatically converts to
common stock in December 2000. Subject to certain adjustments, the Series B
Preferred converts to Common Stock at the lesser of $2.68 per share or 90% of
the market price (as defined) of the Company's Common Stock at the time of
conversion. The Company has reserved approximately 2,245,000 shares of Common
Stock for issuance upon conversion of the Series B Preferred and exercise of the
warrants.
The 10% discount from market price of the conversion of preferred stock is
accounted for as a preferred stock dividend. The dividend is required to be
included in earnings per share computations over the period from the date of
issuance through the date the security is first convertible. The Company has
therefore included a $30,000 preferred stock dividend in its net loss per share
calculations for the year ended December 31, 1997 and will include an additional
$270,000 preferred stock dividend in its net income (loss) per share for the
quarter ending March 31, 1998 and the year ending December 31, 1998.
Stock Purchase Plan
In May 1995, the Company adopted an Employee Stock Purchase Plan which allows
eligible employees to buy the Company's Common Stock at a 15% discount from
market price utilizing payroll deductions. A total of 100,000 shares have been
reserved for issuance under this Plan. During 1995, 1996 and 1997, 3,971, 11,123
and 23,600 shares of Common Stock were purchased by employees under this Plan,
respectively. As of December 31, 1997, 61,306 shares were available for future
sale under the Plan.
12. STOCK-BASED COMPENSATION
The Company adopted two stock option plans in 1994 that provide for the grant of
incentive and nonqualified stock options to the Company's employees, officers,
and directors. At December 31, 1997, the Company had 2,103,513 shares of Common
Stock reserved for issuance pursuant to these plans. Options generally vest over
a four-year period commencing one year from the date of grant.
Pro forma information regarding net income (loss) per share is required by FASB
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The value
for these options was estimated at the date of grant using a Black-Scholes
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Expected stock price volatility 37.6% 48.5% 61.3%
Risk-free interest rate 6.9% 6.1% 6.1%
Expected life of options in years 4.5 3.1 3.1
</TABLE>
14
<PAGE> 43
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated weighted average value of
the options granted of $3.05, $4.91 and $2.65 per share during 1995, 1996 and
1997, respectively, is amortized to expense over the options' vesting period.
During the phase in period of Statement 123, which has been applied only for
options granted after 1994, the effects of applying the Statement for providing
pro forma disclosure are not indicative of future amounts until the new rules
are applied to all outstanding nonvested awards. The Company's pro forma
information is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Net income (loss) - as reported $ 5,955 $ (5,490) $ (16,695)
Net income (loss) - pro forma $ 5,459 $ (6,731) $ (17,586)
Diluted earnings per share - as reported $ 0.59 $ (0.52) $ (1.51)
Diluted earnings per share - pro forma $ 0.54 $ (0.64) $ (1.59)
</TABLE>
A summary of options granted and outstanding are as follows (in thousands except
per share amounts):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
------- ---------
<S> <C> <C>
Balance at January 1, 1995 974 $ 3.65
Granted 1,067 $ 8.54
Exercised (72) $ 4.01
Forfeited/Canceled (114) $ 5.70
----------
Balance at December 31, 1995 (exercisable 237) 1,855 $ 6.32
Granted 278 $13.43
Exercised (231) $ 4.80
Forfeited/Canceled (222) $ 9.94
----------
Balance at December 31, 1996 (exercisable 801) 1,680 $ 7.21
Granted 492 $ 5.74
Exercised (98) $ 3.17
Forfeited/Canceled (566) $10.19
----------
Balance at December 31, 1997 (exercisable 904) 1,508 $ 5.29
==========
</TABLE>
Included in the 1997 option grants are approximately 400,000 employee options
repriced to $6.50 per share.
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES (IN THOUSANDS) LIFE PRICE (IN THOUSANDS) PRICE
- ------------------ ------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$2.94-$4.40 444 6.6 years $ 3.20 390 $ 3.20
$4.40-$6.60 1,034 7.7 years $ 5.92 494 $ 5.65
$6.60-$16.75 30 7.9 years $14.63 20 $16.75
------------ -----------
1,508 7.4 years $ 5.29 904 $ 4.84
============ ===========
</TABLE>
At December 31, 1997 options to purchase 595,356 shares were available for
future grant.
15
<PAGE> 44
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FOREIGN CURRENCY TRANSACTIONS
The Company enters into foreign currency forward contracts, generally with terms
of 270 days or less, as a hedge against some of its foreign currency
commitments. Derivative financial instruments held by the Company are generally
used to manage well-defined foreign exchange and interest rate risks which occur
in the normal course of business. Forward foreign exchange contracts are used by
the Company to reduce the potential impact of unfavorable fluctuations in
foreign exchange rates. The Company regularly has off balance sheet commitments
to buy and sell foreign currencies relating to foreign exchange contracts to
hedge against future currency fluctuations.
Gains and losses on foreign currency contracts not intended to hedge operating
requirements are reported currently in other income. Gains and losses on foreign
currency contracts intended to meet firm commitments are deferred and recognized
as part of the cost of the underlying transaction being hedged. Counterparties
to the foreign exchange contracts are typically major international financial
institutions. The Company's theoretical risk in these transactions is the cost
of replacing, at current market rates, these contracts in the event of default
by the counterparty. Management believes the risk of incurring such losses as a
result of a default by a counterparty is remote.
During 1996 and 1997, the Company recognized losses on foreign currency
contracts totaling approximately $160,000 and $17,000, respectively. The Company
recognized approximately $646,000 in gains on foreign currency futures and
forward contracts during the year ended December 31, 1995. These amounts are
included in cost of goods sold in the accompanying statements of operations. The
Company had no open foreign currency contracts as of December 31, 1997.
14. COMMITMENTS AND CONTINGENCIES
Leases
The Company is committed under noncancelable operating leases expiring at
various dates through 2003 for warehouse, manufacturing and office facilities.
The leases generally require that the payments of taxes, insurance and
maintenance are the responsibility of the Company.
At December 31, 1997, the Company's future minimum rental payments and related
sublease rentals receivable with respect to non-cancelable operating leases with
terms in excess of one year were as follows:
<TABLE>
<CAPTION>
(In thousands) Rents
Future Receivable
Minimum Under
Payments Subleases
------------ ------------
<S> <C> <C>
1998 $1,233 $201
1999 1,157 183
2000 1,066 143
2001 937 125
2002 766 64
Thereafter 782 --
------------ ------------
$5,941 $716
============ ============
</TABLE>
Rent expense, net of sublease income, for the years ended December 31, 1995,
1996 and 1997 was approximately $406,000, $1,042,000 and $1,053,000,
respectively.
16
<PAGE> 45
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Class Action Lawsuit
In March 1997, a shareholder filed a lawsuit against the Company and four of its
current or former officers and directors. The lawsuit alleges violations of
certain federal and state securities laws, and purports to seek unspecified
monetary damages on behalf of a class of shareholders who purchased the
Company's Common Stock during the period of August 10, 1995 through December 30,
1996. The Company intends to defend itself vigorously, however there can be no
assurance that the Company will be successful in its defense against the action.
An award of damages against the Company in excess of applicable insurance, if
any, the expenditure of significant sums in defense thereof or diversion of
management's attention from other business concerns, could each have a material
adverse effect on the Company's financial condition and results of operations.
From time to time, the Company is subject to various other pending and
threatened legal actions that arise in the normal course of business. In the
opinion of management, liabilities arising from these claims will not have a
material effect on the financial position of the Company.
15. EMPLOYEE BENEFIT PLANS
Beginning January 1996, the Company provided a 401(k) plan covering
substantially all of its U.S. employees. Under this plan, participating
employees may defer up to 15% of their pre-tax earnings, subject to certain
Internal Revenue Service limitations. The Company provides matching
contributions which vest 20% annually over a five year period equal to 25% of
each employee's contribution. The Company's 1996 and 1997 matching contributions
for this plan were approximately $31,000 and $39,000, respectively.
16. CONCENTRATION OF CREDIT RISK AND GEOGRAPHICAL INFORMATION
The Company sells its products to customers predominantly located throughout
North America, Japan and Europe. The concentrations of credit risk with respect
to trade receivables are considered minimal due to the Company's ongoing credit
evaluations of its customers. Based on the Company's assessment of credit risk,
sales in the United States and Canada are made on open credit, C.O.D., cash in
advance, or by postdated check. International sales are generally made on a cash
in advance or letter of credit basis. In 1995 and 1996, sales to the Company's
principal Japanese distributor accounted for approximately 22% and 17% of net
sales, respectively. In 1996, sales to another of the Company's Japanese
distributors accounted for 12%. No one customer accounted for more than 10% of
revenues in 1997.
Worldwide sales of the Company's products were (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
North America $50,212 $41,016 $24,907
Japan 17,051 28,470 7,989
Europe and other 7,587 6,242 3,579
---------- -------- --------
$74,850 $75,728 $36,475
========== ======== =========
</TABLE>
17
<PAGE> 46
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 5,955 $ (5,490) $(16,695)
Preferred stock dividends (35) (35) (70)
-------- -------- --------
Numerator for basic earnings per share -
income available to common stockholders 5,920 (5,525) (16,765)
Effect of dilutive securities:
Preferred stock dividends 35 -- --
======== ======== ========
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversions $ 5,955 $ (5,525) $(16,765)
======== ======== ========
Denominator:
Denominator for basic earnings per share -
weighted average shares 8,872 10,614 11,128
Effect of dilutive securities: (1)
Employee stock options 1,060 -- --
Convertible preferred stock 200 -- --
-------- -------- --------
Dilutive potential common shares 1,260 -- --
-------- -------- --------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 10,132 10,614 11,128
======== ======== ========
Basic earnings per share $ 0.67 $ (0.52) $ (1.51)
======== ======== ========
Diluted earnings per share $ 0.59 $ (0.52) $ (1.51)
======== ======== ========
</TABLE>
(1) The effects of potential common securities are excluded from the diluted
calculation for 1996 and 1997 as their effects would be antidilutive.
18
<PAGE> 47
RIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996:
Net sales $ 12,777 $ 13,501 $ 35,329 $ 14,121
Gross profit (loss) 3,387 4,164 11,344 (4,808)(1)
Net income (loss) (982) 411 3,642 (8,561)(2)
Net income (loss) per share (basic) (0.09) 0.04 0.34 (0.80)(4)
Net income (loss) per share (diluted) (0.09) 0.04 0.32 (0.80)(4)
Balance sheet data (at end of quarter):
Accounts receivable, net 9,404 13,993 28,257 14,193
Inventories 6,153 11,865 16,302 5,986
Working capital 23,584 23,411 26,920 20,941
1997:
Net sales $ 5,034 $ 2,525 $ 18,215 $ 10,701
Gross profit (loss) 1,328 664 5,824 2,002
Net income (loss) (2,182) (2,254) 661 (12,920)(3)
Net income (loss) per share (basic) (0.20) (0.21) 0.06 (1.12)(4)
Net income (loss) per share (diluted) (0.20) (0.21) 0.06 (1.12)(4)
Balance sheet data (at end of quarter):
Accounts receivable, net 8,311 6,339 17,300 12,588
Inventories 6,289 10,111 11,065 6,564
Working capital 18,435 15,644 16,768 15,208
</TABLE>
(1) Includes $6.5 million inventory write-down. See Note 6.
(2) Includes $6.5 million inventory write-down and $2.5 million restructuring
charge. See Note 6.
(3) Includes $8.6 million loss on impairment of goodwill. See Note 3.
(4) The 1996 and first three quarters of 1997 basic and diluted net income
(loss) per share have been restated to comply with FASB Statement 128,
"Earnings per Share," which was adopted in the fourth quarter of 1997.
19
<PAGE> 48
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.
The information required by this Item is included in the Company's definitive
Proxy Statement for the Company's 1998 Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission, under the heading "Proposal
One - Election of Directors" and is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is included in the Company's definitive
Proxy Statement for the Company's 1998 Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission, under the heading "Executive
Compensation" and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is included in the Company's definitive
Proxy Statement for the Company's 1998 Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission, under the heading "Voting
Securities and Principal Holders" and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS.
The information required by this Item is included in the Company's definitive
Proxy Statement for the Company's 1998 Annual Meeting of Shareholders, to be
filed with the Securities and Exchange Commission, under the heading "Certain
Relationships and Related Transactions" and is incorporated herein by this
reference.
<PAGE> 49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements.
<TABLE>
<CAPTION>
Form 10-K
Page Number
<S> <C> <C>
A. Report of Ernst & Young LLP, Independent Auditors. .
B. Consolidated Balance Sheets as of December 31, 1996
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . .
C. Consolidated Statements of Operations for the years
ended December 31, 1995, 1996 and 1997. . . . . . . . . .
D. Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1995, 1996 and 1997. . . . .
E. Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997. . . . . . . . . .
F. Notes to Consolidated Financial Statements. . . . .
</TABLE>
2. Financial Statement Schedules.
<TABLE>
<CAPTION>
Form 10-K
Page Number
<S> <C>
Schedule II - Valuation and Qualifying Accounts. . . . . .
Financial statements and schedules not included herein have been
omitted because of the absence of conditions under which they are
required or because the required information, where material, is shown
in the consolidated financial statements or notes thereto.
</TABLE>
3. Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Restated Articles of Incorporation and Certificate of
Designation of Relative Rights and Preferences of the Series A
7% Cumulative Nonvoting Preferred Stock (1)
3.2 Bylaws of the Company (1)
3.3 Articles of Amendment to Articles of Incorporation (9)
3.4 Articles of Amendment to Articles of Incorporation (11)
3.5 Articles of Correction (12)
3.6 Amendment to Certificate of Designation of Relative Rights and
Preferences of the Series A 7% Cumulative Nonvoting Preferred
Stock (26)
</TABLE>
<PAGE> 50
<TABLE>
<S> <C>
3.7 Certificate of Designation of Relative Rights and Preferences
of the Series B 5% Cumulative Convertible Nonvoting Preferred
Stock (27)
4.1 Article VI of the Articles of Incorporation regarding
Shareholder Rights (See Exhibit 3.1) (1)
4.2 Article VIII of the Articles of Incorporation regarding Voting
Rights (See Exhibit 3.1) (1)
4.3 Specimen Stock Certificate (2)
10.10 Exclusive Distributorship Agreement dated December 7, 1992, by
and between Ride Snowboard Company and Far East Trading Co.,
Ltd.
(3)
10.24 Exchange Agreement dated December 31, 1993, between Ride
Snowboard Company and Mark M. Salter (1)
10.25 Employment Agreement, dated August 18, 1994, by and between
Ride Snowboard Company and James J. Salter (4)
</TABLE>
<PAGE> 51
<TABLE>
<S> <C>
10.26 Form of Employment Agreement between Ride Snowboard Company and Roger
B. Madison, Jr.(1)
10.27 Employment Agreement, dated January 1, 1995, by and between
Ride Snowboard Company and Timothy G. Pogue(7)
10.28 Form of Ride Snowboard Company 1994 Stock Option Plan(1)
10.29 Form of Ride Snowboard Company 1994 Directors' Nonqualified
Stock Option Plan(1)
10.30 Lease Agreement with Teachers Insurance & Annuity Association dated
January 10, 1994(1)
10.32 Amended Form of Underwriting Agreement(5)
10.34 Standard Form Multiple Occupancy Lease, dated November 29,
1994, by and between Ride Snowboard Company and BDC Preston
Properties One Limited Partnership(6)
10.35 Business Loan Agreement, dated June 30, 1997, by and between
Ride, Inc. and U.S. Bank of Washington, N.A.(25)
10.36 Stock Purchase Agreement, dated August 18, 1994, between Ride
Snowboard Company and James J. Salter, the James Salter Family
Trust, Kenneth Finkelstein Family Trust, The Snow Trust, Robert
Marcovitch, Kerry Wasserman, Rick Clarfield, Howard Cohen, Gary
Kell, Sandra Pelegrin, Alan Langer, Dan Opyc, C.A.S. Sports
International, Inc. and C.A.S. Sports Agency, Inc.(8)
10.45 Ride Snowboard Company 1995 Employee Stock Purchase Plan(9)
10.46 Ride Snowboard Company 1995 Foreign Subsidiary Employee Stock
Purchase Plan(9)
10.47* Exclusive OEM Agreement, dated July 26, 1995, by and between
Ride Snowboard Company and Straight Line Water Sports, Inc.(11)
10.48 Employment Agreement, dated September 1, 1995, between the
Company and David A. Janes, Jr.(13)
10.49 Employment Agreement, dated September 1, 1995, between the
Company and Bernard Gervasoni(13)
10.50 Employment Agreement, dated October 19, 1995, between the
Company and David Milo Myers(14)
10.51 Registration Rights Agreement dated October 19, 1995, between
the Company and David Milo Myers, Lawrence Kraus and Michael
Wise(14)
10.52 Stock Purchase Agreement, dated September 1, 1995, between the
Company and the shareholders and option holders of 5150
Snowboards, Inc. and Thermal Snowboards, Inc.(15)
10.53 Asset Purchase Agreement, dated October 19, 1995, among the
Company, Sex Money Power Clothing, Inc., David Milo Myers,
Lawrence Kraus and Michael Wise(16)
10.54 Form of Underwriting Agreement by and between the Company and
Hambrecht & Quist LLC and Dain Bosworth Incorporated(17)
10.55* Amendment No.1 to Exclusive Distributorship Agreement, dated
October 24, 1995, by and between Ride Snowboard Company, 5150
Snowboards, Inc., SMP
</TABLE>
<PAGE> 52
<TABLE>
<S> <C>
Clothing, Inc. and Far East Trading Company Ltd.(18)
10.56 Employment Agreement, dated October 14, 1995, by and between
the Company and Kenneth J. Finkelstein(19)
10.57 Employment Agreement, dated January 1, 1996, by and between
C.A.S. Sports International, Inc. and Robert F. Marcovitch(19)
10.58 First Amendment, dated August 4, 1995, to Lease Agreement by
and between Ride Snowboard Company and BDC Preston Properties
One Limited Partnership(19)
10.59 Second Amendment, dated November 21, 1995, to Lease Agreement
by and between Ride Snowboard Company and BDC Preston
Properties One Limited Partnership(19)
10.60 Third Amendment, dated March 26, 1996, to Lease Agreement by
and between Ride Snowboard Company and BDC Preston Properties
One Limited Partnership(19)
10.61 Amendment No. 2 to Exclusive Distributorship Agreement, dated
March 1996, by and between Ride Snowboard Company, SMP
Clothing, Inc. and Far East Trading Company Ltd.(20)
10.63 Agreement, dated May 7, 1996, by and between Ride, Inc. and
James J. Salter(21)
10.64 Agreement, dated August 2, 1996, by and between Ride, Inc. and
Kenneth J. Finkelstein(21)
10.65 Agreement, dated August 7, 1996, by and between Ride, Inc. and
Robert E. Hall(21)
10.66 Stock Purchase Agreement, dated October 11, 1996, by and
between Ride, Inc. and Gen-X Equipment, Inc.(22)
10.67 Amendment No. 1 to Resignation Agreement, dated October 11,
1996, by and between Ride, Inc. and James J. Salter.(22)
10.68 Amendment No. 1 to Resignation Agreement, dated October 11,
1996, by and between Ride, Inc. and Kenneth J. Finkelstein.(22)
10.69 Resignation and Release Agreement, dated October 28, 1996, by
and between Ride, Inc. and Timothy G. Pogue(23)
10.70 Letter agreement, dated December 6, 1996, by and between Ride
Inc. and Straight Line Water Sports, Inc.(23)
10.71 Letter agreement, dated December 12, 1996, by and between Ride
Inc. and Straight Line Water Sports, Inc.(23)
10.72* Financial Advisory Agreement, dated January 15, 1997, by and
between Ride, Inc. and Roger Madison, Jr.(24)
10.73 Asset Purchase Agreement, dated July 15, 1997, by and between
Ride, Inc. and Galena Creek Trading Company, Inc. (dba Smiley
Hats)(25)
10.74 Subscription Agreement, dated December 19, 1997 by and between
Ride, Inc. and Advantage Fund II, Ltd.(28)
10.75 Registration Rights Agreement, dated December 19, 1997 by and
between Ride, Inc. and Advantage Fund II, Ltd.(28)
</TABLE>
<PAGE> 53
<TABLE>
<S> <C>
10.76 Warrant Agreement, dated December 18, 1997 by and between Ride,
Inc. and Rochon Capital Group, Ltd.(28)
10.77 Placement Agency Agreement, dated December 18, 1997 by and
between Ride, Inc. and Rochon Capital Group, Ltd.(28)
10.78 Common Stock Purchase Warrant issued to Advantage Fund II, Ltd.
dated December 19, 1997(28)
10.79 Common Stock Purchase Warrant issued to Rochon Capital Group,
Ltd. dated December 19, 1997(29)
21.1 Schedule of Subsidiaries of Ride, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
- -----------------------
<TABLE>
<S> <C>
(1) Exhibit is incorporated by reference to an identically numbered exhibit to the Company's
Registration Statement on Form SB-2, file no. 33-75770-LA.
(2) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Amendment No. 1 to Registration Statement on Form SB-2,
file no. 33-75770-LA.
(3) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Registration Statement on Form SB-2, file no.
33-75770-LA, with confidential portions omitted and filed separately
with the Commission pursuant to a Request of Confidential Treatment
under Rule 406 of the Securities Act of 1933.
(4) Exhibit is incorporated by reference to Exhibit No. 10.1 to the Company's Current Report
on Form 8-K, dated August 31, 1994.
(5) Exhibit is incorporated by reference to Exhibit No. 1.1A to the
Company's Amendment No. 1 to Registration Statement on Form SB-2, file
no. 33-75770-LA.
(6) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
(7) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Post-Effective Amendment No. 1 to the Registration
Statement on Form SB-2, file no.
33-75770-LA.
(8) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Post-Effective Amendment No. 2 to the Registration
Statement on Form SB-2, file no.
33-75770-LA.
(9) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Registration Statement on Form S-1, file no. 33-94814.
(10) Exhibit is incorporated by reference to an identically numbered exhibit
to Amendment No. 1 to the Company's Registration Statement on Form S-1,
file no. 33-94814.
(11) Exhibit is incorporated by reference to an identically numbered exhibit
to Amendment No. 1 to the Company's Registration Statement on Form S-1,
file no. 33-94814, with confidential portions omitted and
</TABLE>
<PAGE> 54
<TABLE>
<S> <C>
filed separately with the Commission pursuant to a Request of
Confidential Treatment under Rule 406 of the Securities Act of 1933.
(12) Exhibit is incorporated by reference to an identically numbered exhibit
to Amendment No. 2 to the Company's Registration Statement on Form S-1,
file no. 33-94814.
(13) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated September 1, 1995.
(14) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated October 20, 1995.
(15) Exhibit is incorporated by reference to Exhibit No. 2.1 to the Company's Current Report
on Form 8-K, dated September 1, 1995.
(16) Exhibit is incorporated by reference to Exhibit No. 2.2 to the Company's Current Report
on Form 8-K, dated October 20, 1995.
(17) Exhibit is incorporated by reference to Exhibit No. 1.1 to the Company's
Registration Statement on Form S-1, file no. 33-94814.
(18) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q, for the fiscal quarter
ended September 30, 1995.
(19) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
(20) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996.
(21) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996.
(22) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated October 11, 1996.
(23) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(24) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997.
(25) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997.
(26) Exhibit is incorporated by reference to exhibit 4.6 to the Company's Current Report on
Form 8-K, dated January 8, 1998.
(27) Exhibit is incorporated by reference to exhibit 4.5 to the Company's Current Report on
Form 8-K, dated January 8, 1998.
(28) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated January 8, 1998.
</TABLE>
<PAGE> 55
<TABLE>
<S> <C>
(29) Exhibit is incorporated by reference to exhibit 4.4 to the Company's Current Report on
Form 8-K, dated January 8, 1998.
* Certain portions of this exhibit have been omitted and filed separately
with the Commission pursuant to an Application for Confidential
Treatment.
</TABLE>
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated December 19, 1997, related to the
private placement of Series B Convertible Preferred Stock.
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
RIDE, INC.
-----------------------------------
(Registrant)
/s/ ROBERT E. HALL
-----------------------------------
Robert E. Hall
Chief Executive Officer and President
DATE: March 12, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dated indicated
<TABLE>
<S> <C> <C>
/s/ ROBERT E. HALL Chief Executive Officer, President and Director Date: March 12, 1998
- --------------------------
Robert E. Hall (Principal Executive Officer)
/s/ G. SCOTT STEWART Sr. Vice President and Chief Financial Officer Date: March 12, 1998
- --------------------------
G. Scott Stewart (Principal Financial and Accounting Officer)
/s/ MARK M. SALTER Director Date: March 12, 1998
- --------------------------
Mark M. Salter
/s/ CORY J. HECHLER Director Date: March 12, 1998
- --------------------------
Cory J. Hechler
/s/ GERALD B. WASSERMAN Director Date: March 12, 1998
- --------------------------
Gerald B. Wasserman
</TABLE>
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
Manual
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
21.1 Schedule of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
<PAGE> 58
RIDE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Additions
-----------------------------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
----------- --------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances deducted
from asset accounts
Allowance for bad debts $ 655 $ 361 $109(1) $ 200(2) $ 925
Inventory reserves $5,916 $ 42(1) $3,919(3) $2,039
YEAR ENDED DECEMBER 31, 1996
Reserves and allowances deducted
from asset accounts
Allowance for bad debts $ 359 $ 495 $ 199(2) $ 655
Inventory reserves $ 100 $6,500 $ 684(3) $5,916
YEAR ENDED DECEMBER 31, 1995
Reserves and allowances deducted
from asset accounts
Allowance for bad debts $ 143 $ 253 $ 44(1) $ 81(2) $ 359
Inventory reserves $ -- $ 60 $130(1) $ 90(3) $ 100
</TABLE>
(1) Amounts acquired in purchase acquisitions.
(2) Uncollectible accounts written off, net of recoveries.
(3) Cost of goods sold in excess of net realized value and obsolete inventories
written off, net of recoveries.
<PAGE> 1
EXHIBIT 21.1
Subsidiary List
as of December 31, 1997
The following sets forth the wholly-owned subsidiary corporations of Ride, Inc.
(a Washington corporation):
1. Ride Manufacturing, Inc. (a California corporation)
2. SMP Clothing, Inc. (a Washington corporation)
3. Ride Snowboard Company (a Washington corporation)
(a) Preston Binding Company (a Washington corporation)
(a subsidiary of Ride Snowboard Company)
4. Ride Canada, Inc. (an Ontario corporation)
5. Ride International, Inc. (a Barbados corporation)
6. Smiley Hats, Inc. (a Nevada corporation)
7. Carve, Inc. (a Washington corporation)
<PAGE> 1
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-92034) pertaining to the Ride Snowboard Company 1994 Stock Option
Plan and Ride Snowboard Company 1994 Directors Nonqualified Stock Option Plan
and in the Registration Statement (Form S-8 No. 33-81029) pertaining to the
Ride, Inc. 1995 Employee Stock Purchase Plan and Ride, Inc. foreign Subsidiary
1995 Employee Stock Purchase Plan of our report dated March 3, 1998, with
respect to the consolidated financial statements and schedule of Ride, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1997
filed with the Securities and Exchange Commission.
Seattle, Washington
March 12, 1998 ERNST & YOUNG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000917734
<NAME> RIDE INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,332
<SECURITIES> 0
<RECEIVABLES> 12,588
<ALLOWANCES> 925
<INVENTORY> 6,564
<CURRENT-ASSETS> 23,166
<PP&E> 7,925
<DEPRECIATION> 2,255
<TOTAL-ASSETS> 40,995
<CURRENT-LIABILITIES> 7,958
<BONDS> 0
0
3,341
<COMMON> 42,393
<OTHER-SE> (14,664)
<TOTAL-LIABILITY-AND-EQUITY> 40,995
<SALES> 36,475
<TOTAL-REVENUES> 36,475
<CGS> 26,656
<TOTAL-COSTS> 26,656
<OTHER-EXPENSES> 26,878
<LOSS-PROVISION> 361
<INTEREST-EXPENSE> 231
<INCOME-PRETAX> (17,290)
<INCOME-TAX> (595)
<INCOME-CONTINUING> (16,695)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,695)
<EPS-PRIMARY> (1.51)
<EPS-DILUTED> (1.51)
</TABLE>
