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 March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-24556
MARKER INTERNATIONAL
(Exact name of registrant as specified in its charter)
Utah 87-0372759
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 West 2300 South
Salt Lake City, Utah 84119
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 972-2100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of voting stock held by non-affiliates of
the Registrant as of June 30, 1998 (based upon the average of closing bid and
ask prices as of such date) was $11,742,296.
The number of shares of Common Stock outstanding as of June 30, 1998
was 11,130,577.
Documents incorporated by reference: None.
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FORM 10-K
MARKER INTERNATIONAL
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TABLE OF CONTENTS
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PART I
Page
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ITEM 1 Business............................................... 3
ITEM 2 Properties............................................. 12
ITEM 3 Legal Proceedings...................................... 13
ITEM 4 Submission of Matters to a Vote of Security Holders.... 13
PART II
ITEM 5 Market for the Registrant's Common Equity
and Related Stockholder Matters.............. 14
ITEM 6 Selected Consolidated Financial Data................... 15
ITEM 7 Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations...... 16
ITEM 8 Consolidated Financial Statements and
Supplementary Data........................... 23
ITEM 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............ 23
PART III
ITEM 10 Directors and Executive Officers of the Registrant..... 24
ITEM 11 Executive Compensation................................. 27
ITEM 12 Security Ownership of Certain Beneficial
Owners and Management........................ 29
ITEM 13 Certain Relationships and Related Transactions......... 30
PART IV
ITEM 14 Exhibits, Consolidated Financial Statement
Schedules and Reports on Form 8-K.............. 33
SIGNATURES................................................................ 40
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PART I
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This form 10-K contains 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). Additional written or oral forward-looking statements may be made by
the Company from time to time, in filings with the Securities and Exchange
Commission or otherwise. 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 acquisition or sale 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, when used in this discussion, 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 on Form 10-K.
Statements in this Annual Report, particularly in "Item 1. Business," "Item 3.
Legal Proceedings," the Notes to Consolidated Financial Statements and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe certain factors, among others, that could contribute to or
cause such differences. Other factors that could contribute to or cause such
differences include, but are not limited to, unanticipated developments in any
one or more of the following areas: the rate and consumer acceptance of new
product introductions, competition, the number and nature of customers and their
product orders, pricing, foreign manufacturing, sourcing and sales (including
foreign government regulation, trade and importation concerns and fluctuation in
exchange rates), borrowing costs, changes in taxes due to changes in the mix of
U.S. and non-U.S. revenue, pending or threatened litigation, the availability of
key personnel and other risks factors which may be detailed from time to time in
the Company's Securities and Exchange Commission filings.
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.
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Item 1. Business
Recent Events
At March 31, 1998, the Company was not in compliance with certain
financial covenants under a $25 million line of credit agreement with a U.S.
Bank with aggregate outstanding borrowings under such agreement of $24.9
million. As of June 1998, the Company has notified such bank that the Company
believes it has insufficient cash to fund its obligations. The Company requested
that the bank increase the $25 million credit line (the "U.S. Credit Line") by
up to $10 to $12 million. On June 26, 1998 the bank notified the Company that it
was unwilling to increase the $25 million credit line and that the Company
should seek to cure the non-compliance within 30 days. While the Company and the
bank are discussing alternatives to mitigate the Company's financial
difficulties, there can be no assurance that satisfactory agreements will be
reached between the Company and current or prospective lenders. In the event
that the non-compliance is not cured, the bank may exercise its rights to demand
payment of all amounts and/or foreclose on the Company's assets which are
pledged as collateral under the agreement which could also lead to
cross-defaults under the Company's other credit arrangements. In that event,
there can be no assurance that the Company will be able to continue as a going
concern.
In May 1998, the Company's Board of Directors retained an independent
firm to assist the Company in developing and implementing a restructuring plan,
while negotiating a refinancing with its lenders. In addition, on June 23, 1998,
the Board of Directors authorized the disposal of the Company's snowboard
manufacturing operations if such disposal were subsequently determined by senior
management to be in the best interests of the Company. In addition to the
manufacturing operations, the Board of Directors is evaluating the Company's
snowboard business, which may result in changes to the Company's overall
snowboard operations.
The Company is in the process of evaluating the financial impact of
these events which could vary significantly depending on whether the Company
decides to totally dispose of its entire snowboard business. At March 31, 1998,
the Company had total consolidated assets related to its snowboard operations of
approximately $25.2 million, which included approximately $7.9 million of
goodwill. In addition, at March 31, 1998, the Company's snowboard manufacturing
equipment is under a seven year operating lease with remaining minimum lease
payments of $3.0 million. There can be no assurance that future benefits from
these asset amounts will be realized in light of the events described above, or
that additional liabilities and costs will not arise that are not presently
reflected in the March 31, 1998 consolidated financial statements. All of the
above could have a material adverse effect on the financial condition of the
Company.
In addition, subsequent to year end, in accordance with the bond
agreements, the Series A Bondholder exercised its redemption privilege and
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called for payment of one Series A-1 bond for $2.0 million, due October 1, 1998
and one Series A-2 bond for $2.5 million, due December 16, 1998 (see Note 3).
Although the Company is seeking alternatives which, among other things,
include restructuring the Company, obtaining additional financing or entering
into a new business alliance, there can be no assurance that the Company will be
successful in such endeavors. Accordingly, the Company may not be able to
continue as a going concern and, among other things, could be forced to seek
protection from its creditors.
General
Marker International ("Marker" or the "Company") is a leading designer,
developer, manufacturer and marketer of alpine ski bindings in the United States
and throughout the world. Marker International is a holding company which
operates its alpine ski binding business through its subsidiaries, Marker
Deutschland GmbH ("Marker Germany"), Marker USA, Marker Japan Co., Ltd. ("Marker
Japan"), Marker Austria GmbH ("Marker Austria") and Marker Canada, Ltd. ("Marker
Canada"). Substantially all of the Company's ski bindings are manufactured by
Marker Germany, which also distributes bindings in Germany, to subsidiaries of
the Company, and to independent distributors in countries where the Company does
not have a distribution subsidiary.
Marker Ltd., also a subsidiary of the Company, designs, distributes and
sells to retailers the Company's clothing, gloves and luggage products for
skiing and other recreational activities. The principal markets for the
Company's clothing, gloves and luggage products are North America, Europe and
Asia.
In addition, Marker International, is a designer, developer,
manufacturer and marketer of snowboards, Interface Step-in SystemsTM,
traditional snowboard bindings and snowboard boots. Marker International
operates it snowboard business through its 80% owned subsidiary, DNR Sportsystem
Ltd. ("DNR"), and its and wholly-owned subsidiaries, DNR USA, Inc.("DNR USA"),
DNR North America, Inc. ("DNR North America") and DNR Japan Co., Ltd. ("DNR
Japan"). DNR designs, develops and distributes snowboards and related products.
DNR USA manufactures snowboards for distribution under the Santa CruzTM and
MarkerTM brand names. DNR North America and DNR Japan, through their own sales
force, market snowboards, Interface Step-in SystemsTM, snowboard bindings and
boots directly to retailers in the United States and Japan, respectively.
In June of 1995, the Company acquired a 25% equity interest in DNR. In
June of 1996, the Company acquired an additional 55% of the common shares of
DNR, bringing its total ownership in DNR to 80%. The Company's 80% interest in
DNR is held by the Company's wholly-owned subsidiary, Marker AG.
In July of 1996, the Company closed a secondary public offering of the
Company's Common Stock. In connection therewith, the Company issued 2,680,000
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shares of Common Stock, including 180,000 shares issued in connection with the
closing of the underwriters over-allotment option. The Company received
aggregate net proceeds of approximately $14.8 million and utilized such net
proceeds to partly finance the purchase of the additional shares of DNR.
The Company formed DNR USA in 1997, to manufacture snowboards at a
production facility in Salt Lake City, Utah. In addition, the Company formed DNR
North America and DNR Japan, as distribution companies for snowboards and
related products in the United States and Japan, respectively.
In January of 1997, the Company completed construction of its 56,608
square foot snowboard manufacturing facility located in Salt Lake City, Utah.
Subsequent to year-end the Company decided to cease and dispose of its snowboard
manufacturing operations (see Item 1. Business Recent Events).
Products
Ski Bindings
------------
The Company designs, develops, manufactures and distributes ski
bindings consisting of more than 25 high quality models. The models range from
high performance racing models, such as the Logic M9.1 Turbo SC RacingTM and
other top-end models featuring the Company's patented Selective Control
SystemTM, BiometricTM Programmed Upward Release and Comshock PistonTM, to the
children's M9 model. Suggested retail prices in the United States of such models
range from $120 to $395. Several models are available in a variety of colors
selected by the Company based on an analysis of consumer preferences.
In addition to a ski binding's primary function of attaching a ski to a
ski boot, the binding serves as a safety mechanism. The timing of a binding's
release mechanism is significant in both its retention and release functions.
When a skier applies an amount of force to a ski binding that exceeds the safety
setting of the binding, the binding is designed to release the ski boot from the
ski in order to decrease the risk of injury to the skier. Therefore, a binding
must be designed to recognize specific levels of force exerted against it.
Marker bindings feature LogicTM, BiometricTM, Edge Pressure SystemTM
and Gliding AFDTM technology. The Company's patented technology tightly couple
the ski boot and binding, resulting in a binding system that is designed not to
be affected by contamination between the ski boot and binding and provide more
power to the ski, less fatigue to the skier.
Snowboard, Interface, Bindings and Boots
----------------------------------------
The Company designs, develops, manufacturers and distributes snowboards
and offers several models designed for novice to world-class snowboard riders.
The Company's line of snowboards accommodates the needs of a full range of
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snowboarding styles, including racers, freeriders, freestylers and freecarvers.
The snowboards range in suggested retail price, in the United States, from
approximately $289 to $429.
The Company seeks to apply innovative technologies to the manufacture
of snowboards. Innovations introduced by the Company include the SplitTM
snowboard which features two independent Lightweight Sensor Wood Cores with
Isocore connecting the cores. Isocore is used in the Company's top-end models to
enhance edge hold and tracking, making it possible to easily and quickly change
the arc of a turn while on edge. Lightweight Sensor Wood Cores are also used in
top-end models to enhance snowboard durability and performance. The use of
torsion frame and carbon torsion frame construction by the Company increases
snowboard edge pressure. In addition to providing technologically advanced
snowboards, the Company believes creative graphics, such as the use of
transparent construction, three-dimensional topsheets and innovative color
schemes, play an important part for its snowboards.
Snowboard bindings connect the snowboard rider to the snowboard and can
have a significant affect on the performance of the board. In 1996, the Company
introduced a technologically advanced soft boot Interface Step-in SystemTM for
snowboarders. The Interface Step-in SystemTM was developed by the Company and
Tecnica(R), a leading ski and snowboard boot manufacturer. The Company believes
that the Interface Step-in SystemTM includes innovative features which provide
entry and exit convenience and incorporates a new soft boot design which offers
comfort, mobility and more precise power transmission and edge pressure
distribution than was previously available in the industry. The Company
continues to make modifications and improvements to the Interface Step-in
System(TM). The Interface Step-in SystemTM has a suggested retail price, in the
United States, ranging from $298 to $368.
Soft Goods
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The Company designs, distributes and markets apparel for adults and
children, gloves and ski and non-ski luggage. The Company's clothing line
features quality, functional and versatile performance wear for year-round
sports and recreational activities available at a wide range of prices.
In October 1995, Marker Ltd. was selected by the Salt Lake Olympic
Organizing Committee for the 2002 Olympic Winter Games ("SLOC") as a licensee
for the sale of winter outerwear, polar fleece, luggage and gloves with the
imprint and embroidery of the 2002 Olympic Winter Games. In February 1996,
Marker Ltd. was selected as a licensee for sale of T-shirts, sweatshirts, golf
shirts and related apparel with the imprint and embroidery of the 2002 Olympic
Winter Games. In January 1998, both of these agreements were extended through
December 31, 1998.
The Company's apparel lines, gloves and luggage are sold year round to
retailers mainly in the United States through Marker Ltd.'s own sales force.
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Marketing
The Company actively advertises and markets its products. The Company
spends the majority of its advertising budget on advertisements in ski and
snowboard magazines, such as Skiing Magazine, Ski Magazine, Snow Country, Powder
Magazine, Snowboarder and Transworld Snowboarding in the United States, and
similar magazines in foreign markets.
To increase brand recognition, in addition to offering technologically
advanced bindings, the Company aggressively markets the Marker brand name. To
influence its presence in retail shops, the Company devotes resources to
maintaining and improving its relationships with retailers and shop personnel so
that they will use Marker products and recommend them to their retail customers.
In this regard, the Company, through its sales force, conducts in-shop sales
clinics. In addition, the Company, as part of the United States Authorized
Retailer Program, requires that all authorized retail shops employ a technician
who has been trained and certified by the Company concerning the installation
and adjustment of Marker bindings. Additionally, the Company sells its bindings
to the sales staff of its retailers and to professional skiers at special prices
so that they will be able to recommend the Company's products as a result of
personal experience.
To foster the recognition of the Marker brand name, the Company also
establishes endorsement relationships with national ski teams and racing
professionals. These endorsement contracts typically run from one to two years
and provide for a base payment to the racer, with additional payments for
placing in a competition. Racers using and endorsing Marker bindings have been
among the winners in World Cup, World Championship and Olympic competitions.
Many of the United States' best-known skiers, including 1998 Olympic Super G
Gold medalist Picabo Street, three-time World Cup Champion and Olympic Gold
medalist Phil Mahre, World Champions Steve Mahre and Tamara McKinney and Olympic
Gold medalist Stein Eriksen, endorse and use Marker bindings.
Many Olympic, World Cup and professional ski competitions have been won
by racers endorsing and using Marker bindings. Skiers endorsing and using Marker
bindings dominated the 1998 Winter Olympic Games held in Nagano, Japan in
February 1998, winning more medals than any other company: 6 Gold, 4 Silver and
5 Bronze. The 1998 Winter Olympic Gold medalists endorsing and using Marker
bindings included Picabo Street of the United States in the Super G, Jonny
Moseley of the United States in the Moguls, Eric Bergoust of the United States
in Aerials, Katja Seizinger of Germany in the Downhill and the Combined, and
Hilde Gerg of Germany in the slalom.
Skiers endorsing and using Marker bindings also excelled in the season
long 1998 FIS World Cup competition. Katja Seizinger is the 1998 Women's Overall
World Cup Champion as well as the 1998 World Cup Downhill and Super G Champion.
Athletes endorsing and using Marker bindings won more World Cup trophies than
those using other bindings on the World Cup. These athletes scored 25 wins,
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finished second 25 times and finished third 14 times out of 70 World Cup events
(37 men, 33 women), more than any other group of athletes endorsing any other
binding on the World Cup circuit. The Company believes that winning World Cup,
World Championship and Olympic competitions at places like St. Anton, Sestrieres
and Nagano increases the Company's visibility in the marketplace. Marker
engineers also use these competitions as opportunities to work with the Marker
skiers to develop new products and to test and refine prototypes, with the goal
of benefiting skiers of all levels.
For its snowboard products, the Company markets the "Santa Cruz(TM)"
and "Marker(TM)" brands through the implementation of product advertising
programs with its distribution subsidiaries and its distributors. The Company
and certain distributors also sponsor teams of professional riders as part of
the Company's marketing and communications strategy. These riders typically
enter into endorsement contracts with the Company, with a length of one to two
years, providing for a base payment to the rider, with additional payments for
placing in a competition. These riders are involved in the testing phase of new
or prototype products and often contribute ideas for future developments. The
riders participate in International, World-Cup, Pro Tour and other events to
promote "Santa Cruz(TM)" and "Marker(TM)" products. The first ever Olympic Gold
Medal in the men's snowboard halfpipe competition at Nagano, Japan was won by
Gian Simmen on a "Santa Cruz(TM)" snowboard manufactured by Marker in Salt Lake
City. Bertrand Denervaud, who rides "Santa Cruz(TM)" snowboards and is the
five-time overall World Pro Tour winner, endorses the Company's products.
Sales
Approximately 60% of the Company's total ski binding orders for each
fiscal year are obtained through its "Pre-Season Sales Program," which runs from
February 1st through September 15th. In clothing, luggage and gloves,
approximately 75% of the total orders for a fiscal year are obtained during this
period. The volume of orders is affected by the volume of the retailers' prior
season's sales and inventory levels. Marker bindings ordered under the
Pre-Season Sales Program are shipped to retailers from July through November and
are recorded by the Company as sales on the date of shipment. This results in
the recording of the majority of the Company's annual sales during its second
and third fiscal quarters. Although certain of Marker's customers have
contributed significantly to the Company's sales, no customer represented more
than 10% of its sales in any of the last three years.
Approximately 35% of the Company's total ski binding orders for each
fiscal year are obtained through its "Reorder Program," which includes products
ordered after September 15th and shipped before March 31st of each year.
Bindings sold under the Reorder Program usually include models in the Company's
existing inventory and products which will be discontinued in the upcoming
season. The success of the Reorder Program primarily affects the Company's third
and fourth fiscal quarter results.
Approximately 5% of the Company's total ski binding orders for a fiscal
year are obtained through its Shop and Pro Programs, which offer reduced pricing
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on the Company's products to retail ski shop employees, ski instructors and
other professionals in the industry. The Company believes that recommendations
from sales persons and professional skiers can be an important factor in
influencing consumer decisions to purchase a particular binding brand.
Sales of the Company's snowboard products have historically occurred
during the pre-season period. As the snowboard market matures and the Company
begins its own distribution in certain major markets, the Company believes that
the sales of snowboard products will begin to approximate the timing of ski
binding sales.
Product Development and Intellectual Property
In order to maintain its leadership position and to continue to offer
technologically advanced ski bindings, snowboards and Interface Step-in SystemTM
bindings, the Company continues to devote resources to improving and developing
its current products and those it will use in the future. The Company's
research, development and design of both ski and snowboard bindings is managed
by the Company's Research and Development Department (the "R&D Department") at
the Company's plant in Eschenlohe, Germany. The Company has developed
substantially all of the Company's proprietary technology used in manufacturing
Marker ski bindings and has acted in partnership with others in the development
of the Interface Step-in SystemTM binding. During fiscal years 1998, 1997 and
1996, the Company's research and development expenses were approximately $4.0
million, $3.1 million, and $2.8 million, respectively.
Product development is a result of the integrated efforts of the
Company's R&D, Manufacturing and Sales departments, all of which work together
to generate new ideas to be incorporated into its products. The Company also
regularly receives suggestions from ski racers and snowboard riders who use the
Company's products. After the Company decides to use a new component in a
product, the R&D Department, with the assistance of machine shop personnel,
integrates the mechanical process and refines the product design and mechanism
of the developing product. Simultaneously with the development of the internal
mechanisms of its products, the Company usually engages an outside firm to
assist in the determination of colors and the integration of shape with the new
technology.
The Company has a state-of-the-art laboratory used for testing products
in the development stage as well as products currently on the market.
Additionally, the laboratory technicians regularly test products produced by the
Company's competitors.
The R&D Department continually develops new components for which the
Company may obtain patents. The Company typically files its patent applications
in the name of Marker International or the appropriate subsidiary. Patent
applications have been filed in the United States, Germany, Japan and, in
certain cases, the countries in which the Company's competitors manufacture ski
bindings or snowboard products. The Company has filed more than 40 patent
applications over the past three years and currently has over 130 families of
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patents and patent applications covering its technology filed in numerous
countries around the world, of which over 35 are devoted to technology currently
in use by the Company.
The Company has been involved in patent disputes with its competitors
in the past. In connection with the resolution of such disputes, the Company has
negotiated settlements which include cross-licensing agreements involving
certain technology believed by the Company to be significant. Based on the
Company's analysis of its competitors' products, the Company believes it may
have present patent infringement claims. The Company has not determined whether
to pursue any such claims, nor is there any assurance that if so pursued, the
Company would be successful on the merits.
The Company markets its products under a number of trademarks
registered in various countries throughout the world. The Company believes that
the MARKER trademark is widely known as identifying high-quality,
high-technology ski bindings and is deemed to be a valuable asset of the
Company. The Company is not aware of any third party violations of its
trademarks.
Competition
The Company competes on the basis of the quality, technology, brand
name recognition and performance of its ski bindings, snowboards and snowboard
bindings, and related products. Other competitive factors include marketing and
distribution methods, customer service and the management of sales promotion
activities.
The Company devotes resources to establishing and maintaining strong
relationships with retailers and shop personnel through sales clinics, technical
training and certification, and discounted prices to shop personnel. The Company
believes that its strong relationships with retailers and shop personnel gives
the Company's ski products advantageous shelf space in certain retail outlets
and recommendations from shop personnel.
Ski bindings
------------
The Company's primary competitors are Salomon, Tyrolia, Rossignol and
ESS. Certain of the Company's competitors offer other ski equipment in addition
to ski bindings. Based upon market surveys of the alpine ski binding market in
the United States (computed in dollars), the Company estimates that its share of
the alpine ski binding market was more than 45% for the 1997/98 ski season.
Foreign market surveys available to the Company indicate that its alpine ski
binding market share for such period was more than 40% in Germany and more than
20% in Japan.
Due to existing technological and manufacturing barriers, as well as
the difficulty of overcoming lack of brand recognition and quality concerns, the
Company does not anticipate the entry of significant new competitors into the
ski binding market.
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Snowboards, Interface System, Bindings and Boots
------------------------------------------------
The snowboard industry has continued to grow over the past several
years. Growth attracts entrepreneurs who bring energy and creativity to the
industry. The snowboard industry appears to have reached its natural growth
limits, with supply exceeding demand. The excess supply has resulted in a
consolidation of snowboard brands and resulted in excess inventory at both the
production and retail levels.
Raw Materials
The Company requires various readily available metals, fiber glass,
woods and plastics to manufacture its ski bindings, snowboard bindings and
snowboards. The Company furnishes its suppliers with the tooling for the metals
and moldings for the plastics used in production. The suppliers then provide the
Company with the required parts. The Company believes it is not dependent on any
one supplier or any group of suppliers for the raw materials necessary to
manufacture its bindings and snowboards.
Seasonality
The Company's business is seasonal in nature and results of operations
vary from quarter to quarter. Orders for the Company's products from retailers
and distributors are the highest during the Company's first fiscal quarter,
which ends June 30. The Company ships its products to fill those orders, and
records significant sales, during its second and third fiscal quarters. The
Company collects a substantial portion of its receivables during its third and
fourth fiscal quarters. Due to the seasonality of the Company's business, the
Company typically experiences losses or nominal profits in its first and fourth
fiscal quarters and profits in its second and third fiscal quarters.
Working Capital
Historically, the Company satisfies its working capital needs from
credit facilities obtained from banks as addressed in Management's Discussion
and Analysis, set forth in Item 7, below.
Employees and Labor Relations
None of the Company's approximately 700 full-time and part-time
worldwide employees are unionized. In Germany, where more than 450 individuals
are employed by the Company, the employees are represented by a worker's
council. As required by German law, one of the council members is paid by the
Company to represent the interests of the workers. The Company believes that its
relations with its employees are good.
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The Company was incorporated in 1981 under the laws of the State of
Utah. The Company's principal executive offices are located at 1070 West 2300
South, Salt Lake City, Utah 84119 and its telephone number is (801) 972-2100.
Regulations
Federal, state and local environmental regulations have not had, and
are not expected to have, any material adverse effect upon the expenditures,
earnings or competitive position of the Company.
Foreign and Domestic Operations and Exports
Information regarding the Company's operations and assets by geographic
region for the fiscal years ended March 31, 1998, 1997 and 1996 appears in Note
11 of the Notes to Consolidated Financial Statements contained herein.
Item 2. Properties
The Company owns its 57,000 square foot combined headquarters and
western United States distribution facility located in Salt Lake City, Utah,
which was completed in fiscal 1995. The Company's headquarters and distribution
facility is suited to the Company's business and is presently being utilized at
approximately 70% of its productive capacity. The Company also leases an 8,600
square foot warehouse in Manchester, New Hampshire for use as its eastern United
States distribution hub. The Company believes that the additional warehouse
space is adequate to meet the needs of the Company's eastern customers.
The Company leases a 124,146 square foot office, research and
development and manufacturing facility in Germany. Nearly all of the Company's
binding products are manufactured at this facility which houses technologically
advanced production and quality assurance machinery. The Company believes that
the facility is well suited to meet the manufacturing needs of the Company and
is presently utilized at approximately 65% of total capacity. The lease for the
manufacturing facility expires in 2012.
The Company also leases three offices in Japan from which sales and
distribution activities are directed. These offices are located in the cities of
Tokyo, Sapporo and Osaka and comprise approximately 3,500, 500 and 675 square
feet, respectively. In addition, Marker Japan leases warehouse space for
inventory storage in Tokyo and Osaka totaling approximately 12,900 and 1,075
square feet, respectively. Management believes that these facilities are
suitable for the required operational needs of Marker Japan.
The Company owns a 56,608 square foot snowboard manufacturing facility
located on approximately five acres of land which are owned by the Company and
are adjacent to the Company's headquarters in Salt Lake City.
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DNR leases a 2,580 square foot property in Zurich, Switzerland where
its headquarters are located, and a 1,507 square foot property also in Zurich,
where its marketing and sales force is located. The lease for the 2,580 square
foot headquarters property expires in March 2001. The lease for the 1,507 square
foot sales and marketing facility will expire September 30, 1998 and will not be
renewed. All operating activities for DNR Sportsystem will be housed in the
2,580 square foot facility subsequent to September 1998.
During fiscal year 1998, the Company began leasing a 4,700 square foot
facility in St-Laurent, Quebec to house sales and administration staff for
Marker Canada. Warehouse space in Canada is leased as needed from a public
warehouse.
Item 3. Legal Proceedings
On March 18, 1998, Thomas P. Sims ("Sims") and the Company agreed to
end their then on-going arbitration proceedings and to release all claims and
counterclaims against each other with no monetary exchange. The settlement ended
all disputes between Sims, Sims Sports, Inc., Marker International, and related
parties which began in September, 1996. The disputes related to a license
agreement between Sims and DNR for the production and distribution of snowboards
and related products bearing the Sims trademark.
In the opinion of the Company, neither the Company nor any of its
subsidiaries is currently a party to or subject to any other material pending
legal proceedings. The nature of the sports of skiing and snowboarding entail
inherent risks of injury. It is expected that the Company from time to time will
be subject to claims and lawsuits as a result of the nature of its businesses.
The Company maintains insurance that it believes meets industry standards to
protect itself against product liability claims. The adequacy of the insurance
coverage and reserves established by the Company to cover known, as well as
incurred but unknown, product liability claims are evaluated at the end of each
fiscal year. There can be no assurance, however, that such coverages or reserves
will be sufficient protection against any future legal proceedings (including
any related payments, settlements or costs).
In September 1995, the Company, along with other significant companies
in its business, received a letter from the Department of Justice (the "DOJ")
explaining that the pricing practices of the various companies in the ski
industry were being reviewed. Although to date the Company has not received
additional correspondence from the DOJ, there can be no assurance that the DOJ
will not pursue these matters further.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered in this report.
13
<PAGE>
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The following table sets forth high and low prices for the common stock
as quoted on NASDAQ National Market under the symbol "MRKR" during the periods
indicated.
Quarter Ended High Low
------------- ---- ---
1996
----
March 31 12.38 7.13
June 30 8.88 7.00
September 30 9.75 5.75
December 31 9.50 5.38
1997
----
March 31 5.75 4.13
June 30 4.88 2.75
September 30 7.25 3.13
December 31 5.63 3.41
1998
----
March 31 4.50 3.13
June 30 3.69 1.63
Since over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
Based upon information available from the Company's registrar and
transfer agent, the Company estimates that at June 30, 1998 there were
approximately 1,800 holders of record of the Company's common stock.
Dividend Policy
No dividends have been declared on the Company's common stock since
1984 and the Company does not anticipate paying any dividends in the foreseeable
future. It is the present intention of the Board of Directors to retain all
earnings for working capital purposes.
14
<PAGE>
Item 6. Selected Consolidated Financial Data
The following consolidated financial information is provided for the
last five fiscal years. The information is qualified in its entirety by, and
should be read in conjunction with, the Consolidated Financial Statements and
Notes thereto included herein (in thousands, except per share data and notes).
<TABLE>
<CAPTION>
Consolidated Income Statement Data for Fiscal Year Ended March 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 94,271 $ 126,403 $ 87,911 $ 83,962 $ 82,637
Cost of sales 63,917 80,531 52,608 48,878 49,572
--------- --------- --------- --------- ---------
Gross profit 30,354 45,872 35,303 35,084 33,065
--------- --------- --------- --------- ---------
Operating expenses:
Selling 15,315 15,553 14,592 13,049 13,029
General and administrative 11,447 12,840 10,559 9,314 9,316
Research and development 3,951 3,141 2,762 2,349 2,158
Warehouse and shipping 2,255 1,827 1,566 1,455 1,343
Amortization of goodwill and
intangibles 735 621 - - -
Loss from write down of goodwill and
intangibles 8,000 - - - -
--------- --------- --------- --------- ---------
Total operating expenses 41,703 33,982 29,479 26,167 25,846
--------- --------- --------- --------- ---------
Operating (loss) income (11,349) 11,890 5,824 8,917 7,219
--------- --------- --------- --------- ---------
Other income (expense):
Interest expense (5,794) (5,104) (5,193) (4,999) (4,316)
Investment in unconsolidated
subsidiary - (281) 1,595 - -
Other, net 152 1,274 2,072 1,584 826
--------- --------- --------- --------- ---------
Total other income (expense) (5,642) (4,111) (1,526) (3,415) (3,490)
--------- --------- --------- --------- ---------
(Loss) income before income taxes,
minority interest and cumulative
effect of accounting change (16,991) 7,779 4,298 5,502 3,729
Provision for income taxes (522) (1,656) (609) (1,395) (510)
Minority interest 184 (1,521) - - -
--------- --------- --------- --------- ---------
(Loss) income before cumulative effect
of accounting change (17,329) 4,602 3,689 4,107 3,219
Cumulative effect of accounting change,
net of tax - - (266) - -
--------- --------- --------- --------- ---------
Net (loss) income $ (17,329) $ 4,602 $ 3,423 $ 4,107 $ 3,219
========= ========= ========= ========= =========
Net (loss) income applicable to common
shares $ (17,329) $ 4,602 $ 3,423 $ 3,653 (1) $ 1,803 (1)
========= ========= ========= ========= =========
Net (loss) income per common share:
Basic $ (1.56) $ 0.45 $ 0.41 (2) $ 0.50 $ 0.31
========= ========= ========= ========= =========
Diluted $ (1.56) $ 0.45 $ 0.40 (2) $ 0.50 $ 0.31
========= ========= ========= ========= =========
</TABLE>
_____________
(1) Net income applicable to common shares reflects the following transactions
as if they occurred on April 1, 1993 (the beginning of fiscal 1994): (a)
the exchange of Series A preferred stock (including the premium thereon)
for 378,572 shares of Common Stock resulting in the elimination of
dividends totaling approximately $87,000 and $387,000 for the fiscal years
ended March 31, 1995 and 1994, respectively, (b) the exchange of Series
A-1, A-2 and A-3 redeemable preferred stock for $19 million aggregate
principal amount of Series A-1, A-2 and A-3 bonds resulting in the
treatment of dividends totaling approximately $454,000 and $1,416,000 as
interest expense net of the related tax effect for the fiscal years ended
March 31, 1995 and 1994, respectively, and (c) the 3,604 to 1 stock split
of the Company's outstanding Common Stock.
(2) For the fiscal year ended March 31, 1996, the cumulative effect of
accounting change (CEC) decreased net income per common share $0.03 per
share. This resulted in diluted net income per common share before CEC of $
0.43 and after CEC of $ 0.40.
15
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data at March 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Current assets $ 77,614 $ 78,271 $ 64,592 $ 66,856 $ 45,093
Total assets 105,120 117,140 87,265 82,998 56,540
Current liabilities 70,868 57,146 51,045 44,930 36,922
Long-term debt, net of
current maturities 14,898 16,487 5,452 6,244 3,324
Series A Bonds, net of
current maturities 5,500 10,000 10,000 13,500 --
Minority Interest 1,447 1,810 -- --
Redeemable preferred stock -- -- -- -- 19,000
Total shareholders'
equity (deficit) 12,407 31,697 20,768 18,324 (2,706)
</TABLE>
Item 7. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
Overview
Marker International is a leading designer, developer, manufacturer and
marketer of alpine ski bindings in the United States and throughout the world.
The Company is a holding company which operates through its subsidiaries, Marker
Germany, Marker USA, Marker Japan, Marker Austria and Marker Canada.
Substantially all of the Company's ski bindings are manufactured by Marker
Germany, which also distributes bindings in Germany, to subsidiaries of the
Company and to independent distributors in countries where the Company does not
have a distribution subsidiary. Marker USA and Marker Japan each has its own
sales force and marketing departments for sales and marketing of bindings and
related parts directly to retailers in the United States and to both retailers
and wholesalers in Japan, respectively. In January 1998, Marker Canada began its
own distribution of Marker ski bindings and snowboard equipment along with other
brand name sporting equipment, including, Tecnica ski boots, in-line skates,
trekking boots and Volkl skis and tennis equipment Marker Austria distributes
the Company's ski bindings into Austria through an independent sales force.
Marker Ltd., also a subsidiary of the Company, designs, distributes and
sells to retailers the Company's clothing, gloves and luggage products for
skiing and other recreational activities. The principal markets for the
Company's products are North America, Europe and Asia.
In addition, the Company, is a designer, developer, manufacturer and
marketer of snowboards, Interface Step-in SystemsTM, traditional snowboard
bindings and snowboard boots. The Company operates its snowboard business
through its 80% owned subsidiary, DNR , and its wholly-owned subsidiaries, DNR
USA, DNR North America and DNR Japan. DNR designs, develops and distributes
snowboards and related products. Currently, DNR USA manufactures snowboards for
distribution under the Santa CruzTM and MarkerTM brand names. Subsequent to
16
<PAGE>
year-end the Board of Directors authorized the disposal of the Company's
snowboard manufacturing operations if such disposal were subsequently determined
by senior management to be in the best interests of the Company. DNR North
America and DNR Japan, through their own sales force, market snowboards,
Interface Step-in SystemsTM, snowboard bindings and boots directly to retailers
in the United States and Japan, respectively.
Marker Germany receives payment primarily in German Marks ("Marks") for
ski bindings sold. For subsidiaries of the Company (principally Marker USA and
Marker Japan), Marker Germany may allow payment for ski bindings sold to be made
in the functional currency of the subsidiary. Marker Germany or the distribution
subsidiary, as applicable, routinely enters into forward foreign exchange
contracts with financial institutions in order to fix the cost of converting the
functional currency to Marks. Sales prices for the ski bindings offered to the
subsidiaries and ultimately the price the subsidiaries offer for the sale of the
ski bindings to their customers is based upon, among other things, the rate
afforded by the forward foreign exchange contracts and market conditions.
Accordingly, the relationship of the exchange rate between the functional
currency of the subsidiary and the Mark has a direct impact on the cost of the
products sold by the distribution subsidiary.
From fiscal 1995 to fiscal 1996, fiscal 1996 to fiscal 1997, and fiscal
1997 to fiscal 1998, based upon forward foreign exchange contracts entered into
by the Company, the United States dollar ("Dollar") decreased in value 12.3%,
increased in value 2.1% and increased in value 2.7%, respectively, against the
Mark. During the same periods, based upon forward foreign exchange contracts
entered into by the Company, the Japanese yen ("Yen") increased by 1.9%,
increased by 2.7% and decreased by 15.6%, respectively, against the Mark.
Assuming that foreign exchange rates between the Dollar and the Mark, and
between the Yen and the Mark, had remained constant from fiscal 1995 to fiscal
1996, fiscal 1996 to fiscal 1997, and fiscal 1997 to fiscal 1998, the Company's
cost of sales would have decreased by approximately $2.4 million, increased by
approximately $0.7 million, and decreased by approximately $0.7 million,
respectively. The total deferred loss on forward foreign exchange contracts
which were accounted for as hedges of firm commitments was approximately $1.1
million at March 31, 1998.
In accordance with United States generally accepted accounting
principles, upon consolidation of the Company's financial statements, the income
and expense items of the Company's foreign subsidiaries are translated at the
weighted average rates of exchange prevailing during the period. Therefore,
Marker's results of operations are subject to translation risks and can vary as
a result of fluctuations in the exchange rates between the functional currencies
of such foreign subsidiaries and the Dollar.
In addition, upon consolidation of the Company's financial statements,
the assets and liabilities of the Company's foreign subsidiaries are translated
into Dollars from their functional currencies at the rate of exchange on the
last day of the fiscal year. Therefore, Marker's consolidated assets
17
<PAGE>
and liabilities may vary as a result of fluctuations in the exchange rates
between the functional currencies of such foreign subsidiaries and the Dollar.
The resulting translation adjustments from foreign currency fluctuations are
recorded in shareholders' equity as cumulative foreign currency translation
adjustments.
The Company's business is seasonal in nature and results of operations
vary from quarter to quarter. Orders for the Company's products from retailers
are highest during the Company's first fiscal quarter, which ends June 30. The
Company ships its products to fill those orders, and records a significant
portion of its annual sales, during its second and third fiscal quarters. The
Company then collects a substantial portion of its receivables during its third
and fourth fiscal quarters. In accordance with industry practice, a substantial
portion of the Company's accounts receivable remains outstanding for five to six
months and a small percentage remains outstanding for up to eight months. These
factors result in variations in the Company's results of operations and cash
flows.
Results of Operations
Fiscal 1998 Compared to Fiscal 1997
The Company's net sales decreased 25.4% in fiscal 1998 to $94.3
million, compared to $126.4 million in fiscal 1997. The decrease in net sales
related primarily to the Company's snowboard business. The Company was enjoined
from the distribution of Sims branded products in fiscal 1998 which accounted
for more than $29.0 million in sales in fiscal 1997. As a result of the
settlement reached with Sims Sports, Inc. (see Legal Matters), the Company no
longer distributes Sims branded snowboards. In addition, the Company believes
the snowboard industry experienced a significant oversupply problem which began
in late fiscal 1997 and continued throughout fiscal 1998. This oversupply
contributed to the lower sales of the Company's snowboard products. The Company
is currently evaluating its snowboard operations worldwide. The Company's ski
binding sales in fiscal 1998 were relatively level with fiscal 1997, while
softgood sales increased by approximately $3.5 million in fiscal 1998, compared
to fiscal 1997.
Gross profit for fiscal 1998 decreased to $30.4 million, and decreased
as a percentage of sales to 32.2%, compared to $45.9 million, or 36.3% of sales,
for fiscal 1997. The reduction in gross profit percentage was related primarily
to the Company's snowboard operations. In fiscal 1998, the Company had its first
full year of production at its newly completed snowboard manufacturing facility
in Salt Lake City. Lower demand for snowboards in fiscal 1998 resulted in
under-utilization of the manufacturing facility which caused the manufacturing
facility to operate at a negative gross margin. This negative gross margin
contributed to approximately 2% of the gross profit percentage decrease in
fiscal 1998. The lower demand for snowboard products also resulted in lower
sales prices which lowered the overall gross margin.
18
<PAGE>
Operating expenses increased to $41.7 million for fiscal 1998, compared
to $34.0 million for fiscal 1997. The primary cause for the increase in
operating expenses was $8.0 million non-cash charge for the write-down of
goodwill and intangibles related to the DNR operations which were acquired in
two parts during fiscal 1996 and 1997. The write-down related to the termination
of the Sims license. Excluding the non-cash write-down, operating expenses
decreased by $0.3 million. As a percentage of net sales, operating expenses
increased from 26.9% in fiscal 1997 to 44.2% in fiscal 1998. The increase is a
result of lower net sales and higher operating expenses, including the
write-down of goodwill, during fiscal 1998 as compared to fiscal 1997.
Interest expense increased approximately $0.7 million to $5.8 million
for fiscal 1998, compared to $5.1 million for fiscal 1997. The increase is the
result of higher average outstanding balances on the Company's existing line of
credit arrangements and higher weighted average interest rates on the credit
lines for fiscal 1998 as compared to fiscal 1997.
Other income items decreased to $0.2 million in fiscal 1998, compared
to $1.0 million in fiscal 1997. The decrease is attributable in part to forward
foreign exchange contracts held by the Company at March 31, 1998, which were not
accounted for as hedging transactions. As a result, the Company adjusted the
contracts to market value and recorded a loss of approximately $1.3 million,
which has been recorded in other expense.
The provision for income taxes decreased from $1.7 million in fiscal
1997 to approximately $0.5 million in fiscal 1998. The decrease in the provision
for income taxes was attributable to lower pre-tax income.
Fiscal 1997 Compared to Fiscal 1996
The Company's net sales for the fiscal year ended March 31, 1997
increased to $126.4 million, compared to $87.9 million in fiscal 1996. The
increase in net sales is attributable to the consolidation of approximately
$43.8 million of DNR's net sales into the Company's operating results for the
year ended March 31, 1997. Net sales decreased by approximately $4.4 million as
a result of the weighted average rates of exchange used to consolidate the sales
of the German and Japanese subsidiaries from their functional currency to
Dollars.
During fiscal 1997, Sims terminated a license agreement (the "Sims
License") between DNR and Sims. The Sims License required that DNR pay Sims
certain royalties as a percentage of DNR's gross sales arising from products
sold under the Sims brand and that the Sims products comprise at least 60% of
DNR's total sales.
Gross profit for fiscal 1997 increased to $45.9 million, but decreased
as a percentage of sales to 36.3%, compared to $35.3 million, or 40.2% of sales,
for fiscal 1996. The increase in gross profit was attributable to the
19
<PAGE>
consolidation of DNR's operating results. The decrease in gross profit as
apercentage of sales was primarily a result of lower gross margins recognized by
DNR, compared to the consolidated margin percentage of the Company's other
subsidiaries. Historically, DNR has recognized gross margin only on sales of its
products to distributors at the wholesale level, unlike the Company's other
subsidiaries, which have recognized gross margin from sales of their products at
the production, wholesale and distribution levels.
Operating expenses increased to $34.0 million for fiscal 1997, compared
to $29.5 million for fiscal 1996. The overall increase in operating expenses was
primarily a result of the consolidation of DNR's operating expenses of
approximately $5.0 million with those of the Company. Operating expenses
decreased for both Marker Germany and Marker Japan as a result of changes in the
foreign exchange rates used to consolidate the operating expenses of those
entities, from their functional currency to Dollars. Research and development
expenses increased as a result of research and development for the new Logic 1TM
series alpine ski binding and the consolidation of DNR's research and
development expenses during fiscal 1997, compared to fiscal 1996.
Interest expense decreased to approximately $5.1 million for fiscal
1997, compared to $5.2 million for fiscal 1996. The primary reasons for the
decrease in interest expense were a lower outstanding balance of Series A Bonds,
lower interest rates on various other borrowings and the effect of the foreign
exchange rates used for consolidation. The decrease was offset in part by a
corresponding increase in interest expense as a result of higher borrowings
related to the purchase of DNR.
Other income items decreased to $1.0 million in fiscal 1997, compared
to $3.7 million in fiscal 1996. The decrease was attributable to recognition of
the Company's equity share of an unconsolidated subsidiary's net income, which
totaled approximately $1.6 million for fiscal 1996, but which was a net loss of
$0.3 million for fiscal 1997. In addition, during fiscal 1997 and fiscal 1996,
the Company purchased and sold foreign exchange options and forward foreign
exchange contracts, which were not accounted for as hedges and resulted in the
Company recording net gains of approximately $0.8 million and $1.0 million,
respectively.
The provision for income taxes increased from approximately $0.6
million in fiscal 1996 to approximately $1.7 million in fiscal 1997. The
provisions for income taxes for the fiscal years ended March 31, 1997 and 1996
were calculated using the estimated consolidated annual effective tax rate which
considers the effective tax rates of domestic and foreign tax jurisdictions. The
increase in the provision for income taxes was primarily a result of increased
pre-tax income for fiscal 1997 compared to fiscal 1996. In addition, in fiscal
1996, the Company's effective tax rate was lower as a result of recognizing
deferred tax assets.
20
<PAGE>
Liquidity and Capital Resources
The Company's primary cash needs are for purchases of raw materials
inventory for production, finished goods inventory, funding of accounts
receivable, capital expenditures and strategic business acquisitions.
Historically, the Company's primary sources of cash for its business activities
have been cash flows from operations and borrowings under its lines of credit
and term loans.
Working capital decreased from $21.1 million at March 31, 1997 to $6.7
million, at March 31, 1998. The decrease in working capital is primarily
attributable to financing increases in accounts receivable, inventory levels and
capital expenditures, and from the Company's net loss.
During fiscal 1998, the Company spent approximately $7.1 million on
capital expenditures which consisted primarily of manufacturing equipment in
Germany and furniture and fixtures and automobiles in the U.S.
At March 31, 1998, the Company's primary sources of liquidity consisted
of $4.2 million in cash and cash equivalents and available borrowings under
lines of credit. At March 31, 1998, the Company had approximately $80.7 million
available borrowings under lines of credit, of which it had borrowed
approximately $48.6 million. The Company's borrowings under lines of credit
typically reach their maximum during the Company's third fiscal quarter. In
fiscal 1998 and 1997, the Company had maximum borrowings outstanding under its
lines of credit of approximately $74.2 and $68.3 million, respectively.
At March 31, 1998, the Company was not in compliance with certain
financial covenants under a $25 million line of credit agreement with a U.S.
Bank with aggregate outstanding borrowings under such agreement of $24.9
million. As of June 1998, the Company has notified such bank that the Company
believes it has insufficient cash to fund its obligations. The Company requested
that the bank increase the $25 million credit line (the "U.S. Credit Line") by
up to $10 to $12 million. On June 26, 1998 the bank notified the Company that it
was unwilling to increase the $25 million credit line and that the Company
should seek to cure the non-compliance within 30 days. While the Company and the
bank are discussing alternatives to mitigate the Company's financial
difficulties, there can be no assurance that satisfactory agreements will be
reached between the Company and current or prospective lenders. In the event
that the non-compliance is not cured, the bank may exercise its rights to demand
payment of all amounts and/or foreclose on the Company's assets which are
pledged as collateral under the agreement which could also lead to
cross-defaults under the Company's other credit arrangements. In that event,
there can be no assurance that the Company will be able to continue as a going
concern.
In May 1998, the Company's Board of Directors retained an independent
firm to assist the Company in developing and implementing a restructuring plan,
21
<PAGE>
while negotiating a refinancing with its lenders. In addition, on June 23,
1998,the Board of Directors authorized the disposal of the Company's snowboard
manufacturing operations if such disposal were subsequently determined by senior
management to be in the best interests of the Company. In addition to the
manufacturing operations, the Board of Directors is evaluating the Company's
overall snowboard business, which may result in changes to the Company's
snowboard operations.
The Company is in the process of evaluating the financial impact of
these events which could vary significantly depending on whether the Company
decides to totally dispose of its entire snowboard business. At March 31, 1998,
the Company had total consolidated assets related to its snowboard operations of
approximately $25.2 million, which included approximately $7.9 million of
goodwill. In addition, at March 31, 1998, the Company's snowboard manufacturing
equipment is under a seven year operating lease with remaining minimum lease
payments of $3.0 million. There can be no assurance that future benefits from
these asset amounts will be realized in light of the events described above, or
that additional liabilities and costs will not arise that are not presently
reflected in the March 31, 1998 consolidated financial statements. All of the
above could have a material adverse effect on the financial condition of the
Company.
In addition, subsequent to year end, in accordance with the bond
agreements, the Series A Bondholder exercised its redemption privilege and
called for payment of one Series A-1 bond for $2.0 million, due October 1, 1998
and one Series A-2 bond for $2.5 million, due December 16, 1998 (see Note 3).
Although the Company is seeking alternatives which, among
other things, include restructuring the Company, obtaining additional financing
or entering into a new business alliance, there can be no assurance that the
Company will be successful in such endeavors. Accordingly, the Company may not
be able to continue as a going concern and, among other things, could be forced
to seek protection from its creditors. (see Item 1. Business - Recent Events).
Year 2000 Computer Issue
Many currently installed computer systems and software are coded to
accept only two digit entries in the date code field. Beginning the year 2000,
these date code fields will need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates. As a result, within the
next two years, computer systems and/or software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements.
The Company has developed plans to modify its computer information
systems enabling proper processing of data relating to the year 2000 and beyond.
The Company is now in the process of executing its plan and expects all systems
to be compliant by end of fiscal 1999. This will allow time for the testing for
compliance. The total cost of the project is estimated to be approximately
$150,000. While there can be no assurance that Year 2000 matters will be
22
<PAGE>
satisfactorily identified and resolved, the Company currently believes that Year
2000 issues will not have a material adverse effect on the Company.
Item 8. Consolidated Financial Statements and Supplementary Data
Refer to Consolidated Financial Statements included separately herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
23
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth information with respect to the
executive officers and Directors of the Company:
<TABLE>
<CAPTION>
Date
Appointed to
Present Other Business Experience
Name Title Age Position During Past Five Years
- ---------------------------- ------------------- --- ------------ --------------------------------
<S> <C> <C> <C> <C>
Henry E. Tauber (1) President of 57 1984 Same
Marker
International
Eiichi Isomura Chairman of Marker 61 1981 President of Isomura Sangyo Kaisha Ltd.
Japan, Executive Vice and President of Isomura
President and a 1990 Seisakusho KK.
Director of Marker
International
Dr. Wilhelm Fahrngruber Chairman and 57 1990 Same
Managing Director
of Marker
Germany
Otto H. Harsanyi Director of Marker 50 1992 Patent Engineer and General Manager of
Germany and Group Bernard Tapie, 1986-1992
Assistant Secretary
of Marker
International
Kirk S. Langford Executive Vice 43 1994 Vice President of Marker USA, 1992-
President of 1994; Director of Sales of Marker USA,
Marker USA 1990-1992
Daryl P. Santos Vice President of 46 1985 Same
Marker
International
Premek Stepanek Managing Director 61 1991 Same
of Marker
Germany
Brad L. Stewart (2) Executive Vice 40 1996 Vice President and Chief Financial
President, Officer of Marker International
Secretary and 1991-1996
Treasurer of
Marker
International
Kevin Hardy Chief Financial 34 1997 Chief Financial Officer Marker USA and
Officer of Marker Marker Ltd. 1991 - 1997
International
Graham S. Anderson Director 65 1985 Chairman and Chief Executive Officer of
Pettit-Morry Co., 1987-1994. Director
of Commerce Bank Corporation, Gray
Harbor Paper Company and Acordia
Northwest, Inc. Chairman of the
National Association of Insurance
Brokers and Alberg Holding Company.
John G. McMillian (3) Chief Executive 72 1998 Director of Marker International, 1990
Officer and - present. Chairman of the Board,
Chairman of the President and Chief Executive Officer
Board of Marker of Allegheny & Western Energy
International Corporation, 1987-1995; Director of
SunBank Miami N.A. (Sun Trust).
Vinton H. Sommerville Director 61 1990 Chief Executive Officer and Chairman of
the Board of Slim Sommerville, Inc.,
1988-present.
Lucio Roffi (4) Chairman and Chief 53 1996 Chairman and Chief Executive Officer of
Executive Officer DNR, 1990 - 1997.
of DNR and Director
of Marker
International
- ---------------------------------
</TABLE>
24
<PAGE>
(1) Effective as of June 23, 1998, Mr. Tauber is no longer serving as the
Company's Chief Executive Officer and Chairman of its Board of
Directors. Mr. Tauber continues to serve as the Company's President.
See Note 3 below.
(2) Effective as of June 23, 1998, Mr. Stewart is no longer serving as the
Company's Chief Operating Officer. Mr. Stewart continues to serve as
the Company's Executive Vice President, Secretary and Treasurer.
Effective as of June 23, 1998, Robert Sind has been temporarily acting
as Chief Operating Officer of the Company. Mr. Sind is president and
chief executive officer of Recovery Management Corporation, a Delaware
corporation ("RMC"), positions he has held for more than five years.
Mr. Sind also serves as a director of each of Leslie Fay Company, Inc.
and Kasper A.S.L. Ltd. RMC was engaged by the Company in May 1998
pursuant to a four-month consulting contract (the "RMC Contract") to
assist the Company in developing and implementing a restructuring plan
for the Company, while negotiating a refinancing with its lenders.
Pursuant to the RMC Contract, RMC receives a consulting fee of $50,000
per month from the Company, payable at the beginning of each month, as
well as reimbursement of certain out-of-pocket expenses, for which the
Company advances $20,000 to RMC on a continuing basis. In addition, Mr.
Sind may be entitled to a success fee as well as shares of the
Company's stock, the latter of which is currently being discussed by
the Company's Board of Directors. Mr. Sind has notified the Company
that he will continue to serve as Chief Operating Officer until the
earlier of (i) the expiration of the RMC Contract in September 1998,
(ii) the Company's inability to continue as a going concern or (iii)
such other date as may be determined by the Company or Mr. Sind. See
25
<PAGE>
"Item 1. Business - Recent Events" and "Item 7. Management's Discussion
and Analysis of Consolidated Financial Condition and Results of
Operations - Liquidity and Capital Resources."
(3) Effective as of June 23, 1998, Mr. McMillian has been temporarily
acting as the Company's Chief Executive Officer and Chairman of its
Board of Directors. Mr. McMillian continues to receive an annual fee of
$20,000 for serving on the Company's Board of Directors and
reimbursement of expenses for each Board or committee meeting attended.
Mr. McMillian may receive additional compensation in his capacities as
Chief Executive Officer and Chairman of the Board. Mr. McMillian has
notified the Company that he will serve in such capacities until the
earlier of (i) the Company's inability to continue as a going concern
or (ii) such other date as may be determined by the Company or Mr.
McMillian. See "Item 1. Business Recent Events" and "Item 7.
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations - Liquidity and Capital Resources."
(4) Resigned as Chief Executive Officer of DNR and Director of Marker
International in fiscal 1998.
Each executive officer is appointed by the Board of Directors and
serves at its pleasure. Each member of the Board of Directors, who is not an
officer or consultant of the Company, receives an annual fee of $20,000 for
serving on the Board of Directors and reimbursement of expenses for each Board
or committee meeting attended. Directors of the Company are eligible to
participate in the Company's 1994 Non-Qualified and Incentive Stock Option Plan
(the "Stock Option Plan"). On April 15, 1997 Graham S. Anderson, John G.
McMillian and Vinton H. Sommerville were each granted 5,000 stock options at
market value.
26
<PAGE>
Item 11. Executive Compensation
The following table sets forth the compensation paid or accrued by the
Company to or on behalf of its Chief Executive Officer and each of its other
four most highly compensated executive officers who earned over $100,000 in
fiscal years 1998, 1997 and 1996 (collectively, the "Named Executive Officers")
for services rendered during the fiscal years ended March 31, 1998, 1997 and
1996, respectively.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Other Annual Awards
Name and Principal Fiscal Salary Bonus Compensation Options All Other (4)
Position Year $ $ $ # Compensation
- --------------------------- ------- --------- -------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Henry E. Tauber 1998 287,500 - (3) - 2,500
President and Chief 1997 300,000 25,000 (3) - 500
Executive Officer of 1996 300,000 75,000 (3) - 1,000
Marker International
Eiichi Isomura 1998 190,226 - (3) - -
Chairman Marker Japan and 1997 133,083 - (3) - -
Vice President of Marker 1996 170,677 - (3) - -
International (1)
Dr. Wilhelm Fahrngruber 1998 186,681 - (3) - -
Chairman and Managing 1997 186,681 - (3) - -
Director of Marker 1996 186,681 - (3) 10,000 -
Germany (1)
Lucio Roffi (2) 1998 324,357 125,000 (3) - -
Chairman and Chief 1997 254,808 331,474 (3) - -
Executive Officer of DNR 1996 - - - - -
(1)
Kirk S. Langford 1998 143,750 35,000 (3) - 3,375
Executive Vice President 1997 121,250 50,000 (3) 20,000 3,425
Marker USA 1996 110,000 25,000 (3) 20,000 2,700
Daryl P. Santos 1998 143,750 35,000 (3) - 3,350
Vice President Marker 1997 117,500 35,000 (3) 20,000 2,550
International 1996 110,000 20,000 - 20,000 2,600
</TABLE>
- ----------
(1) The Company pays salaries to its employees in the applicable local
currency. The above salaries are translated into US Dollars based on
exchange rates of US $1 for DM 1.8484, US $1 for Yen 133, and US $1 for
SFr 1.52 with respect to the employees employed by Marker Germany,
Marker Japan and DNR Sportsystem, respectively.
(2) During 1998, Lucio Roffi resigned as CEO of DNR Sportsystem and is no
longer employed by the Company.
27
<PAGE>
(Footnotes continued from previous page relating to Summary Compensation Table)
(3) The amount of perquisites and other personal benefits received by the
indicated officer did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus for the year.
(4) Amounts indicated pertain to Company contributions to the Company's
401(k) retirement plan.
The Company has entered into employment agreements with Premek
Stepanek, Managing Director of Marker Germany, Dr. Wilhelm Fahrngruber, Chairman
and Managing Director of Marker Germany and Otto H. Harsanyi, Director of Marker
Germany. Mr. Stepanek, Dr. Fahrngruber and Mr. Harsanyi receive base salaries of
$124,432, $186,681 and $94,676, respectively (based on an exchange of the German
Mark to the US Dollar of US $1 to DM 1.8484). Mr. Harsanyi's contract expires in
1998, Dr. Fahrngruber's contract expires in 2000, and Mr. Stepanek's contract
expires in 2002.
The Board of Directors has a standing Compensation Committee consisting
of Messrs. John G. McMillian and Graham S. Anderson. The Compensation Committee
met four times during the fiscal year ended March 31, 1998. The Compensation
Committee's responsibilities are: (a) to determine and approve compensation
arrangements for executive officers of the Company and to review and oversee any
stock option, stock award plan and employee benefit plan or arrangement
established by the Board of Directors for the benefit of the executive officers
of the Company; and (b) to review and recommend director and officer nominees
for election by the Company's shareholders or the Board of Directors, as the
case may be. The Compensation Committee does not have a procedure for
considering nominees to the Board of Directors who have been recommended by the
shareholders.
Stock Option Grants in Last Fiscal Year
During the fiscal year ended March 31, 1998, the following stock
options grants were made to the named Directors and Executive Officers of the
Company:
<TABLE>
<CAPTION>
Potential
Realizable
Number of Value at Assumed
Securities Annual Stock
Underlying % of Total Price Appreciation
Options Granted in Exercise Expiration for Option Term (b)
Name Granted Fiscal 1998 Price(a) Date 5% 10%
- ----- ------- ----------- -------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Graham S. Anderson 5,000 22.2% $4.13 April 2007 $12,950 $32,850
John G. McMillian 5,000 22.2% $4.13 April 2007 $12,950 $32,850
Vinton H. Sommerville 5,000 22.2% $4.13 April 2007 $12,950 $32,850
</TABLE>
(a) The exercise price was fixed at the date of the grant and represented
the fair market value per share of Common Stock on such date.
(Footnotes continued from previous page relating to Stock Option Grant Table)
28
<PAGE>
(b) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), the amounts shown on this table represent
hypothetical gains that could be achieved for the respective options if
exercised at the end of the option term. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration
date and do not reflect the Company's estimates or projections of
future prices of the Common Stock. The gains shown are net of the
option exercise price, but do not include deductions for taxes or other
expenses associated with the exercise. Actual gains, if any, on stock
option exercises will depend on the future performance of the Common
Stock, the option holder's continued employment through the option
period, and the date on which the options are exercised.
There were no stock option grants made by the Company to any of the
Named Executive Officers listed in the Summary Compensation Table.
Aggregated Stock Option Exercises in the Last Fiscal Year and Fiscal Year-End
Values
During the fiscal year ended March 31, 1998, none of the Named
Executive Officers exercised stock options to acquire shares of the Company's
Common Stock. The following table sets forth information with respect to the
aggregate number and value of unexercised options held by the Named Executive
Officers at March 31, 1998. In addition, none of the stock options held by the
Named Executive Officers at March 31, 1998 had a fair market value in excess of
the exercise price or base price.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Options at March 31, 1998 Options at March 31, 1998
----------------------------------------------------------
Shares
Acquired Value
on Execise Realized Exercisable Unexerciable Exercisable Unexercisable
---------- -------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Henry E. Tauber - - - - $ - $ -
Eiichi Isomura - - - - - -
Dr. Wilhelm Fahrngruber - - 37,500 12,500 - -
Kirk S. Langford - - 57,500 32,500 - -
Daryl P. Santos - - 57,500 32,500 - -
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of May 29, 1998 by (i)
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock, (ii) each of the Company's Directors, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers as a group.
29
<PAGE>
Name and Address of Number of Percentage of
Beneficial Owner Shares (1) Class (2)
- ------------------------------------------ -------------- -------------
Neuberger & Berman, LLC
605 Third Avenue
New York, NY 10158 686,000 6.2%
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 610,800 5.5%
Directors and Executive Officers
--------------------------------
Henry E. Tauber 4,326,055 38.9%
Graham S. Anderson 105,286 *
Eiichi Isomura 142,857 1.3%
John G. McMillian 179,640 1.6%
Vinton H. Sommerville 84,336 *
Dr. Wilhelm Fahrngruber 27,700 *
Kirk S. Langford 64,000 *
Daryl P. Santos 63,323 *
Brad Stewart 72,822 *
Kevin Hardy 16,250 *
Otto H. Harsanyi 3,750 *
Premek Stepanek 37,500 *
All directors and officers as a group (10) 5,134,269 45.0%
- ------------------------------------------
* Denotes less than 1% of outstanding shares
(1) Shares shown include common shares which could be acquired within 60
days of June 30, 1998 by the exercise of outstanding stock options.
(2) For the purpose of computing the percentage of Common Stock owned by
each person or group listed in this table, shares which are subject to
options or warrants exercisable within 60 days after June 30, 1998 have
been deemed to be outstanding for the purpose of computing the
percentage of the shares of Common Stock owned by any other person or
group.
Item 13. Certain Relationships and Related Transactions
All of the Company's outstanding Series A Bonds are held by Isomura
Sangyo Kaisha Ltd., a Japanese corporation ("Isomura Sangyo" or the
"Bondholder"), controlled by Eiichi Isomura, a director of the Company, and his
family. The Series A Bonds are subject to redemption upon not less than 30 days
prior notice, in whole or in part, at the option of the Company.
30
<PAGE>
The Series A-1 Bonds had an original aggregate face value amount of
$8.0 million and bear interest, payable semi-annually on September 30 and March
31, at the effective borrowing rate for the Bondholder (the "Japanese Bank
Rate") of approximately 7.97% and 6.79% for the fiscal years ending March 31,
1998 and 1997, respectively. During the fiscal years ended March 31, 1998 and
1997, $0 and $1.0 million of the Series A-1 Bonds were redeemed, respectively.
The Bondholder, upon six months' prior written notice, may elect to have the
Company redeem a portion of the bonds according to the following schedule:
Redemption Face Amount
Notice On or After On or After to be Redeemed
------------------ ----------- --------------
April 1, 1998 October 1, 1998 $2,000,000
April 1, 1999 October 1, 1999 $2,000,000
The redemption price of the Series A-1 Bonds equals the face amount of
the portion of such bonds redeemed plus accrued but unpaid interest thereon.
The Series A-2 Bonds have an original aggregate face value amount of
$10.0 million and bear interest, payable semi-annually on September 30 and March
31, at the Japanese Bank Rate plus three percent of the face value of the bonds
outstanding. The effective rate on Series A-2 Bonds at March 31, 1998 and 1997
was 10.97% and 9.79%, respectively. During the fiscal years ended March 31, 1998
and 1997, the Bondholder redeemed $0 and $2.5 million of Series A-2 Bonds,
respectively. Upon six months' prior written notice, the Bondholder may elect to
have the Company redeem a portion of the Series A-2 Bonds, according to the
following schedule:
Redemption Face Amount
Notice On or After On or After to be Redeemed
------------------ ----------- --------------
June 16, 1998 December 16, 1998 $2,500,000
June 16, 1999 December 16, 1999 $2,500,000
The redemption price of the Series A-2 Bonds equals the face amount of
the portion of such bonds redeemed plus accrued, but unpaid interest thereon.
The Series A-3 Bond has an aggregate face value amount of $1.0 million
and bears interest, payable semi-annually on September 30 and March 31, at the
Japanese Bank Rate plus three percent of the face value of the bond outstanding.
The effective rate on Series A-3 bonds at March 31, 1998 and 1997 was 10.97% and
9.79%, respectively. The Bondholder of the Series A-3 Bond may redeem the bond
by providing six months' prior written notice on or after June 16, 1999 for
redemption on or after December 16, 1999.
During fiscal years 1998, 1997 and 1996, Marker Japan purchased ski
bindings and services totaling approximately $92,000, $93,000, and $13,000,
respectively, from Isomura Seisakusho KK ("Isomura Seisakusho"), a company of
31
<PAGE>
which Mr. Isomura is the president, director, and owner of more than ten percent
of the outstanding stock. At March 31, 1998, 1997 and 1996, the net account
receivable from Isomura Seisakusho was approximately $0.4 million, $0.4 million,
and $0.5 million, respectively.
At March 31, 1998, the Company had outstanding notes in an aggregate
amount equal to approximately US $3.7 million payable to Japanese banks. Of
these amounts, approximately $2.1 million was secured by assets of Mr. Isomura,
a shareholder and director of the Company.
Marker Japan leases office space in Tokyo, Japan and receives
distribution services from Isomura Sangyo. In connection therewith, for the
fiscal years 1998, 1997 and 1996, Marker Japan made payments to Isomura Sangyo
totaling approximately $280,000, $287,000, and $428,000, respectively.
The Company purchased insurance through an insurance broker, Acordia
Northwest Inc., of which Graham S. Anderson, a director of the Company, is also
a director. The Company incurred approximately $748,000, $851,000, and $746,000
of premiums for such insurance during fiscal 1998, 1997 and 1996, respectively.
DNR purchased snowboards from an affiliated entity, of which Gregor
Furrer & Partner Holding AG, a minority shareholder of DNR, is a partner.
Snowboards purchased from the related party totaled approximately $5,935,000 and
$21,453,000 during 1998 and 1997 respectively.
Effective as of June 23, 1998, Robert Sind has been temporarily acting
as Chief Operating Officer of the Company. Mr. Sind is president and chief
executive officer of RMC. RMC was engaged by the Company in May 1998 pursuant to
a four-month consulting contract to assist the Company in developing and
implementing a restructuring plan for the Company, while negotiating a
refinancing with its lenders. Pursuant to the RMC Contract, RMC receives a
consulting fee of $50,000 per month from the Company, payable at the beginning
of each month, as well as reimbursement of certain out-of-pocket expenses, for
which the Company advances $20,000 to RMC on a continuing basis. In addition, Mr
Sind may be entitled to a success fee as well as shares of the Company's stock,
the latter of which is currently being discussed by the Company's Board of
Directors. See "Item 10. Directors and Executive Officers of the Registrant."
32
<PAGE>
PART IV
<TABLE>
<CAPTION>
Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K
Page
Reference
---------
(a) 1. Financial Statements
--------------------
<S> <C> <C>
The following consolidated financial statements required
by Part II, Item 8, are included in Part IV of this
report.
Marker International and Subsidiaries
Report of Independent Public Accountants .............................. F-1
Consolidated Balance Sheets as of March 31, 1998 and 1997 ............. F-2
Consolidated Statements of Income for the Years Ended
March 31, 1998, 1997 and 1996 .................................... F-4
Consolidated Statements of Shareholders' Equity for
the Years Ended March 31, 1998, 1997 and 1996 .................... F-5
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1998, 1997 and 1996 .................................... F-6
Notes to Consolidated Financial Statements ............................ F-7
2. Financial Statement Schedules
-----------------------------
Report of Independent Public Accountants on Schedule 35
Schedule II - Valuation and Qualifying Accounts 36
</TABLE>
3. List of Exhibits
----------------
2.1 Share Purchase and Shareholders Agreement among Lucio
Roffi, Gregor Furrer & Partner Holding AG and Marker
International, dated June 11, 1996 (Filed as exhibit 2(a)
to the Company's Current Report on Form 8-K dated June
19, 1996 and incorporated herein by reference).
2.2 Letter Agreement between Lucio Roffi and Marker
International, dated June 11, 1996 (Filed as exhibit 2(b)
to the Company's Current Report on Form 8-K dated June
19, 1996 and incorporated herein by reference).
2.3 Intentionally Omitted
33
<PAGE>
2.4 Short-term Promissory Note for CHF 12,084,832.65 executed
by the Company and payable in full to Gregor Furrer &
Partner Holding AG on or prior to August 31, 1996 (filed
as exhibit 2(c) to the Company's Current Report on Form
8-K dated July11, 1996 and incorporated herein by
reference).
2.5 Short-term Promissory Note for CHF 12,084,832.65 executed
by the Company and payable in full to Lucio Roffi on or
prior to August 31, 1996 (filed as exhibit 2(d) to the
Company's Current Report on Form 8-K dated July 11, 1996
and incorporated herein by reference).
3.1 Form of Restated Articles of Incorporation of the Company
(filed as Exhibit 3.1 to the Company's Form S-1
Registration Statement, Amendment No. 1 dated July 14,
1994 (File No. 33-80100) and incorporated herein by
reference).
3.2 Form of Amended and Restated By-Laws of the Company
(filed as Exhibit 3.2 to the Company's Form S-1
Registration Statement, Amendment No. 1 dated July 14,
1994 (File No. 33-80100) and incorporated herein by
reference)
4.1 Form of Certificate representing Common Stock (filed as
Exhibit 4.1 to the Company's Form S-1 Registration
Statement, Amendment No. 1 dated July 14, 1994 (File No.
33-80100) and incorporated herein by reference).
10.1 Employment Agreement for Premek Stepanek (filed as
Exhibit 10.1 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.2 Employment Agreement for Dr. Wilhelm Fahrngruber (filed
as Exhibit 10.2 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.3 Employment Agreement for Otto Harsanyi (filed as Exhibit
10.3 to the Company's Form S-1 Registration Statement
dated June 10, 1994 (File No. 33-80100) and incorporated
herein by reference).
34
<PAGE>
10.4 Form of 1994 Stock Option Plan (filed as Exhibit 10.4 to
the Company's Form S-1 Registration Statement dated June
10, 1994 (File No. 33-80100) and incorporated herein by
reference).
10.5 401(k) Plan (filed as Exhibit 10.5 to the Company's Form
S-1 Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
10.6 Manufacturing Facility Lease Agreement (filed as Exhibit
10.6 to the Company's Form S-1 Registration Statement
dated June 10, 1994 (File No. 33-80100) and incorporated
herein by reference).
10.7 Second Amended and Restated Revolving Credit Agreement
with First Security Bank of Utah, N.A., including
Extension Agreement (filed as Exhibit 10.7 to the
Company's Form S-1 Registration Statement dated June 10,
1994 (File No. 33-80100) and incorporated herein by
reference).
10.8 Loan Agreement with First Interstate Bank (filed as
Exhibit 10.8 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.9 Agreement with Bayerischi Hypotheken-und Wechsel-Bank
("Hypo Bank") for a DM 60,000,000 Line of Credit (filed
as Exhibit 10.9 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.10 Loan Agreement with Hypo Bank for a DM 4,000,000 loan
(filed as Exhibit 10.10 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
10.11 Loan Agreement with Hypo Bank for a DM 1,863,333 loan
(filed as Exhibit 10.11 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
10.12 Loan Agreement with Hypo Bank for a DM 2,220,000 loan
(filed as Exhibit 10.12 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
35
<PAGE>
10.13 Loan Agreement with Hypo Bank for a DM 3,000,000 loan
(filed as Exhibit 10.13 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
10.14 Loan Agreement with Hypo Bank for a DM 10,000,000 loan
(filed as Exhibit 10.14 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
10.15 Loan Agreement with Hypo Bank for a DM 64,000,000 Line of
Credit (filed as Exhibit 10.15 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
10.16 Loan Agreement with Hypo Bank for a DM 7,284,205 loan
(Filed as Exhibit 10.16 to the Company's Form 10-Q dated
August 11, 1995 and incorporated herein by reference).
10.17 Pledge Agreement and Conditional Assignment with Hypo
Bank for a $3.5 million time deposit (Filed as exhibit
10.17 to the Company's Form 10-Q dated August 11, 1995
and incorporated herein by reference).
10.18 Line of Credit Agreement Between Marker Deutschland GmbH
and Hypo Bank for DM 70,000,000 and a Foreign Exchange
Line of Credit for DM 60,000,000 (Filed as exhibit 10.18
to the Company's Form 10-Q dated November 13, 1995 and
incorporated herein by reference).
10.19 Amended and Restated Revolving Credit Agreement with
First Security Bank for up to $18,000,000 (Filed as
exhibit 10.19 to the Company's Form 10-Q dated November
13, 1995 and incorporated herein by reference).
10.20 Loan Agreement between Marker Deutschland and Hypo Bank
for a DM 1,180,100 loan (Filed as Exhibit 10.20 to the
Company's Form 10-Q dated August 13, 1996 and
incorporated herein by reference).
10.21 Second Restated and Amended Promissory Note Agreement
with Hypo Bank for a DM 7,284,205.42 loan. (Filed as
exhibit 10.21 to the Company's Form 10-Q dated February
13, 1997 and incorporated herein by reference).
36
<PAGE>
10.22 Amended and Restated Conditional Pledge Agreement and
Assignment with Hypo Bank for a $2.0 million time
deposit. (Filed as exhibit 10.22 to the Company's Form
10-Q dated February 13, 1997 and incorporated herein by
reference).
10.23 Bond Payment Extension Agreement between Marker
International and Isomura Sangyo Kaisha Ltd. (the
Bondholder). (Filed as exhibit 10.23 to the Company's
Form 10-K dated June 27, 1997 and incorporated herein by
reference).
10.24 Loan Agreement between Marker International and Jackson
National Life Insurance Company for $2,250,000. (Filed as
exhibit 10.24 to the Company's Form 10-K dated June 27,
1997 and incorporated herein by reference).
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP, independent public
accountants.*
27 Financial Data Schedule.*
(b) Reports Filed on Form 8-K:
--------------------------
- -----------------------------
* filed herewith
37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Marker International:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Marker International included in this Form
10-K, and have issued our report thereon dated May 14, 1998. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. Schedule II is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
May 14, 1998
38
<PAGE>
MARKER INTERNATIONAL
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
FOR THE THREE YEARS ENDING MARCH 31, 1998
(in thousands)
For the Year Ended:
<TABLE>
<CAPTION>
Balance at
Beginning of Amounts Balance at End
Period Provisions Written Off Other (1) of Period
------------ -------------- --------------- ------------- ------------
March 31, 1998
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 2,139 $ 813 $(1,176) $ (79) $ 1,697
March 31, 1997
Allowance for doubtful
accounts $ 2,173 $ 521 $ (431) $ (124) $ 2,139
March 31, 1996
Allowance for doubtful
accounts $ 1,725 $ 703 $ (172) $ (83) $ 2,173
</TABLE>
(1) The allowance for doubtful accounts is translated to U.S. Dollars at the
exchange rate at the end of a reporting period. The provision and amounts
written off are translated at the weighted average rates of exchange prevailing
during the reporting period. Amounts classified as "other" represent the effects
of foreign currency translation on the allowance amount for the period.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MARKER INTERNATIONAL
Date: July 10, 1998 By: /s/ Kevin Hardy
------------- -------------------
Kevin Hardy
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C> <C>
/s/ Henry E. Tauber President (Principal July 10, 1998
--------------------------------------- -------------
Henry E. Tauber Executive Officer)
/s/ Kevin Hardy Chief Financial Officer July 10, 1998
--------------------------------------- -------------
Kevin Hardy (Principal Financial and
Accounting Officer)
/s/ John G. McMillian Chief Executive Officer and July 10, 1998
--------------------------------------- -------------
John G. McMillian Chairman of the Board, Marker
International
/s/ Graham S. Anderson Director July 10, 1998
--------------------------------------- -------------
Graham S. Anderson
/s/ Vinton H. Sommerville Director July 10, 1998
--------------------------------------- -------------
Vinton H. Sommerville
/s/ Eiichi Isomura Director and Chairman of July 10, 1998
--------------------------------------- -------------
Eiichi Isomura Marker Japan
</TABLE>
40
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Company: Jurisdiction:
-------- -------------
Marker Deutschland GmbH Germany
Marker USA Utah
Marker Japan Co. Ltd. Japan
Marker Austria GmbH Austria
Marker Canada, Ltd. Canada
Marker Ltd. Utah
Marker AG Switzerland
DNR USA, Inc. Delaware
DNR North America, Inc. Delaware
DNR Japan Co. Ltd. Japan
DNR Sportsystem, Ltd.1 Switzerland
1 An 80% owned Subsidiary of Marker AG
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statement File No. 33-80407.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
July 10, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Marker International:
We have audited the accompanying consolidated balance sheets of Marker
International (a Utah corporation) and subsidiaries (the "Company") as of March
31, 1998 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marker International and
subsidiaries as of March 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended March 31,
1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred a net loss of $17.3 million for
the year ended March 31, 1998, and as of March 31, 1998 had an accumulated
deficit of $16.5 million. In addition, the Company currently has inadequate
working capital to fund operations and service repayment of debt. The Company is
also not in compliance with certain covenants of its U.S. bank credit line
agreement and the bank has notified the Company on June 26, 1998 they have
thirty days to cure this situation. All of these and other matters raise
substantial doubt as to the Company's ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 1. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
May 14, 1998, except with respect to the matters
discussed in Note 1 to which the date is June 26, 1998
F-1
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 and 1997
(Dollars in Thousands)
- --------------------------------------------------------------------------------
ASSETS
1998 1997
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 4,241 $ 13,532
Accounts receivable, net of allowance for doubtful
accounts of $1,697 and $2,139, respectively 31,710 26,279
Inventories 37,223 33,849
Prepaid and other current assets 4,440 4,611
--------- ---------
Total current assets 77,614 78,271
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,050 1,050
Building and improvements 7,581 7,356
Machinery and equipment 21,222 25,302
Furniture, fixtures and office equipment 4,582 4,511
--------- ---------
34,435 38,219
Less accumulated depreciation (16,733) (18,941)
--------- ---------
Net property, plant and equipment 17,702 19,278
--------- ---------
INTANGIBLE ASSETS, net of accumulated amortization 8,322 17,475
--------- ---------
OTHER ASSETS 1,482 2,116
--------- ---------
$ 105,120 $ 117,140
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-2
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
AS OF MARCH 31, 1998 and 1997
(Dollars in Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
1998 1997
--------- ---------
CURRENT LIABILITIES:
Notes payable to banks $ 48,645 $ 38,930
Current maturities of long-term debt 3,512 3,038
Current maturities of Series A Bonds, issued to a
related party 4,500 --
Accounts payable 6,381 5,393
Other current liabilities 7,830 9,785
--------- ---------
Total current liabilities 70,868 57,146
--------- ---------
LONG-TERM DEBT, net of current maturities 14,898 16,487
--------- ---------
SERIES A BONDS, net of current maturities, issued
to a related party 5,500 10,000
--------- ---------
MINORITY INTEREST 1,447 1,810
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized and none issued -- --
Common stock, $0.01 par value, 25,000,000
shares authorized and issued, shares outstanding
11,130,577 and 11,129,127, respectively 111 111
Additional paid-in capital 36,299 36,293
(Accumulated deficit) retained earnings (16,471) 858
Cumulative foreign currency translation adjustments (7,532) (5,565)
--------- ---------
Total shareholders' equity 12,407 31,697
--------- ---------
$ 105,120 $ 117,140
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-3
<PAGE>
<TABLE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 and 1996
(Dollars in Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
NET SALES 94,271 126,403 87,911
COST OF SALES 63,917 80,531 52,608
--------- --------- ---------
GROSS PROFIT 30,354 45,872 35,303
--------- --------- ---------
OPERATING EXPENSES:
Selling 15,315 15,553 14,592
General and administrative 11,447 12,840 10,559
Research and development 3,951 3,141 2,762
Warehousing and shipping 2,255 1,827 1,566
Amortization of goodwill and intangibles 735 621 --
Loss from write down of goodwill and intangibles .. 8,000 -- --
--------- --------- ---------
41,703 33,982 29,479
--------- --------- ---------
OPERATING (LOSS) INCOME (11,349) 11,890 5,824
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (5,794) (5,104) (5,193)
Equity in (loss) income of unconsolidated subsidiary -- (281) 1,595
Other, net 152 1,274 2,072
--------- --------- ---------
(5,642) (4,111) (1,526)
--------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES, MINORITY
INTEREST AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (16,991) 7,779 4,298
PROVISION FOR INCOME TAXES (522) (1,656) (609)
MINORITY INTEREST 184 (1,521) --
--------- --------- ---------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (17,329) 4,602 3,689
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAX -- -- (266)
--------- --------- ---------
NET (LOSS) INCOME $ (17,329) $ 4,602 $ 3,423
========= ========= =========
NET (LOSS) INCOME PER
COMMON SHARE:
Basic $ (1.56) $ 0.45 $ 0.41
========= ========= =========
Diluted $ (1.56) $ 0.45 $ 0.40
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-4
<PAGE>
<TABLE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands, Except Shares)
- --------------------------------------------------------------------------------
<CAPTION>
Cumulative
Foreign
Additional Accumulated Currency Total
Common Stock Paid-in Earnings Translation Shareholders'
Shares Amount Capital (Deficit) Adjustments Equity (Deficit)
------ ------ ------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1995 8,446,877 $ 84 $ 21,524 $ (4,716) $ 1,432 $ 18,324
Common stock options
exercised 1,000 -- 7 -- -- 7
Net income -- -- -- 3,423 -- 3,423
Translation adjustments -- -- -- -- (986) (986)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1996 8,447,877 84 21,531 (1,293) 446 20,768
Secondary public offering of
common stock, net 2,680,000 27 14,753 -- -- 14,780
Common stock options
exercised 1,250 -- 9 -- -- 9
Adjustment for change in
reporting period of
consolidated subsidiary -- -- -- (2,451) -- (2,451)
Net income -- -- -- 4,602 -- 4,602
Translation adjustments -- -- -- -- (6,011) (6,011)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 199 11,129,127 111 36,293 858 (5,565) 31,697
Common stock options 1,450 -- 6 -- -- 6
Net loss -- -- -- (17,329) -- (17,329)
Translation adjustments -- -- -- -- (1,967) (1,967)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1998 11,130,577 $ 111 $ 36,299 $ (16,471) $ (7,532) $ 12,407
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE>
<TABLE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 and 1996
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(17,329) $ 4,602 $ 3,423
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Minority interest (183) 1,521 --
Depreciation and amortization 5,200 4,386 3,131
Equity in loss (income) of unconsolidated subsidiary -- 281 (1,595)
Loss from consolidated subsidiary resulting from
change in reporting period (Note 7 -- (3,063) --
Loss from write down of goodwill and intangibles 8,000 -- --
Loss (gain) on sale of property, plant and equipment (92) 444 --
Change in assets and liabilities (net of amounts
acquired):
Accounts receivable, net (6,302) (3,109) (753)
Inventories (5,721) (3,596) (7,127)
Prepaid and other assets 131 2,876 (317)
Accounts payable 842 (1,015) 45
Other liabilities (369) 875 684
-------- -------- --------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (15,823) 4,202 (2,509)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (7,138) (10,269) (4,380)
Equity investment in DNR -- -- (5,325)
Majority purchase of DNR, net of cash acquired ($5,263) . -- (14,560) --
Proceeds from disposition of equipment 3,898 143 361
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,240) (24,686) (9,344)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable to banks 11,860 12,060 3,833
Issuance of common stock, net of issuance costs -- 14,780 --
Proceeds from common stock options exercised 6 9 7
Proceeds from issuance of long-term debt 3,094 10,385 8,037
Redemption of Series A Bonds -- (3,500) (3,500)
Principal payments on long-term debt (3,299) (3,176) (3,262)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,661 30,558 5,115
-------- -------- --------
Effect of foreign exchange rate changes on cash (1,889) (2,731) 646
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (9,291) 7,343 (6,092)
Cash and cash equivalents at beginning of year 13,532 6,189 12,281
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,241 $ 13,532 $ 6,189
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE>
NOTE 1. NATURE OF OPERATIONS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Marker International ("Marker" or the "Company") is a holding company
which operates through its subsidiaries, Marker Deutschland GmbH ("Marker
Germany"), Marker USA, Marker Japan Co., Ltd. ("Marker Japan"), Marker Austria
GmbH ("Marker Austria") and Marker Canada, Ltd. ("Marker Canada"). Substantially
all of the Company's ski bindings are manufactured by Marker Germany, which also
distributes bindings in Germany, to subsidiaries of the Company and to
independent distributors in countries where the Company does not have a
distribution subsidiary. Marker Ltd., also a subsidiary of the Company, designs,
distributes and sells to retailers the Company's clothing, gloves and luggage
products for skiing and other recreational activities. The principal markets for
the Company's products are North America, Europe and Asia.
In addition, Marker International, through its 80% owned subsidiary,
DNR Sportsystem Ltd. ("DNR"), and its wholly-owned subsidiaries, DNR USA, Inc.
("DNR USA"), DNR North America, Inc. ("DNR North America") and DNR Japan Co.,
Ltd. ("DNR Japan"), is a designer, developer, manufacturer and marketer of
snowboards, Interface Step-in SystemsTM, traditional snowboard bindings and
snowboard boots. DNR Sportsystem Ltd. designs, develops and distributes
snowboards and related products. DNR USA manufactures snowboards for
distribution under the Santa Cruz(TM) and Marker(TM) brand names. DNR North
America and DNR Japan, through their own sales force market snowboards,
Interface Step-in SystemsTM, snowboard bindings and boots directly to retailers
in the United States and Japan, respectively.
The Company's financial statements for the year ended March 31, 1998,
have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company incurred a net loss of approximately $17.3 million for
the year ended March 31, 1998 and as of March 31, 1998 had an accumulated
deficit of approximately $16.5 million. Also, at March 31, 1998, the Company was
not in compliance with certain financial covenants under the line of credit
agreement with a U.S. bank with outstanding borrowings of $24.9 million (see
Note 2).
Subsequent to year end, the Company has notified such bank that the
Company believes it has insufficient cash to fund its obligations. The Company
requested that the bank increase the $25 million credit line (the "U.S. Credit
Line") by up to $10 to $12 million. On June 26, 1998 the bank notified the
Company that it was unwilling to increase the $25 million credit line and that
the Company should seek to cure the non-compliance within 30 days. While the
F-7
<PAGE>
Company and the bank are discussing alternatives to mitigate the
Company's financial difficulties, there can be no assurance that satisfactory
agreements will be reached between the Company and current or prospective
lenders. In the event that the non-compliance is not cured, the bank may
exercise its rights to demand payment of all amounts and/or foreclose on the
Company's assets wich are pledged as collateral under the agreement, which could
also lead to cross-defaults under the Company's other credit arrangements (see
Note 2). In that event, there can be no assurance that the Company will be able
to continue as a going concern.
In May 1998, the Company's Board of Directors retained an independent
firm to assist the Company in developing and implementing a restructuring plan,
while negotiating a refinancing with its lenders. In addition, on June 23, 1998,
the Board of Directors authorized the disposal of the Company's snowboard
manufacturing operations if such disposal were subsequently determined by senior
management to be in the best interests of the Company. The Board of Directors
retained an independent firm to assist the Company in developing and
implementing a restructuring plan, while negotiating a refinancing with its
lenders.
The Company is in the process of evaluating the financial impact of
these events which could vary significantly depending on whether the Company
decides to totally dispose of its entire snowboard business. At March 31, 1998,
the Company had total consolidated assets related to its snowboard operations of
approximately $25.2 million, which included approximately $7.9 million of
goodwill. In addition, at March 31, 1998, the Company's snowboard manufacturing
equipment is under a seven year operating lease with remaining minimum lease
payments of $3.0 million. There can be no assurance that future benefits from
these asset amounts will be realized in light of the events described above, or
that additional liabilities and costs will not arise that are not presently
reflected in the March 31, 1998 consolidated financial statements. All of the
above could have a material adverse effect on the financial condition of the
Company.
In addition, subsequent to year end, in accordance with the bond
agreements, the Series A Bondholder exercised its redemption privilege and
called for payment of one Series A-1 bond for $2.0 million, due October 1, 1998
and one Series A-2 bond for $2.5 million, due December 16, 1998 (see Note 3).
Although the Company is seeking alternatives which, among other things,
include restructuring the Company, obtaining additional financing or entering
into a new business alliance, there can be no assurance that the Company will be
successful in such endeavors. Accordingly, the Company may not be able to
continue as a going concern and, among other things, could be forced to seek
protection from its creditors. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
F-8
<PAGE>
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Consolidation
The consolidated financial statements include the accounts of Marker
International and its subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
Foreign Currency Translation
The functional currency for the Company's foreign operations is
the applicable local currency: Marker Germany - Deutsch Marks, Marker Japan and
DNR Japan - Japanese Yen, Marker Canada - Canadian Dollars, Marker Austria -
Austrian Schillings and DNR Sportsystem Ltd. - Swiss Francs. The financial
statements of foreign subsidiaries are translated into U.S. Dollars in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52.
Assets and liabilities of foreign subsidiaries are translated into U.S. Dollars
at the applicable rates of exchange at the end of the reporting period. Income
and expense items are translated at the weighted average rates of exchange
prevailing during the period. Translation gains and losses are reflected as a
separate component of shareholders' equity as "cumulative foreign currency
translation adjustments."
Cash and Cash Equivalents
Cash and cash equivalents include investments in certificates of
deposit with original maturities of less than 30 days. As of March 31, 1998, the
Company has granted a security interest in a $2.0 million time deposit held in
the Company's name at a United States branch of a German bank. This deposit is
restricted for use as collateral on borrowings from such bank.
Accounts Receivable
The Company has certain sales programs which result in the majority of
the annual net sales occurring in the second and third fiscal quarters. The
balance of the annual net sales occurs primarily during the fourth fiscal
quarter. In accordance with industry practice, the Company grants payment terms
to its customers in excess of 30 days. As of March 31, 1998, the Company has
certain accounts receivable from customers which are not due for over eight
months.
F-9
<PAGE>
Inventories
Inventories include direct materials, direct labor and manufacturing
overhead costs and are recorded at the lower of cost (using the first-in,
first-out method) or market. The major classes of inventories are as follows (in
thousands):
March 31,
---------------------
1998 1997
------- -------
Raw materials $ 1,411 $ 1,054
Work in process 2,306 2,739
Finished goods 33,506 30,056
------- -------
$37,223 $33,849
======= =======
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Major additions and
improvements are capitalized, while costs for minor replacements, maintenance
and repairs that do not increase the useful life of an asset are expensed as
incurred.
For financial reporting purposes, the provision for depreciation and
amortization is determined using the straight-line method based on the expected
remaining economic useful lives of the assets as follows:
Description Useful Lives
----------- ------------
Machinery and equipment 2 - 10 years
Furniture, fixtures and office equipment 2 - 10 years
Building and improvements 2 - 30 years
For the year ended March 31, 1997, the Company capitalized interest
costs totaling approximately $237,000, related to the construction of corporate
facilities. No interest was capitalized during fiscal 1998.
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance
with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". SFAS No. 121 requires that long-lived
assets be reviewed for impairment when events or changes in circumstances
indicate that the book value of an asset may not be recoverable. The Company
evaluates, at each balance sheet date, whether events and circumstances have
occurred that indicate possible impairment. In accordance with SFAS No. 121, the
Company uses an estimate of future undiscounted net cash flows of the related
asset over the remaining life in measuring whether the assets are recoverable.
F-10
<PAGE>
Intangible Assets
Intangible assets consist of goodwill, trade names and licenses
resulting from the Company's acquisition of DNR (See Note 7). Intangible assets
are amortized using the straight-line method over lives ranging from 5 to 30
years.
As a result of the settled Sims arbitration (See Legal Matters in Note
4) the Company evaluated its intangible assets (goodwill, trade names and
licenses) for impairment. In accordance with SFAS 121, an impairment loss of
$8.0 million has been recognized in order to properly state intangible assets at
their estimated fair value. At March 31, 1998 and 1997, accumulated amortization
of intangible assets totaled approximately $1.3 million and $0.6 million.
Revenue Recognition
Revenue is recognized when a product is shipped to the customer.
Advertising
Prior to fiscal 1996, the Company capitalized certain advertising costs
and amortized those costs over the period for which the revenue related to the
costs was recognized. During fiscal 1996, the Company adopted the provisions of
Statement of Position 93-7, Reporting on Advertising Costs, which requires
advertising costs to be expensed the first time the advertising takes place or
when incurred. The Company has elected to expense advertising costs the first
time the advertising takes place. In fiscal 1996, the cumulative effect of
adopting this change in accounting principle, net of the related income tax
effect, was approximately $266,000.
For the years ended March 31, 1998, 1997 and 1996, advertising expenses
totaled approximately $ 4.4 million, $3.3 million and $4.2 million,
respectively.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for
expected future tax consequences of events that have been recognized in the
financial statements or tax returns in different periods. Under this method,
deferred income tax assets or liabilities are determined based upon the
difference between the financial and income tax bases of assets and liabilities
using enacted tax rates expected to apply when differences are expected to be
settled or realized.
F-11
<PAGE>
Fair Value of Financial Instruments
The fair value of the Company's long-term debt is approximately $17.5
million at March 31, 1998. The book value of all other financial instruments
approximates fair value except for derivatives (See Note 8). The estimated fair
values have been determined using appropriate market information and valuation
methodologies.
Earnings per Share
The Company adopted the provisions of SFAS No. 128, "Earnings per
Share" which specifies the computation, presentation and disclosure requirements
for earnings per share ("EPS"). Basic net income (loss) per common share (Basic
EPS) excludes dilution and is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the year. Diluted
net income (loss) per common share (Diluted EPS) reflects the potential dilution
that could occur if stock options were exercised or converted into common stock.
The computation of Diluted EPS does not assume exercise of stock options that
would have an antidilutive effect on net income (loss) per common share. Net
income (loss) per common share amounts have been restated for all periods
presented.
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- -------------------------- ----------------------------
(Loss) Shares Per-Share Income Shares Per-Share Income Shares Per-Share
(Num.) (Denom.) Amount (Num.) (Denom.) Amount (Num.) (Denom.) Amount
------ -------- ------ ------ -------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS $(17,329) $ 11,130 $ (1.56)$ 4,602 $ 10,285 $ 0.45 $ 3,423 $ 8,447 $ 0.41
Dilutive options -- -- -- -- 51 -- -- 148 --
-------- -------- --------- -------- -------- ------- -------- -------- ------
Diluted EPS $(17,329) $ 11,130 (1.56) 4,602 10,336 0.45 3,423 8,595 0.40
======== ======== ========= ======== ======== ======= ======== ======== ======
</TABLE>
For fiscal year 1996, the per share information related to the
cumulative effect of accounting change for both Basic and Diluted EPS was a loss
of $(0.03) per share.
For the years ended March 31, 1998 and 1997, there were outstanding options
and warrants to purchase a total of 1,099,175 and 1,058,000 shares of common
stock, respectively, that were not included in the computation of Diluted EPS.
For fiscal year 1997, certain options and warrants were not included because the
exercise prices of such options and warrants were greater than the average
market price of common shares. For fiscal year 1998 the options and warrants
were not included because the Company incurred a net loss.
F-12
<PAGE>
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about
Segments of an Enterpise and Related Information". SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components and SFAS 131 establishes new standards for public companies to report
information about their operating segments, products and services, geographic
areas and major customers. Both statements are effective for the Company in
fiscal 1999.
F-13
<PAGE>
NOTE 2. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT
Notes payable to banks at March 31, 1998 and 1997, consisted of the
following:
1998 1997
--------- ----
(in thousands)
Credit arrangement with three German banks, with
maximum borrowing of DM 79,000,000 ($42,740,000).
The arrangement provides for maximum borrowings at
the bank's base rate or a combination of borrowings
at the bank's base rate with DM 71,000,000
($38,412,000) maximum available for Euroloans and DM
8,000,000 ($4,328,000) available as a revolving line
of credit. The line of credit includes provisions
for discounting customer notes with recourse.
Amounts outstanding under these credit arrangements
at March 31, 1998 consisted of Euroloans (net of DM
678,000 current account) of DM 35,822,000
($19,379,000), bearing interest rates ranging from
4.44% to 5.00% subject to an interest rate swap for
the initial DM 10,000,000 ($5,410,000) which limits
the interest rate to a maximum rate of 6.25% and
subject to an interest cap for DM 5,000,000
($2,705,000) which limits the interest rate to a
maximum rate of 6.00%. Borrowings are secured by the
accounts receivable, inventory and equipment of
Marker Germany and are guaranteed by Marker
International and Marker USA. The agreement with two
of the banks extends through July 1998, and with the
other bank until further notice. $ 19,379 $ 17,507
Credit arrangements with three Japanese banks, with
maximum borrowing of YEN 1,450,000,000
($10,884,000). At March 31, 1998, YEN 420,000,000
($3,152,500) of borrowings were outstanding with
interest rates ranging from 1.63% to 2.25%, due in
installments at various dates through March 1999;
YEN 200,000,000 ($1,501,200) secured by the assets
of a director of the Company and YEN 220,000,000
($1,651,300) guaranteed by Marker International. 3,153 8,647
Line of credit with a U.S. bank, maximum borrowings of
$25,000,000, subject to a borrowing base limitation.
Interest at the bank's prime rate (8.50% at March
31, 1998) secured by the accounts receivable and
inventory of Marker USA and Marker Ltd. and
guaranteed by Marker International. The line of
credit agreement expires August 1998. 24,901 12,776
Credit arrangement with a Canadian bank, maximum
borrowings of CND$3,000,000 ($2,113,500). At March
31, 1998, CND$1,720,000 ($1,211,740) was
outstanding. Interest accrues at the bank's prime
rate plus 0.75% (7.25% at March 31, 1998). Amounts
are secured by inventory of Marker Canada and
guaranteed by Marker International and Marker USA.
The line of credit agreement expires March 1999. 1,212 0
----- -----
$48,645 $38,930
======= ======
For the years ended March 31, 1998 and 1997, the weighted average
interest rate on short-term borrowings outstanding at year end was 6.5 percent
and 5.2 percent, respectively, the maximum short-term borrowing amount
F-14
<PAGE>
outstanding during such years was $74.2 million and $68.3 million, respectively,
the average amount outstanding during the years was $58.8 million and $51.2
million, respectively, and the weighted average interest rate during such years
was 6.1 percent and 5.2 percent, respectively. As discussed in Note 1, the
Company was not in compliance with certain financial covenants under the line of
credit with a U.S. bank with outstanding borrowings of $24.9 million which could
also lead to cross-defaults under the Company's other credit arrangements which
are guaranteed by Marker International and/or Marker USA. This matter and other
matters could have a material and adverse impact on the financial condition of
the Company (see Note 1).
Long-term debt at March 31, 1998 and 1997 consisted of the following:
1998 1997
--------- ----
(in thousands)
Notes payable to two German banks, interest rates
ranging from 4.95% to 7.50%, due in installments
through June 2007, secured by accounts receivable,
inventory and equipment of Marker Germany and
guaranteed by $ Marker International and Marker USA $ 5,518 $ 5,282
Note payable to a U.S. bank, interest at 8.75% due
October 1999, secured by the inventory and accounts
receivable of Marker USA and Marker Ltd. and
guaranteed by Marker International 4,500 5,000
Note payable to a U.S. branch of a German bank,
interest at 4.81%, due April 2001, secured by a
$2,000,000 time deposit held in the Company's name
at the bank 3,941 4,349
Note payable to a U.S. bank, interest at 9.7%, due in
monthly installments through July 2004, secured by a
building 1,318 1,461
Notes payable to an insurance company, interest at
8.09%, due in installments through May 2012, secured
by a building 2,184 2,250
Note payable to a Japanese bank, interest at 2.13%, due
in installments through November 2000, secured by
the assets of a director of the Company 562 818
Other 387 365
--- ---
18,410 19,525
Less current maturities (3,512) (3,038)
------ ------
$ 14,898 $ 16,487
====== ======
The following are scheduled principal maturities of long-term debt as
of March 31, 1998 (in thousands):
Year Ending March 31, Amount
--------------------- ------
1999 $ 3,512
2000 6,366
2001 4,319
2002 675
2003 417
Thereafter 3,121
-----
$ 18,410
========
F-15
<PAGE>
Total cash paid for interest during the years ended March 31, 1998,
1997 and 1996 was approximately $5,492,000, $5,276,000, and $5,172,000,
respectively. Included in total cash payments for interest are Series A Bond
(See Note 3) interest payments which totaled approximately $936,000, $1,253,000
and $1,556,000 for the years ended March 31, 1998, 1997 and 1996, respectively.
NOTE 3. BONDS
The holder of the Series A-1, A-2 and A-3 bonds (collectively the
"Series A Bonds") is a Japanese corporation (the "Bondholder") controlled by a
director of the Company. The Series A Bonds are subject to redemption upon not
less than 30 days' prior notice, in whole or in part, at the option of the
Company.
Series A-1 Bonds
The Series A-1 bonds had an original aggregate face value of $8.0 million and
bear interest, payable semi-annually on September 30 and March 31, at the
effective borrowing rate for the Bondholder (the "Japanese Bank Rate"). The
effective Japanese Bank Rate at March 31, 1998 and 1997 was 7.97 percent and
6.79 percent, respectively. The average effective Japanese Bank Rate during the
years ended March 31, 1998 and 1997 was 7.3 percent and 6.6 percent,
respectively. During the fiscal years ended March 31, 1998 and 1997, $0 and $1.0
million of the Series A-1 bonds outstanding may be redeemed according to the
following schedule:
Redemption Face Amount
Notice On or After On or After to be Redeemed
------------------ ----------- --------------
April 1, 1998 October 1, 1998 $2,000,000
April 1, 1999 October 1, 1999 $2,000,000
Series A-2 Bonds
The Series A-2 bonds had an original aggregate face value of $10.0
million and bear interest, payable semi-annually on September 30 and March 31,
at the Japanese Bank Rate plus three percent of the face value of the bonds
outstanding. The effective Japanese Bank Rate on Series A-2 bonds at March 31,
1998 and 1997 was 10.97 percent and 9.79 percent, respectively. During the year
F-16
<PAGE>
ended March 31, 1998 and 1997, $0 and $2.5 million of the Series A-2 bonds were
redeemed by the Bondholder, respectively. The Bondholder of the Series A-2 bonds
may redeem the remaining bonds according to the following schedule:
Redemption Face Amount
Notice On or After On or After to be Redeemed
------------------ ----------- --------------
June 16, 1998 December 16, 1998 $2,500,000
June 16, 1999 December 16, 1999 $2,500,000
Series A-3 Bond
The Series A-3 bond has an aggregate face value amount of $1.0 million
and bears interest, payable semi-annually on September 30 and March 31, at the
Japanese Bank Rate plus three percent of the face value of the bond outstanding.
The effective Japanese Bank Rate on the Series A-3 bond at March 31, 1998 and
1997 was 10.97 percent and 9.79 percent, respectively. The Bondholder of the
Series A-3 bond may redeem the bond by providing six months, prior written
notice on or after June 16, 1999 for redemption on or after December 16, 1999.
NOTE 4. COMMITMENTS AND CONTINGENCIES
Letters of Credit
The Company has available letters of credit with a U.S. bank of $2,500,000.
Letters of credit totaling approximately $502,000 were outstanding as of March
31, 1998.
Leases
The Company is committed under various long-term noncancellable operating
leases requiring minimum annual rentals as follows (in thousands):
Year Ending March 31, Amount
--------------------- ------
1999 $2,560
2000 2,235
2001 1,752
2002 1,632
2003 1,561
Thereafter 9,819
-----
$ 19,559
======
F-17
<PAGE>
Rent and lease expense was approximately $2,791,000, $3,176,000, and
$3,572,000 for the years ended March 31, 1998, 1997 and 1996, respectively.
During June 1997, the Company entered into an agreement for the sale and
leaseback of the Company's machinery and equipment of its snowboard facility.
The Company has an option to purchase such facility for $790,000 at expiration
of the lease. The lease is classified as an operating lease in accordance with
SFAS No. 13, "Accounting for Leases". The net book value and associated
depreciation of the machinery and equipment of approximately $2.8 million was
removed from the accounts. The gain realized on the sale approximating $176,000
has been deferred and will be credited to income as rent expense adjustments
over the lease term.
Discounted Notes Receivable
Marker Japan was contingently liable for discounted trade notes
receivable on a full recourse basis of approximately $3,753,000 at March 31,
1998. These notes receivable mature in various amounts through July 1998.
Royalty Agreements
During fiscal year 1998, the Company renewed its agreement with the
Salt Lake Organizing Committee for the 2002 Olympic Winter Games ("SLOC") as a
licensee for the sale of apparel with the imprint of the 2002 Olympic Winter
Games to be held in Salt Lake City. The Company was again awarded licenses for
both winter and summer apparel with the current agreements extending through
December 31, 1998.
DNR Sportsystem Ltd. is party to a license agreement (the "Santa Cruz
License") with California based N.H.S., Inc. ("Santa Cruz"). The Santa Cruz
License may be terminated on May 31, 2001, upon one year's prior notice by
either party, and unless so terminated, will continue for successive two year
periods. Among other things, the Santa Cruz License requires that DNR pay Santa
Cruz certain royalties as a percentage of DNR's gross sales arising from
products sold under the Santa CruzTM brand name. Royalties related to the Santa
Cruz License agreement ranged from 2% to 6% of sales. DNR incurred royalty
expenses of approximately $271,000 in fiscal 1998.
Legal Matters
On March 18, 1998, Thomas P. Sims ("Sims") and the Company agreed to
end their then on-going arbitration proceedings and to release all claims and
counterclaims against each other with no monetary exchange. The settlement ended
all disputes between Sims, Sims Sports, Inc., Marker International, and related
F-18
<PAGE>
parties which began in September, 1996. The disputes related to a license
agreement between Sims and DNR for the production and distribution of snowboards
and related products bearing the Sims trademark.
In the opinion of the Company, neither the Company nor any of its
subsidiaries is currently a party to or subject to any other material pending
legal proceedings. The nature of the sports of skiing and snowboarding entail
inherent risks of injury. It is expected that the Company from time to time will
be subject to claims and lawsuits as a result of the nature of its business. The
Company maintains insurance that it believes meets industry standards to protect
itself against product liability claims. The adequacy of the insurance coverage
and reserves established by the Company to cover known, as well as incurred but
unknown, product liability claims are evaluated at the end of each fiscal year.
There can be no assurance, however, that such coverages or reserves will be
sufficient protection against any future legal proceedings (including any
related payments, settlements or costs).
In September 1995, the Company, along with other significant companies
in its business, received a letter from the Department of Justice (the "DOJ")
explaining that the pricing practices of the various companies in the ski
industry were being reviewed. Although to date the Company has not received
additional correspondence from the DOJ, there can be no assurance that the DOJ
will not pursue these matters further.
NOTE 5. INCOME TAXES
The Company's subsidiaries file tax returns in their applicable
jurisdictions. U.S. income tax is not provided on unrepatriated foreign earnings
because management considers such amounts to be permanently invested abroad.
Management has deemed it impracticable to determine the amount of unrecognized
deferred tax liability on earnings which are considered permanently invested
abroad. However, the Company has provided for U.S. income taxes on the
undistributed earnings of its investment in DNR prior to June 26, 1996, while it
was an unconsolidated subsidiary.
The domestic and foreign components of income (loss) before provision
for income taxes for the years ended March 31, 1998, 1997 and 1996 were as
follows (in thousands):
1998 1997 1996
---- ---- ----
Domestic $ (4,206) $ (2,551) $ 386
Foreign (12,602) 8,809 3,912
-------- -------- --------
$(16,808) 6,258 4,298
======== ===== =====
F-19
<PAGE>
The Company's (benefit) provision for income taxes for the years ended
March 31, 1998, 1997 and 1996 consisted of the following (in
thousands):
1998 1997 1996
---- ---- ----
Current:
Federal $ -- $ 15 $ 15
State 4 30 7
Foreign 261 1,945 1,210
---- ------- -------
265 1,990 1,232
Deferred 257 (334) (623)
---- ------- -------
$ 522 $ 1,656 $ 609
======= ======= =======
For the years ended March 31, 1997 and 1996, the federal and state
current provisions for income taxes are presented net of the benefits realized
from operating loss carryforwards which totaled approximately $166,000 and
$123,000, respectively. In addition, the fiscal 1996 foreign current provision
for income taxes is presented net of benefits realized from operating loss
carryforwards of approximately $213,000.
The (benefit) provision for income taxes as a percentage of income
before provision for income taxes differed from the statutory federal rate due
to the following:
1998 1997 1996
---- ---- ----
Statutory federal income tax rate (34.0%) 34.0% 34.0%
State income taxes net of federal income tax benefit -- 0.3 0.6
Change in deferred tax asset valuation allowance 16.1 (5.3) (20.2)
Foreign earnings taxed at different rates 20.8 (2.3) 12.1
Investment in unconsolidated subsidiary -- (1.9) (12.6)
Other 0.2 1.7 0.3
---- ---- ----
(3.1%) 26.5% 14.2%
==== ==== ====
F-20
<PAGE>
The components of the net deferred tax assets and liabilities at March
31, 1998 and 1997 were as follows (in thousands):
1998 1997
------- --------
Deferred tax assets:
Intercompany profit $ 1,028 $ 801
Domestic net operating loss carryforwards 852 67
Foreign net operating loss carryforwards 673 --
Allowance for doubtful accounts 278 410
Accrued expense reserves 795 625
Foreign tax credits and tax attribute carryforwards 435 190
Other 274 376
------- -------
Total deferred tax assets 4,335 2,469
Valuation allowance (3,085) (428)
------- -------
1,250 2,041
------- -------
Deferred tax liabilities:
Equity investment (139) (139)
Other (154) (356)
------- -------
Total deferred tax liabilities (293) (495)
------- -------
Net deferred tax assets $ 957 $ 1,546
======= =======
The recognition of deferred tax assets is based upon judgments
regarding the potential realization of such assets in the future. Although
realization is not assured, management believes it is more likely than not that
a portion of the net deferred tax asset will be realized.
As of March 31, 1998, the Company has domestic tax net operating loss
carryforwards of approximately $2,291,000 which begin to expire in 2006 and
foreign tax net operating loss carryforwards of approximately $1,500,000 which
begin to expire in 2003. Additionally, as of March 31, 1998, the Company has
domestic foreign tax credits, general business credits, charitable contribution
carryforward and alternative minimum tax credits of $160,000, $32,000, $109,000
and $82,000 respectively.
Cash paid for income taxes in the years ended March 31, 1998, 1997 and
1996 was approximately $1,569,000, $1,216,000 and $1,114,000, respectively.
F-21
<PAGE>
NOTE 6. COMMON STOCK TRANSACTIONS
Stock Offering
On July 23, 1996, the Company closed its Secondary Public Offering of
the Company's common stock. In connection therewith, the Company
issued 2,680,000 shares of common stock. The Company received aggregate net
proceeds of approximately $14.8 million. The Company utilized such net proceeds
to partly finance the purchase of additional shares of DNR.
Warrants
In connection with the Company's Initial Public Offering held during
fiscal 1995, the Company issued to the representative of the underwriters
nontransferable warrants to purchase 231,500 shares of the common stock,
exercisable for a period of four years commencing in August 1995 at an exercise
price of $8.75. Accordingly, at March 31, 1998, 173,625 warrants were
exercisable. The warrants provide for registration rights, anti-dilution
protection and other customary terms. No warrants were exercised during the
fiscal year ended March 31, 1998.
Stock Option Plan
During fiscal 1995, the Company established a nonqualified and
incentive stock option plan (the "Stock Option Plan"). The Stock Option Plan
provides for the issuance of a maximum of 2,500,000 shares of common stock to
officers, directors, consultants and other key employees. The Stock Option Plan
allows for the grant of incentive or nonqualified options and is administered by
the Board of Directors. Incentive options are granted at not less than 100
percent of the fair market value of the underlying common stock on the date of
the grant. The aggregate fair market value of shares which may be purchased for
the first time during any calendar year pursuant to an incentive stock option
grant may not exceed $100,000. Nonqualified stock options will be granted at a
price as determined by the Board of Directors. No stock options granted are
exercisable after ten years from the date of grant.
F-22
<PAGE>
For the years ended March 31, 1998, 1997 and 1996, the Company had the following
stock option activity:
Weighted Avg.
Year Ended March 31, 1998 Amount Exercise Price
------------------------- ------ --------------
Options Granted 22,500 $ 4.08
Options Exercised (1,450) 4.13
Options Expired/Forfeited (53,750) 4.46
Options Outstanding 844,800 4.86
Options Exercisable 476,172 4.63
Year Ended March 31, 1997
-------------------------
Options Granted 236,000 $ 5.42
Options Exercised (1,250) 7.13
Options Expired/Forfeited (44,250) 6.83
Options Canceled (169,000) 5.75
Options Outstanding 877,500 6.46
Options Exercisable 277,750 6.96
Year Ended March 31, 1996
-------------------------
Options Granted 359,500 $ 5.91
Options Exercised (1,000) 7.13
Options Expired/Forfeited (25,000) 6.95
Options Outstanding 856,000 6.62
Options Exercisable 125,375 7.13
On April 15, 1997, the Board of Directors amended the exercise price of
468,500 options originally granted on November 1, 1994 at an option price of
$7.13 per share to $4.13 per share, which was the closing price for Marker
common stock on April 15, 1997.
The Company has adopted the disclosure-only provisions of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation expense has been recognized for the Stock Option
Plan. Had compensation cost for the Company's stock option awards been
determined in accordance with the provisions of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
F-23
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net (Loss) Income - As Reported (in thousands) $(17,329) $ 4,602 $ 3,423
Net (Loss) Income - Pro Forma (in thousands) $(18,495) $ 4,190 $ 3,265
Earnings (Loss) per Share - As Reported $ (1.56) $ 0.45 $ 0.40
Earnings (Loss) per Share - Pro Forma $ (1.66) $ 0.41 $ 0.38
</TABLE>
The following information applies to the options outstanding and
exercisable at March 31, 1998: 672,300 of the 844,500 options outstanding at
March 31, 1998 have exercise prices between $4.00 and $5.75, with a weighted
average exercise price of $4.55, and a weighted average remaining contractual
life of 7.1 years of which approximately 389,922 of these options are
exercisable, and the remaining 172,500 options have exercise prices between
$6.00 and $6.50, with a weighted average exercise price of $6.05, and a weighted
average remaining contractual life of 7.2 years of which approximately 86,250 of
these options are exercisable; their weighted average exercise price is $6.05.
Because the Statement 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The
weighted average fair value of options granted under the Company's stock option
plans during fiscal years ended March 31, 1998, 1997, and 1996 were estimated at
$2.44, $4.27 and $4.37, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in fiscal 1998, 1997 and 1996, respectively: dividend
yield of 0%, expected volatility of 77.4%, 78.0% and 78.0% respectively, and
expected lives of 6 years for all years; and a risk free rate of return of 6.7%,
6.3% and 6.6%, and an assumed forfeiture rate of 1.2%, 2.3% and 7.9%,
respectively. The estimated fair value of options granted is subject to the
assumptions made and if the assumptions were to change, the estimated fair value
amounts could be significantly different. The weighted average fair value of the
options exercised during fiscal 1998, 1997 and 1996 was $4.33 for all years.
NOTE 7. INVESTMENT IN SUBSIDIARY
On June 30, 1995, the Company acquired 25% of the common shares of DNR,
a Swiss Corporation, for approximately $5.4 million in cash. On June 26, 1996,
the Company acquired an additional 55% of the common shares of DNR for
approximately $19.8 million. In connection with the 55% purchase, the Company
acquired the following: assets at fair value of $24.1 million (including cash of
$5.3 million) and assumed liabilities of $4.2 million. This acquisition has been
accounted for using the purchase method. As a result of the acquisition,
F-24
<PAGE>
Marker's total ownership of DNR increased to 80%. Prior to its 80% ownership,
the Company accounted for its then 25% investment in DNR using the equity method
of accounting.
Prior to March 31, 1997, DNR had a calendar year end, and as a foreign
entity did not have the same reporting requirements as the Company. Consistent
with prior reporting periods, the Company used a 90-day lag in reporting DNR's
financial information. As such, DNR's operating results for its year ended
December 31, 1996 were included in Marker's fiscal year ended March 31, 1997. On
March 31, 1997, Marker elected to eliminate the 90-day reporting lag and, as
such, recorded a one time adjustment to retained earnings relating to DNR's
operating results for the period January 1, 1997 to March 31, 1997, effectively
making DNR's current reporting period the same as that of the Company and its
other consolidated subsidiaries. For the period January 1, 1997 through March
31, 1997, Marker's adjustment to retained earnings was $2.45 million, which
represented 80% of DNR's net loss for that same period. DNR had net sales of
$1.3 million for the period January 1, 1997 through March 31, 1997.
For the period January 1, 1996 through December 31, 1996, DNR reported
net sales of $49.7 million, operating income of $6.7 million and net income of
$6.4 million. However, the Company's actual benefit from the 1996 DNR operating
results was reduced by its proportional share of non-ownership (minority
interest) which varied throughout the reporting period, amortization expense
resulting from goodwill created by the purchase of DNR and significant interest
expense incurred by the Company relating to the purchase.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company had owned 80% of DNR at the
beginning of fiscal 1997 and 1996. Pro forma adjustments have been made to give
effect to amortization of goodwill, interest expense on acquisition debt and
certain other adjustments. The pro forma results have been prepared for
comparative purposes only. They do not purport to be indicative of the results
of operations which actually would have resulted had the Company owned 80% of
DNR for the entire fiscal years 1997 and 1996, or of future results of
operations of the consolidated entities.
(Unaudited and in thousands, except per share amounts) For the Year ended
March 31,
---------
1997 1996
---- ----
Net Sales $131,354 $131,949
Operating income 9,497 11,653
Net income 3,531 5,186
Net income per common share $ 0.32 $ 0.47
F-25
<PAGE>
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS
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. From time to time the Company has entered into
derivatives that require speculative accounting treatment.
Foreign Exchange Contracts
Forward foreign exchange contracts are used by the Company to reduce
the potential impact of unfavorable fluctuations in foreign exchange
rates. The Company has commitments to buy and sell foreign currencies relating
to foreign exchange contracts in order to hedge against future currency
fluctuations.
The Company has available, through its credit arrangement with a German
bank, the ability to enter into forward foreign exchange contracts
to purchase up to the equivalent of DM 70.0 million. In addition, the Company
has the ability to enter into forward foreign exchange contracts with two United
States banks to purchase, in the aggregate, up to the equivalent of US$80.0
million.
The Company holds forward exchange contracts to purchase German marks
with Japanese Yen, Canadian Dollars and U.S. Dollars, and to sell Japanese Yen
and U.S. Dollars for Italian Lira. The contracts mature at various dates through
March 2000. The outstanding forward exchange purchase and sale contracts at
March 31, 1998, including those accounted for as speculative contracts are as
follows:
Selling Buying Contracted
Amount Amount Forward Rate
------ ------ ------------
(Y) 915,035,000 DM 14,000,000 61.765 - 68.870
CND$ 3,035,482 DM 3,700,000 1.112 - 1.342
$ 71,683,255 DM 124,806,300 1.5417 - 1.8306
L 750,000,000 (Y) 46,153,846 16.25
L. 400,000,000 $ 234,811 1703.5
Counterparties to the foreign exchange contracts are typically major
international financial institutions. The Company does not anticipate a loss
resulting from any credit risk of these institutions. At March 31, 1998, the
fair value of the foreign exchange contracts treated as hedges of firm
commitments indicates a potential loss of $1.1 million, which represents the
total deferred loss on such contracts. 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 is remote.
F-26
<PAGE>
During fiscal years ended March 31, 1997 and 1996, the Company
purchased and sold options and forward foreign exchange contracts, respectively,
which were not accounted for as hedges. As a result, the Company recorded in
other income net gains of approximately $0.8 million and $1.0 million,
respectively. During fiscal year 1998 the Company recorded net unrealized losses
of $1.3 million in other income net, related to speculative contracts.
Interest Rate Swap Agreement
The Company has entered into an interest rate swap and interest rate
cap agreement to reduce the impact of changes in interest rates on its variable
rate revolving credit agreement (See Note 2). The differential to be paid or
received on the agreements is recognized over the term of the agreement as
either an increase or decrease of interest expense. As of March 31, 1998, the
net unrealized loss on this agreement was approximately $85,300 (DM 157,600)
which is the estimated amount that the financial institution would receive in
order for the Company to terminate the swap agreement as of March 31, 1998.
NOTE 9. RELATED PARTY TRANSACTIONS
During fiscal years 1998, 1997 and 1996, Marker Japan purchased ski
bindings and services totaling approximately $92,000, $93,000, and $13,000,
respectively, from Isomura Seisakusho KK ("Isomura Seisakusho"), a company of
which Eiichi Isomura, a shareholder and director of the Company, is the
president, director and owner of more than ten percent of the outstanding stock.
At March 31, 1998, 1997 and 1996, the net account receivable from Isomura
Seisakusho was approximately $0.4 million, $0.4 million and $0.5 million,
respectively.
At March 31, 1998, the Company had outstanding credit arrangements in
an aggregate amount equal to approximately U.S. $3.7 million payable to Japanese
banks. Of these amounts, approximately $2.1 million was secured by assets of Mr.
Isomura.
Marker Japan leases office space in Tokyo, Japan and receives
distribution services from Isomura Sangyo, a company of which Eiichi Isomura, a
shareholder and director of the Company, is the president, director and owner of
more than ten percent of the outstanding stock. In connection therewith, for the
fiscal years 1998, 1997 and 1996, Marker Japan made payments to Isomura Sangyo
totaling approximately $280,000, $287,000 and $428,000 respectively.
The Company purchased insurance through an insurance broker, Acordia
Northwest Inc., of which Graham S. Anderson, a director of the Company, is also
F-27
<PAGE>
a director. The Company incurred approximately $745,000, $851,000, and $746,000
of premiums for such insurance during fiscal 1998, 1997 and 1996, respectively.
DNR purchased snowboards from an affiliated entity, of which Gregor
Furrer & Partner Holding AG, a minority shareholder of DNR, is a partner.
Snowboards purchased from the related party totaled approximately $5,935,000 and
$21,453,000 during 1998 and 1997, respectively.
NOTE 10. BENEFIT PLAN
The Company sponsors a qualified retirement plan under Section 401(k)
of the Internal Revenue Code which covers substantially all eligible domestic
employees. Under the terms of the plan, each participant may elect to defer up
to the annual statutory limit of eligible compensation. The Company matches 50
percent of each participant's contribution up to 4 percent of the participant's
eligible compensation. During the years ended March 31, 1998, 1997 and 1996,
employer contributions totaled approximately $56,000, $47,000 and $41,000,
respectively.
F-28
<PAGE>
NOTE 11. INTERNATIONAL OPERATIONS
The Company's operations involve a single industry segment. The
Company's three geographic regions are North America, Europe and Asia. Net sales
to affiliates consist primarily of inventory transactions and are made at
transfer prices which approximate prices charged to unaffiliated customers. The
following is a summary of the Company's operations by geographic region for the
years ended March 31, 1998, 1997 and 1996 (in thousands):
1998 1997 1996
--------- --------- ---------
Net Sales to Unaffiliated Customers:
North America $ 44,196 $ 39,477 $ 40,702
Europe 37,726 73,927 30,245
Asia 12,349 12,999 16,964
--------- --------- ---------
Total Consolidated $ 94,271 $ 126,403 $ 87,911
========= ========= =========
Export Sales From Europe to Asia: $ 1,552 $ 1,677 $ 1,649
========= ========= =========
Net Sales to Affiliates:
North America $ 1,925 $ 375 $ 515
Europe 37,341 36,426 42,905
Asia -- -- 22
--------- --------- ---------
Total $ 39,266 $ 36,801 $ 43,442
========= ========= =========
Operating (Loss) Income:
North America $ (737) $ (96) $ 2,681
Europe (9,564) 11,711 4,064
Asia (431) 308 (389)
Eliminations (617) (33) (532)
--------- --------- ---------
Total Consolidated $ (11,349) $ 11,890 $ 5,824
========= ========= =========
Identifiable Assets:
North America $ 60,056 $ 52,742 $ 37,072
Europe 61,221 70,020 50,339
Asia 13,132 13,653 14,814
Eliminations (29,289) (19,275) (14,960)
--------- --------- ---------
Total Consolidated $ 105,120 $ 117,140 $ 87,265
========= ========= =========
F-29
<PAGE>
NOTE 12. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following is selected quarterly financial data for the fiscal years
ended March 31, 1998 and 1997 (in thousands except per share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1998
Net Sales $ 2,271 $ 29,009 $ 39,362 $ 23,629
======= ======== ========= ========
Gross Profit 183 9,335 13,967 6,869
======= ======== ========= ========
Net (Loss) Income (5,055) (1,046) 2,938 (14,166)
======= ======== ========= ========
Net (Loss) Income Per Common Share
Basic (0.45) (0.09) 0.26 (1.28)
======= ======== ========= ========
Diluted
(0.45) (0.09) 0.26 (1.28)
======= ======== ========= ========
1997
Net Sales $ 1,624 $ 31,600 $ 60,305 $ 32,874
======= ======== ========= ========
Gross Profit 781 12,437 20,649 12,005
======= ======== ========= ========
Net (Loss) Income (3,960) 2,884 5,418 260
======= ======== ========= ========
Net (Loss) Income Per Common Share
Basic (0.47) 0.28 0.49 0.02
======= ======== ========= ========
Diluted (0.47) 0.28 0.48 0.02
======= ======== ========= ========
F-30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 4241
<SECURITIES> 0
<RECEIVABLES> 31710
<ALLOWANCES> 1697
<INVENTORY> 37223
<CURRENT-ASSETS> 77614
<PP&E> 34435
<DEPRECIATION> 16733
<TOTAL-ASSETS> 105120
<CURRENT-LIABILITIES> 70868
<BONDS> 10000
0
0
<COMMON> 111
<OTHER-SE> 12296
<TOTAL-LIABILITY-AND-EQUITY> 105120
<SALES> 94271
<TOTAL-REVENUES> 94271
<CGS> 63917
<TOTAL-COSTS> 41703
<OTHER-EXPENSES> (152)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5794
<INCOME-PRETAX> (16991)
<INCOME-TAX> (522)
<INCOME-CONTINUING> (17329)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17329)
<EPS-PRIMARY> (1.56)
<EPS-DILUTED> (1.56)
</TABLE>
