John Textor explains what’s happened with the brand in the last year.

In a phone interview with SNOWboarding Business held right before the holiday break, Sims Owner John Textor discussed the current situation with Sims Snowboards, including why it shipped late this season, what went on with its binding supplier, and how the company has been restructured. Here’s what he had to say:

Q: Give me an update of where Sims is right now.
Prior to May of 1999, Sims was marked by changes in ownership and significant legal battles as it tried to globalize and streamline distribution. There were capitalist involved and there were industry people involved. Prior to May of 1999, me and my group, Wyndcrest Partners¿which includes Michael Bay¿were minority investors in the company. In May of 1999, by way of our capital investment of several-million dollars, we put together a restructured company. But it was still the same entity, Sims Sports Inc., and it included a number of shareholders from the past. By virtue of it being a C Corp., it also had various liabilities and exposure to the past and some time that exposure was not well defined. Ultimately, the May 1999 restructuring was designed to bring in capital, bring in new people, put tremendous energy behind the brand, and try to get beyond its past. However that entity was very much tied to the past. The brand has opportunities much greater than that entity could support. Simply stated, we were still paying for the past. We recently found ourselves in court on a relatively minor, but a very distracting, issue related to something that a prior Sims owner did in 1995.

Q: And how did those things affect the company?
These added up to tremendous distractions and tremendous expenses. However, by virtue of the capital we’d invested, which is more than several-million dollars, we obtained various rights with respect to the Sims brand that went beyond those of Sims Sports, Inc. We have exercised those rights in cooperation with Tom Sims and we have acquired those rights to go forward through a new vehicle, which be called Sims Distribution, Inc. Everything going forward, including the product we have been recently delivering, is by way of this new company. The owners are Tom Sims, myself, Michael Bay, and two other smaller individuals. We’re no longer hamstrung by a past that in many cases we weren’t even a part of.

Q: When you say you obtained various rights, what does that mean?
That means when you invest several-million dollars in a company and that company has required funding from us to continue, we have decided we would rather fund the company in an entity we owned entirely as opposed to one we control partially. We have acquired the rights that Sims Sports Inc. had. We have acquired the rights to the brand license directly from Tom.

Q: Does Tom still hold the trademark?
Yes, exactly as he always has.

Q: What happens to Sims Sports, Inc.?
Sims Sports, Inc. still has certain outfits, all of which I own, by way of the fact that I am the largest secured creditor of Sims Sports, Inc. Me and my entities are owed several-million dollars. Now as a practical matter, with the value of the license, I tend to ultimately realize value through the new company. But all the assets of Sims will go to me as the largest secured creditor, but it’s not likely to require anything but a direct assignment of those outfits from Sims to me. This is not a bankruptcy. This is effectively a restructuring.

Q: Explain how are you shifting things from Sims Sports Inc. to Sims Distribution, Inc.?
Not only as a shareholder, but the largest-secured creditor, and as a long-term partner with Tom, we were able to use our rights based on the several-million dollars we invested to do a friendly reorganization of this deal with Tom and to go forward in a cleaner way subject of course to Tom’s ultimate decision as to whether or not to grant a new license to S. What happened was that the May 1999 restructuring represented an attempt to create a company that could go forward with the Sims opportunity. But because it was so very tied to the past, it became difficult to do that. The several-million dollars that I put in over the past several years has given me rights to clean this thing up more permanently and that’s what we’ve done.

Q: Do you have to still seek the other investor’s approval on all the different moves you make going forward?
No, but nobody is complaining. They’re happy that I’m putting more money in and they have an opportunity. We’ve put several-million dollars into the company in the last few weeks. To the extent that they have any opportunity going forward is great for them because I’m the only investor who is willing to put in more money.

Q: So who’s in charge now? What does the corporate management structure look like?I’m chairmen of the board of the new company. We’re adding additional people to the board of directors to give it a more diversified support structure. The directors we identified will include past CEO’s of major sporting-goods companies who have snowboarding industry experience. It’ll include leading retailers who give us a better retailer perspective who’ll contribute to the management of our company. We’ve also added Mark Livingston, who is the new president of the company. He’s got nice operating experience both in and outside the sporting-goods industry. The company is being consolidated into one location in Oceanside, California. We’d been running the company out of a Santa Monica office for the marketing, design, and creative divisions, and accounting and warehousing was out of my facility in Florida. That’s all being consolidated under one roof in the San Diego area within the coming couple of months.Mark has been working with a team here at Sims for a couple of months identifying transition needs. The people in the company won’t really change. Our product efforts are still led by the same team, which has dramatically improved over the last couple of years. Travis Wood is still our key marketing and promotions engineer. With our sales staff, everything remains entirely intact. The only changes that occur in personal will occur in the areas of accounting and warehousing.

Q: So how many employees will there be?
It’s difficult to measure because we rely heavily on independent-contractor relationships for the creation of art and various other functions, and in some cases marketing vehicles. Not including the sales-rep side of the business, it’s basically a twenty-person operation in North America. It could be larger than that seasonally based on shipping and warehousing. We are set up with a strong partner in Japan, Hasco, who technically acts as a distributor, but very much works hand-in-hand with us and its staff is quite significant in Japan.

Q: So how is this going to affect the day-to-day operations and what’s going on with product production and shipping this year?Before I answer that, we have to address one other area. Retailers are going to want to know about and need to understand what happened this year, because products, teams, and things were looking so good for Sims. So, why another restructuring?Again getting back to the May 1999 restructuring, the goal was new capital, new people, and a tremendous investment in the brand. We had new product, new teams, new promotions, and an extremely different approach as to how we ran our business, but it was also a very, very tight business model because we combined an intentional sales contraction with increased spending on the brand.

Q: What does sales contraction mean?
We intentionally pulled out of major retail chains that were not necessarily consistent with our brand strategy. We pulled out of the ill-defined big-boxed sporting-good stores. We literally cut out several-million dollars of sales from our order book with those orders in hand from good-paying customers so we could make this commitment to specialty retailers. And we knew shrinking our sales was the best way to build back our brand. Our product needed to be in the right stores with the right positioning and we needed to convince this market Sims was serious about its position in the snowboard marketplace, not just its volume. At the time we took over this brand it was a big brand, but was a stale brand. Let’s face it, we were all over the place in product and our ads. We were trying to be everything to everybody. When you have this extremely tight model of contracting sales and increased spending on the brand, team, staff, major investments in the World Snowboarding Championships, and additional projects with films and video games that we’ll talk about later, and at the same time you have intentionally contracting sales, everything better go perfectly for you to be able to finish through with that model.

Q: So then what happened?
We had a major external assault to our business, which was the closure of the binding factory C-Tech. We didn’t control or own that factory and it closed in the month of June. It represented 25 to 30 percent of our revenues, and it was pretty damn difficult to handle.With this situation, we had two choices: we could just walk on bindings altogether, but that wasn’t an option for us because we’ve been a binding leader in the market. Or we could help the factory.The binding factory did an emergency Chapter 7, a total liquidation. Not withstanding anything that might’ve occurred in its relationship with Sims, it had much bigger problems. The company is owned by Imperial Rubber out of Canada.So if we wanted to produce the bindings, we had to get our molds back, and we if wanted to get our molds back, we had to take possession of the facility. I approached the bankruptcy trustee, acquired position of the facility, and leased it directly from the landlord. We took back the facility, took over our molds, and made significant payments to do that. We made deals with the equipment suppliers so that all the equipment in the factory would remain in place and we rehired, directly into the Sims organization, all of the key people who supported that manufacturing facility¿from the people who worked the injection molding equipment to the CEO of C-Tech, Steve Cartier, who is now working for us. We made an effort to finish the bindings because they were so important to our business. But we knew it was going to force us to be extremely late. We wanted to have the same facility with the same equipment and the same raw-material suppliers with same people that had built the Link binding so successfully.To finish my point, this is what’s so important to understand. When you are in the month of June and a manufacturer that used to provide products for you on open terms goes out of business and suddenly you’re the direct manufacturer, now you are laying out cash for everything¿to take over the facility from the bankruptcy trustee, laying out cash to the landlord, and putting cash to all the raw-material suppliers that were owed money by the bankrupt C-Tech. We were in a position where we got these tremendous financial assaults to our business that caused us to reallocate resources. And to be asked in the month of June to put up several-million dollars to ramp up production is very difficult to do. Not just for a small company, but even for a medium-size company. What that meant is that we delivered very early to Japan and very early to many places in Europe and reasonably on-time to everywhere else in Europe. We fully delivered every product to those markets with the exception of bindings. That’s because we were set to be paid up front for most of that. We were able to take new money that I funded into the binding project, combined with sales and profitability in the markets, and use that to put up the enormous amount of money, several-million dollars that was required faying customers so we could make this commitment to specialty retailers. And we knew shrinking our sales was the best way to build back our brand. Our product needed to be in the right stores with the right positioning and we needed to convince this market Sims was serious about its position in the snowboard marketplace, not just its volume. At the time we took over this brand it was a big brand, but was a stale brand. Let’s face it, we were all over the place in product and our ads. We were trying to be everything to everybody. When you have this extremely tight model of contracting sales and increased spending on the brand, team, staff, major investments in the World Snowboarding Championships, and additional projects with films and video games that we’ll talk about later, and at the same time you have intentionally contracting sales, everything better go perfectly for you to be able to finish through with that model.

Q: So then what happened?
We had a major external assault to our business, which was the closure of the binding factory C-Tech. We didn’t control or own that factory and it closed in the month of June. It represented 25 to 30 percent of our revenues, and it was pretty damn difficult to handle.With this situation, we had two choices: we could just walk on bindings altogether, but that wasn’t an option for us because we’ve been a binding leader in the market. Or we could help the factory.The binding factory did an emergency Chapter 7, a total liquidation. Not withstanding anything that might’ve occurred in its relationship with Sims, it had much bigger problems. The company is owned by Imperial Rubber out of Canada.So if we wanted to produce the bindings, we had to get our molds back, and we if wanted to get our molds back, we had to take possession of the facility. I approached the bankruptcy trustee, acquired position of the facility, and leased it directly from the landlord. We took back the facility, took over our molds, and made significant payments to do that. We made deals with the equipment suppliers so that all the equipment in the factory would remain in place and we rehired, directly into the Sims organization, all of the key people who supported that manufacturing facility¿from the people who worked the injection molding equipment to the CEO of C-Tech, Steve Cartier, who is now working for us. We made an effort to finish the bindings because they were so important to our business. But we knew it was going to force us to be extremely late. We wanted to have the same facility with the same equipment and the same raw-material suppliers with same people that had built the Link binding so successfully.To finish my point, this is what’s so important to understand. When you are in the month of June and a manufacturer that used to provide products for you on open terms goes out of business and suddenly you’re the direct manufacturer, now you are laying out cash for everything¿to take over the facility from the bankruptcy trustee, laying out cash to the landlord, and putting cash to all the raw-material suppliers that were owed money by the bankrupt C-Tech. We were in a position where we got these tremendous financial assaults to our business that caused us to reallocate resources. And to be asked in the month of June to put up several-million dollars to ramp up production is very difficult to do. Not just for a small company, but even for a medium-size company. What that meant is that we delivered very early to Japan and very early to many places in Europe and reasonably on-time to everywhere else in Europe. We fully delivered every product to those markets with the exception of bindings. That’s because we were set to be paid up front for most of that. We were able to take new money that I funded into the binding project, combined with sales and profitability in the markets, and use that to put up the enormous amount of money, several-million dollars that was required for this binding project. What that means, unfortunately, in your core market of North America, your going to be late. There were a whole bunch of products that we still had to move in to the North American market and our whole model had changed. So, I think what’s important for everybody to understand is that we were fully produced and early in every respect on every product with the exception of bindings. This assault on our business in the month of June created difficulty for us in moving product into this country on-time. Now we have shipped substantially all of our boards; we still have stuff moving. Clothing is moving, boots are moving. Gloves, other accessories, and bags are moving. But 100 percent of the producers of our product have been paid for product this year and it’s being delivered, but all being extremely and embarrassingly late. But there’s no issue of limited financial wherewithal. We’ve paid out more than a few-million dollars in the binding project to be a direct manufacturer. We’ve paid several-million dollars just in recent weeks to finish off all of our products. You should know that we’re perfectly on-time with sample development for substantially all of our product, even with the earlier sales schedule this year.

Q: What percentage of your business is Europe and Japan compared to the U.S.?
Historically, by that I mean early to mid 90s, it was pretty close to a third-third-third, with a little bit more being North America.As Europe was restructured by way of the prior ownership’s decision to separate from DNR, our numbers in Europe went down considerably. I would say two years ago Europe represented between probably less than ten to twenty percent of our business, and has been building comfortably. Japan, with respect to North America, has also increased as a percentage simply by the elimination of these large accounts. Our largest customer in North America is a fraction of the size of our largest customer previously, because we are selling to small shops and small chains. So North America is about as big as Japan and Europe is lagging significantly behind. We expect it to grow further in North America, although we are going to our retailers hat in hand, asking them to understand the challenges we faced this year. We’re asking them to focus on consumer demand of the Sims product, asking them to focus on the other things that we are doing like putting on the World Snowboarding Championship that has moved to Vail, which is a powerful thing for our retailers. We’re also working on a large global release IMAX film and doing various other things with our team. We are asking our retailers to stay with us not withstanding the difficulties that we put them through this year. We think that we can still grow in the U.S. because we are already getting significant reorders in most parts of the world, which show that our product is checking through exceptionally well. The consumer does not care about C-Tech. The consumer cares about Jason Murphy on the cover of the X Box Amp game. The consumer cares about the wonderful things Mack Dawg has done to showcase our riders and product. The consumer cares about what TransWorld tells them is fun about snowboarding. With the exception of this tremendous anxiety we have set upon our retailers by being so late, things are good from the consumer perspective. They’re not going to be if we do not do a better job of keeping a product there at that decision point when the consumer comes in and asks for it. But that’s the challenge that we face.In summary, all of the problems you see in the Sims model this year are very much attributable to this assault on our business, which was regrettable, but unavoidable with the closure of the binding factory. It was a domino effect, which is frankly quite amazing.

Q: Yeah, so where does that take us going forward with the brand?
We are shipping very aggressively as we speak. All be it very late. We shipped thousands and thousands of boards over