UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1997
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 0-05083
HYDE ATHLETIC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1465840
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
Centennial Industrial Park, 13 Centennial Drive, Peabody, MA 01960
(Address of principal executive offices)
508-532-9000
(Registrant's telephone number (including area code)
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 [ ]
Class Outstanding as of August 11, 1997
Class A Common Stock-$.33 1/3 Par Value 2,703,227
Class B Common Stock-$.33 1/3 Par Value 3,533,659
---------
6,236,886
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of July 4, 1997
and January 3, 1997
Condensed Consolidated Statements of Income for the
thirteen weeks and twenty-six weeks ended July 4, 1997
and July 5, 1996
Condensed Consolidated Statements of Stockholders' Equity for
the twenty-six weeks ended July 4, 1997 and July 5, 1996
Condensed Consolidated Statements of Cash Flows for the
twenty-six weeks ended July 4, 1997 and July 5, 1996
Notes to Condensed Consolidated Financial Statements --
July 4, 1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
Item 6. Exhibits and Reports on Form 8-K
Signature
<TABLE> HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<CAPTION> July 4, January 3,
1997 1997
---- ----
<S> <C> <C>
- ---
Current assets
Cash and cash equivalents $ 2,845,496 $ 2,802,864
Marketable securities 178,359 236,128
Accounts receivable 22,319,247 17,360,883
Inventories 25,644,331 24,537,442
Prepaid expenses and other current assets 4,266,083 2,812,530
Net assets of discontinued operations -- 9,870,950
----------------- -----------------
Total current assets 55,253,516 57,620,797
----------------- -----------------
Property, plant, and equipment, net 8,117,184 9,027,414
----------------- -----------------
Other assets 3,746,851 4,490,407
----------------- -----------------
Total assets $ 67,117,551 $ 71,138,618
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 3,251,569 $ 4,237,083
Current maturities of long-term debt 3,960,467 2,448,615
Accounts payable 3,546,123 3,750,364
Accrued expenses and other current liabilities 3,347,998 3,319,613
----------------- -----------------
Total current liabilities 14,106,157 13,755,675
----------------- -----------------
Long-term debt 1,129,184 4,892,753
----------------- -----------------
Deferred income taxes 1,711,772 1,923,708
----------------- -----------------
Minority interest in consolidated subsidiaries 278,349 487,865
----------------- -----------------
Stockholders' equity
Common stock, $.33 1/3 par value 2,145,095 2,145,095
Additional paid in capital 15,581,353 15,581,353
Retained earnings 33,519,563 33,704,957
Accumulated translation (255,788) (233,654)
------------------ ------------------
Total 50,990,223 51,197,751
Less: Common stock held in treasury, at cost (1,053,790) (1,053,790)
Unearned compensation (44,344) (65,344)
------------------ ------------------
Total stockholders' equity 49,892,089 50,078,617
----------------- -----------------
Total liabilities and stockholders' equity $ 67,117,551 $ 71,138,618
================= =================
See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS AND TWENTY-SIX WEEKS ENDED JULY 4, 1997 AND JULY 5, 1996
(Unaudited)
<CAPTION>
13 Weeks 13 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended
July 4, 1997 July 5, 1996 July 4, 1997 July 5, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 24,398,108 $ 24,396,131 $ 49,615,232 $ 53,034,443
Other income (expense) 100,793 355,361 (50,340) 593,954
--------------- ---------------- ---------------- --------------
Total revenue 24,498,901 24,751,492 49,564,892 53,628,397
--------------- ---------------- --------------- --------------
Costs and expenses
Cost of sales 15,847,965 16,853,837 32,480,429 36,703,190
Selling expenses 4,564,961 4,477,680 8,528,953 8,701,140
General and administrative expenses 3,458,524 2,740,243 6,692,373 5,647,705
Writedown of assets 850,000 0 850,000 0
Interest expense 250,954 222,482 500,055 479,273
--------------- ---------------- --------------- --------------
Total costs and expenses 24,972,404 24,294,242 49,051,810 51,531,308
--------------- ---------------- --------------- --------------
Income (loss) from continuing operations before
income taxes and minority interest (473,503) 457,250 513,082 2,097,089
Provision (benefit) for income taxes (171,341) 136,305 210,877 757,543
Minority interest in income (loss) of
consolidated subsidiaries (181,909) 93,466 (147,366) 228,877
---------------- ---------------- ---------------- --------------
Income (loss) from continuing operations (120,253) 227,479 449,571 1,110,669
Discontinued operations:
Loss from discontinued operation (net of tax
benefit of $71,840, $74,996, $262,084 and
$169,616, respectively) 107,313 113,786 393,936 257,507
Loss on disposal of Brookfield Athletic Co., Inc.
including operating loss of $93,634 during
the phase-out period (net of tax benefit of
$153,440) 241,029 0 241,029 0
--------------- ---------------- --------------- --------------
Net income (loss) $ (468,595) $ 113,693 $ (185,394) $ 853,162
================ ================ ================ ==============
Per share amounts:
Net income (loss) from continuing operations $ (0.02) $ 0.04 $ 0.07 $ 0.18
Loss from discontinued operations (0.05) (0.02) (0.10) (0.04)
---------------- ---------------- ---------------- ---------------
Net income (loss) $ (0.07) $ 0.02 $ (0.03) $ 0.14
================ =============== ================ ==============
Weighted average common shares
and equivalents outstanding 6,273,923 6,244,225 6,271,885 6,235,093
=============== ================ =============== ==============
Cash dividends per share of common stock 0 0 0 0
=============== ================ =============== ==============
See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWENTY-SIX WEEKS ENDED JULY 4, 1997 AND JULY 5, 1996
(Unaudited)
<CAPTION>
Common Stock Paid-In Retained
Class A Class B Capital Earnings
------ ------ ------ --------
<S> <C> <C> <C> <C>
Balance, January 5, 1996 $ 901,575 $ 1,236,939 $ 15,521,470 $ 32,210,867
Amortization of unearned
compensation -- -- -- --
Net income (loss) -- -- -- 853,162
Foreign currency translation
adjustments -- -- -- --
----------- ------------- ------------- -------------
Balance, July 5, 1996 $ 901,575 $ 1,236,939 $ 15,521,470 $ 33,064,029
=========== ============= ============= =============
Balance, January 3, 1997 $ 902,075 $ 1,243,020 $ 15,581,353 $ 33,704,957
Amortization of unearned
compensation -- -- -- --
Net income (loss) -- -- -- (185,394)
Foreign currency translation
adjustments -- -- -- --
----------- ------------- ------------- -------------
Balance, July 4, 1997 $ 902,075 $ 1,243,020 $ 15,581,353 $ 33,519,563
=========== ============= ============= =============
Treasury Stock Unearned Accumulated Stockholders'
Shares Amount Compensation Translation Equity
------ ------ ------------ ---------- ------
<S> <C> <C> <C> <C> <C>
Balance, January 5, 1996 198,400 $ (1,053,790) $ (194,313) $ (257,694) $ 48,365,054
Amortization of unearned
compensation -- -- 64,350 -- 64,350
Net income (loss) -- -- -- -- 853,162
Foreign currency translation
adjustments -- -- -- 94,512 94,512
----------- ------------- ------------- ------------- -------------
Balance, April 5, 1996 198,400 $ (1,053,790) $ (129,963) $ (163,182) $ 49,377,078
=========== ============== ============== ============= =============
Balance, January 3, 1997 198,400 $ (1,053,790) $ (65,344) $ (233,654) $ 50,078,617
Amortization of unearned
compensation -- -- 21,000 -- 21,000
Net income (loss) -- -- -- -- (185,394)
Foreign currency translation
adjustments -- -- -- (22,134) (22,134)
----------- ------------- ------------- -------------- --------------
Balance, July 4, 1997 198,400 $ (1,053,790) $ (44,344) $ (255,788) $ 49,892,089
=========== ============== ============== ============== =============
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JULY 4, 1997 AND JULY 5, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<CAPTION>
July 4, July 5,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (185,394) $ 853,162
----------------- ---------------
Adjustments to reconcile net income to net cash
Provided (used) by operating activities:
Discontinued operations 634,965 257,507
Depreciation and amortization 720,073 664,546
Deferred income tax benefit (1,023,724) (88,794)
Provision for bad debts and discounts 2,927,349 3,020,516
Minority interest in consolidated subsidiaries income (loss) (147,366) 228,877
Compensation from stock grants and stock options 21,000 64,350
(Gain) loss on sale of equipment (2,944) 4,372
Writedown of assets 850,000 --
Changes in operating assets and liabilities, net of effects
of acquisitions, dispositions and foreign currency adjustments:
Decrease (increase) in assets:
Marketable securities 57,769 3,828
Accounts receivable (6,479,126) (13,259,758)
Inventories (1,580,689) 4,048,813
Prepaid expenses and other current assets (554,400) 21,212
Increase (decrease) in liabilities:
Accounts payable (101,475) 31,237
Accrued expenses 283,229 1,173,447
---------------- ---------------
Total adjustments (4,395,339) (3,829,847)
----------------- ----------------
Net cash used by continuing operations (4,580,733) (2,976,685)
Net cash provided (used) by discontinued operations 2,156,848 (2,212,637)
---------------- ----------------
Net cash used by operating activities (2,423,885) (5,189,322)
----------------- ----------------
Cash flows from investing activities:
Purchases of property, plant and equipment (484,741) (300,489)
Increase in deferred charges, deposits and other (363,676) (402,168)
Proceeds from sale of Brookfield Athletic Co., Inc. 6,000,000 --
Proceeds from sale of equipment 2,960 76,896
---------------- ---------------
Net cash provided (used) by investing activities 5,154,543 (625,761)
---------------- ----------------
Cash flows from financing activities:
Net short-term borrowings (869,853) (323,505)
Repayment of long term debt and capital lease obligations (2,222,864) (2,142,613)
Proceeds from long-term borrowings -- 419,766
---------------- ---------------
Net cash used by financing activities (3,092,717) (2,046,352)
Effect of exchange rate changes on cash
and cash equivalents 404,691 11,834
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 42,632 (7,849,601)
Cash and equivalents at, beginning of period 2,802,864 11,668,316
---------------- ---------------
Cash and equivalents at, end of period $ 2,845,496 $ 3,818,715
================ ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Incomes taxes, net of refunds $ 196,039 $ 405,113
================ ===============
Interest $ 545,872 $ 488,313
================ ===============
Non-cash investing and financing activities:
Property purchased under capital leases $ 65,789 $ 1,108,510
================ ===============
See notes to condensed consolidated financial statements
</TABLE>
HYDE ATHLETIC INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 4, 1997
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. In the opinion of Management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation have been included. These interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes, thereto, included in the Company's Annual Report on
Form 10-K, as filed with the Securities and Exchange Commission, for the year
ended January 3, 1997. Operating results for thirteen weeks ended July 4, 1997,
are not necessarily indicative of the results for the entire year.
NOTE B - INVENTORIES
Inventories at July 4, 1997 and January 3, 1997 consisted of the following:
July 4, January 3,
1997 1997
---- ----
Finished Goods $19,942,030 $18,214,736
Work in Process 88,559 110,559
Raw Materials 5,613,742 6,212,147
----------- -----------
$25,644,331 $24,537,442
=========== ===========
NOTE C - DISCONTINUED OPERATIONS
On July 4, 1997, the Brookfield Athletic Company, Inc., ("Brookfield") a wholly-
owned subsidiary of the Company, sold substantially all of the assets used in
its business to Brookfield International Inc. The consideration payable equals
the net asset value of the assets as of July 4, 1997, as reflected in the
Closing Balance Sheet to be prepared and audited within 60 days after the
effective date reduced by certain liabilities set forth in the Closing Balance
Sheet, which are being assumed by Brookfield International, Inc. The selling
price for Brookfield is approximately $7,186,958. At July 4, 1997, $1,186,958
was included in accounts receivable as due from Brookfield International, Inc.,
which represents the selling price reduced by an initial payment of $6,000,000,
which was received on July 2, 1997.
The summarized balance sheet for the discontinued operations as of January 3,
1997 is as follows:
Assets
Current assets
Accounts receivable $ 5,479,278
Inventories 4,095,069
Prepaid expenses 490,907
------------
Total current assets $ 10,065,254
Property, plant and equipment, net 190,054
Other assets 68,750
------------
Total assets $ 10,324,058
------------
Liabilities
Current liabilities
Current portion of long-term debt $ 35,844
Accounts payable 219,830
Accrued expenses 197,434
------------
Total liabilities $ 453,108
------------
Net assets of discontinued operations $ 9,870,950
============
As of January 3, 1997, the net sales of the discontinued operation have been
reclassified and are reflected in current assets in the Condensed Consolidated
Balance Sheet as of that date.
As a result of the sale, the Company recorded a pre-tax loss of $394,469
($241,029 after tax or $0.04 per share). The pre-tax loss includes $300,835 of
estimated costs incurred in connection with the disposal of Brookfield, as well
as operating losses of $93,634, incurred by Brookfield subsequent to the
transactions measurement date.
The results of operations of Brookfield for the thirteen weeks and the twenty-
six weeks ended July 4, 1997 have been segregated from continuing operations and
are reported separately as discontinued operations. Prior year Consolidated
Statements of Earnings for the comparable periods have been restated to present
Brookfield as a discontinued operation. The following is a summary of
Brookfield's results of operations for the thirteen weeks and twenty-six weeks
ended July 4, 1997 and July 5, 1996:
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
July 4, 1997 July 5, 1996 July 4, 1997 July 5, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 395,060 $ 4,657,091 $ 2,381,093 $ 7,921,733
Costs and expenses 574,213 4,845,873 3,037,113 8,348,856
------------- ------------- ------------- -------------
Income (loss) before income taxes (179,153) (188,782) (656,020) (427,123)
Provision (benefit) for income taxes (71,840) (74,996) (262,084) (169,616)
-------------- -------------- -------------- --------------
Income (loss) from discontinued operations (107,313) (113,786) (393,936) (257,507)
Loss on disposal of Brookfield Athletic
Company, Inc., assets including operating
loss of $93,634 during the phase out
period (net of tax benefit of $153,440) (241,029) 0 (241,029) 0
-------------- ------------- -------------- -------------
Loss from discontinued operations $ (348,342) $ (113,786) $ (634,965) $ (257,507)
============== ============== ============== ==============
</TABLE>
NOTE D - NEW ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1997, the Financial Accounting Standards Board
issued Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128).
SFAS 128 is intended to improve the Earnings Per Share ("EPS") information
contained in the financial statements by simplifying the calculation of earnings
per share, revising the disclosure requirements, and achieving comparability
with international accounting standards. SFAS 128 is effective after December
15, 1997. The Company will incorporate SFAS 128 into the Form 10-K filing, with
the Securities and Exchange Commission, for the year ended January 2, 1998. The
Company has not determined the impact of adopting SFAS 128 on the consolidated
financial statements for the fiscal year ended January 2, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth net sales and percentages of net sales of the
Company's product lines in the thirteen weeks and twenty-six weeks ended July 4,
1997 and July 5, 1996:
<TABLE>
Thirteen Weeks Ended July 4, 1997 and July 5, 1996
--------------------------------------------------
<CAPTION>
1997 1996
------------------------------ -----------------------------
$ % $ %
<S> <C> <C> <C> <C>
Saucony $ 21,139,000 86.6% $ 21,177,000 86.8%
Other 3,259,000 13.4% 3,219,000 13.2%
--------------- ------- --------------- -------
Total $ 24,398,000 100.0% $ 24,396,000 100.0%
=============== ======= =============== =======
Twenty-Six Weeks Ended July 4, 1997 and July 5, 1996
----------------------------------------------------
<CAPTION>
1997 1996
------------------------------ -----------------------------
$ % $ %
<S> <C> <C> <C> <C>
Saucony $ 42,405,000 85.5% $ 46,886,000 88.4%
Other 7,210,000 14.5% 6,148,000 11.6%
--------------- ------- --------------- -------
Total $ 49,615,000 100.0% $ 53,034,000 100.0%
=============== ======= =============== =======
</TABLE>
Thirteen Weeks Ended July 4, 1997 Compared to Thirteen Weeks Ended July 5, 1996
- -------------------------------------------------------------------------------
The Company's net sales increased to $24,398,000 in the thirteen weeks ended
July 4, 1997 from $24,396,000 in the thirteen weeks ended July 5, 1996.
Net sales of the Company's Saucony products decreased 0.2% to $21,139,000 in the
thirteen weeks ended July 4, 1997 from $21,177,000 in the thirteen weeks ended
July 5, 1996, due to decreased unit shipment volume. Saucony domestic net sales
increased 4% to $16,260,000 in the thirteen weeks ended July 4, 1997 from
$15,688,000 in the thirteen weeks ended July 5, 1996, due to higher selling
prices of the Company's recently introduced products. Saucony foreign net sales
decreased 11% to $4,879,000 in the thirteen weeks ended July 4, 1997 from
$5,489,000 in the thirteen weeks ended July 5, 1996, due primarily to decreased
unit shipment volume, lower selling prices and to a lesser extent, unfavorable
currency exchange.
Net sales of other products increased 1% to $3,259,000 in the thirteen weeks
ended July 4, 1997 from $3,219,000 in the thirteen weeks ended July 5, 1996, due
to increased sales realized by the Company's retail outlets, increased sales by
the Company's wholly-owned subsidiary, Quintana Roo, Inc. and sales of Hind
apparel, which were offset to some extent by decreased sales of non-corporate
brands realized by the Company's Australian subsidiary. The Company acquired
trademarks and related intellectual property from Hind, Inc. in December 1996.
Other income decreased 72% to $101,000 in the thirteen weeks ended July 4, 1997
from $355,000 in the thirteen weeks ended July 5, 1996 due to foreign currency
transaction losses, on U.S. dollar denominated obligations held by certain of
the Company's foreign subsidiaries, reduced income due to lower levels of short-
term cash investments, reduced royalty income, the partial writedown of the
Company's investment in a limited partnership and the recognition of a
litigation settlement in the thirteen weeks ended July 5, 1996.
The Company's gross profit increased to $8,550,000 in the thirteen weeks ended
July 4, 1997 from $7,542,000 in the thirteen weeks ended July 5, 1996. The
Company's gross margin percent increased to 35.0% in the thirteen weeks ended
July 4, 1997 from 30.9% in the thirteen weeks ended July 5, 1996 due primarily
to increased margin for Saucony products. The gross margin for Saucony products
realized in the thirteen weeks ended July 5, 1996 was significantly lowered by
increased unit volume of slow-moving, non-current models and decreased sales of
lower-margin special makeup footwear. These factors, and to a lesser extent,
decreased freight costs and reduced manufacturing costs, primarily account for
the gross margin increase for Saucony products realized in the thirteen weeks
ended July 4, 1997. The gross margin decrease for other products is due to the
liquidation of inventory by the Company's Australian subsidiary as a result of
the termination of exclusive distribution rights of another manufacturer's
sporting goods brand in Australia.
Selling, general and administrative expenses increased to $8,023,000, or 32.9%
of net sales, in the thirteen weeks ended July 4, 1997 from $7,218,000, or 29.6%
of net sales, in the thirteen weeks ended July 5, 1996. Advertising and
promotion expenses decreased $134,000 in the thirteen weeks ended July 4, 1997
due primarily to decreased Saucony domestic television and print media
advertising, offset in part by increased race promotion. Selling expenses
increased by $221,000 in the thirteen weeks ended July 4, 1997, due to increased
sales commissions on higher sales of Saucony first quality products, increased
payroll costs, and selling and marketing expenses related to the introduction of
Hind apparel. General and administrative expenses increased $718,000 in the
thirteen weeks ended July 4, 1997, due to increased professional fees relating
to litigation expenses, increased costs related to the Company's upgraded
information system, and administrative costs attributable to the introduction of
Hind apparel. Foreign administrative costs increased due to increased staffing
at certain of the Company's foreign subsidiaries.
The Company recorded a non-recurring charge of $850,000 ($508,167 after tax or
$0.08 per share), in the thirteen weeks ended July 4, 1997, to reduce the
carrying value of the Company's distribution facility in East Brookfield,
Massachusetts to market.
Interest expense increased 13% to $251,000 in the thirteen weeks ended July 4,
1997 from $222,000 in the thirteen weeks ended July 5, 1996 due to increased
borrowings on the Company's credit facility and increased asset-based borrowing.
The provision (benefit) for income taxes declined to ($171,000) in the thirteen
weeks ended July 4, 1997 from $136,000 in the thirteen weeks ended July 5, 1996
due to a decrease in the Company's pre-tax earnings. The effective tax rate
increased by 6.4% to 36.2% in the thirteen weeks ended July 4, 1997 from 29.8%
in the thirteen weeks ended July 5, 1996. The increase resulted from a shift in
the composition of foreign and domestic pretax profits.
Twenty-Six Weeks Ended July 4, 1997 Compared to Twenty-Six Weeks Ended July 5,
1996
The Company's net sales decreased 6.4% to $49,615,000 in the twenty-six weeks
ended July 4, 1997 from $53,034,000 in the twenty-six weeks ended July 5, 1996.
Net sales of the Company's Saucony products decreased 10% to $42,405,000 in the
twenty-six weeks ended July 4, 1997 from $46,886,000 in the twenty-six weeks
ended July 5, 1996, due to decreased unit shipment volume. Saucony domestic net
sales decreased 9% to $31,174,000 in the twenty-six weeks ended July 4, 1997
from $34,257,000 in the twenty-six weeks ended July 5, 1996, due to decreased
unit shipment volume of non-current models and decreased unit volumes of special
makeup models, offset in part by higher selling prices of the Company's recently
introduced products. Saucony foreign net sales decreased 11% to $11,231,000 in
the twenty-six weeks ended July 4, 1997 from $12,629,000 in the twenty-six weeks
ended July 5, 1996, due primarily to decreased unit shipment volume, lower
selling prices and to a lesser extent, unfavorable currency exchange.
Net sales of other products increased 17% to $7,210,000 in the twenty-six weeks
ended July 4, 1997 from $6,148,000 in the twenty-six weeks ended July 5, 1996,
due primarily to increased sales of non-corporate brands realized by the
Company's Australian subsidiary and to a lesser extent increased sales realized
by the Company's retail outlets, increased sales by the Company's wholly-owned
subsidiary, Quintana Roo, Inc. and sales of Hind apparel. The Company acquired
trademarks and related intellectual property from Hind, Inc. in December 1996.
Other income (expense) decreased 108% to ($50,000) in the twenty-six weeks ended
July 4, 1997 from $594,000 in the twenty-six weeks ended July 5, 1996, due to
foreign currency transaction losses on U.S. dollar denominated obligations held
by certain of the Company's foreign subsidiaries, reduced income due to lower
levels of short-term cash investments, reduced royalty income, the partial
writedown of the Company's investment in a limited partnership and the
recognition of a litigation settlement in the twenty-six weeks ended July 5,
1996.
The Company's gross profit increased to $17,135,000 in the twenty-six weeks
ended July 4, 1997 from $16,331,000 in the twenty-six weeks ended July 5, 1996.
The Company's gross margin percent increased to 34.5% in the twenty-six weeks
ended July 4, 1997 from 30.8% in the twenty-six weeks ended July 5, 1996 due
primarily to increased margin for Saucony products. The gross margin for
Saucony products realized in the twenty-six weeks ended July 5, 1996 was
significantly lowered by increased unit volume of slow-moving, non-current
models and decreased sales of lower-margin special makeup footwear. These
factors, and to a lesser extent, decreased freight costs and reduced
manufacturing costs, primarily account for the gross margin increase for Saucony
products realized in the twenty-six weeks ended July 4, 1997. The gross margin
decrease for other products is due to the liquidation of inventory by the
Company's Australian subsidiary as a result of the termination of exclusive
distribution rights of another manufacturer's sporting goods brand in Australia.
Selling, general and administrative expenses increased to $15,221,000, or 30.7%
of net sales, in the twenty-six weeks ended July 4, 1997 from $14,349,000, or
27.0% of net sales, in the twenty-six weeks ended July 5, 1996. Advertising and
promotion expenses decreased $357,000 in the twenty-six weeks ended July 4, 1997
due primarily to decreased Saucony domestic television and print media
advertising, decreased product literature, offset in part by increased race
sponsorship. Selling expenses increased by $185,000 in the twenty-six weeks
ended July 4, 1997, due to decreased sales commissions on lower sales of
Saucony, offset by increased payroll costs, and selling and marketing expenses
related to the introduction of Hind apparel. General and administrative
expenses increased $1,044,000 in the twenty-six weeks ended July 4, 1997, due to
increased professional fees, both domestic and foreign, increased costs related
to the Company's upgraded information system, increased foreign costs for
payroll due to increased staffing at certain of the Company's foreign
subsidiaries and administrative cost associated with the introduction of Hind
apparel.
The Company recorded a non-recurring charge of $850,000 ($508,167 after tax or
$0.08 per share) in the twenty-six weeks ended July 4, 1997, to reduce the
carrying value of the Company's distribution facility in East Brookfield,
Massachusetts to market.
Interest expense increased 4% to $500,000 in the twenty-six weeks ended July 4,
1997 from $479,000 in the twenty-six weeks ended July 5, 1996, due to increased
borrowings on the Company's credit facility and increased asset-based borrowing.
The provision for income taxes declined to $211,000 in the twenty-six weeks
ended July 4, 1997 from $758,000 in the twenty-six weeks ended July 5, 1996 due
to a decrease in the Company's pre-tax earnings. The effective tax rate
increased 5.0% to 41.1% in the twenty-six weeks ended July 4, 1997 from 36.1% in
the twenty-six weeks ended July 5, 1996. The increase resulted from a shift in
the composition of foreign and domestic pretax profits.
LIQUIDITY AND CAPITAL RESOURCES
As of July 4, 1997, the Company's cash and cash equivalents totaled $2,845,000,
an increase of $43,000 from January 3, 1997. The increase was the result of the
receipt of an initial payment of $6,000,000 from the sale of the net assets of
the Company's wholly-owned subsidiary, Brookfield Athletic Company, Inc., offset
in part by an increase in accounts receivable of $3,552,000, net of the
provision for bad debts and discounts of $2,927,000 and an increase of
$1,581,000 in inventory. The increase in accounts receivable is due to
increased net sales of the Company's Saucony products in the twenty-six weeks
ended July 4, 1997. The Company's days sales outstanding for its accounts
receivable decreased to 79 days in the twenty-six weeks ended July 4, 1997 from
84 days in the twenty-six weeks ended July 5, 1996. Inventories increased in
the twenty-six weeks ended July 4, 1997 due to the buildup of Hind apparel
inventory. The Company's inventory turn ratio decreased to 2.6 turns in twenty-
six weeks ended July 4, 1997 from 3.4 turns in the twenty-six weeks ended July
5, 1996, due to comparatively higher inventory levels, including the buildup of
Hind apparel inventory, and the significant inventory reduction realized as the
result of the sale of non-current Saucony models in the twenty-six weeks ended
July 5, 1996.
For the twenty-six weeks ended July 4, 1997, the Company used $2,324,000 of net
cash to finance operating activities, expended $848,000 to acquire capital
assets and information technology, decreased short-term borrowings by $870,000,
and expended $2,223,000 to reduce long-term debt. Current maturities of long-
term debt increased $1,512,000 in the 26 weeks ended July 4, 1997 due primarily
to the reclassification of a note payable due on January 30, 1998 from long-term
debt.
Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory) affecting the operating cash flows in the
twenty-six weeks ended July 4, 1997 included the loss of $635,000 from
discontinued operations, the provision of $720,000 for depreciation and
amortization, an increase in prepaid expenses of $554,000 (due to advance
payments of certain advertising and selling expenses) and an increase in accrued
expenses of $283,000 (due to increased advertising, promotional and
administrative spending). The strengthening of the U.S. dollar during the
twenty-six weeks ended July 4, 1997 increased the value of cash and cash
equivalents by $405,000.
As of July 4, 1997, the Company had various commitments for capital
expenditures, including information technology. The Company plans to finance
such expenditures with a mix of internally generated funds and asset-based
lending. The Company believes that these commitments are not significant.
The liquidity of the Company is contingent upon a number of factors, principally
the Company's future operating results. Management believes that the Company's
current cash and cash equivalents, credit facilities and internally generated
funds are adequate to meet its working capital requirements and to fund its
capital investment needs and debt service payments.
INFLATION AND CURRENCY RISK
The effect of inflation on the Company's results of operations over the past
three years has been minimal. The impact of currency fluctuation on the
purchase of inventory by the Company, from foreign suppliers, has been minimal
as the transactions were denominated in U.S. dollars. The Company, however, is
subject to currency fluctuation with respect to the operating results of the
Company's foreign subsidiaries and certain foreign currency denominated
payables.
FASB 128
During the first quarter of 1997, the Financial Accounting Standards Board
issued Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128).
SFAS 128 is intended to improve the Earnings Per Share ("EPS") information
contained in the financial statements by simplifying the calculation of earnings
per share, revising the disclosure requirements, and achieving comparability
with international accounting standards. SFAS 128 is effective after December
15, 1997. The Company will incorporate SFAS 128 into the Form 10-K filing, with
the Securities and Exchange Commission, for the year ended January 2, 1998. The
Company has not determined the impact of adopting SFAS 128 on the consolidated
financial statements for the fiscal year ended January 2, 1998.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At the 1997 Annual Meeting of Stockholders of the Company (the "Annual Meeting")
held on May 15, 1997, the following matters were acted upon by the stockholders
of the Company.
1. The election of James A. Buchanan, John H. Fisher, Phyllis H. Fisher,
Charles A. Gottesman, Jonathan O. Lee and John J. Neuhauser as directors of the
Company.
2. The authorization of an amendment to the Company's 1993 Equity Incentive
Plan (the "Equity Incentive Plan") (i) increasing the number of shares issuable
under the Equity Incentive Plan from 800,000 to 1,150,000 shares and (ii)
increasing the number of shares from 75,000 to 150,000, in the aggregate, for
which options or awards may be granted in any calendar year to any one person.
3. The ratification of the selection by the Board of Directors of Coopers &
Lybrand L.L.P. as the Company's independent auditors for the current 1997 fiscal
year.
The results of the voting on each of the matters presented to stockholders at
the Annual Meeting are set forth below:
Votes Votes Broker
For Against Abstentions Non-votes
-- ------- ---------- --------
1. Election of Directors
James A. Buchanan 2,192,814 302,731 N.A. N.A.
John H. Fisher 2,196,825 298,720 N.A. N.A.
Phyllis H. Fisher 2,196,825 298,720 N.A. N.A.
Charles A. Gottesman 2,196,825 298,720 N.A. N.A.
Jonathan O. Lee 2,196,825 298,720 N.A. N.A.
John J. Neuhauser 2,196,825 298,720 N.A. N.A.
2. Incentive Stock Plan
Amendment 1,279,958 495,993 9,671 709,923
3. Ratification of Independent
Auditors 2,436,162 52,610 6,773 N.A.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
11.00 - Computation of Earnings Per Share
27.00 - Financial Data Schedule
b. Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYDE ATHLETIC INDUSTRIES, INC.
Date: August 18, 1997 By: /s/Charles A. Gottesman
-----------------------
Charles A. Gottesman
Executive Vice President
Chief Operating Officer
(Duly authorized officer and
principal financial officer)
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
For the For the
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 5, July 5, July 5, July 5,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY
Net income (loss) applicable to
common stock $ (468,595) $ 113,693 $ (185,394) $ 853,162
---------------- ---------------- ---------------- ---------------
Weighted average shares:
Average shares outstanding 6,236,886 6,217,142 6,236,886 6,217,142
Dilutive stock options based
upon application of the
treasury stock method
using average market price 37,037 27,083 34,999 17,951
--------------- ---------------- --------------- ---------------
Total shares 6,273,923 6,244,225 6,271,885 6,235,093
=============== ================ =============== ===============
Net income (loss) per share $ (0.07) $ 0.02 $ (0.03) $ 0.14
================ =============== ================ ===============
FULLY DILUTED
Net income (loss) applicable to
common stock $ (468,595) $ 113,693 $ (185,394) $ 853,162
---------------- ---------------- ---------------- ---------------
Weighted average shares:
Average shares outstanding 6,236,886 6,217,142 6,236,886 6,217,142
Dilutive stock options based
upon application of the
treasury stock method
using market price at end
of period or average market price,
if greater 34,999 36,070 37,071 36,070
--------------- ---------------- --------------- ---------------
Total shares 6,271,885 6,253,212 6,273,957 6,253,212
=============== ================ =============== ===============
Net income (loss) per share $ (0.07) $ 0.02 $ (0.03) $ 0.14
================ =============== ================ ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Hyde
Athletic Industries, Inc. Form 10-Q for the period ended July 4, 1997 and is
qualified in its entirety by reference to such 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-END> JUL-04-1997
<CASH> 2,845,496
<SECURITIES> 178,359
<RECEIVABLES> 22,319,247
<ALLOWANCES> 491,543
<INVENTORY> 25,644,331
<CURRENT-ASSETS> 55,253,516
<PP&E> 16,093,512
<DEPRECIATION> 7,976,328
<TOTAL-ASSETS> 67,117,551
<CURRENT-LIABILITIES> 14,106,157
<BONDS> 1,129,184
0
0
<COMMON> 2,145,095
<OTHER-SE> 47,746,994
<TOTAL-LIABILITY-AND-EQUITY> 67,117,551
<SALES> 49,615,232
<TOTAL-REVENUES> 49,564,892
<CGS> 32,480,429
<TOTAL-COSTS> 32,480,429
<OTHER-EXPENSES> 16,071,326
<LOSS-PROVISION> 167,467
<INTEREST-EXPENSE> 500,055
<INCOME-PRETAX> 513,082
<INCOME-TAX> 210,877
<INCOME-CONTINUING> 449,571
<DISCONTINUED> (634,965)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (185,394)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
