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 October 3, 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)
978-532-9000
(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 November 7, 1997
Class A Common Stock-$.33 1/3 Par Value 2,703,227
Class B Common Stock-$.33 1/3 Par Value 3,546,287
---------
6,249,514
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of October 3, 1997
and January 3, 1997 3
Condensed Consolidated Statements of Income for the
thirteen weeks and thirty-nine weeks ended October 3, 1997
and October 4, 1996 4
Condensed Consolidated Statements of Stockholders' Equity for
the thirty-nine weeks ended October 3, 1997 and October 4, 1996 5
Condensed Consolidated Statements of Cash Flows for the
thirty-nine weeks ended October 3, 1997 and October 4, 1996 6-7
Notes to Condensed Consolidated Financial Statements --
October 3, 1997 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
<TABLE> HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<CAPTION> October 3, January 3,
1997 1997
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,444,313 $ 2,802,864
Marketable securities 139,063 236,128
Accounts receivable 21,803,394 18,258,596
Inventories 23,439,453 24,537,442
Prepaid expenses and other current assets 3,796,837 2,812,530
Net assets of discontinued operations -- 10,113,269
----------------- -----------------
Total current assets 54,623,060 58,760,829
----------------- -----------------
Property, plant, and equipment, net 7,948,072 9,027,414
----------------- -----------------
Other assets 3,902,710 3,592,694
----------------- -----------------
Total assets $ 66,473,842 $ 71,380,937
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 2,955,651 $ 4,237,083
Current maturities of long-term debt 3,863,449 2,448,615
Accounts payable 3,036,125 3,940,394
Accrued expenses and other current liabilities 3,139,001 3,371,902
----------------- -----------------
Total current liabilities 12,994,226 13,997,994
----------------- -----------------
Long-term debt 1,010,527 4,892,753
----------------- -----------------
Deferred income taxes 1,857,879 1,923,708
----------------- -----------------
Minority interest in consolidated subsidiaries 298,794 487,865
----------------- -----------------
Stockholders' equity
Common stock, $.33 1/3 par value 2,145,095 2,145,095
Additional paid in capital 15,589,415 15,581,353
Retained earnings 33,929,246 33,704,957
Accumulated translation (263,706) (233,654)
------------------ ------------------
Total 51,400,050 51,197,751
Less: Common stock held in treasury, at cost (1,053,790) (1,053,790)
Unearned compensation (33,844) (65,344)
------------------ ------------------
Total stockholders' equity 50,312,416 50,078,617
----------------- -----------------
Total liabilities and stockholders' equity $ 66,473,842 $ 71,380,937
================= =================
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 THIRTY-NINE WEEKS ENDED OCTOBER 3, 1997 AND OCTOBER 4, 1996
(Unaudited)
<CAPTION>
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
Oct. 3, 1997 Oct. 4, 1996 Oct. 3, 1997 Oct. 4, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 24,635,279 $ 20,609,060 $ 74,250,511 $ 73,643,503
Other income 313,725 83,489 263,385 677,443
--------------- ---------------- --------------- --------------
Total revenue 24,949,004 20,692,549 74,513,896 74,320,946
--------------- ---------------- --------------- --------------
Costs and expenses
Cost of sales 16,213,339 13,401,557 48,693,768 50,104,747
Selling expenses 4,076,085 3,625,937 12,605,038 12,327,077
General and administrative expenses 3,448,935 2,984,850 10,141,308 8,632,555
Writedown of assets -- -- 850,000 --
Interest expense 164,517 180,230 664,572 659,503
--------------- ---------------- --------------- --------------
Total costs and expenses 23,902,876 20,192,574 72,954,686 71,723,882
--------------- ---------------- --------------- --------------
Income from continuing operations before
income taxes and minority interest 1,046,128 499,975 1,559,210 2,597,064
Provision for income taxes 418,558 134,048 629,435 891,591
Minority interest in income (loss) of
consolidated subsidiaries 46,055 146,529 (101,311) 375,406
--------------- ---------------- ---------------- --------------
Income from continuing operations 581,515 219,398 1,031,086 1,330,067
Discontinued operations:
Income (loss) from discontinued operations
(net of tax benefit of $0, ($258,135), $262,084
and ($88,519) respectively) -- 383,220 (393,936) 125,713
Loss on disposal of Brookfield Athletic Co., Inc.
including operating loss of $93,634 during
the phase-out period (net of tax benefit of
$128,168 and $281,608) (171,832) -- (412,861) --
---------------- ---------------- ---------------- --------------
Net income $ 409,683 $ 602,618 $ 224,289 $ 1,455,780
=============== ================ =============== ==============
Per share amounts:
Net income from continuing operations $ 0.09 $ 0.04 $ 0.17 $ 0.21
Income (loss) from discontinued operations (0.02) 0.06 (0.13) 0.02
---------------- --------------- ---------------- --------------
Net income $ 0.07 $ 0.10 $ 0.04 $ 0.23
=============== =============== =============== ==============
Weighted average common shares
and equivalents outstanding 6,264,172 6,268,925 6,269,314 6,246,370
=============== ================ =============== ==============
Cash dividends per share of common stock -- -- -- --
=============== ================ =============== ==============
See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 3, 1997 AND OCTOBER 4, 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
Issuance of 19,744 shares of common
stock, stock option exercise 500 6,081 62,912 --
Amortization of unearned compensation -- -- -- --
Net income -- -- -- 1,455,780
Foreign currency translation adjustments -- -- -- --
----------- ------------- ------------- -------------
Balance, October 4, 1996 $ 902,075 $ 1,243,020 $ 15,584,382 $ 33,666,647
=========== ============= ============= =============
Balance, January 3, 1997 $ 902,075 $ 1,243,020 $ 15,581,353 $ 33,704,957
Issuance of below market options -- -- 8,062 --
Amortization of unearned compensation -- -- -- --
Net income -- -- -- 224,289
Foreign currency translation adjustments -- -- -- --
----------- ------------- ------------- -------------
Balance, October 3, 1997 $ 902,075 $ 1,243,020 $ 15,589,415 $ 33,929,246
=========== ============= ============= =============
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
Issuance of 19,744 shares of common
stock, stock option exercise -- -- -- -- 69,493
Amortization of unearned compensation -- -- 96,525 -- 96,525
Net income -- -- -- -- 1,455,780
Foreign currency translation adjustments -- -- -- 69,422 69,422
----------- ------------- ------------- ------------- -------------
Balance, October 4, 1996 198,400 $ (1,053,790) $ (97,788) $ (188,272) $ 50,056,274
=========== ============== ============== ============= =============
Balance, January 3, 1997 198,400 $ (1,053,790) $ (65,344) $ (233,654) $ 50,078,617
Issuance of below market options -- -- -- -- 8,062
Amortization of unearned compensation -- -- 31,500 -- 31,500
Net income -- -- -- -- 224,289
Foreign currency translation adjustments -- -- -- (30,052) (30,052)
----------- ------------- ------------- -------------- --------------
Balance, October 3, 1997 198,400 $ (1,053,790) $ (33,844) $ (263,706) $ 50,312,416
=========== ============== ============== ============== =============
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 3, 1997 AND OCTOBER 4, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<CAPTION>
Oct. 3, Oct. 4,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 224,289 $ 1,455,780
---------------- ---------------
Adjustments to reconcile net income to net cash
Provided (used) by operating activities:
(Income) loss from discontinued operations 806,797 (125,713)
Depreciation and amortization 1,158,864 1,001,048
Deferred income tax provision (benefit) (1,066,652) 104,031
Provision for bad debts and discounts 3,965,185 4,164,499
Minority interest in consolidated subsidiaries income (loss) (101,311) 375,406
Compensation from stock grants and stock options 39,562 96,525
(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 97,065 110,385
Accounts receivable (7,118,024) (9,796,164)
Inventories 487,594 3,991,263
Prepaid expenses and other current assets (471,262) 367,711
Increase (decrease) in liabilities:
Accounts payable (582,045) (1,504,256)
Accrued expenses 57,729 688,612
---------------- ---------------
Total adjustments (1,879,442) (522,281)
----------------- ----------------
Net cash provided (used) by continuing operations (1,655,153) 933,499
Net cash provided (used) by discontinued operations 2,307,206 (4,063,953)
---------------- ----------------
Net cash provided (used) by operating activities 652,053 (3,130,454)
---------------- ----------------
Cash flows from investing activities:
Purchases of property, plant and equipment (646,833) (683,128)
Increase in deferred charges, deposits and other (380,307) (423,679)
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 4,975,820 (1,029,911)
---------------- ----------------
Cash flows from financing activities:
Net short-term borrowings (1,149,523) (559,057)
Repayment of long term debt and capital lease obligations (2,381,798) (2,276,760)
Proceeds from long-term borrowings -- 419,766
Payment of termination benefit payable -- --
Common stock repurchased -- --
Issuances of common stock, including options -- 69,493
---------------- ---------------
Net cash used by financing activities (3,531,321) (2,346,558)
Effect of exchange rate changes on cash
and cash equivalents 544,897 64,129
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 2,641,449 (6,442,794)
Cash and equivalents at, beginning of period 2,802,864 11,668,316
---------------- ---------------
Cash and equivalents at, end of period $ 5,444,313 $ 5,225,522
================ ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Incomes taxes, net of refunds $ 232,660 $ 491,222
================ ===============
Interest $ 631,138 $ 607,003
================ ===============
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
October 3, 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 thirty-nine weeks ended October 4,
1997, are not necessarily indicative of the results for the entire year.
NOTE B - INVENTORIES
Inventories at October 3, 1997 and January 3, 1997 consisted of the following:
October 3, January 3,
1997 1997
---- ----
Finished Goods $18,678,173 $18,214,736
Work in Process 359,838 110,559
Raw Materials 4,401,442 6,212,147
----------- -----------
$23,439,453 $24,537,442
=========== ===========
NOTE C - DISCONTINUED OPERATIONS
On July 4, 1997, Brookfield Athletic Company, Inc., ("Brookfield"), a wholly-
owned subsidiary of the Company, sold substantially all of the assets used in
the Brookfield business to Brookfield International Inc. The consideration
payable equals the net asset value of the Brookfield assets as of July 4, 1997
reduced by certain liabilities that were assumed by Brookfield International,
Inc. The selling price for Brookfield, as amended, was approximately
$6,969,106. At October 3, 1997, $969,106 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 $ 4,581,565
Inventories 4,095,069
Prepaid expenses 490,907
------------
Total current assets $ 9,167,541
Property, plant and equipment, net 190,054
Other assets 966,463
------------
Total assets $ 10,324,058
------------
Liabilities
Current liabilities
Current portion of long-term debt $ 35,844
Accounts payable 29,800
Accrued expenses 145,145
------------
Total liabilities $ 210,789
------------
Net assets of discontinued operations $ 10,113,269
============
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 Brookfield sale, the Company recorded a pre-tax loss of
$694,469 ($412,861 after tax or $0.07 per share). The pre-tax loss includes
$300,835 of estimated costs incurred in connection with the disposal of
Brookfield, agreed reduction to the selling price of $300,000, 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 thirty-
nine weeks ended October 3, 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 thirty-nine weeks
ended October 3, 1997 and October 4, 1996:
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
Oct. 3, 1997 Oct. 4, 1996 Oct. 3, 1997 Oct. 4, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ -- $ 7,116,883 $ 2,381,093 $ 15,038,616
Costs and expenses -- 6,475,528 3,037,113 14,824,384
------------- ------------- ------------- -------------
Income (loss) before income taxes -- 641,355 (656,020) 214,232
Provision (benefit) for income taxes -- 258,135 (262,084) 88,519
------------- ------------- -------------- -------------
Income (loss) from discontinued operations -- 383,220 (393,936) 125,713
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
$128,168 and $281,608) (171,832) -- (412,861) --
-------------- ------------- -------------- -------------
Income (loss) from discontinued operations $ (171,832) $ 383,220 $ (806,797) $ 125,713
============== ============= ============== =============
</TABLE>
NOTE D - NEW ACCOUNTING PRONOUNCEMENTS
SFAS 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 EPS,
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.
SFAS 130
The Financial Accounting Standards Board issued Financial Accounting Standards
No. 130 "Reporting for Comprehensive Income" (SFAS No. 130) in June, 1997. SFAS
130 defines and establishes the financial accounting and reporting standards for
comprehensive income. As defined in SFAS 130, comprehensive income encompasses
net income and other components of comprehensive income that are excluded from
net income under Generally Accepted Accounting Principles. These previously
excluded components of comprehensive income are limited to the following:
foreign currency translation adjustments, minimum pension liability adjustments
and unrealized gains and losses on certain investments in debt and equity
securities classified as available-for-sales securities.
SFAS 130 is effective for fiscal years commencing after December 15, 1997, with
earlier adoption permitted. The Company will incorporate SFAS 130 into the Form
10-Q filing, with the Securities and Exchange Commission, for the quarter ended
April 3, 1998. The Company has not determined the impact of adopting SFAS 130
on the consolidated financial statements.
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 thirty-nine weeks ended
October 3, 1997 and October 4, 1996:
<TABLE>
<CAPTION>
Thirteen Weeks Ended October 3, 1997 and October 4, 1996
--------------------------------------------------------
1997 1996
--------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Saucony $ 20,709,000 84.1% $ 17,214,000 83.5%
Other 3,926,000 15.9% 3,395,000 16.5%
------------------ ----- ----------------- -----
Total $ 24,635,000 100.0% $ 20,609,000 100.0%
================== ====== ================= ======
<CAPTION>
Thirty-Nine Weeks Ended October 3, 1997 and October 4, 1996
----------------------------------------------------------
1997 1996
--------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Saucony $ 63,115,000 85.0% $ 64,100,000 87.0%
Other 11,136,000 15.0% 9,543,000 13.0%
------------------ ----- ----------------- -----
Total $ 74,251,000 100.0% $ 73,643,000 100.0%
================== ====== ================= ======
</TABLE>
Thirteen Weeks Ended October 3, 1997 Compared to Thirteen Weeks Ended October 4,
1996
The Company's net sales increased 19.5% to $24,635,000 in the thirteen weeks
ended October 3, 1997 from $20,609,000 in the thirteen weeks ended October 4,
1996.
Net sales of the Company's Saucony products increased 20.3% to $20,709,000 in
the thirteen weeks ended October 3, 1997 from $17,214,000 in the thirteen weeks
ended October 4, 1996, primarily due to increased footwear shipment volume.
Saucony domestic net sales increased 31.7% to $14,221,000 in the thirteen weeks
ended October 3, 1997 from $10,796,000 in the thirteen weeks ended October 4,
1996, primarily due to increased footwear shipment volume. Saucony foreign net
sales increased 1.1% to $6,488,000 in the thirteen weeks ended October 3, 1997
from $6,418,000 in the thirteen weeks ended October 4, 1996, due primarily to
increased apparel sales, offset in part by decreased footwear shipment volume.
Net sales of other products increased 15.6% to $3,926,000 in the thirteen weeks
ended October 3, 1997 from $3,395,000 in the thirteen weeks ended October 4,
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 by the Company's Australian subsidiary. The Company acquired
trademarks and related intellectual property from Hind, Inc. in December 1996.
Other income increased 276% to $314,000 in the thirteen weeks ended October 3,
1997 from $83,000 in the thirteen weeks ended October 4, 1996, due to increased
royalty income, which was offset to some extent by foreign currency transaction
losses on U.S. dollar denominated obligations held by certain of the Company's
foreign subsidiaries.
The Company's gross profit increased 16.8% to $8,422,000 in the thirteen weeks
ended October 3, 1997 from $7,208,000 in the thirteen weeks ended October 4,
1996. The Company's gross margin percent decreased to 34.2% in the thirteen
weeks ended October 3, 1997 from 35.0% in the thirteen weeks ended October 4,
1996, due primarily to decreased margin for Saucony products as a result of
increased footwear volume of slow-moving, non-current models and increased sales
of lower-margin special makeup footwear. 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 $7,525,000 or 30.5% of
net sales, in the thirteen weeks ended October 3, 1997 from $6,611,000 or 32.1%
of net sales, in the thirteen weeks ended October 4, 1996. Advertising and
promotion expenses decreased $58,000 in the thirteen weeks ended October 3,
1997, due primarily to decreased Saucony domestic television and print media
advertising and reduced spending by foreign subsidiaries, offset in part by
increased account specific promotions. Selling expenses increased by $508,000
in the thirteen weeks ended October 3, 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 $464,000 in the thirteen weeks
ended October 3, 1997, due to increased costs related to the Company's upgraded
information system, increased provision for doubtful accounts and administrative
costs attributable to the introduction of Hind apparel.
The Company recorded a charge of $300,000 ($171,832 after tax or $0.02 per
share), in the thirteen weeks ended October 3, 1997, to reflect the agreed upon
Closing Balance Sheet for the assets of the Company's wholly-owned subsidiary,
Brookfield Athletic Company, Inc.
Interest expense decreased 8.7% to $165,000 in the thirteen weeks ended October
3, 1997 from $180,000 in the thirteen weeks ended October 4, 1996, due to
decreased borrowings on the Company's credit facility and paydown of the
Company's senior notes.
The provision for income taxes increased to $418,000 in the thirteen weeks ended
October 3, 1997 from $134,000 in the thirteen weeks ended October 4, 1996, due
to an increase in the Company's pre-tax income from continuing operations. The
effective tax rate increased by 13.2% to 40.0% in the thirteen weeks ended
October 3, 1997 from 26.8% in the thirteen weeks ended October 4, 1996. The
increase resulted from a shift in the composition of foreign and domestic pretax
profits.
Thirty-Nine Weeks Ended October 3, 1997 Compared to Thirty-Nine Weeks Ended
October 4, 1996
The Company's net sales increased 0.8% to $74,251,000 in the thirty-nine weeks
ended October 3, 1997 from $73,643,000 in the thirty-nine weeks ended October 4,
1996.
Net sales of the Company's Saucony products decreased 1.5% to $63,115,000 in the
thirty-nine weeks ended October 3, 1997 from $64,100,000 in the thirty-nine
weeks ended October 4, 1996, due to decreased unit shipment volume in the first
half of 1997 as compared to the first half of 1996. Saucony domestic net sales
increased 0.8% to $45,396,000 in the thirty-nine weeks ended October 3, 1997
from $45,053,000 in the thirty-nine weeks ended October 4, 1996, due to higher
selling prices of the Company's recently introduced products. Saucony foreign
net sales decreased 7.0% to $17,719,000 in the thirty-nine weeks ended October
3, 1997 from $19,047,000 in the thirty-nine weeks ended October 4, 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 16.7% to $11,136,000 in the thirty-nine
weeks ended October 3, 1997 from $9,543,000 in the thirty-nine weeks ended
October 4, 1996, due primarily to the sale of Hind apparel and to a lesser
extent, increased sales realized by the Company's retail outlets and increased
sales by the Company's wholly-owned subsidiary, Quintana Roo, Inc. The Company
acquired trademarks and related intellectual property from Hind, Inc. in
December 1996.
Other income decreased 61.1% to $263,000 in the thirty-nine weeks ended October
3, 1997 from $677,000 in the thirty-nine weeks ended October 4, 1996, due to
foreign currency transaction losses on U.S. dollar denominated obligations held
by certain of the Company's foreign subsidiaries.
The Company's gross profit increased 8.6% to $25,557,000 in the thirty-nine
weeks ended October 3, 1997 from $23,539,000 in the thirty-nine weeks ended
October 4, 1996. The Company's gross margin percent increased to 34.4% in the
thirty-nine weeks ended October 3, 1997 from 32.0% in the thirty-nine weeks
ended October 4, 1996, due primarily to increased margin for Saucony products.
The gross margin for Saucony products realized in the thirty-nine weeks ended
October 4, 1996 was significantly lowered by increased unit volume of slow-
moving, non-current models and increased sales of lower-margin special makeup
footwear. These factors, and to a lesser extent, decreased freight costs and
reduced manufacturing costs in the thirty-nine weeks ended October 3, 1997
primarily account for the gross margin increase for Saucony products realized in
the thirty-nine weeks ended October 3, 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 $22,746,000, or 30.6%
of net sales, in the thirty-nine weeks ended October 3, 1997 from $20,960,000,
or 28.5% of net sales, in the thirty-nine weeks ended October 4, 1996.
Advertising and promotion expenses decreased $415,000 in the thirty-nine weeks
ended October 3, 1997, due primarily to decreased Saucony domestic television
and print media advertising, decreased spending in Europe and decreased product
literature costs, offset in part by increased account specific promotions.
Selling expenses increased by $693,000 in the thirty-nine weeks ended October 3,
1997, due to increased Saucony payroll costs and selling and marketing expenses
related to the introduction of Hind apparel. General and administrative
expenses increased $1,508,000 in the thirty-nine weeks ended October 3, 1997,
due to increased domestic and foreign professional fees, 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, increased domestic payroll costs and administrative costs
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 thirty-nine weeks ended October 3, 1997, to reduce the
carrying value of the Company's distribution facility in East Brookfield,
Massachusetts to market. In addition, the Company recorded a non-recurring
charge of $694,469 ($412,861 after tax or $0.07 per share) in the thirty-nine
weeks ended October 3, 1997 in connection with the disposal of the assets of
Brookfield Athletic Company, Inc., a wholly-owned subsidiary of the Company.
Interest expense increased 0.8% to $665,000 in the thirty-nine weeks ended
October 3, 1997 from $660,000 in the thirty-nine weeks ended October 4, 1996,
due to increased borrowings on the Company's credit facility and increased
asset-based borrowing.
The provision for income taxes declined to $629,000 in the thirty-nine weeks
ended October 3, 1997 from $892,000 in the thirty-nine weeks ended October 4,
1996, due to a decrease in the Company's pre-tax income from continuing
operations. The effective tax rate increased by 6.1% to 40.4% in the thirty-
nine weeks ended October 3, 1997 from 34.3% in the thirty-nine weeks ended
October 4, 1996. The decrease primarily resulted from a shift in the
composition of foreign and domestic pretax profits.
LIQUIDITY AND CAPITAL RESOURCES
As of October 3, 1997, the Company's cash and cash equivalents totaled
$5,444,000, an increase of $2,641,000 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., and a decrease of $488,000 in inventory. The increases were
offset in part by an increase in accounts receivable of $3,153,000, net of the
provision for bad debts and discounts of $3,965,000 and the depreciation and
amortization provision of $1,159,000. The increase in accounts receivable is
due to increased net sales of the Company's Saucony products and Hind products
in the thirty-nine weeks ended October 3, 1997. The Company's days sales
outstanding for its accounts receivable decreased to 76 days in the thirty-nine
weeks ended October 3, 1997 from 84 days in the thirty-nine weeks ended October
4, 1996. Inventories decreased in the thirty-nine weeks ended October 3, 1997
due to improved inventory planning, offset in part by the buildup of Hind
apparel inventory. The Company's inventory turn ratio decreased to 2.7 turns in
the thirty-nine weeks ended October 3, 1997 from 3.1 turns in the thirty-nine
weeks ended October 4, 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 models in the
thirty-nine weeks ended October 4, 1996.
For the thirty-nine weeks ended October 3, 1997, the Company generated $652,000
of net cash from operating activities, expended $1,027,000 to acquire capital
assets and information technology, decreased short-term borrowings by
$1,150,000, and expended $2,382,000 to reduce long-term debt. Current
maturities of long-term debt increased $1,415,000 in the thirty-nine weeks ended
October 3, 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
thirty-nine weeks ended October 3, 1997 included the loss of $807,000 from
discontinued operations, an increase in prepaid expenses of $471,000 (due to
advance payments of certain advertising and selling expenses) and a decrease in
accounts payable of $582,000 (due to the timing of inventory purchases). The
strengthening of the U.S. dollar during the thirty-nine weeks ended October 3,
1997 increased the value of cash and cash equivalents by $545,000.
As of October 3, 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 U.S. dollar denominated obligations held by
certain of the Company's foreign subsidiaries.
SFAS 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 EPS,
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.
SFAS 130
The Financial Accounting Standards Board issued Financial Accounting Standards
No. 130 "Reporting for Comprehensive Income" (SFAS No. 130) in June, 1997. SFAS
130 defines and establishes the financial accounting and reporting standards for
comprehensive income. As defined in SFAS 130, comprehensive income encompasses
net income and other components of comprehensive income that are excluded from
net income under Generally Accepted Accounting Principles. These previously
excluded components of comprehensive income are limited to the following:
foreign currency translation adjustments, minimum pension liability adjustments
and unrealized gains and losses on certain investments in debt and equity
securities classified as available-for-sales securities.
SFAS 130 is effective for fiscal years commencing after December 15, 1997, with
earlier adoption permitted. The Company will incorporate SFAS 130 into the Form
10-Q filing, with the Securities and Exchange Commission, for the quarter ended
April 3, 1998. The Company has not determined the impact of adopting SFAS 130
on the consolidated financial statements.
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
Form 8-K dated July 18, 1997, was filed with the Securities and Exchange
Commission on July 18, 1997. Under Item 2 of the Form 8-K, the Company
reported the sale of the assets of Brookfield Athletic Company, Inc., a
wholly-owned subsidiary of the Company, pursuant to the Asset Purchase
Agreement dated June 27, 1997, between Brookfield Athletic Company, Inc.
and Brookfield International, Inc.
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: November 13, 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 Thirty-Nine Weeks Ended
-------------------- ----------------------
October 3, October 4, October 3, October 4,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY
Net income (loss) applicable to
common stock $ 409,683 $ 602,618 $ 224,289 $ 1,455,780
--------------- ---------------- --------------- ---------------
Weighted average shares:
Average shares outstanding 6,236,886 6,223,639 6,236,886 6,219,308
Dilutive stock options based
upon application of the
treasury stock method
using average market price 27,286 45,286 32,428 27,062
--------------- ---------------- --------------- ---------------
Total shares 6,264,172 6,268,925 6,269,314 6,246,370
=============== ================ =============== ===============
Net income per share $ 0.07 $ 0.10 $ 0.04 $ 0.23
=============== =============== =============== ===============
FULLY DILUTED
Net income applicable to common stock $ 409,683 $ 602,618 $ 224,289 $ 1,455,780
--------------- ---------------- --------------- ---------------
Weighted average shares:
Average shares outstanding 6,236,886 6,223,639 6,236,886 6,219,308
Dilutive stock options based
upon application of the
treasury stock method
using market price at end
of period or average market price,
if greater 31,338 45,073 33,810 46,917
--------------- ---------------- --------------- ---------------
Total shares 6,268,224 6,268,712 6,270,696 6,266,225
=============== ================ =============== ===============
Net income per share $ 0.07 $ 0.10 $ 0.04 $ 0.23
=============== =============== =============== ===============
</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 October 3, 1997 and is
qualified in its entirety by reference to such 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-END> OCT-03-1997
<CASH> 5,444,313
<SECURITIES> 139,063
<RECEIVABLES> 21,803,394
<ALLOWANCES> 544,381
<INVENTORY> 23,439,453
<CURRENT-ASSETS> 54,623,060
<PP&E> 16,219,433
<DEPRECIATION> 8,271,361
<TOTAL-ASSETS> 66,473,842
<CURRENT-LIABILITIES> 12,994,226
<BONDS> 1,010,527
0
0
<COMMON> 2,145,095
<OTHER-SE> 48,167,321
<TOTAL-LIABILITY-AND-EQUITY> 66,473,842
<SALES> 74,250,511
<TOTAL-REVENUES> 74,513,896
<CGS> 48,693,768
<TOTAL-COSTS> 48,693,768
<OTHER-EXPENSES> 23,596,346
<LOSS-PROVISION> 306,169
<INTEREST-EXPENSE> 664,572
<INCOME-PRETAX> 1,559,210
<INCOME-TAX> 629,435
<INCOME-CONTINUING> 1,031,086
<DISCONTINUED> (806,797)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 224,289
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
