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 April 3, 1998
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-05083
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 May 11, 1998
Class A Common Stock-$.33 1/3 Par Value 2,703,227
Class B Common Stock-$.33 1/3 Par Value 3,548,087
---------
6,251,314
=========
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of April 3, 1998
and January 2, 1998 3
Condensed Consolidated Statements of Income for the
thirteen weeks ended April 3, 1998 and April 4, 1997 4
Condensed Consolidated Statements of Stockholders' Equity for
the thirteen weeks ended April 3, 1998 and April 4, 1997 5
Condensed Consolidated Statements of Cash Flows for the
thirteen weeks ended April 3, 1998 and April 4, 1997 6-7
Notes to Condensed Consolidated Financial Statements --
April 3, 1998 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
PART I. FINANCIAL INFORMATION
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
(Unaudited)
(Amounts in thousands)
ASSETS
April 3, January 2,
1998 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,118 $ 4,432
Marketable securities 173 148
Accounts receivable 27,605 18,730
Inventories 23,126 23,471
Prepaid expenses and other current assets 4,361 3,514
---------- ----------
Total current assets 57,383 50,295
---------- ----------
Property, plant and equipment, net 8,114 8,135
---------- ----------
Other assets 3,257 3,194
---------- ----------
Total assets $ 68,754 $ 61,624
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 8,735 $ 2,885
Current maturities of long-term debt 2,320 3,639
Accounts payable 3,589 3,881
Accrued expenses and other current liabilities 4,909 2,910
---------- ----------
Total current liabilities 19,553 13,315
---------- ----------
Long-term obligations:
Long-term debt 688 771
Deferred income taxes 1,919 1,921
Other long-term obligations 147 144
---------- ----------
Total long-term obligations 2,754 2,836
---------- ----------
Minority interest in consolidated subsidiaries 219 195
---------- ----------
Stockholders' equity:
Common stock, $.33 1/3 par value 2,150 2,150
Additional paid in capital 15,652 15,652
Retained earnings 29,961 28,987
Accumulated translation (449) (417)
----------- -----------
Total 47,314 46,372
Less: Common stock held in treasury, at cost (1,054) (1,054)
Unearned compensation (32) (40)
----------- -----------
46,228 45,278
---------- ----------
Total liabilities and stockholders' equity $ 68,754 $ 61,624
========== ==========
See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED APRIL 3, 1998 AND APRIL 4, 1997
<CAPTION>
(Unaudited)
(Amounts in thousands, except per share data)
13 Weeks 13 Weeks
Ended Ended
April 3, 1998 April 4, 1997
------------- ------------
<S> <C> <C>
Net sales $ 29,624 $ 25,217
Other income (expense) 76 (151)
---------- -----------
Total revenue 29,700 25,066
---------- ----------
Costs and expenses
Cost of sales 19,651 16,632
Selling expenses 4,423 3,964
General and administrative expenses 3,510 3,234
Interest expense 221 249
---------- ----------
Total costs and expenses 27,805 24,079
---------- ----------
Income from continuing operations before income
taxes and minority interest 1,895 987
Provision for income taxes 898 382
Minority interest in income of consolidated subsidiaries 23 35
---------- ----------
Income from continuing operations 974 570
Discontinued operations:
Loss from discontinued operations (net of tax benefit of $190) 0 (287)
---------- -----------
Net income $ 974 $ 283
========== ==========
Per share amounts:
Earnings per common share - basic:
Net income from continuing operations $ 0.16 $ 0.10
Loss from discontinued operations 0.00 (0.05)
---------- ------------
Net income per common share - basic $ 0.16 $ 0.05
========== ===========
Earnings per common share - diluted:
Net income from continuing operations $ 0.16 $ 0.10
Loss from discontinued operations 0.00 (0.05)
---------- ------------
Net income per common share - diluted $ 0.16 $ 0.05
========== ===========
Weighted average common shares and
equivalents outstanding 6,293 6,270
========== ==========
Cash dividends per share of common stock 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 THIRTEEN WEEKS ENDED APRIL 3, 1998 AND APRIL 4, 1997
(Amounts in thousands, except share data)
<CAPTION>
Common Stock Paid-in Retained
Class A Class B Capital Earnings
------ ------ ------ --------
<S> <C> <C> <C> <C>
Balance, January 3, 1997 $ 902 $ 1,243 $ 15,581 $ 33,705
Amortization of unearned
compensation -- -- -- --
Net income -- -- -- 283
Foreign currency translation
adjustments -- -- -- --
-------- -------- --------- ---------
Balance, April 4, 1997 $ 902 $ 1,243 $ 15,581 $ 33,988
======== ======== ========= =========
Balance, January 2, 1998 $ 902 $ 1,248 $ 15,652 $ 28,987
Amortization of unearned
compensation -- -- -- --
Net income -- -- -- 974
Foreign currency translation
adjustments -- -- -- --
-------- -------- --------- ---------
Balance, April 3, 1998 $ 902 $ 1,248 $ 15,652 $ 29,961
======== ======== ========= =========
<CAPTION>
Total
Treasury Stock Unearned Accumulated Stockholders'
Shares Amount Compensation Translation Equity
------ ------ ------------ ---------- ------
<S> <C> <C> <C> <C> <C>
Balance, January 3, 1997 198,400 $(1,054) $ (65) $ (233) $ 50,079
Amortization of unearned
compensation -- -- 10 -- 10
Net income -- -- -- -- 283
Foreign currency translation
adjustments -- -- -- (23) (23)
-------- ------- ------- -------- ---------
Balance, April 4, 1997 198,400 $(1,054) $ (55) $ (256) $ 50,349
======== ======== ======== ======== ========
Balance, January 2, 1998 198,400 $(1,054) $ (40) $ (417) $ 45,278
Amortization of unearned
compensation -- -- 8 -- 8
Net income -- -- -- -- 974
Foreign currency translation
adjustments -- -- -- (32) (32)
-------- ------- ------- -------- ---------
Balance, April 3, 1998 198,400 $(1,054) $ (32) $ (449) $ 46,228
======== ======== ======== ======== ========
See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED APRIL 3, 1998 AND APRIL 4, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands)
(Unaudited)
<CAPTION>
April 3, April 4,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 974 $ 283
--------- ---------
Adjustments to reconcile net income to net cash
Provided (used) by operating activities:
Loss from discontinued operations 0 287
Depreciation and amortization 413 364
Deferred income tax benefit (490) (272)
Provision for bad debts and discounts 1,814 1,624
Other 104 95
Changes in operating assets and liabilities, net effects
of acquisitions, dispositions and foreign currency
adjustments:
Decrease (increase) in assets:
Marketable securities (25) 0
Accounts receivable (10,565) (9,057)
Inventories 604 1,067
Prepaid expenses and other current assets (351) (293)
Increase (decrease) in liabilities:
Accounts payable (345) 513
Accrued expenses 2,047 (39)
--------- ----------
Total adjustments (6,794) (5,711)
---------- ----------
Net cash used by continuing operations (5,820) (5,428)
Net cash provided by discontinued operations 0 1,340
--------- ---------
Net cash used by operating activities (5,820) (4,088)
---------- ----------
Cash flows from investing activities:
Purchase of property, plan and equipment (179) (213)
Increase in deferred charges, deposits and other (120) (260)
Payments for business acquisitions (624) 0
---------- ---------
Net cash used by investing activities (923) (473)
---------- ---------
Cash flows from financing activities:
Net short-term borrowings 4,572 3,885
Repayment of long-term debt and capital lease obligations (100) (152)
---------- ----------
Net cash provided by financing activities 4,472 3,733
Effect of exchange rate changes on cash and
cash equivalents (43) 267
---------- ---------
Net decrease in cash and cash equivalents (2,314) (561)
Cash and equivalents at beginning of period 4,432 2,803
--------- ---------
Cash and equivalents at end of period $ 2,118 $ 2,242
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refunds $ 106 $ 30
========= =========
Interest $ 129 $ 172
========= =========
Non-cash investing and financing activities:
Property purchased under capital leases $ 0 $ 30
========= =========
See notes to condensed consolidated financial statements
</TABLE>
HYDE ATHLETIC INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 3, 1998
(Unaudited)
NOTE A - 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 2, 1998. Operating results for thirteen weeks ended April 3,
1998, are not necessarily indicative of the results for the entire year.
NOTE B - RECLASSIFICATION
On July 4, 1997, Brookfield Athletic Co., Inc. ("Brookfield"), a wholly-owned
subsidiary of the Company, sold substantially all of the assets used in the
Brookfield business. The results of operations for Brookfield for the thirteen
weeks ended April 4, 1997 have been segregated from continuing operations and
are reported separately as discontinued operations.
NOTE C - INVENTORIES
Inventories at April 3, 1998 and January 2, 1998 consisted of the following (in
thousands):
April 3, January 2,
1998 1998
---- ----
Finished goods $17,877 $17,534
Work in progress 679 514
Raw materials 4,570 5,423
------- -------
$23,126 $23,471
======= =======
NOTE D - EARNINGS PER SHARE
<TABLE>
<CAPTION>
(Unaudited)
(in thousands, per share amounts in dollars)
Thirteen Weeks Ended Thirteen Weeks Ended
April 3, 1998 April 4, 1997
-------------------------- --------------------------
Earnings Earnings Earnings Earnings
per per per per
Common Common Common Common
Share - Share - Share - Share -
Basic Diluted Basic Diluted
---- ------ ---- -------
<S> <C> <C> <C> <C>
Income from continuing operations $ 974 $ 974 $ 570 $ 570
Loss from discontinued operations 0 0 (287) (287)
----------- ----------- ------------ -----------
Net income available for common
shares and assumed conversions $ 974 $ 974 $ 283 $ 283
=========== =========== =========== ==========
Weighted average common shares outstanding 6,251 6,251 6,237 6,237
Effect of dilutive securities:
Employee stock options 0 42 0 33
----------- ----------- ----------- ----------
Weighted average common shares and
equivalents outstanding 6,251 6,293 6,237 6,270
=========== =========== =========== ==========
Earnings per share:
Income from continuing operations $ 0.16 $ 0.16 $ 0.10 $ 0.10
Loss from discontinued operations 0.00 0.00 (0.05) (0.05)
---------- ---------- ------------ -----------
Net income $ 0.16 $ 0.16 $ 0.05 $ 0.05
========== ========== ========== ==========
</TABLE>
NOTE E - STATEMENT OF COMPREHENSIVE INCOME
(in thousands)
13 Weeks 13 Weeks
Ended Ended
April 3, 1998 April 4, 1997
------------- ------------
Net income $ 974 $ 283
Other comprehensive income:
Foreign currency translation adjustments (32) (23)
Income tax benefit related to other
comprehensive income (12) (7)
------- ------
Other comprehensive income, net of tax (20) (16)
------- ------
Comprehensive income $ 954 $ 267
====== =====
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth net sales (in thousands) and percentages of net
sales of the Company's product lines in the thirteen weeks ended April 3, 1998
and April 4, 1997:
1998 1997
------------------ ------------------
Saucony $ 25,851 87.3% $ 21,266 84.3%
Other 3,773 12.7% 3,951 15.7%
-------- ------- -------- -------
Total $ 29,624 100.0% $ 25,217 100.0%
======== ======= ======== =======
Thirteen Weeks Ended April 3, 1998 Compared to Thirteen Weeks Ended April 4,
1997
The Company's net income increased 244% to $974,000, or $0.16 per diluted share,
in the thirteen weeks ended April 3, 1998 as compared to $283,000, or $0.05 per
diluted share, in the thirteen weeks ended April 4, 1997. Income from
continuing operations increased 71% to $974,000, or $0.16 per diluted share, in
the thirteen weeks ended April 3, 1998, as compared to $570,000, or $0.10 per
diluted share, in the thirteen weeks ended April 4, 1997. The Company had a
loss from discontinued operations of $287,000, or $0.05 per diluted share, in
the thirteen weeks ended April 4, 1997.
The Company's net sales increased 18% to $29,624,000 in the thirteen weeks ended
April 3, 1998 from $25,217,000 in the thirteen weeks ended April 4, 1997.
Net sales of the Company's Saucony products increased 22% to $25,851,000 in the
thirteen weeks ended April 3, 1998 from $21,266,000 in the thirteen weeks ended
April 4, 1997, due primarily to increased footwear unit volume. Saucony
domestic net sales increased 27% to $18,988,000 in the thirteen weeks ended
April 3, 1998 from $14,915,000 in the thirteen weeks ended April 4, 1997, due
primarily to increased footwear unit shipment volume and, to a lesser extent,
higher selling prices of the Company's recently introduced products. Saucony
foreign net sales increased 8% to $6,863,000 in the thirteen weeks ended April
3, 1998 from $6,351,000 in the thirteen weeks ended April 4, 1997, primarily due
to increased footwear unit volume and, to a lesser extent, increased apparel
sales.
Net sales of other products decreased 5% to $3,773,000 in the thirteen weeks
ended April 3, 1998 from $3,951,000 in the thirteen weeks ended April 4, 1997.
Domestic net sales of other products increased 86% to $2,785,000 in the thirteen
weeks ended April 3, 1998 from $1,500,000 in the thirteen weeks ended April 4,
1997, due to increased sales of Quintana Roo products and the introduction of
Hind and Merlin products, which were not offered by the Company in the thirteen
weeks ended April 4, 1997. Foreign net sales of other products decreased 60% to
$988,000 in the thirteen weeks ended April 3, 1998 from $2,451,000 in the
thirteen weeks ended April 4, 1997, due to decreased sales of non-corporate
brands by the Company's Australian subsidiary.
Other income (expense) increased to $76,000 in the thirteen weeks ended April 3,
1998 from ($151,000) in the thirteen weeks ended April 4, 1997 due to decreased
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% to $9,973,000 in the thirteen weeks
ended April 3, 1998 from $8,585,000 in the thirteen weeks ended April 4, 1997.
The Company's gross margin decreased to 33.7% in the thirteen weeks ended April
3, 1998 from 34.0% in the thirteen weeks ended April 4, 1997 due to lower
margins for Saucony products. The gross margin decrease for Saucony products in
the thirteen weeks ended April 3, 1998 resulted from increased domestic sales of
lower-margin special make-up footwear, increased foreign sales of non-current
models and the continued negative impact of the comparatively stronger U.S.
dollar.
Selling, general and administrative expenses increased to $7,933,000, or 26.8%
of net sales, in the thirteen weeks ended April 3, 1998 from $7,198,000, or
28.5% of net sales, in the thirteen weeks ended April 4, 1997. Advertising and
promotion expenses decreased $95,000 in the thirteen weeks ended April 3, 1998
due to reduced promotional spending by the Company's foreign subsidiaries.
Selling expenses increased $554,000 in the thirteen weeks ended April 3, 1998
due to increased selling commissions, increased domestic and foreign sales
staffs and increased payroll costs and selling and marketing expenses related to
the introduction of Hind apparel. General and administrative expenses increased
$276,000 in the thirteen weeks ended April 3, 1998 due to increased domestic
payroll costs and increased administrative costs attributable to the
introduction of Hind apparel and continued expansion of Quintana Roo's
infrastructure.
Interest expense decreased 11% to $221,000 in the thirteen weeks ended April 3,
1998, from $249,000 in the thirteen weeks ended April 4, 1997 due to the paydown
of the Company's senior notes.
The provision for income taxes increased to $898,000 in the thirteen weeks ended
April 3, 1998 from $382,000 in the thirteen weeks ended April 4, 1997, due
primarily to increased pre-tax income from continuing operations. The effective
income tax rate increased 23% to 47.4% in the thirteen weeks ended April 3, 1998
from 38.7% in the thirteen weeks ended April 4, 1998, due primarily to a
deferred tax valuation allowance recorded in the thirteen weeks ended April 3,
1998, and to a lesser extent, relative effect of fixed tax credits on higher
level of pre-tax income in the thirteen weeks ended April 3, 1998. This
deferred tax valuation allowance relates to foreign net operating losses that
are not expected to be realized.
Liquidity and Capital Resources
- -------------------------------
As of April 3, 1998, the Company's cash and cash equivalents totaled $2,118,000,
a decrease of $2,314,000 from January 2, 1998. The decrease was the result of
increase in accounts receivable of $8,751,000, net of the provision for bad debt
and discounts of $1,814,000, offset somewhat by an increase in accrued
liabilities of $2,047,000 and an increase in short-term borrowings of
$4,572,000. The increase in accounts receivable is due to increased net sales
of the Company's Saucony and Hind products in the thirteen weeks ended April 3,
1998. The Company's days sales outstanding for its accounts receivable
decreased to 85 days in the thirteen weeks ended April 3, 1998 from 92 days in
the thirteen weeks ended April 4, 1997. Inventories decreased in the thirteen
weeks ended April 3, 1998 due to lower raw material requirements. The Company's
inventory turns ratio increased to 3.4 turns in the thirteen weeks ended April
3, 1998 from 2.8 turns in the thirteen weeks ended April 4, 1997 due to improved
domestic inventory management.
For the thirteen weeks ended April 3, 1998, the Company used $5,820,000 of net
cash in operating activities, expended $179,000 to acquire capital assets,
expended $624,000 to acquire the assets of Merlin Metalworks, Inc., expended
$100,000 to reduce long-term debt and increased short-term borrowings by
$4,572,000 to finance working capital requirements.
Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory) affecting the operating cash flows for the
thirteen weeks ended April 3, 1998, included an increase of $351,000 in prepaid
expenses (due to advance payments for certain selling and administrative
expenses), a decrease of $345,000 in accounts payable (due to the timing of
inventory purchases) and an increase in accrued expenses of $2,047,000 (due to
increased administrative costs and increased income tax accruals resulting from
higher pre-tax earnings). The weakening of the U.S. dollar decreased the value
of cash and cash equivalents by $43,000.
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 risk with respect to the operating results of
the Company's foreign subsidiaries and certain foreign currency denominated
payables. The Company has entered into certain forward foreign exchange
contracts to minimize the transaction currency risk.
Year 2000
- ---------
The Company has evaluated and documented the effect of the turn-of-the-century
on its computer hardware, operating systems and software applications. A plan
is in place to correct year 2000 problems in the Company's long-term, technical
assets. This plan is substantially funded by existing maintenance contracts and
by normal, recurring upgrades to the computer systems. Correcting year 2000
problems in the Company's long-term technical assets will not have a material
impact on the Company's consolidated financial position.
The Company has also considered the impact of the year 2000 issue on its
customers and suppliers. The footwear and apparel industry is less advanced, in
terms of automation, than many other industries. Customers have shared their
awareness of the year 2000 issue with the Company, but have not provided
management with formal year 2000 compliance reports. The Company's suppliers of
raw materials and components are less technically sophisticated than the
Company's customers, often relying on personal computers and manual systems for
their own business needs. However, the apparel and footwear industry is
characterized by numerous companies competing in an open market. No customer
makes up 10% of sales volume. Purchase contracts and sources of supply can be
negotiated and geographically moved within a six-month period. For these
reasons, management does not expect a major disruption in supply of inventory or
a major decline in customer purchases as the year 2000 approaches.
SFAS 131
- --------
The Financial Accounting Standards Board issued Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131) in June 1997. SFAS 131 establishes the reporting standards for
operating segments in annual financial statements and requires selected
information on operating segments in interim financial statements. SFAS 131
revises the disclosure requirements for segment reporting by defining the
characteristics and quantitative thresholds for which segment information is
required to be disclosed. SFAS 131 is effective for fiscal years commencing
after December 15, 1997, application of which is not required to interim periods
during the initial year of adoption. The Company expects to incorporate the
added disclosure requirements of SFAS 131 into its Form 10-K filing for the
fiscal year ending January 1, 1999.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 - Letter Agreement dated February 20, 1998, between Registrant and
State Street Bank and Trust Company.
10.2 - Letter Agreement dated April 2, 1998, among Registrant, State
Street Bank and Trust Company and CoreState Bank, N.A.
27.0 - Financial Data Schedule
99.1 - Certain Factors That May Affect Future Results, set out on pages
25-27 of the Company's Annual Report on Form 10-K for the period ended
January 2, 1998. Such Form 10-K shall not be deemed to be filed except
to the extent that portions thereof are expressly incorporated by
reference herein.
b. Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hyde Athletic Industries, Inc.
Date: May 15, 1998 By: /s/ Charles A. Gottesman
----------------------------
Charles A. Gottesman
Executive Vice President
Chief Operating Officer
(Duly authorized officer and
principal financial officer)
Exhibit 10.1
February 20, 1998
Hyde Athletic Industries, Inc.
13 Centennial Drive
Peabody, MA 01961
Attention: Mr. Charles Gottesman, Executive Vice President
Ladies and Gentlemen:
State Street Bank and Trust Company (the "Bank") has made available to Hyde
Athletic Industries, Inc. (the "Borrower") a $15,000,000 revolving credit
facility and a $15,000,000 demand line of credit each as described in a Loan
Agreement by and between the Borrower and the Bank (as amended, the "Loan
Agreement"). Terms not otherwise defined herein shall be used as defined in the
Loan Agreement. The Borrower has informed the Bank that borrowings under new
credit facilities to be provided by the Bank to subsidiaries of the Borrower
(the "New Credit Facilities") may be in violation of Section 4.11 of the Loan
Agreement, which requires an annual 30-day period during which there are no
outstanding borrowings. The Borrower has requested that the Bank enter into
this letter agreement regarding any future violation of Section 4.11 which may
be caused by borrowings under the New Credit Facilities, and the Bank has agreed
to do so, provided that the terms of this letter agreement expire on or before
July 31, 1998.
Therefore, for good and valuable consideration, the receipt of which is hereby
acknowledged, the Borrower and the Bank hereby agree that (I) regardless of the
frequency or timing of borrowings under the New Credit Facilities, no such
borrowing shall be deemed to be a violation of Section 4.11 of the Loan
Agreement and (ii) the terms of this letter agreement shall terminate upon the
earlier to occur of (a) the execution of redocumentation for the credit facility
evidenced by the Loan Agreement or (b) July 31, 1998.
This agreement relates only to Section 4.11 of the Loan Agreement as the same
may apply to borrowings under the New Credit Facilities. This agreement shall
not be deemed to be a waiver of any other violation of Section 4.11, future or
otherwise, or of any other term of the Loan Agreement or any related document.
All terms and conditions of the Loan Agreement and all documents executed in
connection therewith are ratified and affirmed as of the date hereof and the
Borrower represents and warrants to the Bank that no default or event of default
has occurred thereunder as of the date hereof.
If the foregoing is acceptable to you, please have an authorized officer of the
Borrower execute this letter agreement below where indicated and return the same
to the undersigned.
Very truly yours,
State Street Bank and Trust Company
By: /s/ Gregory J. Mann
-----------------------
Gregory J. Mann, Vice President
Accepted and Agreed:
Hyde Athletic Industries, Inc.
By: /s/ Charles A. Gottesman
--------------------------
Title: Executive Vice President
------------------------
Exhibit 10.2
State Street Bank 225 Franklin Street
Boston, MA 02110
April 2, 1998
Hyde Athletic Industries, Inc.
13 Centennial Drive
Peabody, MA 01961
Attention: Mr. Charles Gottesman, Executive Vice President
Ladies and Gentlemen:
State Street Bank and Trust Company ("State Street") and CoreStates Bank, N.A.
("CoreStates" and together with State Street, collectively, the "Banks") has
made available to Hyde Athletic Industries, Inc. (the "Borrower") a $15,000,000
revolving credit facility and a $15,000,000 demand line of credit each as
described in a Credit Agreement dated August 31, 1993 by and between the
Borrower and the Bank, as amended from time to time (as amended, the "Credit
Agreement"). Terms not otherwise defined herein shall be used as defined in the
Credit Agreement.
The Borrower has requested a waiver of certain financial covenants contained in
the Credit Agreement, and the Banks have agreed to such waiver pursuant to the
terms hereof. Therefore, for good and valuable consideration, the receipt of
which is hereby acknowledged, the Borrower and the Banks hereby agree as
follows:
I. Waiver
1. Pursuant to Section 4.9 of the Credit Agreement, the Borrower is required
to have a consolidated Tangible Net Worth of the Borrower and its Subsidiaries
not less than $45,315,000 as of the fiscal quarter ending January 2, 1998.
Based upon financial statements of the Borrower as of January 2, 1998, the
Borrower's Tangible Net Worth was $41,156,000 as of the fiscal quarter ending
January 2, 1998. As a result of the foregoing, an Event of Default has occurred
under Section 7.1(c) of the Credit Agreement.
2. Pursuant to Section 4.12 of the Credit Agreement, the Borrower is required
to maintain a ratio of the consolidated Net Cash Flow of the Borrower and its
consolidated Subsidiaries to the consolidated interest expense of the Borrower
and its consolidated Subsidiaries of at least 3.5 to 1 for each fiscal year.
Based upon financial statements of the Borrower as of January 2, 1998, the
Borrower's ratio was (3.02) to 1. As a result of the foregoing, an Event of
Default has occurred under Section 7.1(c) of the Credit Agreement.
3. Pursuant to Section 5.11 of the Credit Agreement, the Borrower is required
to maintain a Net Income of the Borrower and its consolidated Subsidiaries of
not less than negative $500,000 in any fiscal quarter, not less than negative
$1,000,000 in any fiscal year or not to incur a loss in more than two
consecutive fiscally quarters. Based upon financial statements of the Borrower
as of January 2, 1998, the Net Income of the Borrower and its consolidated
Subsidiaries was negative $4,961,000 for the fiscal quarter ending January 2,
1998 and negative $4,737,000 for fiscal year 1997, and, in addition, the
Borrower and its consolidated Subsidiaries have incurred a loss in more than two
consecutive fiscal quarters. As a result of the foregoing, an Event of Default
has occurred under Section 7.1(c) of the Credit Agreement.
4. The Borrower has also informed the Banks that as of April 3, 1998, the
Borrower may be in violation of each of the above-described covenants, as well
as the quick ratio covenant set forth in Section 4.10 of the Credit Agreement
pursuant to which the Borrower is to maintain a quick ratio of not less than 1.5
to 1. As a result of such possible violations, further Events of Default may
occur under Section 7.1(c) of the Credit Agreement.
5. The Bank hereby waives the foregoing Events of Default for the financial
performance described above for the periods ending as of January 2, 1998 and as
of April 3, 1998 only. This waiver is a waiver of the Events of Default
described above and only for the periods and financial performance described
above. This waiver shall not be deemed to constitute a waiver of compliance
with any of the foregoing covenants for any other time period. In addition,
this waiver shall not be deemed to constitute a waiver of compliance with any
other financial performance or of any other term of the Credit Agreement or any
related document.
II. Miscellaneous
1. All terms and conditions of the Credit Agreement, the notes executed in
connection therewith, and all related documents are ratified and affirmed as of
the date hereof and the Borrower represents and warrants to the Bank that no
default or event of default has occurred thereunder other than as waived in
writing by the Bank.
2. Upon receipt of a fully executed copy of this letter agreement and such
other documents or instruments as the Bank may reasonably request, this letter
agreement shall be deemed to be an instrument under seal to be governed by the
laws of The Commonwealth of Massachusetts.
3. This letter agreement may be executed in counterparts each of which shall
be deemed to be an original document.
If the foregoing is acceptable to you, please have an authorized officer of the
Borrower execute this letter agreement below where indicated and return the same
to the undersigned.
Very truly yours,
State Street Bank and Trust Company
By: /s/ Gregory J. Mann
Gregory J. Mann
Vice President
Accepted and Agreed:
Borrower:
Hyde Athletic Industries, Inc.
By: /s/ Charles A. Gottesman
Charles A. Gottesman
Executive Vice President
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<LEGEND>
This schedule contains summary financial information extracted from Hyde
Athletic Industries, Inc. Form 10-K for the period ended April 3, 1998 and is
qualified in its entirety by reference to such 10-Q.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-END> APR-03-1998
<CASH> 2,118
<SECURITIES> 173
<RECEIVABLES> 27,605
<ALLOWANCES> 1,512
<INVENTORY> 23,126
<CURRENT-ASSETS> 57,383
<PP&E> 17,141
<DEPRECIATION> 9,027
<TOTAL-ASSETS> 68,754
<CURRENT-LIABILITIES> 19,553
<BONDS> 688
0
0
<COMMON> 2,150
<OTHER-SE> 44,078
<TOTAL-LIABILITY-AND-EQUITY> 68,754
<SALES> 29,624
<TOTAL-REVENUES> 29,700
<CGS> 19,651
<TOTAL-COSTS> 19,651
<OTHER-EXPENSES> 7,933
<LOSS-PROVISION> 271
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> 1,895
<INCOME-TAX> 898
<INCOME-CONTINUING> 974
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EXHIBIT 99.1
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Annual Report and presented elsewhere by management from time to time.
COMPETITION. Competition is intense in the markets in which the Company
sells its products. The Company competes with a large number of other
companies, both domestic and foreign, several of which have diversified
products lines, well-known brands and financial, distribution and marketing
resources substantially greater than those of the Company. The principal
competitors for the Company's Saucony products are Nike, New Balance and
ASICS. The principal competitors for the Company's Hind products are Nike,
Pearl Izumi and Speedo. The principal competitors for the Company's Quintana
Roo and Merlin products are Cannondale and Trek.
DEPENDENCE ON FOREIGN SUPPLIERS. A number of manufacturers located in the Far
East, primarily in China, Taiwan and Thailand, supply products and product
components to the Company. During fiscal 1997, one of such suppliers, located in
China, accounted for approximately 41% of the Company's total purchases by
dollar volume. The Company is subject to the usual risks of a business
involving foreign suppliers, such as currency fluctuations, government
regulation of fund transfers, export and import duties, trade limitations
imposed by the United States or foreign governments and political and labor
instability. In particular, there are a number of trade-related and other
issues creating significant friction between the governments of the United
States and China, and the imposition of punitive import duties on certain
categories of Chinese products has been threatened in the past and may be
implemented in the future. In addition, the Company has no long-term
manufacturing agreements with its foreign suppliers and competes with other
athletic shoe and recreational product companies, including companies that are
much larger than the Company, for access to production facilities.
FOREIGN CURRENCY EXCHANGE. From time to time, the Company's financial results
have been adversely affected by the fluctuations in currency exchange rates.
There can be no assurance that the Company's efforts to reduce currency exchange
losses will be successful or that currency exchange rates will not have an
adverse impact on the Company's future operating results and financial
condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly operating
results may vary significantly depending on a number of factors, including the
timing and shipment of individual orders, market acceptance of new athletic
footwear and other products offered by the Company, changes in the Company's
operating expenses, personnel changes, mix of products sold, changes in product
pricing and general economic conditions. In addition, a substantial portion of
the Company's revenue is realized during the last few weeks of each quarter;
therefore, any delays in orders or shipments are more likely to result in
revenue not being recognized until the following quarter, which could
adversely impact the results of operations for that quarter. The Company's
current expense levels are based in part on its expectations of future
revenue and, as a result, net income for a given period could be
disproportionately affected by any reduction in revenue. It is possible that
in some future quarter the Company's revenue or operating results will be
below the expectations of stock market securities analysts and investors; if
that were to occur, the market price of the Common Stock could be materially
adversely affected.
MANAGEMENT OF GROWTH. One element of the Company's business strategy is to seek
acquisitions of businesses and products that are complementary to those of the
Company. There can be no assurance that the Company will be able to effect any
acquisitions, operate any such acquired businesses profitably or otherwise
implement its growth strategy successfully. In addition, identifying and
effecting acquisitions and integrating the acquired businesses with the
operations of the Company may place significant demands upon the current
management team and operational systems of the Company. In order to effect
acquisitions of a certain size, the Company may require additional capital,
which the Company may obtain through additional borrowings under its credit
facility or otherwise.
DEPENDENCE ON CONSUMER PREFERENCES. The Company is susceptible to
fluctuations in its business based upon fashion trends and frequently
changing consumer style preferences and product demands, including levels of
enthusiasm for athletic activities. The Company believes that its success
depends in substantial part on its ability to anticipate, gauge and respond
to changing consumer demands and fashion trends in a timely manner.
Moreover, the Company could be materially adversely affected by conditions in
the retail industry in general, including consolidation and the resulting
decline in the number of retailers and other cyclical economic factors.
DISCRETIONARY CONSUMER SPENDING. Purchases of bicycles, particularly high-
performance models such as those offered by the Company, and the Company's other
products are discretionary for consumers. The success of the Company is
influenced by a number of economic factors affecting disposable consumer income,
such as employment levels, business conditions, interest rates and taxation
rates. Adverse changes in these economic factors may restrict consumer
spending, thereby negatively affecting the Company's growth and profitability.
ADVERTISING AND MARKETING PROGRAMS. The Company's success in the markets in
which it competes depends in part upon the effectiveness of advertising and
marketing programs of the Company. In particular, the Company must
periodically design and successfully execute new and effective advertising
and marketing programs.
DEPENDENCE ON MAJOR CUSTOMERS. Although the Company had no customer that
accounted for ten percent or more of the Company's consolidated revenue during
1997, the Company's business is susceptible to the loss of certain key customers
of the Company's product lines, such as Foot Locker for the Company's Saucony
products.
