SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): May 13, 1998
Saucony, Inc.
-------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Massachusetts
-------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-05083 04-1465840
(Commission File Number) (I.R.S. Employer Identification No.)
Centennial Industrial Park
13 Centennial Drive, Peabody, Massachusetts 01960
<PAGE>
(Address of Principal Executive Offices) (Zip Code)
(978) 532-9000
------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
-------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Saucony, Inc. (the "Registrant") hereby amends Item 7 of the Current Report
on Form 8-K filed by the Registrant on May 28, 1998 as set forth below:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of business acquired:
Report of independent accountant
Condensed balance sheets of Saucony SP Pty
Limited at January 2, 1998 and January 3, 1997
Condensed statements of operations of Saucony SP
Pty Limited for the years ended January 2, 1998,
January 3, 1997 and January 5, 1996
Condensed statements of cash flows of Saucony SP Pty
Limited for the years ended January 2, 1998, January 3,
1997 and January 5, 1996
Notes to accompanying financial statements
(b) Pro forma financial information:
Pro forma balance sheet as of April 3, 1998
Pro forma statements of income for the year ended
January 2, 1998 and the thirteen weeks ended April 3, 1998
Notes to the pro forma financial statements
(c) Exhibits:
See Exhibit Index attached hereto
Item 7(a) Financial Statements of Business Acquired
Independent Auditor's Report
We have audited the accompanying balance sheets of Saucony SP Pty Limited as of
January 2, 1998 and January 3, 1997 and the related statements of operations and
statement of cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Saucony SP Pty Limited as of
January 2, 1998 and January 3, 1997, and the results of its operations and cash
flows for the years then ended in conformity with United States generally
accepted accounting principles.
GRANT THORNTON
Chartered Accountants
/s/ B.R. Gordon
Partner
Sydney, NSW Australia
July 27, 1998
<PAGE>
<TABLE>
SAUCONY SP PTY LIMITED
CONDENSED BALANCE SHEET
<CAPTION>
(in thousands)
January 2, January 3,
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 230 $ 712
Accounts receivable (Note 2) 1,842 2,927
Inventories (Note 3) 1,361 4,479
Prepaid expenses and other current assets 0 440
Property held for sale (Note 4) 25 0
-------- ---------
Total current assets 3,458 8,558
-------- ---------
Property, plant and equipment, net of accumulated
depreciation and amortization (Note 4) 0 779
-------- ---------
Other assets 10 29
-------- ---------
Total assets $ 3,468 $ 9,366
======== =========
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 885 $ 277
Current portion of long-term debt and
capital lease obligations (Notes 5 & 6) 1,327 94
Accounts payable 132 726
Accrued expenses 347 236
-------- ---------
Total current liabilities 2,691 1,333
-------- ---------
Intercompany with Hyde Athletic Industries, Inc.
and subsidiaries (Note 10) 4,021 3,645
-------- ---------
Long-term debt (Notes 5 & 6) 0 1,917
-------- ---------
Commitments and contingencies (Note 7) 0 0
-------- ---------
Minority interest 0 208
-------- ---------
Stockholders' equity: (Note 8)
Preferred stock, A$1 par value; authorized
100 shares; 28 shares issued and outstanding 0 0
Common stock, A$1 par value; authorized
1,000,000 shares; 8 shares issued and outstanding 0 0
Paid-in capital 2,263 2,263
Retained earnings (accumulated deficit) (5,336) 0
Accumulated translation (117) 54
--------- ---------
(3,190) 2,317
--------- ---------
Less: Common stock held in treasury, at cost (54) (54)
--------- ----------
Total stockholders' equity (3,244) 2,263
--------- ---------
Total liabilities and stockholders equity $ 3,468 $ 9,366
======== =========
See notes accompanying financial statements
</TABLE>
<TABLE>
SAUCONY SP PTY LIMITED
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996
<CAPTION>
(in thousands)
January 2, January 3, January 5,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 11,070 $ 13,703 $ 11,672
Other income (expense) (737) 321 (11)
--------- --------- ----------
Total revenue 10,333 14,024 11,661
-------- --------- ---------
Costs and expenses:
Cost of sales 8,893 9,412 8,983
Selling expenses 1,470 1,672 1,959
General and administrative expenses 2,017 1,586 1,085
Restructuring of Australian operation (Note 11) 2,766 0 0
Interest expense 410 476 565
-------- --------- ---------
Total costs and expenses 15,556 13,146 12,592
-------- --------- ---------
Income (loss) before income taxes and minority interest (5,223) 878 (931)
Provision (benefit) for income taxes (Note 9) 114 316 (335)
Minority interest in income (loss) (153) 253 (298)
--------- --------- ----------
Net income (loss) $ (5,184) $ 309 $ (298)
========= ========= ==========
See notes accompanying financial statements
</TABLE>
<TABLE>
SAUCONY SP PTY LIMITED
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996
<CAPTION>
(in thousands)
January 2, January 3, January 5,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (5,184) $ 309 $ (298)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Restructuring charge (Note 11) 2,766 0 0
Depreciation and amortization 105 99 73
Deferred income tax provision (benefit) 114 316 (335)
Provision for bad debts and discounts 332 1,073 1,174
Minority interest in income (loss) (153) 253 (298)
Other (90) 4 0
Changes in operating assets and liabilities, net of effect
of acquisitions, dispositions and foreign currency adjustments:
Decrease (increase) in assets:
Accounts receivable (653) (1,268) (1,592)
Inventories 1,133 (1,368) 757
Prepaid expenses and other current assets (33) (5) (53)
Increase (decrease) in liabilities:
Accounts payable (535) 339 178
Accrued expenses 175 143 (125)
Intercompany with Hyde Athletic Industries, Inc.
and subsidiaries 224 1,438 (1,761)
-------- --------- ---------
Total adjustments 3,385 1,024 (1,982)
-------- --------- ----------
Net cash provided (used) by operating activities (1,799) 1,333 (2,280)
--------- --------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (101) (94) (168)
Increase in deferred charges, deposits and other (46) (10) 0
Proceeds from the sale of property and equipment 511 77 31
-------- --------- ---------
Net cash provided (used) by investing activities 364 (27) (137)
-------- ---------- ----------
Cash flows from financing activities:
Net short-term borrowings 785 (1,098) 500
Repayment of long-term debt and capital lease borrowings (377) (126) (15)
Proceeds from long-term borrowings 0 420 0
Issuance of preferred stock 0 0 2,082
-------- --------- ---------
Net cash provided (used) by financing activities 408 (804) 2,567
-------- ---------- ---------
Effect of exchange rate changes on cash and cash equivalents 545 (93) 138
-------- ---------- ---------
Net increase (decrease) in cash and cash equivalents (482) 409 288
Cash and cash equivalents at beginning of period 712 303 15
-------- --------- ---------
Cash and cash equivalents at end of period $ 230 $ 712 $ 303
======== ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refunds $ 0 $ 0 $ 0
======== ========= =========
Interest $ 230 $ 274 $ 249
======== ========= =========
Non-cash investing and financing activities:
Property purchased under capital leases $ 0 $ 43 $ 0
======== ========= =========
See notes accompanying financial statements
</TABLE>
SAUCONY SP PTY LIMITED
NOTES ACCOMPANYING FINANCIAL STATEMENTS
For the Years Ended January 2, 1998, January 3, 1997 and January 5, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
BUSINESS ACTIVITY
-----------------
The Company is an importer of a broad line of high-performance athletic
footwear. The Company markets its products principally to retailers in
Australia and New Zealand. Hyde International Services, Limited, a wholly-
owned subsidiary of Hyde Athletic Industries, Inc. owns a controlling
interest in the Company.
BASIS OF PRESENTATION
---------------------
The financial statements of the Company have been prepared on a net
realizable value basis.
REPORTING PERIOD
----------------
The Company adopted a 52-53 week fiscal year reporting period in 1993. The
financial statements and notes for 1997, 1996 and 1995 represent the fiscal
years ended January 2, 1998, January 3, 1997 and January 5, 1996,
respectively. In management's opinion, the financial statements for 1997,
1996 and 1995 are comparable.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
REVENUE RECOGNITION
--------------------
Sales, net of discounts and related costs of sales are recognized upon
shipment of products.
INVENTORIES
-----------
Inventories are stated at lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Land, buildings and equipment, including significant improvements to
existing facilities, are stated at cost. The assets are depreciated over
their estimated useful lives or capital lease terms, if shorter, using the
straight-line method for financial reporting purposes and accelerated
methods for income tax purposes. The estimated useful lives of the assets
are: 33 years for buildings and improvements and 2 to 10 years for office
equipment and machinery and equipment. Major renewals and betterments are
capitalized. Maintenance, repairs and minor property renewals are expensed
as incurred. The cost and related accumulated depreciation of all property,
plant and equipment retired or otherwise disposed of, are removed from the
accounts. Any gain or loss, resulting from the retirement or disposition of
property, plant and equipment, is included in net income.
REPORTING CURRENCY
------------------
The Company's balance sheets, statements of operations and statements of
cash flows, as reported, are denominated in U.S. dollars. Refer to "Foreign
Currency Translation" discussion in Note 1 of the Notes Accompanying the
Financial Statements.
DEFERRED CHARGES
----------------
Deferred charges consist primarily of organization costs which are amortized
over five years.
INCOME TAXES
------------
The provision for income taxes is calculated according to the precepts of
Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes". Under SFAS No. 109, income taxes are
provided for the amount of taxes payable or refundable in the current year
and for the expected future tax consequences of events that have been
recognized in the financial statements or tax returns. As a result of
recognition and measurement differences between tax laws and financial
accounting standards, temporary differences arise between the amount of
taxable income and pretax financial income for a year and the tax bases of
assets or liabilities and their reported amount in the financial statements.
The deferred tax assets and liabilities reported as of January 2, 1998 and
January 3, 1997 reflect the estimated future tax effects attributable to
temporary differences and carryforwards based on the provisions of enacted
tax law.
STATEMENTS OF CASH FLOWS
------------------------
For purposes of these statements, cash equivalents include all short-term
deposits with an original maturity of three months or less purchased in
connection with the Company's cash management program.
FOREIGN CURRENCY TRANSLATION
----------------------------
The financial statements of the Company are measured using the Australian
dollar as the functional currency. Assets and liabilities are translated at
exchange rates as of the balance sheet date. Revenues and expenses are
translated at average rates of exchange in effect during the year. The
resulting cumulative translation adjustments have been recorded as a
separate component of stockholders' equity. Foreign currency transaction
gains and losses are included in net income. Net gains (losses) from
foreign currency transaction translation amounted to ($884,000), $76,000 and
($97,000) for 1997, 1996 and 1995, respectively.
ADVERTISING AND PROMOTION
-------------------------
Advertising and promotion costs are expensed when incurred. Advertising and
promotion expense amounted to $1,003,000, $1,036,000 and $924,000 for 1997,
1996 and 1995, respectively.
2. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable at January 2, 1998 and January 3, 1997 consisted of the
following (in thousands):
Trade receivables $2,627 $3,201
Reserve for doubtful accounts (592) (93)
Reserve for sales discounts and allowance (193) (181)
------- -------
$1,842 $2,927
====== ======
3. INVENTORIES:
-----------
Inventories at January 2, 1998 and January 3, 1997 consisted of the
following (in thousands):
1997 1996
---- ----
Finished goods $1,361 $4,479
====== ======
4. PROPERTY, PLANT AND EQUIPMENT AND PROPERTY HELD FOR SALE
--------------------------------------------------------
Major classes of property, plant and equipment, at cost, at January 2, 1998
and January 3, 1997 were as follows (in thousands):
1997 1996
---- ----
Land $ 0 $ 277
Buildings and improvements 0 218
Machinery and equipment 209 399
Capitalized leases 19 44
Leasehold improvements 16 42
------ ------
244 980
Less accumulated depreciation
and amortization 219 201
------ ------
Sub-total 25 779
Less property held for sale 25 0
------ ------
Property, plant and equipment, net $ 0 $ 779
====== ======
The property held for sale consist of equipment held for disposal which is
stated at the lower of cost or estimated net realizable value. The Company
expects to recover the recorded value of these assets during fiscal 1998.
Accumulated amortization of the leased property was $24,000 and $8,000 at
January 2, 1998 and January 3, 1997, respectively.
5. LONG-TERM DEBT:
--------------
(in thousands)
1997 1996
---- ----
Note payable to a bank under a revolving line of
credit agreement, due on January 30, 1998, with
interest of 8.15%. $1,301 $1,581
Note payable due in ten semi-annual principal payments
of $43,477 commencing July 1, 1996 and interest on
the unpaid principal amount through maturity. The
note bears interest at 9.25% and is secured by a
mortgage. 0 391
------ ------
1,301 1,972
Less current portion 1,301 87
------ ------
$ 0 $1,885
====== ======
6. CAPITAL LEASE OBLIGATIONS:
-------------------------
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments as of January 2, 1998 (in thousands):
1998................................... $ 29
1999................................... 0
2000................................... 0
2001................................... 0
2002................................... 0
------
Total minimum lease payments $ 29
Less amounts representing interest 3
------
Present value of minimum lease payments 26
Less current portion 26
------
Long-term portion $ 0
======
7. COMMITMENTS AND CONTINGENCIES:
-----------------------------
LEASE COMMITMENTS
-----------------
The Company is obligated under various leases for equipment and retail space
through 2000. Future minimum rental payments are as follows: 1998,
$127,000; 1999, $127,000; and 2000, $75,000.
COMMITMENTS
-----------
The Company maintains a credit facility with an Australian lender. The
credit facility provides Saucony SP with a $6,000,000 Australian dollar
(approximately $3,905,000 in U.S. dollars at January 2, 1998) line of
credit. The agreement provides for a short-term demand line of credit, in
the principal amount of up to $4,000,000 (Australian dollars), for letters
of credit and foreign exchange facilities; and a revolving line of credit,
in the principal amount of $2,000,000 (Australian dollars). Borrowings
under this facility are made at market rates of interest as defined in the
agreement or at the lender's quoted rate. At January 2, 1998, there was
$2,186,000 in U.S. dollars outstanding under this credit facility. The
facility is subject to the lender's periodic reviews of the Company's
operations. Hyde Athletic Industries, Inc. has guaranteed the obligations
of the Company enabling such obligations to be satisfied.
8. STOCKHOLDERS' EQUITY:
--------------------
The condensed statement of stockholders' equity for the years ended January
2, 1998, January 3, 1997 and January 5, 1996, is as follows (in thousands):
<TABLE>
<CAPTION>
Common Preferred Paid-in Retained
Stock Stock Capital Earnings
------- --------- -------- --------
<S> <C> <C> <C> <C>
Balance, December 30, 1994 $ 0 $ 0 $ 181 $ (11)
Issuance of 28 shares of preferred
stock, A$1 par value 0 0 2,082 0
Net loss 0 0 0 (298)
Foreign currency translation
adjustment 0 0 0 0
-------- -------- --------- ---------
Balance, January 5, 1996 $ 0 $ 0 $ 2,263 $ (309)
Net income 0 0 0 309
Foreign currency translation
adjustments 0 0 0 0
-------- -------- --------- ---------
Balance, January 3, 1997 $ 0 $ 0 $ 2,263 $ 0
Net loss 0 0 0 (5,184)
Preferred stock dividend 0 0 0 (152)
Foreign currency translation
adjustment 0 0 0 0
-------- -------- --------- ---------
Balance January 2, 1998 $ 0 $ 0 $ 2,263 $ (5,336)
======== ======== ========= ==========
<CAPTION>
Accumulated Treasury Stockholders'
Translation Stock Equity
----------- -------- -------------
Balance, December 30, 1994 $ 18 $ (54) $ 134
Issuance of 28 shares of preferred
stock, A$1 par value 0 0 2,082
Net loss 0 0 (298)
Foreign currency translation
Adjustment (8) -- (8)
---------- --------- ----------
Balance, January 5, 1996 $ 10 $ (54) $ 1,910
Net income 0 0 309
Foreign currency translation
adjustments 44 0 44
--------- --------- ---------
Balance, January 3, 1997 $ 54 $ (54) $ 2,263
Net loss 0 0 (5,184)
Preferred stock dividend 0 0 (152)
Foreign currency translation adjustment (171) 0 (171)
---------- --------- ----------
Balance, January 2, 1998 $ (117) $ (54) $ (3,244)
========== ========== ==========
</TABLE>
During 1995, the Company issued 28 shares of Cumulative Redeemable Preferred
Stock (A$1 par value) for $2,082,000 in exchange for an equivalent reduction
in debt owed by the Company to Hyde Athletic Industries, Inc. The shares,
which are redeemable on or after January 1, 1998, provide for cumulative
preferential dividends and confer priority to the preferred shareholders,
with respect to dividends and return of share capital and share premium.
During 1996, the Company declared a dividend of A$233,000 (approximately
US$152,000.)
At January 2, 1998, the company held 2,000 shares each of Hyde Athletic
Industries, Inc. Class A Common Stock and Class B Common Stock.
9. INCOME TAXES:
------------
The provision for income taxes was calculated according to the precepts of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The objective of SFAS No. 109 is to recognize the amount of taxes
payable or refundable in the current year and to recognize the expected
future tax consequences of events that have been included in the financial
statements or tax returns. SFAS No. 109 requires the identification of all
cumulative temporary differences arising between the tax bases of assets and
liabilities and their reported amounts in the financial statements. The tax
effects of these temporary differences are measured using enacted tax rates
and are reported on the consolidated balance sheet as deferred tax assets
and liabilities. Deferred tax assets are then reduced if it is more likely
than not that some portion of the expected future tax benefits will not be
realized.
The following is a summary of the components of the provision for income
taxes, current and long- term deferred tax assets and liabilities and a
reconciliation of the U.S. statutory federal income tax rate to the
effective income tax rate reflected in the income statement.
The provision for income taxes was based on pretax income (loss) from
continuing operations before minority interest which was subject to
taxation.
The provision (credit) for income taxes consists of the following (in
thousands):
1997 1996 1995
---- ---- ----
Current:
Deferred provision (credit) $ 0 $ 0 $ 0
------ ------ ------
Deferred:
Deferred provision (credit) $ (885) $ 316 $ (335)
------- ------ -------
Change in valuation allowance $ 999 $ 0 $ 0
------ ------ ------
Total $ 114 $ 316 $ (335)
====== ====== =======
The net deferred tax asset or liability reported on the balance sheet
consist of the following items as of January 2, 1998 and January 3, 1997 (in
thousands):
1997 1996
---- ----
Net current deferred tax assets:
Loss carryforwards $ 0 $ 114
------ ------
Total $ 0 $ 114
------ ------
Net long-term deferred tax assets:
Loss carryforwards $ (999) $ 0
Valuation allowance 999 0
------ ------
Total $ 0 $ 0
------ ------
Net deferred tax asset (liability) $ 0 $ 114
====== ======
The differences between the U.S. statutory federal income tax rate and the
effective income tax rate on pretax income before minority interest are
summarized as follows:
1997 1996 1995
---- ---- ----
U.S. federal income tax rate (34.0%) 34.0% 34.0%
Detriment (benefit) of valuation allowance
relating to foreign losses 39.2% 0.0% 0.0%
International tax rate differences (2.0%) 2.0% 2.0%
------- ----- -----
Effective income tax rate 3.2% 36.0% 36.0%
====== ===== =====
10.INTERCOMPANY WITH HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
-----------------------------------------------------------------
The following is a schedule of intercompany liabilities at January 2, 1998
and January 3, 1997 (in thousands):
1997 1996
---- ----
Trade payables $3,356 $3,447
Note payable 513 198
Preferred stock dividend 152 0
------ ------
$4,021 $3,645
====== ======
Saucony SP's purchases of inventory from Hyde Athletic Industries, Inc.
amounted to approximately $1,533,000 and $3,144,000 for 1997 and 1996,
respectively. Interest expense on trade and notes payable to Hyde Athletic
Industries, Inc. and subsidiaries amounted to approximately $174,000 and
$189,000 for 1997 and 1996, respectively.
11.BUSINESS RESTRUCTURING:
----------------------
Results for 1997 include a non-recurring charge of $2,766,000 ($3,765,000)
after tax associated with the restructuring of the Company.
The restructuring charge consisted of asset write-downs to estimated
realizable values, as follows: accounts receivable of $858,000; inventory
of $1,340,000; and prepaid expenses and other assets of $568,000. The
Company recorded a deferred tax valuation allowance of $999,000 relating to
net operating loss carryforwards which are not expected to be realized.
12.SUBSEQUENT EVENT
----------------
In March 1998, the Company entered into an agreement with its joint venture
partners pursuant to which the Company will acquire all of the proprietary
interests of such partners for nominal consideration and the employment of
the managing director will be terminated. The Company expects the closing
to occur pursuant to such agreement by no later than August 1, 1998. The
Company is in the process of reassessing its operations in Australia and is
evaluating several alternative methods of continuing its presence in the
Australian market.
13.EMPLOYEE BENEFIT PLANS
----------------------
Contributions are made by the Company to an employee superannuation fund and
are charged as expenses when incurred.
Item 7(b) Unaudited Pro Forma Financial Information
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET (unaudited)
April 3, 1998
The following unaudited pro forma balance sheet reflects the acquisition by Hyde
International Services, Limited ("Hyde International"), a wholly-owned
subsidiary of Hyde Athletic Industries, Inc., ("Hyde"), of all the outstanding
shares of Saucony SP Pty Limited's ("Saucony Australia") capital stock (other
than those shares already owned by Hyde International), for the thirteen weeks
ended April 3, 1998, after giving effect to the adjustments described in the
accompanying notes. The Company's investment in Saucony SP Pty Limited is
accounted for under the equity method.
The pro forma balance sheet may not be indicative of the actual financial
position of Hyde Athletic Industries, Inc. had the acquisition of all of the
outstanding shares of Saucony Australia's capital stock (other than those shares
already held by Hyde International) occurred at April 3, 1998.
The pro forma balance sheet should be read in conjunction with 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 and the unaudited consolidated
financial statements of the Company included in the Company's Quarterly Report
on Form 10-Q as filed with the Securities and Exchange Commission for the
thirteen weeks ended April 3, 1998.
<TABLE>
<CAPTION>
(in thousands)
April 3, 1998
--------------------------------------------
Unaudited Adjustments Unaudited
Actual (Note B) Pro-forma
--------- ------------ ----------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,118 $ (63) (1) $ 2,055
Marketable securities 173 0 173
Accounts receivable 27,605 0 27,605
Inventories 23,126 0 23,126
Prepaid expenses and other current assets 4,361 0 4,361
-------- --------- --------
Total current assets 57,383 (63) 57,320
-------- ---------- --------
Property, plant and equipment, net of
accumulated depreciation and amortization 8,114 0 8,114
-------- --------- --------
Other assets 3,257 0 3,257
-------- --------- --------
Total assets $ 68,754 $ (63) $ 68,691
======== ========== ========
See accompanying notes
</TABLE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
April 3, 1998
(unaudited)
<CAPTION>
(in thousands)
April 3, 1998
-------------------------------------------
Unaudited Adjustments Unaudited
Actual (Note B) Pro-forma
-------- ----------- ---------
<S> <C> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 8,735 $ 0 $ 8,735
Current portion of long-term debt
and capital lease obligations 2,320 0 2,320
Accounts payable 3,589 0 3,589
Accrued expenses 4,909 0 4,909
-------- --------- --------
Total current liabilities 19,553 0 19,553
-------- --------- --------
Long-term liabilities:
Long-term debt 688 0 688
Deferred income taxes 1,919 0 1,919
Other long-term obligations 147 0 147
-------- --------- --------
Total long-term obligations 2,754 0 2,754
-------- --------- --------
Minority interest in consolidated subsidiaries 219 0 219
-------- --------- --------
Stockholders' equity:
Common stock, $.33 1/3 par value 2,150 0 2,150
Additional paid-in capital 15,652 0 15,652
Retained earnings 29,961 (63) (2) 29,898
Accumulated translation (449) 0 (449)
--------- --------- ---------
47,314 (63) 47,251
Less:
Common stock held in treasury, at cost (1,054) 0 (1,054)
Unearned compensation (32) 0 (32)
--------- --------- ---------
Total stockholders' equity 46,228 (63) 46,165
-------- ---------- --------
Total liabilities and stockholders' equity $ 68,754 $ (63) $ 68,691
======== ========== ========
See accompanying notes
</TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA STATEMENT OF INCOME (unaudited)
FOR THE THIRTEEN WEEKS ENDED APRIL 3, 1998
The following unaudited pro forma income statement reflects the acquisition by
Hyde International Services, Limited ("Hyde International"), a wholly-owned
subsidiary of Hyde Athletic Industries, Inc., ("Hyde"), of all the outstanding
shares of Saucony SP Pty Limited's ("Saucony Australia") capital stock (other
than those shares already owned by Hyde International), for the thirteen weeks
ended April 3, 1998, after giving effect to the adjustments described in the
accompanying notes.
The pro forma statement of income may not be indicative of the results of
operations which actually would have occurred had the acquisition of all of the
outstanding shares of Saucony Australia's capital stock (other than those shares
already held by Hyde International) occurred at January 2, 1998, or which may
occur in the future.
The pro forma income statement should be read in conjunction with 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 and the unaudited consolidated
financial statements of the Company included in the Company's Quarterly Report
on Form 10-Q as filed with the Securities and Exchange Commission for the
thirteen weeks ended April 3, 1998.
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
For the Thirteen Weeks
Ended April 3, 1998
--------------------------------------------
Unaudited Adjustments Unaudited
Actual (Note C) Pro-forma
-------- ----------- ---------
<S> <C> <C> <C>
Net sales $ 29,624 $ 0 $ 29,624
Other income 76 0 76
-------- --------- --------
Total revenue 29,700 0 29,700
-------- --------- --------
Costs and expenses
Cost of sales 19,651 0 19,651
Selling expenses 4,423 0 4,423
General and administrative expenses 3,510 0 3,510
Interest expense 221 0 221
-------- --------- --------
Total costs and expenses 27,805 0 27,805
-------- --------- --------
Income before income taxes and minority interest 1,895 0 1,895
Provision for income taxes 898 0 898
Minority interest in income of
consolidated subsidiaries 23 0 (3) 23
-------- --------- --------
Net income $ 974 $ 0 $ 974
======== ========= ========
Per share amounts:
Earnings per common share - basic $ 0.16 $ 0.00 $ 0.16
======= ========= ========
Earnings per common share - diluted $ 0.16 $ 0.00 $ 0.16
======= ========= ========
Weighted average common shares and equivalents outstanding 6,293 6,293 6,293
======== ========= ========
See accompanying notes
</TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA STATEMENT OF INCOME (unaudited)
FOR THE YEAR ENDED JANUARY 2, 1998
The following unaudited pro forma income statement reflects the acquisition by
Hyde International Services, Limited ("Hyde International"), a wholly-owned
subsidiary of Hyde Athletic Industries, Inc., ("Hyde"), of all the outstanding
shares of Saucony SP Pty Limited's ("Saucony Australia") capital stock (other
than those shares already owned by Hyde International), for the year ended
January 2, 1998, after giving effect to the adjustments described in the
accompanying notes.
The pro forma statement of income may not be indicative of the results of
operations which actually would have occurred had the acquisition of all of the
outstanding shares of Saucony Australia's capital stock (other than those shares
already held by Hyde International) occurred at January 3, 1997, or which may
occur in the future.
The pro forma income statement should be read in conjunction with 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 and the unaudited consolidated
financial statements of the Company included in the Company's Quarterly Report
on Form 10-Q as filed with the Securities and Exchange Commission for the
thirteen weeks ended April 3, 1998.
<TABLE>
<CAPTION>
(in thousands except per share amounts)
For the Year Ended
January 2, 1998
-------------------------------------------
Unaudited Adjustments Unaudited
Actual (Note C) Pro Forma
--------- ------------ ---------
<S> <C> <C> <C>
Net sales $ 93,611 $ 0 $ 93,611
Other income (expenses) (280) 0 (280)
--------- --------- ---------
Total revenue 93,331 0 93,331
-------- --------- --------
Costs and expenses
Cost of sales 62,171 0 62,171
Selling expenses 16,698 0 16,698
General and administrative expenses 13,412 0 13,412
Writedown of assets 850 0 850
Restructuring of Australian operations 2,766 0 2,766
Interest expense 888 0 888
-------- --------- --------
Total costs and expenses 96,785 0 96,785
-------- --------- --------
Loss from continuing operations before
income taxes and minority interest (3,454) 0 (3,454)
Provision for income taxes 495 0 495
Minority interest in income (loss) of
consolidated subsidiaries (123) 153 30
--------- --------- --------
Loss from continuing operations $ (3,826) $ (153) $ (3,979)
========= ========== =========
Per share amounts:
Earnings per common share - basic $ (0.62) $ (0.02) $ (0.64)
======== ========== =========
Earnings per common share - diluted $ (0.62) $ (0.02) $ (0.64)
======== ========== =========
Weighted average common shares and
equivalents outstanding 6,240 6,240 6,240
======== ========= ========
See accompanying notes
</TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
Note A: Summary of Significant Accounting Policies
- ----------------------------------------------------
Basis of Presentation
Effective May 13, 1998, Hyde International Services Limited ("Hyde
International"), a wholly owned subsidiary of Hyde Athletic Industries, Inc.
("Hyde"), increased its equity interest from 50% to 100% in Hyde's Australian
subsidiary, Saucony SP Pty Limited ("Saucony Australia"). Pursuant to a Share
Sale Agreement dated April 2, 1998, as more fully described in Item 2 of Hyde's
Current Report on Form 8-K, as filed with the Securities and Exchange Commission
on May 28, 1998, Hyde International acquired all of the outstanding shares of
Saucony Australia's capital stock held by Saucony Australia's minority
shareholder for nominal consideration.
The pro forma statement of income for the year ended January 2, 1998 includes
the audited consolidated statement of income of Hyde Athletic Industries, Inc.
The pro forma balance sheet and statement of income for the thirteen weeks ended
April 3, 1998 includes the unaudited consolidated financial statements of Hyde
Athletic Industries, Inc.
Note B: Adjustments to Balance Sheet
- -------------------------------------
The balance sheet as of April 3, 1998 gives effect to the following pro forma
adjustments (in thousands):
1.Reflects cash payment made on the closing date to acquire the outstanding
capital stock, payment made in consideration of amounts owed by Saucony
Australia to the minority shareholder and severance paid to the former
minority shareholder in connection with his termination as an employee.
Cash and cash equivalents $ (63)
=======
2. Record severance and stock acquisition expense
Severance and stock acquisition expense $ 63
======
There are no tax benefits expected to accrue from this transaction.
Note C: Adjustments to Statements of Income
- --------------------------------------------
The statements of income for the year ended January 2, 1998 and the thirteen
weeks ended April 3, 1998, gives effect to the following pro forma adjustments
(in thousands):
Year Thirteen Weeks
Ended Ended
January 2, 1998 April 3, 1998
--------------- -------------
3. Reflects minority shareholders'
equity in Saucony Australia's
loss which is expected to have
impact on the Registrant $ 153 $ 0
===== ====
The minority shareholders' equity investment in Saucony Australia was not
sufficient to absorb their proportionate share of the loss incurred by Saucony
Australia for the year ended January 2, 1998 and the thirteen weeks ended April
3, 1998. The pro forma adjustments represent the loss absorbed by the minority
shareholder for the respective fiscal periods.
EXHIBIT INDEX
-------------
Exhibit Number Description
- ------------------------------------
*2.1 Share Sale Agreement dated April 2, 1998 by and among Hyde
International Services Limited, Sheldon B. Pozniak and Frances F.
Pozniak.
23.1 Consent of Grant Thornton
- ---------------------
*Previously filed.
SIGNATURES
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 hereunto duly authorized.
SAUCONY, INC.
(Registrant)
Date: July 27, 1998 By: /s/ Charles A. Gottesman
----------------------------------
Charles A. Gottesman
Executive Vice President
Chief Financial Officer
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement of
Saucony, Inc. on Forms S-8 (file numbers 33-50922, 33-61532, 33-66482, 33-80726,
333-33485) of our report dated July 27, 1998, on our audits of the financial
statements and financial statement schedules of Saucony SP Pty Limited as of
January 2, 1998 and January 3, 1997 and for the years ended January 2, 1998,
January 3, 1997 and January 5, 1996 which report is included in this Amendment
to Current Report on Form 8-K/A.
GRANT THORNTON
Chartered Accountants
B.R. GORDON
Partner
Sydney, New South Wales, Australia
July 27, 1998
