SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended January 2, 1998 Commission file number: 000-05083
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 No.)
incorporation or organization)
13 Centennial Drive, Peabody, MA
01960 (Address of principal executive
offices)
Registrant's telephone number, including area code: (978) 532-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)
of the Act:
Class A Common Stock, $.33-1/3 par value
(Title of class)
Class B Common Stock, $.33-1/3 par value
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [ ]
The aggregate market value of voting and non-voting stock held by non-affiliates
of the registrant, as of March 31, 1998 was approximately $20,355,000 (based on
the last sale prices of the Class A Common Stock and Class B Common Stock on
such date as reported on the Nasdaq National Market).
The number of shares of the registrant's Class A Common Stock, $.33-1/3 par
value, and Class B Common Stock, $.33-1/3 par value, outstanding on March 31,
1998 was 2,703,227 and 3,548,087, respectively.
Portions of the following documents are incorporated by reference in this
Report.
Documents Incorporated by Reference
Document Form 10-K/A Part
Proxy Statement for Annual Meeting Part III
of Stockholders of the Registrant to
be held on May 21, 1998, to be
filed with the Securities and Exchange
Commission.
<PAGE>
PART I
ITEM 1 - BUSINESS
Hyde Athletic Industries, Inc. and its subsidiaries (together, "Hyde" or the
"Company") design, develop, manufacture and market (i) a broad line of
performance-oriented athletic shoes for adults under the Saucony(R) brand name,
(ii) high-quality bicycles and bicycle frames under the Quintana Roo(R) and
Merlin(R) names, (iii) athletic apparel under the Hind(R) brand name and (iv)
shoes for coaches and officials under the Spot-Bilt(R) name. The Company's
Saucony athletic footwear products include running, women's walking, cross
training and outdoor trail shoes. The following table sets forth the approximate
contribution to net sales (in dollars and as a percentage of net sales)
attributable to the Company's Saucony product line and other product lines for
the periods and geographic areas indicated. "Other" consists of Spot-Bilt
coaches and officials shoes, Quintana Roo bicycles and wetsuits, Hind apparel,
sales of the Company's and other products at retail factory outlets operated by
the Company and sales of other branded products at the Company's subsidiary in
Australia.
<TABLE>
<CAPTION>
Net Sales (1)
(dollars in thousands)
Fiscal 1997 Fiscal 1996 Fiscal 1995
Sales Sales Co. Sales Sales Co. Sales Sales Co.
$ % % $ % % $ % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Saucony
Domestic $ 56,050 71% $ 54,445 69% $ 47,040 67%
International 22,580 29% 24,366 31% 23,628 33%
-------- ----- --------- ------ --------- ------
Total $ 78,630 100% 84% $ 78,811 100% 86% $ 70,668 100% 90%
-------- ----- --------- ------ --------- ------
Other
Domestic $ 9,552 64% $ 5,791 46% $ 4,021 51%
International 5,429 36% 6,739 54% 3,860 49%
-------- ----- --------- ------ --------- ------
Total $ 14,981 100% 16% $ 12,530 100% 14% $ 7,881 100% 10%
-------- ----- ------ --------- ------ ------ --------- ------ ------
Grand Total $ 93,611 100% $ 91,341 100% $ 78,549 100%
======== ====== ========= ====== ========= ======
(1) Excludes the results of operations of Brookfield Athletic Co., Inc.,
substantially all of the assets of which were sold by the Company in July
1997.
</TABLE>
RECENT DEVELOPMENTS
There were a number of developments affecting the Company during 1997 and the
first quarter of 1998. During the second quarter of 1997, the Company commenced
delivery of its Hind apparel to customers. In July 1997, the Company received
proceeds of $6,841,000 in connection with the sale of substantially all of the
assets of its Brookfield Athletic subsidiary. In February 1998, the Company
purchased substantially all of the assets of Merlin Materials, Inc., a
high-quality manufacturer of titanium bicycle frames. Together with the
Company's Quintana Roo subsidiary, Merlin is expected to provide growth
opportunities as the Company expands its line of high-performance athletic
products.
During the fourth quarter of fiscal 1997, the financial position of the
Company's Australian subsidiary deteriorated significantly. Principal factors
affecting the operating results and financial position of this subsidiary
included: lower sales of Saucony brand products, excess inventories which were
liquidated in the fourth quarter of 1997, a significant devaluation of the
Australian currency, a reduction in net sales of non-Saucony products due to the
discontinuance of distribution rights in Australia of another brand of athletic
footwear and too high a level of administrative overhead in light of the lower
levels of net sales.
<PAGE>
As a consequence of the deterioration in the Australian subsidiary's financial
position, the Company recorded a non-recurring charge of $2,766,000 (or $0.45
per diluted share) in the fourth quarter of fiscal 1997, of which $1,340,000 is
included in cost of sales. In March 1998, the Company entered into an agreement
with its joint venture partners in its Australian subsidiary pursuant to which
the Company will acquire all of the proprietary interests of such partners in
the subsidiary for nominal consideration and the employment of the managing
director of such subsidiary will be terminated. The Company expects the closing
to occur pursuant to such agreement by no later than May 1, 1998. The Company is
in the process of reassessing its operations in Australia and intends to
identify a qualified distributor(s) to assume responsibility for Saucony
products and/or liquidate the assets of Saucony S.P. Pty.
Ltd. during 1998.
Saucony Brand. The Company sells performance running, walking, cross training,
and outdoor trail shoes for athletes under the Saucony brand name, which has
been marketed in the United States for over 30 years. The Company assembles most
of its Saucony footwear sold in the United States at its manufacturing facility
in Bangor, Maine, largely with components sourced from independent manufacturers
located overseas. The Company believes that assembly at its Bangor facility
assists in timely and flexible product delivery in the domestic market.
According to ASD/Target Research, Inc., an independent market research
organization ("ASD/Target Research"), the Company ranked sixth in sales of
running shoes in the United States during 1997. In addition, according to
ASD/Target Research, the Company's market share of running shoes sold in the
United States was 4.0% in 1997. The Company believes that a high percentage of
purchasers of Saucony brand footwear buy such products for athletic uses and
that such consumers have greater brand loyalty than athletic shoe purchasers who
buy for casual wear purposes. The Company has several product offerings within
each of the Saucony brand categories. These offerings have different designs and
features, resulting in different cushioning, stability, support characteristics
and prices.
The Company builds its Saucony shoes with a high level of technological
performance characteristics to appeal to athletic users. As a result of the
Company's application of biomechanical technology in the design process, the
Company believes that its Saucony shoes have a distinctive "fit and feel" that
is attractive to athletic users. A key element in the design of Saucony shoes is
an anatomically correct toe and heel configuration that provides support and
comfort throughout the human gait cycle for the particular activity for which
the shoe is designed.
Most of the Company's top-of-the-line running and other athletic shoes
incorporate the Company's GRID System, an innovative midsole system that employs
molded strings engineered to create a feeling similar to that of the "sweet
spot" of a tennis racquet. In contrast with conventional athletic shoe midsoles,
the GRID System is designed to react to various stress forces differently and
thereby simultaneously to maximize shock absorption and minimize rear foot
motion.
The Company designs and markets separate lines for men and women within most
Saucony product categories. The Company currently sells approximately the same
percentage of Saucony shoes to men and women. The suggested domestic retail
prices for most Saucony footwear products are in the range of $50 to $85 per
pair, with the Company's top-of-the-line running shoes having suggested domestic
retail prices of up to $110 per pair.
The Company designs its Saucony cross training, women's walking and outdoor
trail shoes with many of the same performance features and "fit and feel"
characteristics as are found in Saucony running shoes. Currently, the Company's
most popular non-running athletic shoe is a women's performance walking shoe.
The Company believes that a line of athletic apparel bearing the Saucony name is
supportive of its athletic footwear products and enhances the visibility of the
Saucony brand. Saucony markets apparel under both the Dave Scott and Saucony
labels. These products carry the same commitment to quality and performance as
the Company's footwear line. The Dave Scott line is an upscale multi-sport and
triathlon collection, while the Saucony apparel line is targeted at the
mainstream running consumer.
<PAGE>
OTHER PRODUCTS
Hind. In the fourth quarter of 1996, the Company purchased trademarks and
related intellectual property from Hind, Inc. ("Hind"), a performance athletic
apparel company. The Company began delivery of its Hind apparel products to the
retail trade in the second quarter of 1997.
Quintana Roo. The Company manufactures and distributes the Quintana Roo line of
triathlon bicycles, road bicycles, mountain bicycles and wet suits through
high-end bicycle stores and sporting goods stores geared to triathletes.
Merlin. In February 1998, the Company acquired the assets of Merlin Materials,
Inc., a high performance manufacturer of titanium bicycle frames. The Company is
marketing titanium bicycle frames under the Merlin trademark.
Spot-Bilt Brand. The Company offers Spot-Bilt shoes for coaches and officials
through the distribution channels for its Saucony brand shoes. In addition, the
Company has licensed the Spot-Bilt name to a third party that distributes youth
team field sport shoes under this name.
Factory Outlet Stores. The Company operates five retail factory outlet stores.
To avoid competing against its customers' retail outlets, the Company generally
limits the products offered at these stores to products with cosmetic defects,
products which have been discontinued and certain slow-moving products. The
Company sells Saucony, Hind, Spot-Bilt and Quintana Roo products at these
outlets, as well as athletic accessory goods of third parties.
PRODUCT DEVELOPMENT
The Company believes that the technical performance (i.e., comfort, support and
stability experienced by the athlete) of its Saucony footwear is important to
purchasers of its products. The Company uses consulting services of such
professionals as podiatrists, orthopedists, athletes, trainers and coaches as
part of its Saucony product development program. The Company maintains a staff
of 20 persons located in Peabody, Massachusetts to undertake continuing product
development and design. Product development work also is performed for the
Company by its suppliers at their overseas facilities. During the years ended
January 2, 1998, January 3, 1997 and January 5, 1996, the Company expended
$1,513,000, $1,417,000 and $1,438,000, respectively, in connection with its
product development programs, most of which related to Saucony products.
SALES AND MARKETING
Saucony Brand. The Company's Saucony athletic footwear products are sold at more
than 5,000 retail outlets in the United States, primarily higher-end,
full-margin sporting goods chains, independent sporting goods stores, athletic
footwear specialty stores and department stores. Retail outlets include Foot
Locker/Lady Foot Locker, Athlete's Foot, The Sports Authority, Road Runner's
Sport, Sport Mart and Just For Feet. The Company maintains a corporate sales
team that is directly responsible for the sales activity in its largest 50
accounts. The Company also sells its footwear and apparel in the United States
through 13 independent manufacturer agents whose organizations employ
approximately 44 sales representatives.
The Company also maintains a field sales management team to supervise, direct
and evaluate the 44 sales representatives. The Company uses certain
state-of-the-art multi-media presentations for sales and marketing initiatives.
The Company's Website (saucony.com) receives thousands of hits weekly from
consumers looking for new product profiles, race and event data, as well as
general Saucony information.
<PAGE>
The Company sells its Saucony products outside the United States in 34 countries
through 19 distributors located throughout the world, including joint venture
subsidiaries in which the Company holds controlling interests located in
Australia and Canada and through the Company's subsidiary located in the
Netherlands (which holds the distribution rights to the Company's Saucony
products in the Benelux countries) and a branch office in the United Kingdom. In
1994, the Company formed a German subsidiary, Saucony Deutschland Vertriebs
GmbH, to provide additional sales and marketing support in Europe and to
undertake sales and marketing of Saucony products in Germany. The primary
overseas markets for the Company's Saucony products are in Western Europe.
To accommodate its customers' requirements and plan for its own product needs,
the Company employs a futures orders program for its Saucony products under
which the Company takes orders well in advance of the selling season for a
particular product and commits to ship the product to the customer in time for
the selling season. The Company affords customers price discounts and extended
payment terms in respect of such advance orders. The Company generally requires
payment at the time that the selling season ends, which increases the Company's
working capital requirements.
Saucony engages in various advertising and promotional programs. The main media
vehicles used are magazines and television. The Company employs many sports
marketing initiatives to drive brand awareness and imagery to athletes. Examples
include Saucony running and racing seen monthly on ESPN, as well as sponsorship
of the L.A. Marathon and Chase Corporate Challenge race series. To build
in-store presence, the Company uses account-specific and in-store promotions,
such as athlete appearances, special events, gift with purchase programs and
employee cost programs.
Although most of the Company's advertising and promotional programs for its
Saucony brand are directed towards ultimate consumers, the Company promotes
these products to the trade through attendance at trade shows and similar
events. The Company employs an advertising program under which it reimburses
participating retailers for a portion of the costs incurred by such retailers in
advertising the Company's Saucony products.
The Company's advertising of non-Saucony products includes advertisements in
magazines and product promotion through attendance at trade shows and similar
events.
Backlog; Seasonality; Distribution. The Company's backlog of unfilled orders was
approximately $42.0 million at January 2, 1998 and $39.7 million at January 3,
1997. The Company expects that all of its backlog at January 2, 1998 will be
shipped in fiscal 1998. While the Company has not generally experienced material
cancellations of orders, orders may be cancelled by customers without financial
penalty, and backlog does not necessarily represent actual future shipments.
The Company is subject to seasonality in its product sales because of the
different selling seasons for various products. The Company's first three fiscal
quarters are often stronger than the last fiscal quarter due to Saucony product
introductions in January and July and spring sales associated with warmer
weather in the Company's principal markets. The Company distributes its Saucony
and Hind products through its warehouses in Peabody, Massachusetts as well as
through independent warehouse facilities located throughout the world. The
Company distributes its Quintana Roo products through its leased warehouse in
San Marcos, California.
For information about the Company's foreign operations and export sales, see
Note 15 of Notes to Consolidated Financial Statements.
MANUFACTURING
The Company assembles most of its domestically sold Saucony footwear at the
Company's manufacturing facility in Bangor, Maine, largely with components
sourced from independent manufacturers located overseas. Independent overseas
manufacturers produce the balance of the Company's Saucony products and all of
the Company's Spot-Bilt products. Quintana Roo and Merlin products are
manufactured by the Company in San Marcos, California and Cambridge,
Massachusetts, respectively. Hind outsources the manufacturing of all its
products.
The overseas manufacturers that supply products and product components to the
Company are located in the Far East, primarily in China, but also in Taiwan and
Thailand. The Company seeks to develop additional overseas manufacturing sources
from time to time, both to increase its sourcing capacity and to obtain
alternative sources of supply. All products and components produced by foreign
suppliers are manufactured in accordance with product specifications furnished
by the Company. The Company carefully monitors foreign manufacturing operations
and imported products and components to assure compliance with the Company's
design, production and quality requirements.
The number of foreign suppliers and the percentage of the Company's total
foreign production requirements produced by each such supplier vary from time to
time. During fiscal 1997, the Company purchased products from 20 overseas
suppliers. One of such suppliers, located in China, accounted for approximately
41% of the Company's total overseas purchases by dollar volume.
The Company is subject to the usual risks of a business involving foreign
suppliers, such as government regulation of fund transfers, export and import
duties and political and labor instability. The Company has not been materially
affected by any of these factors to date. Substantially all purchases from
foreign suppliers to date have been denominated in United States dollars in
order to reduce the Company's risk from currency fluctuations.
Although the Company has no long-term manufacturing agreements with its overseas
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, management believes that the Company's relationships
with its footwear and other suppliers are strong and that it has the ability to
develop, over time, alternative sources in various countries for footwear,
footwear components and other products obtained from its current suppliers.
However, in the event of a supply interruption, the Company's operations could
be materially and adversely affected if a substantial delay occurred in locating
and obtaining alternative sources of supply.
Raw materials required for the manufacture of the Company's products, including
leather, rubber, nylon, titanium, aluminum and other fabrics, are generally
available in the country in which the products are manufactured. The Company and
its suppliers have not experienced any difficulty in satisfying their raw
material needs to date.
TRADE POLICY
The Company's practice of sourcing products and components overseas, with
subsequent importation into the United States, exposes it to possible product
supply disruptions and increased costs in the event of actions by United States
or foreign government agencies adverse to continued trade or the enactment of
legislation that restricts trade. For example, on February 2, 1997, the United
States and China reached an agreement on a four-year textile pact that generally
extends current quota arrangements in Chinese textile and apparel exports to the
United States, but reduces quotas on three occasions -- most recently in
September, 1996 when the United States imposed triple charges for illegally
transshipped merchandise (excluding footwear). China's compliance with the
current textiles agreement is under review by U.S. trade officials.
In addition, Company imports a significant amount of its products and product
components from China. The United States provides China with most-favored-nation
("MFN") status, allowing China to receive the same tariff treatment that the
United States extends to its "most favored" trading partners. Notwithstanding
this current policy, Congress could seek to revoke MFN for China or condition
its renewal on factors such as China's human rights record. Recently, there has
been heightened scrutiny of extending MFN for China in light of certain
allegations that Chinese nationals may have sought to improperly or illegally
influence members of the Administration or Congress through political
contributions. In addition, there has been increasing concern in Congress with
regard to the growing U.S. trade deficit with China.
The administration of existing U.S. trade laws can also create adverse
consequences for trade with the Company's suppliers. In particular, under
Section 301 of the Trade Act of 1974, as well as "Special 301" and "Super 301,"
the Office of the United States Trade Representative ("USTR") can retaliate
against certain unfair foreign trading practices. For example, in early 1995
such retaliation almost occurred against China in a Special 301 investigation of
China's intellectual property regime. However, on February 26, 1995, the United
States and China reached an agreement in this Special 301 investigation,
avoiding the scheduled imposition of increased tariffs by the United States on
certain products imported from China, including certain footwear products. This
bilateral agreement has extensive compliance features, and China's compliance
with this agreement is currently under review by U.S. trade officials. On May
15, 1996, based on monitoring carried out under Section 306(a) of the Trade Act
of 1974, as amended, the United States considered that China was not
satisfactorily implementing the February 26, 1995 agreement, and proposed to
impose prohibitive tariffs on certain products from China, including certain
textile and apparel, but excluding footwear. Additionally, to prevent import
surges, USTR directed Customs to limit exports of certain textile products by
their date of entry. On June 17, 1996, USTR announced that, based on measures
that China has taken and will take in the future to implement key elements of
the 1995 agreement, the proposed sanctions would not be imposed. On April 30,
1997, the USTR reported that significant progress had occurred in China in late
1996 and early 1997. The Company is unable to predict whether USTR may decide in
the future to impose sanctions or take other actions against China under this
agreement. Also, U.S./ China trade relations, especially with respect to China's
efforts to accede to the World Trade Organization, have been contentious in the
recent past, and the Company cannot predict whether this tension will interfere
with the ability of the Company to import products from China in the future.
In addition, USTR has identified certain of the Asian countries in which the
Company's suppliers are located as having various foreign trade barriers. As a
result of these or other unfair trade practices as identified by USTR, such
countries could be subject to possible retaliation by the United States under
Super or regular Section 301 authority.
The Company is unable to predict whether additional U.S. customs duties, quotas
or other restrictions may be imposed in the future upon the importation of its
products and/or components as a result of any of the matters discussed above, or
because of similar U.S. or foreign government actions. In addition, the
Company's imports into the United States, the European Union or elsewhere could
be subjected to antidumping duties if an antidumping order that covered the
Company's products were issued in such countries or regions. Such action could
result in increases in the costs of imported footwear, footwear components or
other Company products generally, or limitations on the Company's ability to
import footwear, footwear components or such other products into the United
States. Such occurrences might adversely affect the sales or profitability of
the Company, possibly materially.
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 competitors are large organizations with diversified product
lines, well-known brands and financial 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. The Company believes that the key competitive factors as to its
products are styling, durability, technical performance, product identification
through promotion, brand awareness and price. Customer support services and
E.D.I. (Electronic Data Interchange) are also important competitive factors. The
Company believes that it is competitive in all of these areas.
<PAGE>
TRADEMARKS
The Company utilizes trademarks on nearly all of its products and believes that
having distinctive marks is an important factor in marketing its goods. The
Company has federally registered its Saucony(R), Spot-Bilt(R), Hyde(R),
G.R.I.D.(R), Quintana Roo(R), Merlin(R) and Hind(R) marks, among others. The
Company has also registered some of these marks in a number of foreign
countries, including countries in Europe, the Far East, and North, Central and
South America. Although the Company has a foreign trademark registration program
for selected marks, no assurance can be given that it will be able to register
or use such marks in each foreign country in which registration is sought.
EMPLOYEES
At January 2, 1998, the Company employed approximately 442 people worldwide, of
whom approximately 142 worked at the Company's manufacturing plant in Bangor,
Maine, approximately 28 worked in the Company's Peabody, Massachusetts
warehouse, approximately 29 were sales and marketing personnel, approximately 33
were executive and finance personnel, approximately 20 were product development
and design personnel and the remainder were involved in various other aspects of
the Company's business. Eighty-five of the Company's employees work at foreign
locations. The Company believes that its employee relations are excellent. The
Company has never experienced a strike or other work stoppage. Approximately 20
employees in the Company's Peabody warehouse were represented by a union at
January 2, 1998. None of the Company's other employees is represented by a union
or subject to a collective bargaining agreement.
ITEM 2 - PROPERTIES
The Company's general and executive offices and its main distribution facility
are located in Peabody, Massachusetts, and are owned by the Company. This
facility consists of approximately 175,000 square feet, of which 145,000 square
feet is warehouse space.
The Company owns a factory in Bangor, Maine, containing approximately 82,000
square feet of space, substantially all of which is used for the manufacture of
the Company's Saucony running shoes, mostly with imported components. The
Company also owns a retail store in Bangor, containing approximately 3,000
square feet of space, and a warehouse in East Brookfield, Massachusetts,
containing approximately 100,000 square feet.
The Company's Quintana Roo subsidiary leases approximately 15,000 square feet of
manufacturing office space in San Marcos, California. The Company's Merlin
division leases 13,600 square feet of manufacturing and office space in
Cambridge, Massachusetts.
ITEM 3 - LEGAL PROCEEDINGS
The Company is involved in routine litigation incident to its business. In
management's opinion, none of these proceedings will have a material adverse
effect on the Company's financial position, operations or cash flows.
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
Executive Officers Of The Registrant
The executive officers of the Company are as follows:
Name Age Position
John H. Fisher 50 President, Chief Executive Officer
and Director
Charles A. Gottesman 47 Executive Vice President,
Chief Operating Officer, Treasurer
and Director
Wolfgang Schweim 45 President, Saucony International
Arthur E. Rogers, Jr. 35 President, Saucony North America
Roger P. Deschenes 39 Vice President, Controller and
Chief Accounting Officer
Kenneth W. Graham 44 Senior Vice President,
Research & Development/Textiles
Daniel J. Horgan 42 Vice President, Operations
Andrew M. James 41 Vice President, MIS
John H. Fisher has served as Chief Executive Officer of the Company since 1991.
He was elected President and Chief Operating Officer in 1985 after having served
as Executive Vice President from 1981 to 1985 and as Vice President, Sales from
1979 and 1981. Mr. Fisher is a member of the World Federation of Sporting Goods
Industries, is the former Chairman of the Athletic Footwear Council of the
Sporting Goods Manufacturers Association, and is a member of various civic
associations. Mr. Fisher became a director in 1980.
Charles A. Gottesman has served as Executive Vice President and Chief Operating
Officer of the Company since 1992, and served as Executive Vice President,
Finance from 1989 to 1992, Senior Vice President from 1987 to 1989, Vice
President from 1985 to 1987, and Treasurer since 1983. Mr. Gottesman became a
director in 1983 and is the brother-in-law of John H. Fisher.
<PAGE>
Wolfgang Schweim became the President of Saucony International in January 1998
after serving as President of the Company's athletic footwear division from June
1994 to January 1998. From 1993 to 1994, Mr. Schweim served as Managing Director
for Saucony Europe. From 1989 to 1993, Mr. Schweim was the German Managing
Director and Marketing Sales Manager for Europe at Asics, an athletic shoe
manufacturer. Prior to 1989, Mr. Schweim worked in sales and marketing positions
with Nike International, Le Coq Sportif and Adidas AG.
Arthur E. Rogers, Jr. became the President of Saucony North America in January
1998. Mr. Rogers re-joined the Company as Senior Director of Global Marketing in
1994, having previously served as Brand Manager from 1990 - 1992. Most recently,
Mr. Rogers has been the Vice President of North American Sales and Worldwide
Marketing. Prior to joining the Company, Mr. Rogers held various sales and
marketing positions at Proctor & Gamble as well as Converse Shoe, Inc., an
athletic shoe company.
Roger P. Deschenes has served as Vice President, Controller since August 1997,
after having served as Controller and Chief Accounting Officer from October 1995
to August 1997. Mr. Deschenes joined the Company in 1990 as Corporate Accounting
Manager. He was employed at Allen-Bradley, a manufacturing company and
subsidiary of Rockwell International, Corp., from 1987 to 1990 as Financial and
Cost Reporting Supervisor. Mr. Deschenes is a Certified Management Accountant.
Kenneth W. Graham became Senior Vice President of Research and
Development/Textiles in January 1998 after serving as Senior Vice President of
Research and Development/Manufacturing since 1996. Prior to that Mr. Graham
served as Vice President of Research and Development/Manufacturing. Mr. Graham
joined the Company in 1984 and has served as Manager and Vice President of
Research and Development. Prior to joining the Company, Mr. Graham worked for
seven years with New Balance Athletic Shoe, Inc.
Daniel J. Horgan became Vice President of Operations in September 1995 after
serving as Senior Director of Operations from September 1994 to September 1995.
Mr. Horgan joined the Company in 1982 as Manager of Import and Export
Operations, served as Product Procurement and Distribution Manager from 1985 to
1988, Manager of Production from 1988 to 1992, and Director of International
Trade for the Company from 1992 to 1994.
Andrew M. James joined the Company in February 1984. He has served the Company
as Accounting Manager (1984 - 1988), Assistant Controller (1989 - 1993), Senior
Director of Information Systems (1994 - 1997) and most recently as Vice
President, MIS. Mr. James holds advanced degrees from Washington University
(MBA) and Bentley College (MS).
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock and Class B Common Stock trade on the Nasdaq
National Market under the symbols "HYDEA" and "HYDEB," respectively. The
following table sets forth, for the periods indicated, the actual high and low
sales prices per share of the Class A Common Stock and the Class B Common Stock
as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
High Low High Low
<S> <C> <C> <C> <C>
Fiscal Year ended January 2, 1998
First Quarter $ 5-1/4 $ 4-3/8 $ 5-3/8 $ 4-3/8
Second Quarter 5-3/8 4-1/2 5-1/4 4-1/2
Third Quarter 5 3-7/8 5-1/8 4
Fourth Quarter 5-1/8 3-5/8 5-1/8 3-3/8
Fiscal Year ended January 3, 1997
First Quarter $ 4-3/8 $ 3-5/8 $ 4-1/4 $ 3-3/16
Second Quarter 6-3/4 3-5/8 5-13/16 3-1/4
Third Quarter 6-1/2 4-1/2 5-15/16 4-3/4
Fourth Quarter 5-1/2 4-3/8 5-1/2 4-1/2
</TABLE>
There were 375 and 354 stockholders of record of the Class A Common Stock and
Class B Common Stock, respectively, on March 17, 1998.
The Company does not anticipate paying any cash dividends in the foreseeable
future on the shares of Class A Common Stock or Class B Common Stock. The
Company currently intends to retain future earnings to fund the development and
growth of its business. The Company's note agreement with an insurance company
contains certain covenants restricting the cash dividends which may be paid by
the Company. As of January 2, 1998, approximately $11,055,000 was available for
payment of cash dividends under the terms of these covenants. Additionally, the
Company's credit facility agreement with two banks further restricts the payment
or declaration of any dividend or other distributions to stockholders, in money
or property, except in shares of its own Common Stock. Each share of Class B
Common Stock is entitled to a regular cash dividend equal to 110% of the regular
cash dividend, if any, payable on a share of Class A Common Stock.
<PAGE>
<TABLE>
ITEM 6 - SELECTED FINANCIAL DATA
Selected Income Statement Data (in thousands; per share amounts in dollars)
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Jan. 2, Jan. 3, Jan. 5, Dec. 30, Dec. 31,
1998 1997 1996 1994 1993
<S> <C> <C> <C> <C> <C>
Net sales $ 93,611 $91,341 $78,549 $ 83,055 $ 84,482
Income (loss) from operations (1,935) 2,345 228 3,244 8,831
Minority interest in income (loss) of
consolidated subsidiaries (123) 308 (286) 9 (47)
Income (loss) from continuing operations (4,032) 1,349 522 2,086 4,727
Income (loss) from discontinued operations (1)
Income (loss) from discontinued operations (394) (243) 863 851 (119)
Gain on disposal of Brookfield business 96 0 0 0 0
Net income (loss) (4,330) 1,106 1,385 2,937 4,608
Earnings per common share - basic (2)
Income (loss) from continuing operations $ (0.65) $ 0.22 $ 0.08 $ 0.32 $ 0.78
Income (loss) from discontinued operations (0.05) (0.04) 0.14 0.14 (0.02)
---------- --------- ------- ------- ----------
Net income (loss) per common share - basic $ (0.70) $ 0.18 $ 0.22 $ 0.46 $ 0.76
========== ======== ======= ======= =========
Earnings per common share - diluted (2)
Income (loss) from continuing operations $ (0.65) $ 0.22 $ 0.08 $ 0.32 $ 0.78
Income (loss) from discontinued operations (0.05) (0.04) 0.14 0.14 (0.02)
---------- --------- ------- ------- ----------
Net income (loss) per common share - diluted $ (0.70) $ 0.18 $ 0.22 $ 0.46 $ 0.76
========== ======== ======= ======= =========
Weighted average common shares and
equivalents outstanding (2) 6,240 6,268 6,244 6,446 6,057
Cash dividends per share of common stock -- -- -- -- --
Selected Balance Sheet Data
Jan. 2, Jan. 3, Jan. 5, Dec. 30, Dec. 31,
1998 1997 1996 1994 1993
Current assets $ 50,239 $58,132 $58,984 $ 61,621 $ 58,121
Current liabilities 13,315 13,963 14,728 15,657 13,372
Working capital 36,924 44,169 44,256 45,964 44,749
Total assets 61,316 70,752 69,265 77,082 73,693
Long-term debt 771 4,893 4,205 11,922 12,942
Stockholders' equity 45,072 49,484 48,160 46,754 44,709
- ---------------------------
(1) See Note 13 of the Notes to Consolidated Financial Statements regarding
discontinued operations.
(2) See Notes 1 and 11 of the Notes to Consolidated Financial Statements
regarding the adoption of Statement of Financial Accounting Standards 128
(SFAS 128). SFAS 128 requires the restatement of all previously reported
per share amounts.
(3) See Note 21 of the Notes to Consolidated Financial Statements
discussing the accounting restatements.
</TABLE>
<PAGE>
This Annual Report on Form 10-K contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forwarding-looking statements.
These factors include, without limitation, those set forth below under the
caption "Certain Factors That May Affect Future Results."
FISCAL 1997 COMPARED TO FISCAL 1996
The Company had a net loss of $4,330,000, or $0.70 per diluted share, in fiscal
1997 as compared to net income of $1,106,000, or $0.18 per diluted share, in
fiscal 1996. The Company had a loss from continuing operations of $4,032,000, or
$0.65 per diluted share, in fiscal 1997 as compared to income from continuing
operations of $1,349,000, or $0.22 per diluted share, in fiscal 1996. The
Company had a loss from discontinued operations of $298,000, or $0.05 per
diluted share, in fiscal 1997 as compared to loss from discontinued operations
of $243,000, or $0.04 per diluted share, in fiscal 1996.
The loss from continuing operations realized in fiscal 1997 was due primarily to
the Company's Australian subsidiary (Saucony S.P. Pty. Ltd.) and management's
decision to pursue alternatives to Company-owned marketing and distribution in
that country. Net losses from ongoing Australian business totaled $1,419,000,
with additional reserves of $2,766,000 recorded in the fourth quarter of fiscal
1997 covering inventory, accounts receivable, prepaid expenses, plant and
equipment and deferred charges. Additionally, the Company recorded a deferred
tax valuation allowance of $999,000 related to loss carryforwards that are not
expected to be realized.
The following sets forth fiscal 1997 quarterly statement of earnings for Saucony
S.P. Pty. Ltd. (in thousands):
<TABLE>
<CAPTION>
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year
---------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net sales
Saucony brand $ 1,488 $ 1,404 $ 1,962 $ 1,716 $ 6,570
Other brands 2,080 1,303 666 451 4,500
--------- --------- --------- --------- ---------
Total net sales 3,568 2,707 2,628 2,167 11,070
========= ========= ========= ========= =========
Cost of sales
Cost of sales 2,503 2,262 2,047 2,082 8,894
Inventory writedown -- -- -- 1,340 1,340
--------- --------- --------- --------- ---------
Total cost of sales 2,503 2,262 2,047 3,422 10,234
--------- --------- --------- --------- ---------
Gross profit 1,065 445 581 (1,255) 836
Selling, general and
administrative expenses 901 917 790 876 3,484
Writedown of assets -- -- -- 1,426 1,426
--------- --------- --------- --------- ---------
Operating income (loss) 164 (472) (209) (3,557) (4,074)
Non-operating income (expense)
Interest, net (94) (143) (101) (72) (410)
Foreign currency (88) (19) (117) (660) (884)
Other 17 15 59 55 146
--------- --------- --------- --------- ---------
Loss before tax and minority interest (1) (619) (368) (4,234) (5,222)
Income tax benefit -- (223) (157) (504) (884)
Tax valuation allowance -- -- -- 999 999
Minority interest -- (198) 42 3 (153)
--------- ---------- --------- --------- ----------
Net loss $ (1) $ (198) $ (253) $ (4,732) $ (5,184)
========== ========== ========== ========== ==========
</TABLE>
During 1997, operating losses at Saucony S.P. Pty. Ltd. worsened as a result of
factors impacting both the overall footwear industry and Saucony S.P. Pty. Ltd.
specifically. In Australia and throughout the Pacific Rim, industry conditions
were characterized by an over-supply of product with weak consumer demand and
intense market competition. At the end of June 1997, Saucony S.P. Pty. Ltd. also
lost distribution rights to a major line of athletic apparel which added to a
higher level of administrative overhead in light of lower levels of net sales.
Full year 1997, net sales of Saucony brand and other brands declined 13.7% and
26.1%, respectively, compared to 1996.
Despite efforts during the third and fourth quarter of 1997 and working capital
containment, losses continued to mount. Additional efforts to secure
distribution rights for other key brands were unsuccessful over this period, and
in the fourth quarter of 1997, the 12.1% depreciation of the Australian dollar
resulted in $660,000 of exchange losses at Saucony S.P. Pty. Ltd. Faced with
mounting losses and an uncertain business environment, management decided in
early 1998 to withdraw from Company-owned operations in Australia as soon as
practical. The Company intends to identify a qualified distributor(s) to assume
responsibility for Saucony products and/or liquidate the assets of Saucony S.P.
Pty. Ltd. during 1998.
The Company's net sales increased 3% to $93,611,000 in fiscal 1997 from
$91,341,000 in fiscal 1996. Net sales of the Company's Saucony products
decreased .2% to $78,630,000 in fiscal 1997 from $78,811,000 in fiscal 1996, due
primarily to decreased footwear unit volume and unfavorable currency exchange.
Saucony domestic net sales increased 3% to $56,050,000 in fiscal 1997 from
$54,445,000 in fiscal 1996, primarily due to higher selling prices of the
Company's recently introduced products, and, to a lesser extent, increased unit
volume. Saucony foreign net sales decreased 7% to $22,580,000 in fiscal 1997
from $24,366,000 in fiscal 1996, due primarily to decreased footwear unit volume
and, to a lesser extent, unfavorable currency exchange, offset in part by
increased apparel sales.
Net sales of other products increased 20% to $14,981,000 in fiscal 1997 from
$12,530,000 in fiscal 1996, due to increased sales by the Company's wholly-owned
subsidiary, Quintana Roo, Inc. (Quintana Roo), and sales of Hind apparel, which
were offset to some extent by decreased sales of non-corporate brand products by
the Company's Australian subsidiary. The Company acquired trademarks and related
intellectual property from Hind, Inc. in December 1996 and began to ship Hind
products in the second quarter of 1997.
Other revenue decreased 35% to $351,000 in fiscal 1997 from $538,000 in fiscal
1996 due primarily to decreased royalty income and decreased shipment freight
and handling revenue.
The Company's gross profit increased 2% to $30,100,000 in fiscal 1997 from
$29,649,000 in fiscal 1996. The Company's gross margin decreased to 32.2% in
fiscal 1997 from 32.5% in fiscal 1996, due primarily to a significant decline in
gross margin realized by the Company's Australian subsidiary during the fourth
fiscal quarter of 1997 which was unfavorably impacted by increased sales of
non-current models and the inventory writedown, of $1,340,000, to estimated
realizable value. The margin decrease in Australia was partially offset by
increased margin for Saucony products, exclusive of Australia. The gross margin
for Saucony products in fiscal 1996 reflected a significant level of unit volume
of slow-moving, non-current models and lower-margin special make-up footwear.
These factors, and, to a lesser extent, decreased freight costs and reduced
manufacturing costs in fiscal 1997, primarily accounted for gross margin
increase for Saucony products, exclusive of Australia, in fiscal 1997.
Selling, general and administrative expenses increased to $30,110,000, or 32.2%
of net sales, in fiscal 1997 from $27,842,000, or 30.5% of net sales, in fiscal
1996. Advertising and promotion expenses decreased $200,000 in fiscal 1997 due
primarily to decreased Saucony domestic television and media advertising and
reduced spending by the Company's foreign subsidiaries, offset in part by
increased account specific promotions. Selling expenses increased $833,000 in
fiscal 1997 due to increased payroll costs and selling and marketing expenses
related to the introduction of Hind apparel and to increases in domestic and
foreign sales staffs. General and administrative expenses increased $1,635,000
in fiscal 1997 due to increased costs related to the Company's upgraded
information system, increased professional fees, higher domestic payroll costs,
increased provisions for doubtful debts and increased administrative costs
attributable to the introduction of Hind apparel and continued expansion of
Quintana Roo's infrastructure.
The Company recorded a non-recurring charge of $850,000 ($508,000 after tax or
$0.08 per diluted share ) in fiscal 1997 to reduce the carrying value of the
Company's inactive distribution facility in East Brookfield, Massachusetts to
market.
Interest expense increased 12% to $817,000 in fiscal 1997 from $730,000 in
fiscal 1996 due to increased borrowings on the Company's demand credit facility
and increased asset-based borrowing. Increased working capital requirements
caused the Company's borrowing in the first half of fiscal 1997 to substantially
exceed its borrowings in the second half of the year. The Company used a portion
of the $6,841,000 received in the second half of fiscal 1997 from the July 4,
1997 sale of substantially all of the assets of the Company's Brookfield
subsidiary to pay down the borrowings.
Foreign currency transaction losses amounted to $1,127,000 in fiscal 1997 as
compared to net gains of $171,000 in fiscal 1996, reflecting increased losses on
U.S. dollar denominated obligations held by certain of the Company's foreign
subsidiaries in fiscal 1997.
The provision for income taxes increased to $355,000 in fiscal 1997 from
$325,000 in fiscal 1996, due to the deferred tax valuation allowance recorded in
fiscal 1997 relating to foreign net operating loss carryforwards that are not
expected to be realized. The effective tax rate decreased by 7.1% to 9.3% in
fiscal 1997 from 16.4% in fiscal 1996 due primarily to recording the deferred
tax valuation allowance in fiscal 1997 and from a shift in the composition of
foreign and domestic pre-tax profits and losses.
FISCAL 1996 COMPARED TO FISCAL 1995
The Company's net income decreased by 20% to $1,106,000, or $0.18 per diluted
share, in fiscal 1996 as compared to $1,385,000, or $0.22 per diluted share, in
fiscal 1995. Income from continuing operations increased 58% to $1,349,000, or
$0.22 per diluted share, in fiscal 1996 from $522,000, or $0.08 per diluted
share, in fiscal 1995. Income from discontinued operations decreased to a loss
of $243,000, or $0.04 per diluted share, in fiscal 1996 from $863,000, or $0.14
per diluted share, in fiscal 1995.
The Company's net sales increased 16% to $91,341,000 in fiscal 1996 from
$78,549,000 in fiscal 1995. Net sales of the Company's Saucony products
increased 12% to $78,811,000 in fiscal 1996 from $70,668,000 in fiscal 1995 due
primarily to higher selling prices and, to a lesser extent, increased unit
shipment volume. The Company believes that the increase resulted from technical
and cosmetic improvements to its Saucony products in 1996. Saucony domestic net
sales increased 16% to $54,445,000 in fiscal 1996 from $47,040,000 in fiscal
1995, due to higher selling prices of the Company's recently introduced products
in comparison with the Company's existing products and increased unit shipment
volume. Saucony foreign net sales increased 3% to $24,366,000 in fiscal 1996
from $23,628,000 in fiscal 1995, due primarily to higher selling prices and, to
a lesser extent, favorable currency exchange.
Net sales of other products increased 59% to $12,530,000 in fiscal 1996 from
$7,881,000 in fiscal 1995, due primarily to additional sales from the Company's
wholly-owned subsidiary Quintana Roo, acquired in August 1995, and increased
sales of non-corporate brands by the Company's Australian subsidiary.
Other revenue increased 85% to $538,000 in fiscal 1996 from $291,000 in fiscal
1995, due to increased royalty income and proceeds from a litigation settlement.
The Company's gross profit increased 15% to $29,649,000 in fiscal 1996 from
$25,854,000 in fiscal 1995. The Company's gross margin decreased to 32.5% in
fiscal 1996 from 32.9% in fiscal 1995 reflecting decreased margins for Saucony
products. The gross margin decrease for Saucony products resulted from the
shipment of a single slow-moving, non-current model, increased sales of
lower-margin footwear and, to a lesser extent, increased freight costs.
Selling, general and administrative expenses increased to $27,842,000, or 30.5%
of net sales, in fiscal 1996 from $25,654,000, or 32.7% of net sales, in fiscal
1995. Advertising and promotion expenses increased $1,233,000 in fiscal 1996 due
primarily to increased Saucony domestic television and print media advertising
and, to a lesser extent, increased sponsorship of athletes. Selling expenses
increased by $321,000 in fiscal 1996 due to increased selling payroll and travel
costs, offset to some extent by management's initiative to reduce commissions on
sales of Saucony products. General and administrative expenses increased
$634,000 in fiscal 1996, due to increased administrative costs related to
Quintana Roo and increased foreign costs for payroll due to increased staffing
at several of the Company's foreign subsidiaries and increased professional
fees.
Interest expense decreased 26% to $730,000 in fiscal 1996 from $982,000 in
fiscal 1995, reflecting the paydown of the Company's senior notes and debt
reduction realized as a result of the sale by the Company of its limited
partnership investment.
Other non-operating income decreased 69% to $196,000 in fiscal 1996 from
$642,000 in fiscal 1995 due to the gain realized on the sale of the Company's
investment in a limited partnership which was recognized in fiscal 1995.
The effective tax rate increased 19.9%, to 16.4% in fiscal 1996 from (3.5%) in
fiscal 1995, due to a shift in the international mix of pre-tax earnings among
taxing jurisdictions. During 1996, the Company recovered low income housing tax
credits, which had previously been recaptured and reversed a foreign tax
valuation allowance. The low-income housing tax credit recovery is a
non-recurring event.
LIQUIDITY AND CAPITAL RESOURCES
As of January 2, 1998, the Company's cash and cash equivalents totaled
$4,432,000, an increase of $1,629,000 from January 3, 1997. The increase was the
result of the receipt of $6,841,000 from the sale of substantially all of the
net assets of the Company's wholly-owned subsidiary, Brookfield Athletic Co.,
Inc. The increase was offset in part by an increase in accounts receivable of
$1,824,000, net of the provision for bad debts and discounts of $4,887,000, and
an increase in inventories of $1,301,000. The increase in accounts receivable
was due to increased net sales of the Company's Saucony products and Hind
products in the fourth quarter of fiscal 1997. The Company's days sales
outstanding for its accounts receivable of 73 days in fiscal 1997 remained
consistent with fiscal 1996. Inventories increased in fiscal 1997 due to the
buildup of Hind apparel inventory. The Company's inventory turn ratio decreased
to 2.5 turns in fiscal 1997 from 2.6 turns in fiscal 1996.
During fiscal 1997, the Company used $1,422,000 of net cash in operating
activities, expended $1,331,000 to acquire capital assets and information
technology, decreased short-term borrowings by $1,063,000, expended $2,711,000
to reduce long-term debt, received $511,000 from the sale of capital assets,
principally the sale of the Company's facility in Australia, and expended
$140,000 to acquire the remaining shares held by the minority shareholder in the
Company's Dutch subsidiary. Current maturities of long-term debt increased
$1,190,000 in fiscal 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 fiscal
1997 included the non-recurring charge of $2,766,000 to write-down assets of the
Company's Australian subsidiary to estimated realizable value, net cash provided
by discontinued operations of $2,227,000, an increase in prepaid expenses of
$539,000 (due to advance payments for advertising and inventory) , a decrease in
accrued expenses of $296,000 (due to a change in sales commissions payment
terms) and an increase in accounts payable and accrued letters of credit of
$307,000 (due to the timing of inventory purchases). The strengthening of the
U.S. dollar in fiscal 1997 increased the value of cash and cash equivalents by
$905,000.
As of January 3, 1997, the Company's cash and cash equivalents totaled
$2,803,000, a decrease of $8,865,000 from January 5, 1996. The decrease was the
result of an increase in accounts receivable of $4,669,000, net of the provision
for bad debts and discounts of $5,269,000, an increase of $1,158,000 in
inventory during fiscal 1996 and the acquisition of trademarks and trade names
of an athletic apparel manufacturer for $1,250,000. The increase in accounts
receivable was due to increased net sales of the Company's Saucony products in
the fourth quarter of fiscal 1996 and extended payment terms given to certain of
the Company's customers. The Company's days sales outstanding for its accounts
receivable increased to 73 days at the end of fiscal 1996 from 61 days at the
end of fiscal 1995. Inventories increased in fiscal 1996 due to an increase in
production at the Company's Bangor manufacturing facility and a higher level of
finished goods inventory at the Company's overseas subsidiaries. The Company's
inventory turn ratio remained consistent with fiscal 1995's inventory turns
ratio of 2.6 turns.
During fiscal 1996, the Company used $5,224,000 of net cash to finance operating
activities, expended $1,857,000 to acquire capital assets and information
technology, expended $1,250,000 to acquire the trade names and trademarks of an
athletic apparel manufacturer, received $78,000 from the sale of capital assets,
increased short-term borrowings by $1,313,000, expended $2,364,000 to reduce
long-term debt, received $69,000 from the issuance of the Company's common stock
and borrowed $420,000 on a long-term basis, secured by the Company's facility in
St. Peters, Australia. The Company sold this facility in November 1997.
Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory) affecting the operating cash flows in fiscal
1996 included a decrease in accrued letters of credit and accounts payable of
$1,138,000 (due to the timing of inventory shipments), an increase in accrued
expenses of $733,000 (due to increased advertising and promotional spending), a
decrease in prepaid expenses of $281,000 (due to a decrease in advance payments
for insurance and other administrative expenses) and net cash used by
discontinued operations of $2,379,000. The declining value of the U.S. dollar
decreased the value of cash and cash equivalents by $50,000.
The Company has a credit facility with two principal banks pursuant to which a
$30,000,000 credit line is available to the Company. This credit facility, which
was amended in January 1997, extends through July 31, 1998 and provides for a
short-term demand line of credit in the principal amount of up to $15,000,000
and a revolving line of credit in the principal amount of $15,000,000, each
subject to formula adjustment. Borrowings under this facility generally will be
made at the primary bank's prime rate of interest or a euro dollar-based rate.
As of January 2, 1998, there was $2,001,000 outstanding under the revolving
credit facility. The Company had open commitments at such date related to
letters of credit in the amount of $3,284,000. As of March 13, 1998, $6,736,000
was available for borrowing under the short-term demand line and $12,694,000 was
available for borrowing under the revolving term line.
The credit facility contains various covenants, including restrictions on
additional indebtedness; restrictions on the payment or declaration of
dividends; a minimum tangible net worth, as defined; a minimum ratio of current
assets to current liabilities, as defined; a minimum annual cash flow coverage
ratio; that there be no demand loans outstanding under the demand line of credit
for a period of at least 30 consecutive days in each calendar year; and, fiscal
quarter and annual net income requirements. Due to the non-recurring charge to
reduce the carrying value of the Company's distribution facility in East
Brookfield, Massachusetts, to market, the operating results applicable to the
discontinued operation, the net loss realized as a result of the sale of
substantially all of the assets of Brookfield Athletic Co., Inc. and the
significant net loss attributable to the Company's Australian subsidiary in the
fiscal quarter and fiscal year ended January 2, 1998, the Company was unable to
comply with the minimum tangible net worth, the minimum annual cash flow
coverage ratio and the net income requirements for both the fourth quarter of
fiscal 1997 and fiscal 1997. In addition, borrowings by certain of the Company's
foreign subsidiaries in fiscal 1997 caused the Company to violate the
requirement that there be no demand borrowings under the demand credit line for
a period of at least 30 consecutive days. The banks have waived the foregoing
covenant violations as of January 2, 1998 and have waived prospective violations
of such covenants, as well as violation of an additional covenant relating to
the ratio of the Company's current assets to current liabilities, as of April 3,
1998. The Company currently plans to renegotiate its credit agreement during the
second quarter of fiscal 1998.
Certain of the Company's foreign subsidiaries have credit facilities, consisting
of demand and/or revolving lines of credit, in the aggregate principal amount of
approximately $4,607,000. As of February 28, 1998, an aggregate of approximately
$1,842,000 was available for borrowing under the facilities of the foreign
subsidiaries. See Note 9 of Notes to Consolidated Financial Statements.
On April 29, 1988, Hyde issued to a life insurance company $12,000,000 of 9.70%
senior notes due April 29, 1998. The notes provide for semi-annual payments of
interest, payable in April and October of each year, continuing to April 1998,
and annual payments of principal of $2,000,000 each from April 1993 to and
including April 1998. The note purchase agreement relating to the notes contains
restrictive covenants commonly found in such agreements. See Note 6 of Notes to
Consolidated Financial Statements.
During 1996, the Company acquired an information technology hardware system at a
cost of $991,000 pursuant to a long-term capital lease. The lease provides for a
bargain purchase option at the conclusion of the lease term. At January 2, 1998,
the Company had various commitments for capital expenditures, including
information technology systems. 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 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 123
The Financial Accounting Standards Board issued Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" (SFAS 123) in October 1995.
SFAS 123 establishes the financial accounting and reporting standards for all
stock-based compensation. SFAS 123 prescribes a fair value method of accounting
for stock options and other similar equity instruments and encourages companies
to adopt this accounting treatment for all stock-based compensation plans.
However, under SFAS 123, companies are permitted to continue to measure
compensation expense using the intrinsic value based method of accounting as
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
provided that pro forma disclosures are made of net income and earnings per
share had the fair value method been adopted.
SFAS 123 is effective for fiscal years commencing after December 15, 1995. As
permitted by SFAS 123, the Company has continued to account for employee stock
compensation expense under the precepts of APB Opinion No. 25. See Note 11 of
Notes to the Consolidated Financial Statements for pro forma disclosures of net
income and earnings per share, calculated utilizing the fair value method
prescribed under SFAS 123.
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 earnings
per share, revising the disclosure requirements, and achieving comparability
with international accounting standards. SFAS 128 is effective for both interim
and annual financial statements for periods after December 15, 1997. The impact
of adopting SFAS 128 on basic and diluted EPS was not material.
SFAS 130
The Financial Accounting Standards Board issued Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" (SFAS No. 130) in June 1997. SFAS 130
defines and establishes the financial accounting and reporting standards for
comprehensive income. As used 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 its Form
10-Q filing for the quarter ending April 3, 1998. The Company has not determined
the impact of adopting SFAS 130 on the consolidated financial statements.
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.
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.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to the Company's Consolidated Financial Statements in Item 14 and
the accompanying consolidated financial statements, notes and schedules which
are filed as part of this Form 10-K following the signature page and are
incorporated herein by this reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is contained in part under the caption
"Executive Officers of the Registrant" in PART I hereof, and the remainder is
contained in the Company's Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on May 14, 1998 (the "1998 Proxy Statement") under the
captions "ELECTION OF DIRECTORS" and "SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE" and is incorporated herein by this reference. The Company
expects to file the 1998 Proxy Statement within 120 days after the close of the
fiscal year ended January 2, 1998. Officers are elected on an annual basis and
serve at the discretion of the Board of Directors.
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is contained under the captions
"Compensation of Directors," "Compensation of Executive Officers," "Employment
and Consulting Agreements and Other Arrangements" and "Compensation Committee
Interlocks and Insider Participation" in the 1998 Proxy Statement and is
incorporated herein by this reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the 1998 Proxy Statement
under the caption "Stock Ownership of Certain Beneficial Owners and Management"
and is incorporated herein by this reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained under the caption "Employment
and Consulting Agreements and Other Arrangements" appearing in the 1998 Proxy
Statement and is incorporated herein by this reference.
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Index to Consolidated Financial Statements
The following consolidated financial statements of Hyde Athletic
Industries, Inc. and its subsidiaries are included in
this report:
Reports of Independent Accountants
Consolidated balance sheets at January 2, 1998 and January 3,
1997.
Consolidated statements of income for the years ended January 2,
1998, January 3, 1997 and January 5, 1996
Consolidated statements of stockholders' equity for the years
ended January 2, 1998, January 3, 1997 and January 5, 1996
Consolidated statements of cash flows for the years ended January
2, 1998, January 3, 1997 and January 5, 1996 Notes to the
consolidated financial statements
2. Index to Consolidated Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable,
or not required, or because the required information is included
in the consolidated financial statements or notes thereto.
Separate financial statements of the Company have been omitted
since it is primarily an operating Company and its subsidiaries
included in the consolidated financial statements do not have a
minority equity interest or indebtedness to any person other than
the Company in an amount which exceeds 5% of the total assets as
shown by the consolidated financial statements as filed herein.
3. Index to Exhibits
The exhibits filed as part of this Form 10-K/A are listed on the
Exhibit Index immediately preceding such exhibits, which Exhibit
Index is incorporated herein by reference.
(b) 1. Reports on Form 8-K
No Current Reports on Form 8-K were filed in the fourth quarter of
fiscal 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(registrant)
By: /s/ John H. Fisher
John H. Fisher
President and Chief Executive Officer
Date: April 9, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
<S> <C> <C>
/s/ John H. Fisher President April 9, 1999
John H. Fisher Chief Executive Officer
Director
/ s/ Charles A. Gottesman Executive Vice President April 9, 1999
Charles A. Gottesman Chief Operating Officer
Director
/s/ Terence P. Chin Senior Vice President April 9, 1999
Terence P. Chin Chief Financial Officer
/s/ Roger P. Deschenes Vice President, Controller April 9, 1999
Roger P. Deschenes Chief Accounting Officer
/s/ John J. Neuhauser Director April 9, 1999
John J. Neuhauser
/s/ John M. Connors, Jr. Director April 9, 1999
John M. Connors, Jr.
/s/ Robert J. LeFort, Jr. Director April 9, 1999
Robert J. LeFort, Jr.
/s/ Phyllis H. Fisher Director April 9, 1999
Phyllis H. Fisher
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Hyde Athletic Industries, Inc.
We have audited the consolidated balance sheets of Hyde Athletic Industries,
Inc. and Subsidiaries as of January 2, 1998 and January 3, 1997 and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended January 2, 1998. We have also audited the
financial statement schedule listed in Item 14(a) of this Form 10-K. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits. We did not audit the financial statements of
Saucony SP Pty. Ltd., a fifty percent owned consolidated joint venture, as of
January 2, 1998 and January 3, 1997 and for the two years in the period ended
January 2, 1998, which statements reflect total assets of six percent and
thirteen percent of consolidated assets at January 2, 1998 and January 3, 1997,
respectively, and total revenues of eleven percent and twelve percent of
consolidated revenues for the years ended January 2, 1998 and January 3, 1997,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and in our opinion expressed herein, insofar as it relates
to the amounts included for Saucony SP Pty. Ltd. (before adjustments to U.S.
GAAP) is based solely on the report of the auditors.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits and
the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Hyde Athletic
Industries, Inc. and Subsidiaries at January 2, 1998 and January 3, 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended January 2, 1998, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein. We also audited the
translation of the financial statements of Saucony SP Pty. Ltd., in Australian
dollars to U.S. dollars as well as other adjustments required to ensure that the
financial statements are in accordance with U.S. GAAP as of January 2, 1998 and
January 3, 1997 and for the two years in the period ended January 2, 1998.
As discussed in Note 21, the financial statements for 1995, 1996 and 1997 have
been restated.
Boston, Massachusetts
April 2, 1998
<PAGE>
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF SAUCONY SP PTY., LIMITED
Scope
We have audited the financial statements of Saucony SP Pty., Ltd., comprising
the Australian statutory accounts (which are not separately presented herein),
for the year ended 2 January 1998. The Company's directors are responsible for
the financial statements. We have conducted an independent audit of these
financial statements in order to express an opinion on them to the members of
the Company.
Our audit has been conducted in accordance with Australian auditing standards,
which are substantially the same as auditing standards generally accepted in the
United States, to provide reasonable assurance as to whether the financial
statements are free of material misstatement. Our procedures included
examination, on a test basis, of evidence supporting the amounts and other
disclosures in the financial statements, and the evaluation of accounting
policies and significant accounting estimates. These procedures have been
undertaken to form an opinion as to whether, in all material respects, the
financial statements are presented fairly in conformity with generally accepted
accounting principles and so as to present a view which is consistent with our
understanding of the Company's financial position, the results of its operations
and its cash flows.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In our opinion, the financial statements of Saucony SP Pty Limited are properly
drawn up so as to present fairly, in all material respects, the Company's
financial position as at 2 January 1998 and 3 January 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended 2 January 1998 in accordance with accounting principles generally accepted
in Australia which differ in certain aspects from those followed in the United
States.
Going Concern Basis of Accounting
Without qualification to the opinion expressed above, attention is drawn to Note
1 of the financial statements. Notwithstanding the deficiency of working capital
and net assets, the financial statements have been prepared to on a going
concern basis as the directors have received an undertaking of continued
financial support from the directors of Hyde Athletic Industries, Inc. and the
directors believe that such financial support will be continued to be made
available.
GRANT THORNTON
Chartered Accountants
/s/ Grant Thornton
/s/ B.R. Gordon
Partner
Sydney, NSW Australia
April 2, 1998
<PAGE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
<CAPTION>
CONSOLIDATED BALANCE SHEETS
ASSETS
(in thousands)
January 2, January 3,
1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,432 $ 2,803
Marketable securities (Note 2) 148 236
Accounts receivable, net of allowance for doubtful accounts
and discounts (1997, $2,032; 1996, $1,234) (Note 3) 18,636 18,403
Inventories (Note 4) 23,471 24,537
Deferred income taxes (Note 12) 2,034 1,687
Prepaid expenses and other current assets 1,518 1,527
Net assets of discontinued operations (Note 13) -- 8,939
---------- ---------
Total current assets 50,239 58,132
---------- ---------
Property, plant and equipment, net of accumulated
depreciation and amortization (Note 5) 8,135 9,027
---------- ---------
Other assets:
Deferred charges, net of accumulated amortization
(1997, $1,843; 1996, $1,558) 491 1,380
Long-term accounts and notes receivable (Note 3) 114 138
Goodwill, net of accumulated amortization
(1997, $42; 1996, $0) (Note 17) 1,238 1,250
Investment in limited partnership (Note 6) 653 753
Deferred income taxes (Note 12) 353 --
Other 93 72
---------- ---------
Total other assets 2,942 3,593
---------- ---------
Total assets $ 61,316 $ 70,752
========== =========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
(in thousands)
January 2, January 3,
1998 1997
<S> <C> <C>
Current liabilities:
Accrued letters of credit (Note 9) $ 1,201 $ 1,849
Notes payable (Note 9) 2,885 4,237
Current portion of long-term debt and capital lease obligations (Notes 6 & 7) 3,639 2,449
Accounts payable 2,680 2,091
Accrued expenses (Note 9) 2,910 3,337
---------- ----------
Total current liabilities: 13,315 13,963
---------- ----------
Long-term obligations:
Long-term debt, net of current portion (Note 6) 25 3,885
Capital lease obligations, net of current portion (Note 7) 746 1,008
Deferred income taxes (Note 12) 1,819 1,924
Other obligations 144 --
---------- ----------
Total long-term obligations 2,734 6,817
---------- ----------
Commitments and contingencies (Note 9)
Minority interest in consolidated subsidiaries 195 488
---------- ----------
Stockholders' Equity (Notes 10 & 11)
Preferred stock, $1.00 par; authorized 500,000 shares; none issued and outstanding -- --
Common stock:
Class A, $.333 par; authorized 20,000,000 shares
(issued 1997, 2,706,227; 1996, 2,706,227) 902 902
Class B, $.333 par; authorized 20,000,000 shares
(issued 1997, 3,743,487; 1996, 3,729,059) 1,248 1,243
Additional paid-in capital 15,652 15,581
Retained earnings 28,781 33,111
Accumulated translation (417) (234)
----------- -----------
46,166 50,603
---------- ----------
Less:
Common stock held in treasury, at cost (1997, 198,400; 1996, 198,400) (1,054) (1,054)
Unearned compensation (40) (65)
----------- -----------
45,072 49,484
---------- ----------
Total liabilities and stockholders' equity $ 61,316 $ 70,752
========== ==========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996
<CAPTION>
(in thousands; per-share amounts in dollars)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 93,611 $ 91,341 $ 78,549
Other revenue (Note 15) 351 538 291
---------- ---------- ----------
Total revenue 93,962 91,879 78,840
---------- ---------- ----------
Costs and expenses:
Cost of sales 63,511 61,692 52,695
Selling expenses 16,698 16,065 14,511
General and administrative expenses (Note 9) 13,412 11,777 11,143
Writedown of impaired real estate (Note 14) 850 -- --
Writedown of Australian assets (Note 14) 1,426 -- --
---------- ---------- ----------
Total costs and expenses 95,897 89,534 78,349
---------- ---------- ----------
Operating income (loss) (1,935) 2,345 491
Non-operating income (expense)
Interest expense, net (817) (730) (982)
Foreign currency (1,127) 171 77
Other 79 196 642
---------- ---------- ----------
Income (loss) before income taxes and minority interest (3,800) 1,982 228
Provision (benefit) for income taxes (Note 12) 355 325 (8)
Minority interest in income (loss) of consolidated subsidiaries (123) 308 (286)
----------- ---------- -----------
Income (loss) from continuing operations (4,032) 1,349 522
Discontinued operations (Notes 13 and 21):
Income (loss) from discontinued operations (net
of tax expense (benefit) expense ($262), ($159)
and $584, respectively) (394) (243) 863
Gain on disposal of Brookfield business,
net of operating loss of $243 during the
phase-out period (net of tax expense of $78) 96 -- --
---------- ---------- ----------
Net income (loss) (Note 11) $ (4,330) $ 1,106 $ 1,385
=========== ========== ==========
Earnings per common share - basic (Note 11):
Income (loss) from continuing operations $ (0.65) $ 0.22 $ 0.08
Income (loss) from discontinued operations (0.05) (0.04) 0.14
----------- ----------- ----------
Net income (loss) per common share - basic $ (0.70) $ 0.18 $ 0.22
=========== ========== ==========
Earnings per common share - diluted (Note 11)
Income (loss) from continuing operations $ (0.65) $ 0.22 $ 0.08
Income (loss) from discontinued operations (0.05) (0.04) 0.14
----------- ----------- ----------
Net income (loss) per common share - diluted $ (0.70) $ 0.18 $ 0.22
=========== ========== ==========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996
<CAPTION>
Common Stock Paid-In Retained
Class A Class B Capital Earnings
<S> <C> <C> <C> <C>
Balance, December 30, 1994 $ 901 $ 1,237 $ 15,593 $30,620
Issuance of 1,400 shares of common
stock, stock option exercise (Note 10) 1 -- 3 --
Cancellation of below market options (Note 11) -- -- (75) --
Amortization of unearned compensation (Note 11) -- -- -- --
Acquisition of 17,700 shares of common stock,
at cost (Note 10) -- -- -- --
Net income -- -- -- 1,385
Foreign currency translation adjustments -- -- -- --
------ ------- -------- -------
Balance, January 5, 1996 $ 902 $ 1,237 $ 15,521 $32,005
Issuance of 19,744 shares of common
stock, stock option exercise (Note 10) -- 6 63 --
Cancellation of below market options (Note 11) -- -- (3) --
Amortization of unearned compensation (Note 11) -- -- -- --
Net income -- -- -- 1,106
Foreign currency translation adjustments -- -- -- --
------ ------- -------- -------
Balance, January 3, 1997 $ 902 $ 1,243 $ 15,581 $33,111
Issuance of 14,428 shares of common stock, stock
option exercise (Note 10) -- 5 34 --
Cancellation of below market options (Note 11) -- -- (15) --
Issuance of below market options and restricted stock -- -- 52 --
Amortization of unearned compensation (Note 11) -- -- -- --
Net loss -- -- -- (4,330)
Foreign currency translation adjustments -- -- -- --
------ ------- -------- -------
Balance, January 2, 1998 $ 902 1,248 15,652 28,781
====== ======= ======== =======
</TABLE>
<PAGE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996
<CAPTION>
Treasury Stock Unearned Accumulated Stockholders'
Shares Amount Compensation Translation Equity
<S> <C> <C> <C> <C> <C>
Balance, December 30, 1994 180,700 $ (977) $(447) $ (171) $ 46,756
Issuance of 1,400 shares of common
stock, stock option exercise (Note 10) -- -- -- -- 4
Cancellation of below market options (Note 11) -- -- 75 -- --
Amortization of unearned compensation (Note 11) -- -- 178 -- 178
Acquisition of 17,700 shares of common stock,
at cost (Note 10) 17,700 (77) -- -- (77)
Net income -- -- -- -- 1,385
Foreign currency translation adjustments -- -- -- (86) (86)
-------- -------- ----- ------- ----------
Balance, January 5, 1996 198,400 $ (1,054) $(194) $ (257) $ 48,160
Issuance of 19,744 shares of common stock,
stock option exercise (Note 10) -- -- -- -- 69
Cancellation of below market options (Note 11) -- -- 3 -- --
Amortization of unearned compensation (Note 11) -- -- 126 -- 126
Net income -- -- -- -- 1,106
Foreign currency translation adjustments -- -- -- 23 23
-------- -------- ----- ------ ---------
Balance, January 3, 1997 198,400 $ (1,054) $ (65) $ (234) $ 49,484
Issuance of 14,428 shares of common stock, stock
option exercise (Note 10) -- -- -- -- 39
Cancellation of below market options (Note 11) -- -- 15 -- --
Issuance of below market options and restricted stock -- -- (52) -- --
Amortization of unearned compensation (Note 11) -- -- 62 -- 62
Net loss -- -- -- -- (4,330)
Foreign currency translation adjustments -- -- -- (183) (183)
-------- -------- ----- ------- ----------
Balance, January 2, 1998 198,400 $ (1,054) $ (40) $ (417) $ 45,072
======== ========= ====== ======= =========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEARS ENDED JANUARY 2, 1998,JANUARY 3, 1997 AND JANUARY 5, 1996
(in thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,330) $ 1,106 $ 1,385
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Writedown of Australian assets 2,766 -- --
Discontinued operations 298 243 (863)
Depreciation and amortization 1,594 1,452 1,113
Provision for bad debt and discounts 4,887 5,269 4,807
(Gain) loss on sale of equipment (91) 22 2
Deferred income tax benefit (1,269) (217) (369)
Minority interest in (income) loss of consolidated subsidiaries (123) 308 (286)
Compensation from stock grants and stock options 62 126 178
Gain on sale of investment in limited partnership -- -- (426)
Writedown of impaired real estate 850 -- --
Changes in operating assets and liabilities, net of effects of acquisitions,
dispositions and foreign currency adjustments:
Decrease (increase) in assets:
Marketable securities 88 71 (308)
Accounts and notes receivable (6,711) (9,938) (157)
Inventories (1,301) (1,158) 4,104
Prepaid expenses and other current assets (539) 281 (45)
Increase (decrease) in liabilities:
Accrued letters of credit (612) (613) 1,189
Accounts payable 919 (525) (655)
Accrued expenses (296) 733 (1,415)
Accrued income taxes 159 (5) (749)
--------- ---------- ---------
Total adjustments 681 (3,951) 6,120
--------- ---------- --------
Net cash provided (used) by continuing operations (3,649) (2,845) 7,505
---------- ---------- --------
Net cash provided (used) by discontinued operations 2,227 (2,379) 3,621
--------- ---------- --------
Net cash provided (used) by operating activities (1,422) (5,224) 11,126
---------- ---------- --------
Cash flows from investing activities:
Proceeds from the sale of Brookfield business 6,841 -- --
Purchases of property, plant and equipment (1,305) (791) (569)
Proceeds from the sale of equipment 511 78 32
Increase in deferred charges and other (26) (1,066) (469)
Investment distribution from limited partnership -- -- 29
Payments for trademarks and trade names -- (1,250) --
Payments for business acquisitions (140) -- (112)
Proceeds from sale of investment in limited partnership -- -- 1,335
--------- --------- --------
Net cash provided (used) by investing activities 5,881 (3,029) 246
--------- ---------- --------
</TABLE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
<CAPTION>
(in thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net short-term borrowings (1,063) 1,313 (30)
Repayment of long-term debt and capital lease obligations (2,711) (2,364) (2,887)
Proceeds from long-term borrowings -- 420 --
Common stock repurchased -- -- (77)
Payment of termination benefit payable -- -- (27)
Issuances of common stock, including options 39 69 4
--------- --------- ---------
Net cash used by financing activities (3,735) (562) (3,017)
---------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents 905 (50) (37)
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,629 (8,865) 8,318
Cash and cash equivalents at beginning of period 2,803 11,668 3,350
--------- --------- ---------
Cash and cash equivalents at end of period $ 4,432 $ 2,803 $ 11,668
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refunds $ 663 $ 736 $ 1,936
========= ========= =========
Interest $ 887 $ 959 $ 1,534
========= ========= =========
Non-cash Investing and Financing Activities:
Property purchased under capital leases $ 86 $ 1,234 $ 138
Reconciliation of assets acquired and liabilities
assumed, business acquisitions
Assets acquired -- -- $ 232
Liabilities assumed -- -- 120
--------- --------- ---------
Cash paid for business acquisitions $ -- $ -- $ 112
========= ========= =========
Sale of investment in limited partnership
Cash received, net of broker fees -- -- $ 1,335
Reduction in short-term debt, long-term
debt and accrued liabilities -- -- 4,056
--------- --------- ---------
Net proceeds -- -- 5,391
Investment in limited partnership, net of distributions -- -- 4,965
--------- --------- ---------
Gain realized on sale -- -- $ 426
========= ========= =========
See notes to consolidated financial statements
</TABLE>
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 and manufacturer of a broad line of
high-performance athletic footwear, athletic apparel and high-quality
bicycles and bicycle frames. The Company markets its products principally
to domestic and international retailers and distributors.
Reporting Period
The Company adopted a 52-53 week fiscal year reporting period in 1991.
The consolidated 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 consolidated
financial statements for 1997, 1996 and 1995 are comparable.
Principles of Consolidation
The consolidated financial statements include the accounts of Hyde
Athletic Industries, Inc. and its wholly-owned subsidiaries, Spot-Bilt,
Inc., Hyde Transition Corp. (formerly Brookfield Athletic Co., Inc.),
Saucony, Inc., Saucony Deutschland Vertriebs GmbH (Germany), Quintana
Roo, Inc. and Hyde International Services Limited (Hong Kong), and its
majority-owned foreign subsidiary, Saucony Canada, Inc., all herein
referred to as the "Company". Hyde International Services Limited owns a
controlling interest in a subsidiary called Saucony SP Pty Limited
(Australia). (See Note 14 of Notes to Consolidated Financial Statements.)
Saucony, Inc. owns a wholly-owned subsidiary called Saucony Sports BV
(Netherlands). The Company also operates a branch in the United Kingdom
called Saucony UK and maintains a marketing representative office in
Germany called Saucony Europe. Saucony GmbH and Quintana Roo, Inc. are
included in the consolidated financial statements beginning in December
1994 and August 1995, respectively. Saucony Shoe Manufacturing Co., Inc.,
an inactive wholly-owned domestic subsidiary, was dissolved in 1992. Hyde
Security Corp., a wholly-owned domestic subsidiary, was dissolved in
1996. During 1997, the Company sold substantially all of the assets of
Brookfield Athletic Co., Inc. The effects of transactions among related
companies are eliminated in the consolidated financial statements.
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.
<PAGE>
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 3 to 15 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 consolidated net income.
Investments
The Company's investment in a real estate limited partnership is valued
at its net realizable value. It is management's intention to retain this
investment for its long-term tax benefit.
Investments in Marketable Securities
Investment in debt securities and marketable securities are categorized
as trading, held-to-maturity or available-for-sale. Trading securities
are reported at fair value, with changes in fair value recorded in
consolidated net income. Investment securities include both
available-for-sale and held-to-maturity securities. Available-for-sale
securities are reported at fair value, with net unrealized gains and
losses included as a separate component of stockholders' equity.
Held-to-maturity debt securities are reported at amortized cost. For all
investments, unrealized losses, other than temporary losses, are
recognized in consolidated net income.
Deferred Charges and Goodwill
Deferred charges consist primarily of bond issuance, trademarks,
financing and organization costs. The deferred charges are amortized on
the straight-line basis over the term of the debt; organization costs and
trademarks are amortized over five years; goodwill, representing the
excess of the purchase price over the estimated fair value of the net
assets of the acquired business, is being amortized over the period of
expected benefit of fifteen 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.
Earnings per Share
Earnings per common share is calculated in accordance with the precepts
of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
128), which was issued in 1997 by the Financial Accounting Standards
Board. SFAS 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes the
dilutive effect of options, warrants and convertible securities. Diluted
earnings per share is very similar to fully diluted earnings per share.
As required under SFAS 128, all previously reported per share amounts
have been restated.
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's foreign subsidiaries are
measured using the local currency as the functional currency. Assets and
liabilities of these subsidiaries 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 consolidated net income.
Forward Foreign Currency Exchange Contracts
From time to time, the Company enters into forward foreign currency
exchange contracts to hedge certain foreign currency denominated
payables. Gains and losses on forward exchange contracts are deferred and
offset against foreign currency exchange gains or losses on the
underlying hedged item.
Reclassifications
Certain items in prior years' consolidated financial statements have been
reclassified to conform to the 1997 presentation. The results of
operations for Brookfield Athletic Co., Inc. for the fiscal years ended
January 2, 1998, January 3, 1997 and January 5, 1996 have been segregated
from continuing operations and are reported separately as discontinued
operations.
Advertising and Promotion
Advertising and promotion cost, including print media production cost,
are expensed as incurred, with the exception of co-operative advertising,
which is accrued and the advertising costs expensed in the period of
revenue recognition. Advertising and promotion expense amounted to
$8,543,000, $8,743,000 and $7,508,000 for 1997, 1996 and 1995,
respectively.
Research and Development Expenses
Expenditures for research and development of products are expensed as
incurred. Research and development expenses amounted to approximately
$1,513,000, $1,417,000 and $1,438,000 for 1997, 1996 and 1995,
respectively.
Related Party Transactions
Saucony Sports BV, a wholly-owned foreign subsidiary, leased office space
and office equipment from an entity controlled by the former minority
stockholder of Saucony Sports BV. Rent expense amounted to $12,442 and
$70,980 for 1996 and 1995, respectively.
The Company issued a note payable to the minority stockholder of Saucony
Canada, Inc., a majority-owned foreign subsidiary, as part of the
consideration paid to acquire an 85% interest in the former Canadian
distributor. Interest expense incurred amounted to $7,038 for 1995. See
Note 6 of the Notes to Consolidated Financial Statements for further
discussion of the note agreement. During 1995, the Company prepaid the
note and realized a discount of $13,759 which is included in 1995
consolidated net income.
The Company entered into a consulting agreement with a principal
stockholder of the Company's Class A Common Stock, beginning January 4,
1993. The agreement, as amended, was effective for a term of five years,
provided for an annual fee of $40,000 during each of the first two years
of the agreement and $90,000 for each of the final three years of the
agreement. Included in general and administrative expenses for 1997, 1996
and 1995 are consulting fees of $90,000, $90,000 and $90,000,
respectively. As of January 2, 1998, the agreement had not been renewed.
The Company presently holds a note receivable of $100,000 from a former
officer of the Company. The promissory note, originated from a
transaction in 1993, is collateralized by a mortgage from the former
officer on two parcels of real estate. See Note 3 of the Notes to
Consolidated Financial Statements for further discussion of the terms and
conditions of the promissory note.
New Accounting Pronouncements
During the first quarter of 1997, the Financial Accounting Standards
Board issued Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS 128). SFAS 128 is intended to improve the Earnings Per Share
("EPS") information contained in the financial statements by simplifying
the calculation of earnings per share, revising the disclosure
requirements, and achieving comparability with international accounting
standards. SFAS 128 is effective in financial statements for periods
ending after December 15, 1997, and has been adopted by the Company in
fiscal 1997.
The Financial Accounting Standards Board issued Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" (SFAS No. 130) in June
1997. SFAS 130 defines and establishes the financial accounting and
reporting standards for comprehensive income. As used 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 for the quarter ending April 3, 1998. The
Company has not determined the impact of adopting SFAS 130 on the
consolidated financial statements.
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.
2. Marketable Securities:
As of January 2, 1998, the Company's holdings in marketable securities
consisted primarily of equity securities which were classified as trading
securities.
The cost of the securities held at January 2, 1998 and January 3, 1997
was $138,000 and $171,000, respectively. As of January 2, 1998 and
January 3, 1997, the market value of such securities was $148,000 and
$236,000, respectively. Gross unrealized gains of $2,000 and $65,000,
based on quoted market prices, are included in consolidated net income
for the years ended January 2, 1998 and January 3, 1997.
Included in the determination of net income for the years ended January
2, 1998 and January 3, 1997 and January 5, 1996 were: 1997, net realized
gains of $22,000 and net unrealized gains of $2,000; 1996, net realized
gains of $10,000 and net unrealized gains of $65,000; and 1995, net
unrealized gains of $20,000.
3. Accounts and Notes Receivable:
During 1995, the Company exchanged inventory having a fair value of
$1,055,000 for $100,000 in cash, receipt of which occurred in March 1996,
and media and trade receivable barter credits amounting to $955,000,
realizing gross profit of $345,000. The media and trade receivable barter
credits expire on November 14, 1998. As of January 3, 1997, $300,000 of
barter credits were outstanding and are included in net assets of
discontinued operations. The carrying value of the credits at January 3,
1997 reflects restatements of prior reported carrying values and includes
the reversal of $345,000 ($206,000 after tax, or $0.04 per diluted share)
of gross profit reported in fiscal 1995 as well as an impairment charge
of $650,000 ($388,000 after tax, or $0.06 per diluted share) recorded in
fiscal 1996, to adjust the barter credits to estimated realizable values.
Both adjustments are reflected in the results from discontinued
operations. The media and trade receivable barter credits were included
in the assets sold to Brookfield International, Inc. during 1997. See
Note 21 of the Notes to Consolidated Financial Statements for further
discussion relative to the restatement of the carrying value of the
barter credits.
During 1993, the Company loaned $100,000 to a former officer of the
Company. The promissory note issued to the Company by the former officer
is collateralized by a mortgage from the officer on two parcels of real
estate (land and building). The note calls for semi-annual payments of
interest through maturity on the unpaid principal amount, commencing on
July 1, 1994 and five annual principal payments of $15,000 commencing
July 1, 1998 and one principal payment of $25,000 due on July 1, 2003.
The note bears interest at a rate equal to the prevailing prime rate of
interest. At January 2, 1998, $100,000 was outstanding of which $15,000
was included in current accounts receivable and $85,000 was including in
long-term accounts receivable.
4. Inventories:
Inventories at January 2, 1998 and January 3, 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Finished goods $ 17,534 $ 18,215
Work-in-process 514 110
Raw materials and supplies 5,423 6,212
--------- ----------
Total $ 23,471 $ 24,537
========= ==========
</TABLE>
5. Property, Plant and Equipment:
Major classes of property, plant and equipment, at cost, at January 2, 1998
and January 3, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 484 $ 761
Buildings and improvements 5,997 7,043
Machinery and equipment 8,328 6,744
Capitalized leases 1,708 1,751
Leasehold improvements 236 206
--------- ----------
16,753 16,505
Less accumulated depreciation
and amortization 8,618 7,478
--------- ----------
Total $ 8,135 $ 9,027
========= ==========
</TABLE>
Accumulated amortization of the leased property was $678 and $344 at
January 2, 1998 and January 3, 1997, respectively.
During 1997, the Company recorded a non-recurring charge of $850,000
($508,000 after tax or $0.08 per diluted share) to reduce the carrying
value of the Company's distribution facility in East Brookfield,
Massachusetts to market.
<TABLE>
6. Long-Term Debt:
<CAPTION>
(in thousands)
1997 1996
<S> <C> <C>
Senior notes payable due in semiannual installments of interest on the
unpaid principal amount through maturity and six annual principal
payments of $2,000,000 commencing April 29, 1993. The notes bear
interest at 9.70% and are subject to certain restrictive covenants
pertaining to consolidation or merger with another entity, levels of
working capital, net worth, the payment of cash dividends
and various other restrictions. $ 2,000 $ 4,000
Note payable to a bank under a revolving line of credit agreement, due on
January 30, 1998, with
interest of 8.15%. 1,302 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. -- 391
Note payable to bank due in sixty monthly installments
of $744 commencing May 1997 with interest of 10.0%. 31 --
--------- ---------
3,333 5,972
Less current portion 3,308 2,087
--------- ---------
$ 25 $ 3,885
========= =========
</TABLE>
Long-term debt maturities payable for the five years and thereafter
subsequent to January 2, 1998 are as follows (in thousands):
1998 $ 3,308
1999 7
2000 7
2001 8
2002 3
---------
Total $ 3,333
=========
On June 1, 1995, the Company sold its entire limited partnership interest
in the Columbia Housing Partners Corporate Tax Credit II Limited
Partnership for $5,501,000. Net proceeds totaled $1,335,000, resulting in
a pre-tax gain of $426,000, after transaction expenses, or $.02 per share
after tax. The after-tax gain is based upon projected tax credits and
passive losses provided by the general partner. As a result of the sale,
the Company realized reductions in current and long-term debt and accrued
interest of $4,056,000.
During 1995, the Company prepaid its note payable to the minority
stockholder of the Company's majority-owned Canadian subsidiary,
resulting in a gain of $13,759, which is included in consolidated net
income.
Under the terms of the senior notes payable, the Company may not declare
any cash dividends or make any cash distributions unless, immediately
thereafter, the aggregate amount of cash dividends and cash distributions
since December 31, 1987 would not exceed the sum of (i) $2,000,000, (ii)
75% of cumulative consolidated net income as defined (or minus 100% of
consolidated net income in the case of a loss) for such period and (iii)
the proceeds of sales of Common Stock of the Company. As of January 2,
1998, approximately $11,055,000 was available for payment of cash
dividends under the terms of these covenants.
7. 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................................... $ 392
1999................................... 336
2000................................... 295
2001................................... 157
2002................................... 8
---------
Total minimum lease payments $ 1,188
Less amounts representing interest 111
---------
Present value of minimum lease payments 1,077
Less current portion 331
---------
Long-term portion $ 746
=========
8. Employee Benefit Plans:
The Company maintains a qualified retirement plan for the benefit of all
United States employees who have attained the age of 21 and have
completed six months of consecutive service. As amended in 1996, the plan
permits employees to defer on a pre-tax basis up to 15% of gross wages
subject to the federal maximum limit. The Company will match a portion of
the employee contributions, subject to profitability goals, at the
discretion of the Board of Directors. The Company matched 25% of employee
elective deferrals subject to a limitation of 1.25% of total employee
compensation. Both employee and employer contributions are funded, on a
monthly basis, to a group defined contribution plan administered by an
independent investment company. The defined contribution for 1997, 1996
and 1995 were $83,000, $71,000 and $51,000, respectively. Expenses
related to the administration of the plan are paid by the Company.
During 1995, the Company established a supplementary retirement program
to provide retirement benefits to certain management and highly
compensated employees, as determined by the Company's Board of Directors.
Employees are eligible to defer up to 15% of gross wages on a pre-tax
basis. The Company will match a portion of employee contributions,
subject to profitability goals, at the discretion of the Board of
Directors. The Company match of employee elective deferrals is limited to
1.25% of total employee compensation. Both employee and employer
contributions and deemed investment income accrued, net of the amount
allowable under the qualified plan are funded, on a monthly basis to a
group defined contribution plan administered by an independent investment
company. The defined contribution for 1997 and 1996 amounted to $10,000
and $5,000, respectively. Expenses related to the administration of
the plan are paid by the Company.
9. Commitments and Contingencies:
Lease Commitments
The Company is obligated under various leases for equipment and retail
space through 2002. Total rental expenses for 1997, 1996 and 1995 were
$910,000, $831,000 and $674,000, respectively. Future minimum rental
payments are as follows: 1998, $534,000; 1999, $436,000; 2000, $166,000;
2000, $197,000; 2001, $94,000; and 2002 and thereafter, $1,000.
Other Commitments
The Company is obligated under various agreements, including event
sponsorships and athlete sponsorship through 2012. Future sponsorship
payments are as follows: 1998, $185,000; 1999, $192,000; 2001, $180,000;
and 2002 and thereafter, $610,000.
Commitments
On August 31, 1993, the Company entered into a credit facility with two
banks pursuant to which up to a $30,000,000 credit line was available to
the Company as of January 2, 1998. This arrangement provides for a
short-term demand line of credit, in the principal amount of up to
$15,000,000, subject to formula, for domestic borrowings, international
borrowings, and letters of credit; and a revolving line of credit in the
principal amount of up to $15,000,000. Borrowings under the demand line
of credit are made at the bank's prime rate of interest while borrowing's
under the revolving line of credit are made at the bank's prime rate of
interest, or at the Company's option, the Eurodollar rate (Fixed Rate
Option).
At January 2, 1998, there was $2,001,000 outstanding under this facility.
This credit facility, which was amended in January 1997, terminates July
31, 1998. This credit facility is subject to the bank's periodic reviews
of the Company's operations. The credit facility contains various
covenants, including: restrictions on additional indebtedness;
restrictions on the payment or declaration of dividends; a minimum
tangible net worth, as defined; a minimum ratio of current assets to
current liabilities, as defined; a minimum annual cash flow coverage
ratio; that there be no demand loans outstanding under the demand line of
credit for a period of at least 30 consecutive days in each calendar
year; and, fiscal quarter and annual net income requirements. Due to the
non-recurring charge to reduce the carrying value of the Company's
distribution facility in East Brookfield, Massachusetts, the operating
results applicable to the discontinued operation, the net loss realized
as a result of the sale of substantially all of the assets of Brookfield
Athletic Co., Inc. and the significant net loss attributable to the
Company's Australian subsidiary in the fiscal quarter and fiscal year
ended January 2, 1998, the Company was unable to comply with the minimum
tangible net worth, the minimum annual cash flow coverage ratio and the
net income requirements for both the fourth quarter of fiscal 1997 and
fiscal 1997. In addition, borrowings by certain of the Company's foreign
subsidiaries in fiscal 1997 caused the Company to violate the requirement
that there be no demand borrowings under the demand credit line for a
period of at least 30 consecutive days. As of January 2, 1998, the banks
granted waivers as of that date only for these covenant violations.
Additionally, the facility limits the Company's ability to pay or declare
a dividend or make other distributions to stockholders.
Saucony Canada Inc. maintains a credit facility with a Canadian lender.
The agreement provides Saucony Canada with a line of credit for
$1,000,000 Canadian dollars, subject to formula (approximately $702,000
in U.S. dollars at January 2, 1998). The agreement provides for a demand
line in the principal amount of $300,000 (Canadian dollars), for letters
of credit, and a revolving line of credit, in the principal amount of
$700,000 (Canadian dollars). Borrowings under this facility are made at
the lender's prime lending rate plus .25%. At January 2, 1998, there were
no borrowings outstanding under this credit facility. The facility
contains requirements for maintaining defined levels of net worth,
working capital and various financial ratios.
Saucony SP Pty Limited 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. The Company has
guaranteed the obligations of Saucony SP Pty Limited enabling such
obligations to be satisfied. See Notes 14 and 20 of Notes to Consolidated
Financial Statements.
At January 2, 1998, the Company was committed under open letters of
credit to several lenders in the aggregate amount of $3,307,000 under
foreign exchange contracts to purchase U.S. dollars in the amount of
$1,072,000 and foreign exchange contracts to sell U.S. dollars in the
amount of $146,000.
The Company is guarantor on credit facility agreements for two foreign
subsidiaries. At January 2, 1998, the guarantees totaled $4,607,000.
The Company has entered into an employment contract with one key employee
that provides for minimum annual compensation of $216,000 in 1998. The
contract provides for annual salary, cost-of-living adjustments,
additional compensation in the form of bonuses based on performance, life
insurance coverage and options to purchase shares of the Company's common
stock. Bonus expense to key executives amounted to $0, $148,000 and
$276,000 for 1997, 1996 and 1995, respectively.
Included in accrued expenses at January 2, 1998 and January 3, 1997 were
sales commissions payable of $209,000 and $759,000, respectively.
Litigation
The Company is involved in various routine litigation incident to its
business. Many of these proceedings are covered in whole or in part by
insurance. In management's opinion, none of these proceedings will have a
material adverse effect on the Company's financial position, operations
or cash flows (irrespective of any potential insurance recovery).
10. Stockholders' Equity:
As of January 2, 1998 and January 3, 1997, the number of shares of Class
A Common Stock and Class B Common Stock outstanding were as follows:
January 2, 1998 January 3, 1997
--------------- ---------------
Class A Common Stock 2,703,227 2,703,227
Class B Common Stock 3,548,087 3,533,659
Issuances by the Company of shares of Class A Common Stock and Class B
Common Stock, for the years ended January 2, 1998, January 3, 1997 and
January 5, 1996 were: 1997, 14,428 shares of Class B Common Stock; 1996,
1,500 shares of Class A Common Stock and 18,244 shares of Class B Common
Stock; and 1995, 700 shares each of Class A Common Stock and Class B
Common Stock.
During 1995, the Company repurchased 17,700 shares of Class B Common
Stock at a cost of $76,687. At January 2, 1998, Saucony SP Pty LTD, a
foreign subsidiary controlled by the Company, held 2,000 shares of each
of the Company's Class A Common Stock and Class B Common Stock.
11. Stock Options and Earnings Per Share:
At the 1993 Annual Meeting of the Stockholders held on May 23, 1993, the
stockholders approved the Company's 1993 Equity Incentive Plan (the
"Equity Incentive Plan") and the 1993 Director Stock Option Plan (the
"Director Option Plan"), adopted by the Company's Board of Directors on
April 7, 1993. The 1993 Equity Incentive Plan provides for the grant to
officers and key employees of the Company, incentive stock options,
non-statutory stock options and awards of restricted stock. Outside
consultants and advisors to the Company are eligible to receive only
non-statutory options and restricted stock awards under the Equity
Incentive Plan.
The Equity Incentive Plan is administered by the Compensation Committee
of the Board of Directors which, at its sole discretion, grants options
to purchase shares of Common Stock and make awards of restricted stock.
The plan provides that the purchase price per share of Common Stock shall
be determined by the Board of Directors, provided, however, in the case
of Incentive Stock Options, the purchase price shall not be less than
100% of the fair market value of such stock at the time of grant of the
option. The terms of option agreements are established by the Board of
Directors, except, in the case of Incentive Stock Options, wherein the
term cannot exceed ten years. Generally, an option cannot be exercised
within one year of date of grant. The vesting schedule is subject to the
discretion of the Board of Directors.
Restricted stock awards which may be granted under the Equity Incentive
Plan entitle recipients to purchase shares of the Company's Common Stock
subject to restrictions concerning the sale, transfer and other
disposition of the shares issued until such shares are vested. The Board
of Directors shall determine the purchase price, which can be less than
the fair market value of the Common Stock, and the vesting schedule for
such award. The Equity Incentive Plan provides for grants of restricted
stock awards without the payment of any cash purchase price.
At the 1997 Annual Meeting of Stockholders held on May 15, 1997, the
stockholders approved an amendment to the Equity Incentive Plan. The
amendment increased the number of shares issuable under the Equity
Incentive Plan from 800,000 to 1,150,000 shares and limited to 150,000
the number of shares for which options or awards may be granted in any
calendar year to any one person. As amended, a total of 1,150,000 shares,
in the aggregate, of Class A Common Stock and Class B Common Stock have
been reserved by the Company and may be issued under the plan.
The following table summarizes the awards available for grant under the
Company's 1993 Equity Incentive Plan and 1993 Director Option Plan for
the three-year reporting period ended January 2, 1998:
Shares
Shares available at December 30, 1994 502,738
Awards granted (112,000)
Options expired 30,502
-----------
Shares available at January 5, 1996 421,240
Awards granted (8,000)
Options expired 44,486
-----------
Shares available at January 3, 1997 457,726
Additional shares reserved 350,000
Awards granted (149,150)
Options expired 25,278
-----------
Shares available at January 2, 1998 683,854
===========
The Director Stock Option Plan provides for the automatic grant to
non-employee directors of non-statutory stock options upon specified
occasions. A total of 100,000 shares of Class B Common Stock have been
reserved for issuance under the plan. The option purchase price per share
shall equal the fair market value of Class B Common Stock on the date of
the grant. The options are exerciseable at any time, in whole or in part,
prior to the fifth anniversary of the date of the grant.
The following table sets forth the computation of basic earnings per
common share and diluted earnings per common share (dollars in thousands,
except per share amounts):
<TABLE>
1997 1996 1995
<CAPTION>
--------------------- ---------------------- ----------------------
Earnings Earnings Earnings Earnings Earnings Earnings
per per per per per per
Common Common Common Common Common Common
Share - Share - Share - Share - Share - Share -
Basic Diluted Basic Diluted Basic Diluted
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)
Income (loss) from
continuing operations $ (4,032) $ (4,032) $ 1,349 $ 1,349 $ 522 $ 522
Income (loss) from
discontinued operations (298) (298) (243) (243) 863 863
--------- --------- -------- -------- -------- --------
Net income (loss) available
for common shares and
assumed conversions $ (4,330) $ (4,330) $ 1,106 $ 1,106 $ 1,385 $ 1,385
========= ========= ======= ======= ======== ========
Weighted-average common
shares and equivalents
outstanding:
Weighted-average shares
outstanding 6,240 6,240 6,224 6,224 6,225 6,225
Effect of dilutive securities:
Stock options -- -- -- 44 -- 19
-------- -------- ------- ------- -------- --------
6,240 6,240 6,224 6,268 6,225 6,244
======== ======== ======= ======= ======== ========
Earnings per share:
Income (loss) from
continuing operations ($0.65) ($0.65) $0.22 $0.22 $0.08 $0.08
Income (loss) from
discontinued operations (0.05) (0.05) (0.04) (0.04) 0.14 0.14
--------- --------- -------- -------- ------- --------
Net income (loss) ($0.70) ($0.70) $0.18 $0.18 $0.22 $0.22
========= ========= ======= ======= ======= ========
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has elected to continue to measure stock-based
compensation expense using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees." Accordingly, compensation cost for stock options and
restricted stock awards is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant over the
exercise price an employee must pay to acquire the stock.
Stock-based compensation arising from the issuance of restricted stock
and below market options, is being amortized to expense over the vesting
period of the stock grant or option term and amounted to $62,000,
$126,000 and $178,000 for 1997, 1996 and 1995, respectively.
The following table summarizes the Company's stock option activity as of
January 5, 1996, January 3, 1997 and January 2, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Option
Shares Price Price Range
<S> <C> <C> <C>
Outstanding at December 30, 1994 316,206 $ 4.28 $ 2.00 - $ 12.25
Granted 112,000 $ 4.61 $ 4.00 - $ 4.88
Exercised (1,400) $ 2.61 $ 2.25 - $ 2.75
Expired (36,502) $ 4.42 $ 2.50 - $ 10.75
--------
Outstanding at January 5, 1996 390,304 $ 4.37 $ 2.00 - $ 12.25
-------
Granted 8,000 $ 4.00 $ 4.00 - $ 4.00
Exercised (19,744) $ 3.52 $ 2.25 - $ 3.69
Forfeited (10,386) $ 5.00 $ 2.25 - $ 10.75
Expired (35,000) $ 4.68 $ 4.68 - $ 4.68
--------
Outstanding at January 3, 1997 333,174 $ 4.36 $ 2.00 - $ 12.25
Granted 147,350 $ 4.50 $ 4.44 - $ 5.00
Exercised (12,628) $ 3.11 $ 2.50 - $ 3.69
Forfeited (38,278) $ 5.87 $ 2.50 - $ 8.50
Expired (3,000) $ 3.35 $ 2.88 - $ 3.63
----------
Outstanding at January 2, 1998 426,618 $ 4.32 $ 2.00 - $ 12.25
======= ======= ======= ========
</TABLE>
Options exercisable for shares of the Company's Class A and Class B
Common Stock as of January 5, 1996 and January 3, 1997, and January 2,
1998, are as follows:
<TABLE>
<CAPTION>
Options Exercisable
Weighted Average
Exercise Price
Class A Class B Class A Class B
Common Common Common Common
Stock Stock Total Stock Stock
<S> <C> <C> <C> <C> <C>
January 5, 1996 11,400 155,470 166,870 $ 4.81 $ 4.92
January 3, 1997 11,400 181,953 193,353 $ 5.60 $ 4.81
January 2, 1998 4,900 228,586 233,486 $ 2.27 $ 4.71
</TABLE>
<PAGE>
The following table summarizes information about stock options
outstanding at January 2, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Options Contractual Exercise Options Exercise
Exercise Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C> <C>
$ 2.00 - $ 3.69 147,768 1.16 $ 3.15 92,586 $ 3.54
$ 4.00 - $ 6.00 265,600 3.82 $ 4.58 127,900 $ 4.71
$ 10.75 - $ 12.50 13,250 .56 $ 12.11 13,000 $ 12.13
---------- ---------
426,618 233,486
========== =========
</TABLE>
The weighted average fair value at date of grant for options granted in
1997, 1996 and 1995 was $2.47, $1.93 and $2.81 per option, respectively.
The weighted-average fair value of these options at the date of grant was
estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions for 1997, 1996 and 1995, respectively:
risk-free interest rates of 6.3%, 6.3% and 6.5%; dividend yields of 0%,
0% and 0%; volatility factors of the expected market price of the
Company's common stock of 41.0%, 47.0% and 48.0%; and a weighted-average
expected life of the options of five years.
Had the Company determined the stock-based compensation expense for the
Company's stock options based upon the fair value at the grant date for
stock option awards in 1997, 1996 and 1995, consistent with the
provisions of SFAS No. 123, the Company's net income (loss) and net
income (loss) per share would have been reduced to the pro forma amounts
indicated below (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- --------------------- ----------------------
Earnings Earnings Earnings Earnings Earnings Earnings
per per per per per per
Common Common Common Common Common Common
Share - Share - Share - Share - Share - Share -
Basic Diluted Basic Diluted Basic Diluted
<S> <C> <C> <C> <C> <C> <C>
Net income (loss):
As reported $ (4,330) $ (4,330) $ 1,106 $ 1,106 $ 1,385 $ 1,385
Compensation expense for
stock, net of tax (63) (63) (87) (87) (65) (65)
--------- --------- -------- -------- --------- ---------
Pro forma net income (loss) (4,393) (4,393) 1,019 1,019 1,320 1,320
========= ========= ======= ======= ======== ========
Pro forma earnings per share
As reported $ (0.70) $ (0.70) $ 0.18 $ 0.18 $ 0.22 $ 0.22
Compensation expense for
stock, net of tax (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
--------- --------- -------- -------- -------- --------
Pro forma net income (loss)
per share $ (0.71) $ (0.71) $ 0.17 $ 0.17 $ 0.21 $ 0.21
========= ========= ======= ======= ======= =======
</TABLE>
The pro forma net income for 1997, 1996 and 1995 is not representative of
the pro forma effect on net income in future years because it does not
take into consideration pro forma compensation expense related to grants
made prior to 1995.
<PAGE>
12. 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 consolidated income statement.
The provision for income taxes was based on pretax income (loss) from
continuing operations before minority interest which was subject to
taxation by the following jurisdictions. Domestic pretax income includes
the pretax income of U.S. based entities as well as the international
branches of these entities (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Pre-Tax income (loss):
<S> <C> <C> <C>
Domestic $ 369 $ 1,149 $ 1,013
Foreign (4,169) 833 (785)
---------- ---------- ----------
Total $ (3,800) $ 1,982 $ 228
========== ========== =========
</TABLE>
The provision (credit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Current:
<S> <C> <C> <C>
Federal $ 1,058 $ 265 $ 71
State 309 142 51
Foreign 223 135 239
--------- ---------- ---------
1,590 542 361
--------- ---------- ---------
Deferred:
Federal (971) (102) 10
State (298) (34) 38
Foreign (1,365) 137 (482)
---------- ---------- ----------
(2,634) 1 (434)
---------- ---------- ----------
Change in valuation allowance 1,399 (218) 65
--------- ----------- ---------
Total $ 355 $ 325 $ (8)
========= ========== ==========
</TABLE>
<PAGE>
The net deferred tax asset or liability reported on the consolidated
balance sheet consist of the following items as of January 2, 1998 and
January 3, 1997 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
Net current deferred tax assets:
<S> <C> <C>
Allowance for doubtful accounts and discounts $ 1,111 $ 662
Inventory allowances and tax costing adjustments 236 246
Deferred compensation 279 229
Accrued expenses, not currently deductible 283 125
Untaxed installment receivables -- (174)
Loss carryforwards 125 599
Valuation allowance -- --
---------- ---------
Total $ 2,034 $ 1,687
---------- ---------
Net long-term deferred tax assets:
Loss carryforwards $ 1,752 --
Valuation allowance (1,399) --
----------- ---------
Total $ 353 --
---------- ---------
Net long-term deferred tax liabilities:
Property, plant and equipment $ 621 $ 769
Investments in limited partnerships 1,198 1,155
---------- ---------
Total $ 1,819 $ 1,924
---------- ---------
Net deferred tax asset (liability) $ 568 $ (237)
========== ==========
</TABLE>
The loss carryforward amounts shown above relate to foreign operating
losses of approximately $6,289,000 which may be carried forward
indefinitely. At January 2, 1998, the Company has determined that it is
more likely than not that $1,399,000 of the deferred tax assets resulting
from foreign operating losses will not be realized.
The differences between the U.S. statutory federal income tax rate and
the effective income tax rate on pretax income from continuing operations
before minority interest are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. federal income tax rate (34.0%) 34.0% 34.0%
State income tax, net of federal benefit 0.2% 3.6% 25.8%
Detriment (benefit) of valuation allowance
relating to foreign losses 36.8% (11.0%) 28.5%
Non-deductible expenses and tax-exempt income 0.7% 1.5% 13.4%
International tax rate differences 7.0% (0.6%) 10.3%
Low-income housing tax credits (1.4%) (9.0%) (71.6%)
Adjustment of prior years' estimated
tax liabilities 0.0% (2.1%) (43.9%)
----- ------ -------
Effective income tax rate 9.3% 16.4% (3.5%)
===== ===== =======
</TABLE>
The Company has not recorded deferred income taxes applicable to the
undistributed earnings of foreign subsidiaries that are indefinitely
reinvested in foreign operations. These earnings amounted to
approximately $3,046,000 at January 2, 1998.
<PAGE>
13. Discontinued Operations:
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 to Brookfield International,
Inc. for $6,841,000.
The summarized balance sheet for the discontinued operations as of
January 3, 1997 is as follows (in thousands):
Assets
Current assets
Accounts receivable $ 4,339
Inventories 4,095
Prepaid expenses 491
---------
Total current assets 8,925
Property, plant and equipment, net 190
Other assets 69
---------
Total assets $ 9,184
---------
Liabilities
Current liabilities
Current portion of long-term debt and
capital lease obligations $ 36
Accounts payable 30
Accrued expenses 179
---------
Total liabilities $ 245
---------
Net assets of discontinued operations $ 8,939
=========
As of January 3, 1997, the net assets of the discontinued operation have
been reclassified and are reflected in current assets in the consolidated
balance sheet as of that date.
As a result of the Brookfield sale, the Company recorded a pre-tax gain
of $174,000, ($96,000 after tax or $0.02 per diluted share). The pre-tax
gain is net of $278,000 of costs incurred in connection with the disposal
of Brookfield, agreed reduction to the selling price of $300,000, as well
as operating losses of $243,000, incurred by Brookfield subsequent to the
transaction measurement date.
The results of operations for Brookfield for the fiscal years ended
January 2, 1998, January 3, 1997 and January 5, 1996 have been segregated
from continuing operations and are reported separately as discontinued
operations. Prior year consolidated statements of earnings have been
restated to present Brookfield as a discontinued operation.
See Note 21 of the Notes to Consolidated Financial Statements for further
discussion relative to the restatement of the carrying value of certain
of the assets of the discontinued operations.
<PAGE>
The following table summarizes Brookfield's results of operations for the
years ended January 2, 1998, January 3, 1997 and January 5, 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenues $ 2,381 $ 19,567 $ 24,094
Costs and expenses 3,037 19,969 22,647
---------- ---------- ----------
Income (loss) before tax (656) (402) 1,447
Income tax expense (benefit) (262) (159) 584
----------- ----------- ----------
Income (loss) from discontinued operations (394) (243) 863
Gain on disposal of Brookfield business
including operating losses of $243 during
the phase-out period (net of tax expense of $78) 96 -- --
---------- ---------- ----------
Income (loss) from discontinued operations $ (298) $ (243) $ 863
=========== =========== ==========
</TABLE>
14. Asset Writedowns:
During 1997, the Company's Australian subsidiary recorded a $1,426,000
non-recurring charge to writedown accounts receivable (by $858,000) and
other assets (by $568,000) to their net realizable values. In addition, a
writedown of inventory of $1,340,000 was taken as is included in cost of
sales in 1997. The Company recorded a deferred tax valuation allowance of
$999,000 relating to net operating loss carryforwards of the Australian
subsidiary which are not expected to be realized.
During the second quarter of fiscal 1997, the Company recorded a
non-recurring charge of $850,000 ($508,000 after tax, $0.08 per diluted
share) to reduce the carrying value of the Company's inactive
distribution facility in East Brookfield, Massachusetts to estimated fair
value. The fair value of the facility was based on a present value
calculation of assumed market rental income using a discount rate of
12.0%.
This facility consisted of approximately 109,000 square feet of warehouse
and distribution space, as well as a retail factory outlet situated on
approximately 5.4 acres of land. The facility encompassed nine separate
buildings adjoined together. The dates of construction for the buildings
range from 1925 to 1972.
The facility had functioned as an overflow for the Company. On July 4,
1997, the Company's wholly-owned subsidiary, Brookfield Athletic Co.,
Inc. ("Brookfield"), sold substantially all of the assets used in
Brookfield's business. At that time, approximately 15% of the facilities
aggregate square footage was either utilized by the Company or let out.
The Company had no current or anticipated future need for the
under-utilized space, nor were there any definitive or prospective plans
to lease additional space. Attempts to lease the facility were
unsuccessful due to the inefficient configuration of the facility.
Accordingly, the Company determined that the East Brookfield distribution
facility was impaired. The non-recurring charge affected the United
States business segment.
15. Foreign Operations, Geographic Areas, and Other Income:
During 1997, 1996 and 1995, foreign operations of the Company included
the international activities of Hyde International Services, Ltd.,
Saucony Sports BV, and Saucony Deutschland Vertriebs GmbH, wholly-owned
foreign subsidiaries; Saucony Canada, Ltd., a majority-owned foreign
joint venture Saucony SP Pty Ltd., a 50%-owned foreign joint venture; and
Saucony UK, a branch operation of Saucony, Inc.
The condensed balance sheet of the Company's foreign operations as of
January 2, 1998 and January 3, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
Assets:
<S> <C> <C>
Cash $ 1,390 $ 1,830
Accounts receivable 4,116 4,768
Inventories 5,888 8,909
Other current assets 1,178 1,127
Noncurrent assets 325 1,092
--------- ----------
$ 12,897 $ 17,726
========= ==========
Liabilities and Stockholders' Equity:
Notes payable $ 2,885 $ 1,935
Current portion of long-term debt 1,308 94
Accounts payable and accrued expenses 1,465 1,614
Due to related parties 8,344 7,161
Long-term debt -- 1,885
Capitalized lease obligations 19 31
Minority interest 195 488
Stockholders' equity (1,319) 4,518
---------- ----------
$ 12,897 $ 17,726
========= ==========
</TABLE>
The results of foreign operations included in the consolidated statements
of income are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales to unaffiliated parties $ 22,412 $ 23,723 $ 21,214
Net sales to affiliated parties
(eliminated in consolidation) 604 741 738
----------- ----------- -----------
Net sales $ 23,016 $ 24,464 $ 21,952
=========== =========== ===========
Income (loss) before income taxes
and minority interest $ (6,109) $ 677 $ 632
Income tax provision (benefit) 225 54 (179)
Minority interest in income (loss) (123) 308 (286)
------------ ----------- ------------
Net income (loss) $ (6,211) $ 315 $ 1,097
============ =========== ===========
</TABLE>
The foreign operations changes in stockholders' equity from 1997 to 1996,
1996 to 1995 and 1995 to 1994 were due to the recognition of common stock
and paid-in capital amounts offset by income or losses and accumulated
translation adjustments.
<PAGE>
The following table summarizes the Company's continuing operations by
geographic area for the years ended January 2, 1998, January 3, 1997 and
January 5, 1996 and identifiable assets as of January 2, 1998, January 3,
1997 and January 5, 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Net sales to unaffiliated parties:
<S> <C> <C> <C>
United States $ 65,602 $ 60,236 $ 51,061
International 28,009 31,105 27,488
----------- ----------- -----------
$ 93,611 $ 91,341 $ 78,549
=========== =========== ===========
International net sales to unaffiliated parties:
International divisions of United States
parent company $ 5,597 $ 7,382 $ 6,274
Foreign subsidiaries 22,412 23,723 21,214
----------- ----------- -----------
$ 28,009 $ 31,105 $ 27,488
=========== =========== ===========
Net sales between geographic areas:
United States $ 180 $ 44 $ 138
International 7,430 8,148 8,241
----------- ----------- -----------
$ 7,610 $ 8,192 $ 8,379
=========== =========== ===========
Total net sales:
United States $ 65,782 $ 60,280 $ 51,199
International 35,439 39,253 35,729
Less: Inter-area eliminations (7,610) (8,192) (8,379)
------------ ------------ ------------
$ 93,611 $ 91,341 $ 78,549
=========== =========== ===========
Operating profit (loss):
United States $ 2,934 $ 1,595 $ 1,478
International (4,572) 978 (937)
Less: Inter-area eliminations (297) (228) (50)
------------ ------------ ------------
$ (1,935) $ 2,345 $ 491
============ =========== ===========
Identifiable assets:
United States $ 59,521 $ 65,854 $ 64,189
International 13,142 17,741 14,754
Less: Inter-area eliminations (11,347) (12,843) (9,678)
------------ ------------ ------------
$ 61,316 $ 70,752 $ 69,265
=========== =========== ===========
</TABLE>
Net sales to unaffiliated customers is based on the location of the
customers. International inter-area sales represent shipment of inventory
to international subsidiaries and purchases of inventory from
international subsidiaries. These inter-area sales are generally priced
to recover cost plus an appropriate mark-up for profit and are eliminated
in the determination of consolidated net sales. Operating profit consists
of revenue less related cost of sales, selling expenses and general and
administrative expenses, and does not include interest expense, income
taxes or minority shareholders' interest.
Other revenue consists primarily of royalty income and freight and
handling revenue on product shipments.
16. Major Customer:
For 1997, 1996 and 1995, the Company did not have a major customer
account for more than 10% of gross sales.
17. Acquisitions:
Saucony Sports B.V.
On December 11, 1991, the Company entered into a joint venture with a
Dutch company to market and distribute Saucony footwear. On December 31,
1991, the Company purchased 51% of the issued and outstanding stock of
Saucony Sports BV for $414,000. On June 9, 1993, the Company increased
its majority ownership from 51% to 76% by acquiring an additional 25% of
the issued and outstanding common stock from the minority shareholder,
for $210,000, which equaled the book value of the stock. On December 22,
1997, the Company acquired the remaining issued and outstanding stock
owned by the minority stockholder for $140,000 of which $30,000 has been
recorded as goodwill.
At January 2, 1998, January 3, 1997 and January 5, 1996, Saucony Sports
BV had assets of $1,889,000, $1,571,000 and $1,595,000; liabilities of
$930,000, $1,236,000 and $1,455,000; and revenues of $3,170,000,
$3,084,000 and $3,216,000, respectively.
Saucony Canada, Inc.
On March 1, 1993, the Company acquired 85% of the issued and outstanding
stock of a Canadian distributor, Saucony Canada, Inc. The purchase price
of $351,000 was financed with available cash of $161,000 and the issuance
of a note payable of $189,843. At January 2, 1998, January 3, 1997 and
January 5, 1996, Saucony Canada, Inc. had assets of $2,841,000,
$2,102,000 and $1,867,000; liabilities of $359,000, $851,000 and
$741,000; and revenues of $4,199,000, $4,002,000 and $3,777,000,
respectively.
Saucony SP Pty. Ltd.
Effective July 1, 1993, the Company acquired 50% of the issued and
outstanding common stock of an Australian distributor, Saucony SP Pty.
Ltd., for $214,000 in cash. The agreement was completed on November 13,
1993. During 1995, the Company increased its investment in Saucony SP
Pty. Ltd. by acquiring 28 shares of Cumulative Redeemable Preferred Stock
($1 par) for $2,082,000 in exchange for an equivalent reduction in debt
owed to the Company by Saucony SP. 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. As the fair value of
assets acquired equaled the carrying value of the debt reduction, there
was no impact on consolidated net income. See Note 14 of Notes to
Consolidated Financial Statement regarding the non-recurring charge
recorded in the fourth quarter of 1997.
At January 2, 1998, January 3, 1997 and January 5, 1996, Saucony SP Pty.
Ltd. had assets of $3,515,000, $9,420,000 and $7,401,000; liabilities
of $2,692,000, $6,895,000 and $5,528,000; and revenues of $10,333,000,
$14,024,000 and $11,661,000, respectively.
Quintana Roo, Inc.
On August 31, 1995, Quintana Roo, Inc., a newly formed subsidiary of the
Company, acquired the assets of a bicycle and wetsuit manufacturer for
$112,000 in cash.
Hind Apparel
On December 20, 1996, the Company acquired the trade name, trademarks,
patents and service marks of an athletic apparel manufacturer for
$1,250,000 in cash. The entire purchase amount has been recorded as
goodwill.
These acquisitions are accounted for as purchases.
18. Concentration of Credit Risk:
Financial instruments which potentially subject the Company to credit
risk consist primarily of cash, cash equivalents and trade receivables.
The Company maintains cash and cash equivalents with various major
financial institutions. Cash equivalents include investments in
commercial paper of companies with high credit ratings, investments in
money market securities and securities backed by the U.S. Government. At
times such amounts may exceed the F.D.I.C. limits. The Company limits the
amount of credit exposure with any one financial institution and believes
that no significant concentration of credit risk exists with respect to
cash investments.
Trade receivables subject the Company to the potential for credit risk
with customers in the retail and distributor sectors. To reduce credit
risk, the Company performs ongoing evaluations of its customers financial
condition but does not generally require collateral. Approximately 31% of
the Company's gross trade receivables balance was represented by 8
customers at January 2, 1998, which exposes the Company to a
concentration of credit risk.
19. Fair Value of Financial Instruments:
The carrying value of cash, cash equivalents, receivables, long-term debt
and other notes payable approximates fair value. The Company believes
similar terms for current long-term debt and other notes payable would be
attainable. The fair value of marketable securities is estimated based
upon quoted market prices for these securities. The Company enters into
forward currency exchange contracts to hedge intercompany liabilities
denominated in other than the functional currency. The fair value of the
Company's foreign currency exchange contracts is estimated based on
current foreign exchange rates. At January 2, 1998, the value of the
Company's foreign currency exchange contracts to purchase U.S. dollars
was $1,072,000 and to sell U.S. dollars was $146,000. Gains and losses on
forward exchange contracts are deferred and offset against foreign
currency exchange gains and losses on the underlying hedged item upon
consummation of the transaction. At January 2, 1998, estimated fair value
of the Company's financial instruments approximated the carrying value.
<PAGE>
20. Quarterly Information:
<TABLE>
<CAPTION>
(in thousands, per share amounts in dollars)
1997 (1) Quarter 1 Quarter 2 Quarter 3 Quarter 4
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 25,217 $ 24,398 $ 24,635 $ 19,361
Gross profit 8,585 8,550 8,422 4,543
Income (loss) from continuing operations 570 (120) 375 (4,857)
Income (loss) from discontinued operations (287) 246 (172) (85)
Net income (loss) 283 126 203 (4,942)
Earnings per share:
Basic 0.05 0.02 0.03 (0.79)
Diluted 0.05 0.02 0.03 (0.79)
1996 (2) Quarter 1 Quarter 2 Quarter 3 Quarter 4
---- --------- --------- --------- ---------
Net sales $ 28,638 $ 24,396 $ 20,609 $ 17,698
Gross profit 8,788 7,542 7,207 6,112
Income (loss) from continuing operations 883 227 220 19
Income (loss) from discontinued operations (143) (114) 383 (369)
Net income (loss) 740 113 603 (350)
Earnings per share:
Basic 0.12 0.02 0.10 (0.06)
Diluted 0.12 0.02 0.10 (0.06)
-----------------
<FN>
(1) Net income for Quarter 2 and Quarter 3 of fiscal 1997 have been
restated. See Note 21 of the Notes to Consolidated Financial Statements.
(2) Net income for Quarter 4 of fiscal 1996 has been restated. See Note 21
of the Notes to Consolidated Financial Statements.
</FN>
</TABLE>
During the second quarter of 1997, the Company recorded a non-recurring
impairment charge of $850,000 ($508,000 after tax, $0.08 per share
diluted) to reduce the carrying value of the Company's inactive
distribution facility in East Brookfield, Massachusetts to market.
During the fourth quarter of 1997, the Company's gross margin was
adversely impacted by the decline in gross margin realized by the
Company's Australian subsidiary, which was due to increased sales of
non-current footwear
Also during the fourth quarter of 1997, the Company's Australian
subsidiary recorded a non-recurring charge of $1,426,000 ($0.23 per
diluted share) to write-down accounts receivable by $858,000 and prepaid
expenses and other assets by $568,000 to their net realizable values. In
addition, an inventory writedown of $1,340,000 ($0.22 per diluted share)
was recorded and is included in cost of sales. The Company recorded
deferred tax valuation allowances of $999,000 and $400,000 relating to
loss carryforwards of the Company's Australian and German subsidiaries,
respectively, which are not expected to be realized.
During the fourth quarter of 1996, the Company recorded an impairment
charge of $650,000 ($388,000 after-tax, or $0.06 per diluted share) to
reduce the carrying value of the barter credits to estimated realizable
values.
Earnings per share amounts for each quarter are required to be computed
independently and, as a result, their sum may not equal the total
earnings per share amounts for fiscal 1997 and fiscal 1996.
21. Accounting Restatements:
On March 1, 1999, the Company announced that it was engaged in
discussions with the Securities and Exchange Commission ("SEC") regarding
the accounting for two specific transactions recorded in 1995 and 1997.
As a result of those discussions, the Company has restated its previously
reported financial results for 1995, 1996 and 1997.
November 1995 - Barter Transaction. In November 1995, the Company'
Brookfield subsidiary ("Brookfield") entered into a barter of inventory
with an approximate book value of $1,055,000 in exchange for cash of
$100,000 and media and trade receivables barter credits of $950,000 and
$350,000, respectively. As of January 3, 1997, $1,298,000 of barter
credits were outstanding. In addition, in 1995, the Company recorded
$345,000 of pre-tax gross margin which was reflected in "discontinued
operations" in the 1997 Form 10-K for the fiscal year 1995.
In connection with the restatement discussed with the SEC, the fiscal
1995 gross margin was reduced by $345,000 ($206,000 after-tax of $0.04
per diluted share), leaving a net carrying value of all barter credits of
$955,000 at year end fiscal 1995. In addition, a pre-tax impairment
charge of $650,000 ($388,000 after-tax, or $0.06 per diluted share) was
recorded for fiscal 1996 to reflect the uncertain value of the remaining
barter credits at that time.
Substantially all the assets of Brookfield, including the remaining
barter credits, were sold to a third party in 1997. As such, the
adjustments in 1995 and 1996 were reversed in 1997 and are reflected in
the "Gain on disposal of the Brookfield business" in 1997 and no impact
on cumulative retained earnings at January 2, 1998. Reflecting this
restatement for fiscal 1997, the previously reported after-tax loss of
$498,000 on the disposal of Brookfield becomes an after-tax gain on
disposal of $96,000.
August 1997 - License Agreement. In August 1997, the Company granted a
three-year license to an independent third party for the use of the
"Spot-Bilt" and the "single spot" logo trademarks. The agreement called
for minimum guaranteed total royalties of $447,000 over the three-year
life of the license. In the third quarter of 1997, the Company, based on
the fact that it believed that it had no further contractual requirements
under the agreement, recorded a receivable based on the minimum
guaranteed present value of future cash flows, utilizing a discount rate
of 8.5%, which equates to $378,000. This amount was recorded as revenue
in fiscal 1997 resulting in $225,000 of net income, or $0.04 per diluted
share. The SEC disagreed with the Company's original accounting.
As a result of the restatement, the licensing revenue and associated
profit will be recognized ratably over the three-year life of the
agreement, rather than up front as originally reported. Accordingly, for
the third quarter of fiscal 1997, revenue has been reduced by $346,000
($206,000 after-tax, or $0.03 per diluted share).
The following table summarizes the net income and diluted earnings per
share impact of the two financial restatements (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------
Net income effect
<S> <C> <C> <C>
Barter transaction $ 594 $ (388) $ (206)
License agreement (206) -- --
---------- -------- ---------
$ 388 $ (388) $ (206)
========= ========= ==========
Earnings per diluted share
As previously reported
Continuing operations $ (0.62) $ 0.22 $ 0.08
Discontinued operations (0.14) 0.02 0.18
--------- -------- ---------
$ (0.76) $ 0.24 $ 0.26
========= ======== =========
Restatement impact
Continuing operations $ (0.03) $ 0.00 $ 0.00
Discontinued operations 0.09 (0.06) (0.04)
-------- --------- ----------
$ 0.06 $ (0.06) $ (0.04)
======== ========= ==========
Adjusted earnings per diluted share
Continuing operations $ (0.65) $ 0.22 $ 0.08
Discontinued operations (0.05) (0.04) 0.14
--------- --------- ---------
$ (0.70) $ 0.18 $ 0.22
========= ======== =========
</TABLE>
<PAGE>
<TABLE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended January 2, 1998, January 3, 1997 and January 5, 1996
<CAPTION>
(dollars in thousands)
Additions
Balance charged to Deductions Balance
beginning costs and from end
of year expenses reserve of year
<S> <C> <C> <C> <C>
Year ended January 2, 1998:
Allowance for doubtful accounts and discounts $ 1,234 $ 5,475 $ 4,677 $ 2,032
Year ended January 3, 1997:
Allowance for doubtful accounts and discounts $ 940 $ 5,269 $ 4,975 $ 1,234
Year ended January 5, 1996:
Allowance for doubtful accounts and discounts $ 1,147 $ 4,807 $ 5,014 $ 940
</TABLE>
<PAGE>
Exhibit Index
Exhibit
Number Description
2.0 Asset Purchase Agreement, dated June 27, 1997, between
Brookfield International, Inc. and Brookfield Athletic Co.,
Inc. is incorporated herein by reference to Exhibit 2.1 to
the Registrant's Current Report on Form 8-K dated
July 4, 1997. *
3.1 Restated Articles of Organization, as amended, of the
Registrant are incorporated herein by reference to
Exhibit 4.1 to the Registrant's Registration Statement
on Form S-8 (File No. 33-66482) *
3.2 By-Laws, as amended, of the Registrant are incorporated
herein by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-2, as amended
(File No. 33-61040) (the "Form S-2") *
10.1 Note Purchase Agreement between the Registrant and
the Principal Mutual Life Insurance Company is incorporated
herein by reference to Exhibit (4b) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1988 (the "1988 10-K Report") *
10.2 Credit Agreement among the Registrant, State Street Bank
and Trust Company and CoreStates Bank, N.A., dated
August 31, 1993 is incorporated herein by reference
to Exhibit 10.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 (the
"1993 10-K Report") *
10.3 Guarantee of the Registrant to the Bank of Nova Scotia
is incorporated herein by reference to Exhibit 10.3 to
the 1993 10-K Report *
10.4 Letter of Guarantee of the Registrant to State Street
Finance Limited is incorporated herein by reference
to Exhibit 10.4 to the 1993 10-K Report *
10.5** 1982 Employee Stock Option Plan, as amended, is
incorporated herein by reference to Exhibit 10.7 to the
Form S-2 *
10.6** Amendment to the Credit Agreement among the Registrant,
State Street Bank and Trust Company and CoreStates Bank,
N.A., dated August 31, 1993, is incorporated herein by
reference to Exhibit 10.06 to the Registrant's Quarterly
Report on Form 10-Q for the 39 weeks ended September 30, 1994 *
10.*** Trademark License Agreement, dated as of February 1, 1994,
between the Registrant and Leif J. Ostberg, Inc. is incorporated
herein by reference to Exhibit 10.21 of the 1993 10-K Report *
10.8** 1993 Equity Incentive Plan, as amended.
10.9** 1993 Director Option Plan is incorporated herein by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for
the thirteen weeks ended April 2, 1993, as amended
(the "1993 Form 10-Q") *
10.10** VP Bonus Plan is incorporated herein by reference to
Exhibit 10.19 to the Form S-2 *
10.11** Compensation Agreement between the Registrant and
James H. Noyes, Jr. is incorporated herein by reference
to Exhibit 10.3 to the 1993 Form 10-Q *
10.12** Letter Agreement dated March 30, 1995, between the Registrant and
Principal Mutual Life Insurance Company is incorporated herein by
reference to Exhibit 10.01 of the Registrant's Quarterly Report
on Form 10-Q for the thirteen weeks ended March 31, 1995 *
10.13*** Second and Third Amendments to the Credit Agreement among the
Registrant, State Street Bank and Trust Company and CoreStates
Bank, N.A. is incorporated herein by reference to Exhibit 10.27 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 3, 1997. *
21 Subsidiaries of the Registrant
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Grant Thornton
27.1 Financial Data Schedule restated for the fiscal year ended January
5, 1996.
27.2 Financial Data Schedule restated for the fiscal year ended January
3, 1997, the three months ended April 5, 1996, the six months
ended July 5, 1996 and the nine months ended October 4, 1996.
27.3 Financial Data Schedule restated for the fiscal year ended January
2, 1998 and Financial Data Schedule restated for the three months
ended April 4, 1997, the six months ended July 4, 1997 and the
nine months ended October 3, 1997.
* Incorporated herein by reference.
** Management contract or compensatory plan or arrangement filed
herewith in response to Item 14(a)(3) of the instructions to Form
10-K.
*** Confidential treatment previously granted as to certain portions
of such document.
EXHIBIT 10.8
Hyde Athletic Industries, Inc.
1993 EQUITY INCENTIVE PLAN, AS AMENDED
(Restated as of December 20, 1997)
Purpose.
The purpose of this plan (the "Plan") is to secure for Hyde Athletic Industries,
Inc. (the "Company") and its shareholders the benefits arising from capital
stock ownership by employees, officers and directors of, and consultants or
advisors to, the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success. Except where
the context otherwise requires, the term "Company" shall include the parent and
all present and future subsidiaries of the Company as defined in Sections 424(e)
and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from
time to time (the "Code").
Type of Options and Awards; Administration.
Types of Options and Awards. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code. Awards granted pursuant to the Plan shall be authorized
by action of the Board of Directors of the Company (or a Committee designated by
the Board of Directors) and shall meet the requirements of Section 13 of the
Plan.
Administration. The Plan will be administered by the Board of Directors of the
Company, whose construction and interpretation of the terms and provisions of
the Plan shall be final and conclusive. The Board of Directors may in its sole
discretion (i) grant options to purchase shares of the Company's Common Stock
(as defined in Section 4 of the Plan), and issue shares upon exercise of such
options as provided in the Plan and (ii) make awards for the purchase of shares
of Common Stock pursuant to Section 13 of the Plan. The Board shall have
authority, subject to the express provisions of the Plan, to construe the
respective option agreements, awards and the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the terms and
provisions of the respective option agreements and awards, which need not be
identical, and to make all other determinations in the judgment of the Board of
Directors necessary or desirable for the administration of the Plan. The Board
of Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement or award in the manner and
to the extent it shall deem expedient to carry the Plan into effect and it shall
be the sole and final judge of such expediency. No director or person acting
pursuant to authority delegated by the Board of Directors shall be liable for
any action or determination made in good faith. The Board of Directors may, to
the full extent permitted by or consistent with applicable laws or regulations
(including, without limitation, applicable state law and Rule 16b-3 promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor
rule ("Rule 16b-3")), delegate any or all of its powers under the Plan to a
committee (the "Committee") appointed by the Board of Directors, and if the
Committee is so appointed all references to the Board of Directors in the Plan
shall mean and relate to such Committee to the extent authority is so delegated
to such Committee.
Applicability of Rule 16b-3. Those provisions of the Plan
which make express reference to Rule 16b-3 shall apply only to such persons as
are required to file reports under Section 16(a) of the Exchange Act (a
"Reporting Person").
Eligibility.
General. Options and awards may be granted or made to persons
who are, at the time of grant, employees, officers or directors (so long as such
officers and directors are also employees) of, or consultants or advisors to,
the Company; provided, that the class of employees to whom Incentive Stock
Options may be granted shall be limited to all employees of the Company; and
provided further that non-employee directors of the Company are not eligible to
receive options or awards of restricted stock under the Plan. A person who has
been granted an option or award may, if he or she is otherwise eligible, be
granted additional options or awards if the Board of Directors shall so
determine. Subject to adjustment as provided in Section 16 below, the maximum
number of shares with respect to which options or restricted stock awards may be
granted to any person under the Plan shall not exceed 150,000 shares of Common
Stock (as defined in Section 4 below) during any calendar year during the term
of the Plan. For the purpose of calculating such maximum number, (a) an option
or award shall continue to be treated as outstanding notwithstanding its
repricing, cancellation or expiration and (b) the repricing of an outstanding
option or award or the issuance of a new option or award in substitution for a
cancelled option or award shall be deemed to constitute the grant of a new
additional option or award, as the case may be, separate from the original grant
that is repriced or cancelled.
Grant of Options to Directors and Officers. The selection of a
director or an officer (as the terms "director" and "officer" are defined for
purposes of Rule 16b-3) as a participant, the timing of the option grant or
award, the exercise price of the option or the sale price of the award and the
number of shares for which an option or award may be granted to such director or
officer shall be determined either (i) by the Board of Directors, of which all
members shall be "disinterested persons" (as hereinafter defined), or (ii) by a
committee of two or more directors having full authority to act in the matter,
of which all members shall be "disinterested persons." For the purposes of the
Plan, a director shall be deemed to be "disinterested" only if such person
qualifies as a "disinterested person" within the meaning of Rule 16b-3, as such
term is interpreted from time to time.
Stock Subject to Plan.
Subject to adjustment as provided in Section 16 below, the total number of
shares of Class A Common Stock, $.33-1/3 par value per share ("Class A Common
Stock"), and Class B Common Stock, $.33-1/3 par value per share ("Class B Common
Stock"), which may be issued and sold under the Plan is 1,150,000 shares in the
aggregate. The term "Common Stock" as used herein shall refer to Class A Common
Stock or Class B Common Stock as the case may be. If an option granted under the
Plan shall expire or terminate for any reason without having been exercised in
full, the unpurchased shares subject to such option shall again be available for
subsequent option grants or awards under the Plan.
Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of an
option shall execute an option agreement in such form not inconsistent with the
Plan as may be approved by the Board of Directors. Such option agreements may
differ among recipients.
Purchase Price Upon Exercise of Options.
General. The purchase price per share of Common Stock
deliverable upon the exercise of an option shall be determined by the Board of
Directors, provided, however, that in the case of an Incentive Stock Option, the
exercise price shall not be less than 100% of the fair market value of such
stock, as determined by the Board of Directors, at the time of grant of such
option, or less than 110% of such fair market value in the case of options
described in Section 11(b).
Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i) by
delivery to the Company of shares of Common Stock of the Company already owned
by the optionee having a fair market value equal in amount to the exercise price
of the options being exercised, (ii) by any other means (including without
limitation by delivery of a promissory note of the optionee payable on such
terms as are specified by the Board of Directors) which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment. The fair market value of any shares of
the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined in such manner as may
be prescribed by the Board of Directors.
Option Period.
Each option and all rights thereunder shall expire on such date as shall be set
forth in the applicable option agreement, except that such date, in the case of
an Incentive Stock Option, shall in no case be later than ten years after the
date on which the option is granted.
Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or in
installments at such time or times and during such period as shall be set forth
in the agreement evidencing such option, subject to the provisions of the Plan.
Nontransferability of Options.
Incentive Stock Options, and all options granted to Reporting Persons, shall not
be assignable or transferable by the person to whom it is granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the optionee, shall be exercisable only by
the optionee; provided, however, that non-statutory options granted to Reporting
Persons may be transferred pursuant to a qualified domestic relations order (as
defined in Rule 16b-3).
Effect of Termination of Employment or Other Relationship.
The Board of Directors shall determine the period of time during which an
optionee may exercise an option following (i) the termination of the optionee's
employment or other relationship with the Company or (ii) the death or
disability of the optionee. Such periods shall be set forth in the agreement
evidencing such option.
Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock Options
shall be subject to the following additional terms and conditions:
Express Designation. All Incentive Stock Options granted under
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
10% Shareholder. If any employee to whom an Incentive Stock
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the fair market value
of one share of Common Stock at the time of grant; and
The option exercise period shall not exceed five years from
the date of grant.
Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than $100,000.
Termination of Employment, Death or Disability. No Incentive
Stock Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
an Incentive Stock Option may be exercised within the period
of three months after the date the optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), provided, that the agreement with respect to such option may
designate a longer exercise period and that the exercise after such three- month
period shall be treated as the exercise of a non-statutory option under the
Plan;
if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised, by the person to whom it is transferred
by will or the laws of descent and distribution, within the period of one year
after the date of death (or within such lesser period as may be specified in the
applicable option agreement); and
if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within the
period of one year after the date the optionee ceases to be such an employee
because of such disability (or within such lesser period as may be specified in
the applicable option agreement).
For all purposes of the Plan and any option or award granted hereunder,
"employment" shall be defined in accordance with the provisions of Section
1.421-7(h) of the Income Tax Regulations (or any successor regulations).
Notwithstanding the foregoing provisions, no stock option may be exercised after
its expiration date.
Additional Provisions.
Additional Option Provisions. The Board of Directors may, in
its sole discretion, include additional provisions in any option granted under
the Plan, including without limitation restrictions on transfer, repurchase
rights, commitments to pay cash bonuses, to make, arrange for or guaranty loans
or to transfer other property to optionees upon exercise of options, or such
other provisions as shall be determined by the Board of Directors; provided that
such additional provisions shall not be inconsistent with any other term or
condition of the Plan.
Acceleration, Extension, Etc. The Board of Directors may, in
its sole discretion, (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised or (ii)
extend the dates during which all or any particular option or options granted
under the Plan may be exercised; provided, however, that no such extension shall
be permitted if it would cause the Plan to fail to comply with Section 422 of
the Code or with Rule 16b-3.
Awards.
A restricted stock award ("award") shall consist of the sale and issuance by the
Company of shares of Common Stock, and purchase by the recipient of such shares,
subject to the terms, conditions and restrictions described in the document
evidencing the award and in this Section 13 and elsewhere in the Plan.
Execution of Restricted Stock Award Agreement. As a condition
to an award under the Plan, each recipient of an award shall execute an
agreement in such form, which may differ among recipients, as shall be specified
by the Board of Directors at the time of such award.
Price. The Board of Directors shall determine the price at
which shares of Common Stock shall be sold to recipients of awards under the
Plan. The Board of Directors may, in its discretion, issue shares pursuant to
awards without the payment of any cash purchase price by the recipients or issue
shares pursuant to awards at a purchase price below the then fair market value
of the Common Stock. If a purchase price is required to be paid, it shall be
paid in cash or by check payable to the order of the Company at the time that
the award is accepted by the recipient, or by such other means as may be
approved by the Board of Directors.
Number of Shares. The award shall specify the number of shares of Common
Stock granted thereunder.
Restrictions on Transfer. In addition to such other terms,
conditions and restrictions upon awards as shall be imposed by the Board of
Directors, all shares issued pursuant to an award shall be subject to the
following restrictions:
All shares of Common Stock subject to an award (including any
shares issued pursuant to paragraph (e) of this Section) shall be subject to
certain restrictions on disposition and obligations of resale to the Company as
provided in subparagraph (2) below for the period specified in the document
evidencing the award, and shall not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of until such restrictions lapse. The period
during which such restrictions are applicable is referred to as the "Restricted
Period."
In the event that a recipient's employment with the Company
(or consultancy or advisory relationship, as the case may be) is terminated
within the Restricted Period, whether such termination is voluntary or
involuntary, with or without cause, or because of the death or disability of the
recipient, the Company shall have the right and option for a period of three
months following such termination to buy for cash that number of the shares of
Common Stock purchased under the award as to which the restrictions on transfer
and the forfeiture provisions contained in the award have not then lapsed, at a
price equal to the price per share originally paid by the recipient. If such
termination occurs within the last three months of the applicable restrictions,
the restrictions and repurchase rights of the Company shall continue to apply
until the expiration of the Company's three month option period.
Notwithstanding subparagraphs (1) and (2) above, the Board of
Directors may, in its discretion, either at the time that an award is made or at
any time thereafter, waive its right to repurchase shares of Common Stock upon
the occurrence of any of the events described in this paragraph (d) or remove or
modify any part or all of the restrictions. In addition, the Board of Directors
may, in its discretion, impose upon the recipient of an award at the time of
such award such other restrictions on any shares of Common Stock issued pursuant
to such award as the Board of Directors may deem advisable.
Additional Shares. Any shares received by a recipient of an
award as a stock dividend on, or as a result of stock splits, combinations,
exchanges of shares, reorganizations, mergers, consolidations or otherwise with
respect to, shares of Common Stock received pursuant to such award shall have
the same status and shall bear the same restrictions, all on a proportionate
basis, as the shares initially purchased pursuant to such award.
Transfers in Breach of Award. If any transfer of shares
purchased pursuant to an award is made or attempted contrary to the terms of the
Plan and of such award, the Board of Directors shall have the right to purchase
for the account of the Company those shares from the owner thereof or his or her
transferee at any time before or after the transfer at the price paid for such
shares by the person to whom they were awarded under the Plan. In addition to
any other legal or equitable remedies which it may have, the Company may enforce
its rights by specific performance to the extent permitted by law. The Company
may refuse for any purpose to recognize as a shareholder of the Company any
transferee who receives any shares contrary to the provisions of the Plan and
the applicable award or any recipient of an award who breaches his or her
obligation to resell shares as required by the provisions of the Plan and the
applicable award, and the Company may retain and/or recover all dividends on
such shares which were paid or payable subsequent to the date on which the
prohibited transfer or breach was made or attempted.
Additional Award Provisions. The Board of Directors may, in
its sole discretion, include additional provisions in any award granted under
the Plan, including without limitation commitments to pay cash bonuses, make,
arrange for or guarantee loans or transfer other property to recipients upon the
grant of awards, or such other provisions as shall be determined by the Board of
Directors.
General Restrictions.
Investment Representations. The Company may require any person
to whom an option or award is granted, as a condition of exercising such option
or purchasing the shares subject to the award, to give written assurances in
substance and form satisfactory to the Company to the effect that such person is
acquiring the Common Stock subject to the option or award for his or her own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws.
Compliance With Securities Laws. Each option and award shall
be subject to the requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such option or award upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental or regulatory body,
or that the disclosure of non-public information or the satisfaction of any
other condition is necessary as a condition of, or in connection with, the
issuance or purchase of shares thereunder, such option or award may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board of Directors.
Nothing herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification, or to satisfy such condition.
Rights as a Shareholder.
The holder of an option or recipient of an award shall have no rights as a
shareholder with respect to any shares covered by the option or award
(including, without limitation, any rights to receive dividends or non-cash
distributions with respect to such shares) until the date of issue of a stock
certificate to him or her for such shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
Adjustment Provisions for Recapitalizations and Related Transactions.
General. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased or decreased or are exchanged for a different number
or kind of shares or other securities of the Company, or (ii) additional shares
or new or different shares or other securities of the Company or other non-cash
assets are distributed with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment shall be made in (x) the
maximum number and kind of shares reserved for issuance under the Plan, (y) the
number and kind of shares or other securities subject to then outstanding
options under the Plan, and (z) the price for each share subject to any then
outstanding options under the Plan or repurchase rights of the Company, without
changing the aggregate purchase price as to which such options remain
exercisable, provided that no adjustment shall be made pursuant to this Section
16 if such adjustment would cause the Plan to fail to comply with Section 422 of
the Code or with Rule 16b-3.
Board Authority to Make Adjustments. Any adjustments under
this Section 16 will be made by the Board of Directors, whose determination as
to what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
Merger, Consolidation, Asset Sale, Liquidation, etc.
General. In the event of a consolidation or merger in which
outstanding shares of Common Stock are exchanged for securities, cash or other
property of any other corporation or business entity or in the event of a
liquidation of the Company or sale of all or substantially all of the assets of
the Company, the Board of Directors of the Company, or the board of directors of
any corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options and
awards: (i) provide that such options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), provided that any such options substituted for Incentive
Stock Options shall meet the requirements of Section 424(a) of the Code, (ii)
upon written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such transaction unless
exercised by the optionee within a specified period following the date of such
notice, (iii) in the event of a merger under the terms of which holders of the
Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the merger (the "Merger Price"), make or
provide for a cash payment to the optionees equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
outstanding options (to the extent then exercisable at prices not in excess of
the Merger Price) and (B) the aggregate exercise price of all such outstanding
options in exchange for the termination of such options, and (iv) provide that
all or any outstanding options shall become exercisable in full, any
restrictions on exercising outstanding options issued pursuant to the Plan prior
to any given date shall terminate and any restrictions on and rights of the
Company to repurchase shares covered by outstanding awards issued pursuant to
the Plan shall terminate.
Substitute Options. The Company may grant options under the
Plan in substitution for options held by employees of another corporation who
become employees of the Company, or a subsidiary of the Company, as the result
of a merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
No Special Employment Rights.
Nothing contained in the Plan or in any option or award shall confer upon any
recipient of an award or optionee any right with respect to the continuation of
his or her employment by the Company or interfere in any way with the right of
the Company at any time to terminate such employment or to increase or decrease
the compensation of the optionee.
Other Employee Benefits.
Except as to plans which by their terms include such amounts as compensation,
neither the amount of any compensation deemed to be received by an employee as a
result of the exercise of an option or the sale of shares received upon such
exercise nor the value of an award granted to an employee will constitute
compensation with respect to which any other employee benefits of such employee
are determined, including, without limitation, benefits under any bonus,
pension, profit-sharing, life insurance or salary continuation plan, except as
otherwise specifically determined by the Board of Directors.
Amendment of the Plan.
The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the approval
of the shareholders of the Company is required as to such modification or
amendment under Section 422 of the Code or any successor provision with respect
to Incentive Stock Options or under Rule 16b-3 with respect to options held by
or awards made to Reporting Persons, the Board of Directors may not effect such
modification or amendment without such approval.
The termination or any modification or amendment of the Plan
shall not, without the consent of an optionee or recipient of an award, affect
his or her rights under an option or award previously granted to him or her.
With the consent of the optionee or recipient of the award affected, the Board
of Directors may amend outstanding option agreements or awards in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and of any outstanding option or award to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3 or any successor rule.
Withholding.
The Company shall have the right to deduct from payments of
any kind otherwise due to the optionee or recipient of an award any federal,
state or local taxes of any kind required by law to be withheld with respect to
any shares issued upon exercise of options under the Plan or the purchase of
shares subject to the award. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee or recipient
of an award may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or the purchase of shares subject to an
award or (ii) by delivering to the Company shares of Common Stock already owned
by the optionee or award recipient. The shares so delivered or withheld shall
have a fair market value equal to such withholding obligation. The fair market
value of the shares used to satisfy such withholding obligation shall be
determined by the Company as of the date that the amount of tax to be withheld
is to be determined. An optionee or award recipient who has made an election
pursuant to this Section 21(a) may only satisfy his or her withholding
obligation with shares of Common Stock which are not subject to any repurchase,
forfeiture, unfulfilled vesting or other similar requirements.
Notwithstanding the foregoing, in the case of a Reporting
Person, no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
If the recipient of an award under the Plan elects, in
accordance with Section 83(b) of the Code, to recognize ordinary income in the
year of acquisition of any shares awarded under the Plan, the Company will
require at the time of such election an additional payment for withholding tax
purposes based on the difference, if any, between the purchase price of such
shares and the fair market value of such shares as of the date immediately
preceding the date of the award.
Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time and from
time to time, with the consent of the affected optionees, (i) the cancellation
of any or all outstanding options under the Plan and the grant in substitution
therefor of new options under the Plan covering the same or different numbers of
shares of Common Stock and having an option exercise price per share which may
be lower or higher than the exercise price per share of the cancelled options or
(ii) the amendment of the terms of any and all outstanding options under the
Plan to provide an option exercise price per share which is higher or lower than
the then-current exercise price per share of such outstanding options.
Effective Date and Duration of the Plan.
Effective Date. The Plan shall become effective when adopted
by the Board of Directors, but no Incentive Stock Option granted under the Plan
shall become exercisable unless and until the Plan shall have been approved by
the Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 20) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option issued after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
and awards may be granted under the Plan at any time after the effective date
and before the date fixed for termination of the Plan.
Termination. Unless sooner terminated in accordance with
Section 17, the Plan shall terminate, with respect to Incentive Stock Options,
upon the earlier of (i) the close of business on the day next preceding the
tenth anniversary of the date of its adoption by the Board of Directors, or (ii)
the date on which all shares available for issuance under the Plan shall have
been issued pursuant to the exercise or cancellation of options or the final
vesting of awards granted under the Plan. Unless sooner terminated in accordance
with Section 17, the Plan shall terminate with respect to options which are not
Incentive Stock Options and awards on the date specified in (ii) above. If the
date of termination is determined under (i) above, then options outstanding on
such date shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such options.
Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or options
granted to participants who are foreign nationals or employed outside the United
States to recognize differences in laws, rules, regulations or customs of such
foreign jurisdictions with respect to tax, securities, currency, employee
benefit or other matters.
Plan/Amendment Adopted by the Adopted by the
Board of Directors Stockholders
Plan April 7, 1993 May 25, 1993
Amendment No. 1 January 3, 1994 May 26, 1994
Amendment No. 2 March 19, 1997 May 15, 1997
<TABLE>
XHIBIT 21
<CAPTION>
SUBSIDIARIES OF HYDE ATHLETIC INDUSTRIES, INC.
Jurisdiction of Percentage
Name Incorporation Ownership
<S> <C> <C>
Hyde International Services, Ltd. Hong Kong 100%
Hyde Transition Corp.* Massachusetts 100%
Spot-Bilt, Inc.** Maine 100%
Saucony Canada, Inc.*** Ontario 85%
Saucony, Inc.*** Massachusetts 100%
Saucony Sports, B.V.*** Netherlands 76%
Saucony SP Pty. Ltd.*** Australia 50%
Saucony Deutschland Vertriebs GmbH *** Germany 100%
Quintana Roo, Inc.**** Delaware 100%
- ----------------------
<FN>
* Formerly known as Brookfield Athletic Co., Inc.
** Does business as "Spot-Bilt."
*** Does business as "Saucony."
**** Does business as "Quintana Roo."
</FN>
</TABLE>
XHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Hyde Athletic Industries, Inc. on Forms S-8 (file numbers 33-50922, 33-61532,
33-66482, 33-80726, 333-33485) of our report dated March 26, 1998, on our audits
of the consolidated financial statements and financial statement schedule of
Hyde Athletic Industries, Inc. and Subsidiaries 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 Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 1, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by Registration Statement of Hyde Athletic
Industries, Inc. on Forms S-8 (file numbers 33-50922, 33-61532, 33-66482,
33-80726, 333-33485) of our report dated April 2, 1998 on our audits of the
financial statements and financial statement schedule of Saucony SP Pty, Ltd. 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 Annual
Report on Form 10-K.
/s/ Grant Thornton
Grant Thornton
Chartered Accountants
/s/ B R Gordon
B R Gordon
Partner
Sydney, Australia
April 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from Hyde Athletic
Industries, Inc. Form 10-K for the period
ended January 5, 1996 and is qualified in
its entirety by reference to such 10-K.
</LEGEND>
<CIK> 0000049401
<NAME> Hyde Athletic
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jan-05-1996
<PERIOD-START> Dec-31-1994
<PERIOD-END> Jan-05-1996
<CASH> 11668
<SECURITIES> 308
<RECEIVABLES> 17361
<ALLOWANCES> 484
<INVENTORY> 26832
<CURRENT-ASSETS> 58984
<PP&E> 14716
<DEPRECIATION> 6593
<TOTAL-ASSETS> 69265
<CURRENT-LIABILITIES> 14728
<BONDS> 4206
0
0
<COMMON> 2139
<OTHER-SE> 46021
<TOTAL-LIABILITY-AND-EQUITY> 69265
<SALES> 78549
<TOTAL-REVENUES> 78840
<CGS> 52695
<TOTAL-COSTS> 52695
<OTHER-EXPENSES> 25654
<LOSS-PROVISION> 429
<INTEREST-EXPENSE> 982
<INCOME-PRETAX> 228
<INCOME-TAX> (8)
<INCOME-CONTINUING> 522
<DISCONTINUED> 863
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1385
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from Hyde Athletic
Industries, Inc. Form 10-K for the period
ended January 3, 1997 and is qualified in
its entirety by reference to such 10-K.
</LEGEND>
<CIK> 0000049401
<NAME> Hyde Athletic
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> Year 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> Jan-03-1997 Jan-03-1997 Jan-03-1997 Jan-03-1997
<PERIOD-START> Jan-06-1996 Jan-06-1996 Jan-06-1996 Jan-06-1996
<PERIOD-END> Jan-03-1997 Apr-05-1996 Jul-06-1996 Oct-04-1996
<CASH> 2803 5550 3819 5226
<SECURITIES> 236 150 304 197
<RECEIVABLES> 18403 24761 23736 19182
<ALLOWANCES> 470 527 532 424
<INVENTORY> 24537 19862 19347 19356
<CURRENT-ASSETS> 58132 60693 59471 58391
<PP&E> 16505 14710 15893 16282
<DEPRECIATION> 7478 6810 7046 7287
<TOTAL-ASSETS> 70752 70584 70020 69346
<CURRENT-LIABILITIES> 13963 14708 14915 13633
<BONDS> 4893 4530 3469 3350
0 0 0 0
0 0 0 0
<COMMON> 2145 2139 2139 2145
<OTHER-SE> 47339 46842 47033 47705
<TOTAL-LIABILITY-AND-EQUITY> 70752 70584 70020 69346
<SALES> 91341 28638 53034 73643
<TOTAL-REVENUES> 91879 28877 53628 74321
<CGS> 61692 19850 36704 50106
<TOTAL-COSTS> 61692 19850 36704 50106
<OTHER-EXPENSES> 27842 7130 14349 20959
<LOSS-PROVISION> 470 187 412 355
<INTEREST-EXPENSE> 730 258 480 660
<INCOME-PRETAX> 1982 1639 2095 2596
<INCOME-TAX> 325 621 757 891
<INCOME-CONTINUING> 1349 883 1110 1330
<DISCONTINUED> (243) (143) (257) 126
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1106 740 853 1456
<EPS-PRIMARY> 0.18 0.12 0.14 0.23
<EPS-DILUTED> 0.18 0.12 0.14 0.23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from Hyde Athletic
Industries, Inc. Form 10-K for the period
ended January 2, 1998 and is qualified in
its entirety by reference to such 10-K.
</LEGEND>
<CIK> 0000049401
<NAME> Hyde Athletic
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> Year 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> Jan-02-1998 Jan-02-1998 Jan-02-1998 Jan-02-1998
<PERIOD-START> Jan-04-1997 Jan-04-1997 Jan-04-1997 Jan-04-1997
<PERIOD-END> Jan-02-1998 Apr-04-1997 Jul-04-1997 Oct-03-1997
<CASH> 4432 2242 2845 5444
<SECURITIES> 148 236 178 139
<RECEIVABLES> 18636 25509 22319 21709
<ALLOWANCES> 1388 493 492 544
<INVENTORY> 23471 23170 25644 23439
<CURRENT-ASSETS> 50239 61492 55254 54574
<PP&E> 16753 16711 16094 16219
<DEPRECIATION> 8618 7707 7976 8271
<TOTAL-ASSETS> 61316 74403 67118 66173
<CURRENT-LIABILITIES> 13315 19086 14106 13001
<BONDS> 771 3168 1129 1011
0 0 0 0
0 0 0 0
<COMMON> 2150 2145 2145 2145
<OTHER-SE> 42922 47610 47747 47961
<TOTAL-LIABILITY-AND-EQUITY> 61316 74403 67118 66173
<SALES> 63611 25217 49615 74251
<TOTAL-REVENUES> 93962 25066 49565 74168
<CGS> 63511 16632 32480 48694
<TOTAL-COSTS> 63511 16632 32480 48694
<OTHER-EXPENSES> 32386 7198 16071 23596
<LOSS-PROVISION> 1056 121 141 279
<INTEREST-EXPENSE> 817 249 500 665
<INCOME-PRETAX> (3800) (987) 513 1213
<INCOME-TAX> 355 382 211 489
<INCOME-CONTINUING> (4032) 570 450 825
<DISCONTINUED> (298) (287) (41) (213)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (4330) 283 409 612
<EPS-PRIMARY> (0.70) 0.05 0.03 0.10
<EPS-DILUTED> (0.70) 0.05 0.03 0.10
</TABLE>
