<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
Commission File Number 0-24884
CANNONDALE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 06-0871823
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 BROOKSIDE PLACE, GEORGETOWN, CT 06829-0122
(Address of principal executive offices, including zip code)
(203) 544-9800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), Yes X No___ and (2) has been subject to such
filing requirements for the past 90 days Yes X No___ .
The number of shares outstanding of the issuer's Common Stock, $.01 par value,
as of November 5, 1997 was 8,656,126.
1
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CANNONDALE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 27,
1997, June 28, 1997 and September 28, 1996 3
Condensed Consolidated Statements of Earnings for the three
months ended September 27, 1997 and September 28, 1996 4
Condensed Consolidated Statement of Stockholders' Equity for
the three months ended September 27, 1997 and the year
ended June 28, 1997 5
Condensed Consolidated Statements of Cash Flows for the three
months ended September 27, 1997 and September 28, 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Part II Other Information 10
</TABLE>
2
<PAGE> 3
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997 JUNE 28, 1997 SEPTEMBER 28, 1996
------------------ ------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ........................................ $ 4,716 $ 5,521 $ 5,611
Trade accounts receivable, less allowances of
$7,324, $6,432, and $5,834 ............... 54,360 61,272 44,470
Inventory ................................... 38,469 30,105 36,745
Deferred income taxes ....................... 2,942 2,623 2,484
Prepaid expenses and other current assets ... 3,885 2,386 1,587
--------- -------- ---------
Total current assets ............................ 104,372 101,907 90,897
Property, plant and equipment, net .............. 25,529 23,105 19,391
Other assets .................................... 2,467 2,272 1,459
--------- -------- ---------
Total assets .................................... $ 132,368 $127,284 $ 111,747
========= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................ $ 15,502 $ 12,330 $ 14,027
Revolving credit advances ................... 1,052 1,022 2,391
Income taxes payable ........................ 3,546 2,946 2,150
Warranty and other accrued expenses ......... 5,624 6,001 4,964
Payroll and other employee related benefits . 1,257 1,850 1,292
Current installments of long-term debt ...... 538 562 1,534
--------- -------- ---------
Total current liabilities ....................... 27,519 24,711 26,358
Long-term debt, less current installments ....... 22,474 20,319 16,127
Deferred income taxes ........................... 328 339 203
Other noncurrent liabilities .................... 275 294 281
--------- -------- ---------
Total liabilities ............................... 50,596 45,663 42,969
--------- -------- ---------
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 18,000,000
Issued 8,701,851 shares in fiscal 1998,
Issued and outstanding shares - 8,687,615
and 8,612,279 in fiscal 1997 ............. 87 87 86
Additional paid-in capital .................. 57,055 56,860 55,972
Retained earnings ........................... 26,723 26,053 13,036
Less 25,000 shares in treasury at cost ...... (570) -- --
Cumulative translation adjustment ........... (1,523) (1,379) (316)
--------- -------- ---------
Total stockholders' equity ...................... 81,772 81,621 68,778
--------- -------- ---------
Total liabilities and stockholders' equity ...... $ 132,368 $127,284 $ 111,747
========= ======== =========
</TABLE>
See accompanying notes
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CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT FOR PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales .............................. $ 34,309 $ 30,880
Cost of sales .......................... 22,952 20,652
-------- --------
Gross profit ........................... 11,357 10,228
-------- --------
Expenses:
Selling, general and administrative 9,105 8,339
Research and development .......... 1,119 757
-------- --------
10,224 9,096
-------- --------
Operating income ....................... 1,133 1,132
-------- --------
Other income (expense):
Interest expense .................. (179) (349)
Other income (expense) ............ 148 (26)
-------- --------
(31) (375)
-------- --------
Income before income taxes ............. 1,102 757
Income tax expense ..................... (432) (268)
-------- --------
Net income ............................. $ 670 $ 489
======== ========
Primary income per share:
Net income ........................ $ .07 $ .05
======== ========
Fully-diluted income per share:
Net income ........................ $ .07 $ .05
======== ========
</TABLE>
See accompanying notes
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CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON STOCK PAID-IN RETAINED TRANSLATION TREASURY
SHARES VALUE CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
--------- --- ------- ------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 29, 1996 ..... 8,611,715 $86 $55,965 $12,547 $ (304) $ -- $ 68,294
Net income ................ -- -- -- 13,506 -- -- 13,506
Exercise of options ....... 75,900 1 895 -- -- -- 896
Foreign currency adjustment -- -- -- -- (1,075) -- (1,075)
--------- --- ------- ------- ------- ----- --------
Balance at June 28, 1997 ..... 8,687,615 87 56,860 26,053 (1,379) -- 81,621
Net income ................ -- -- -- 670 -- -- 670
Exercise of options ....... 14,236 -- 195 -- -- -- 195
Purchase of 25,000 shares
of treasury stock ....... -- -- -- -- -- (570) (570)
Foreign currency adjustment -- -- -- -- (144) -- (144)
--------- --- ------- ------- ------- ----- --------
Balance at September 27, 1997 8,701,851 $87 $57,055 $26,723 $(1,523) $(570) $ 81,772
========= === ======= ======= ======= ===== ========
</TABLE>
See accompanying notes
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CANNONDALE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES ........... $ 450 $ 2,503
------- -------
INVESTING ACTIVITIES:
Capital expenditures ................................ (3,357) (1,647)
------- -------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock .......... 195 7
Purchase of Cannondale Corporation common shares for
treasury ........................................ (570) --
Net proceeds from (repayments of) borrowings under
short-term revolving credit agreements .......... 75 (2,414)
Net proceeds from borrowings under long-term debt and
capital lease agreements ........................ 2,161 2,896
------- -------
Net cash provided by financing activities ........... 1,861 489
------- -------
Effect of exchange rate changes on cash ............. 241 (39)
------- -------
Net increase (decrease) in cash ..................... (805) 1,306
Cash at beginning of period ......................... 5,521 4,305
------- -------
Cash at end of period ............................... $ 4,716 $ 5,611
======= =======
</TABLE>
See accompanying notes
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CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Cannondale Corporation (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended September 27, 1997 are not
necessarily indicative of the results that may be expected for the year ending
June 27, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended June 28, 1997 included in
the Company's Annual Report on Form 10-K/A.
2. INVENTORY
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 JUNE 28, 1997 1996
---- ------------- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Raw materials ..................... $ 21,151 $ 13,394 $ 18,826
Work-in process ................... 2,798 1,455 2,764
Finished goods .................... 15,740 16,325 16,615
Less reserve for obsolete inventory (1,220) (1,069) (1,460)
-------- -------- --------
$ 38,469 $ 30,105 $ 36,745
======== ======== ========
</TABLE>
3. EARNINGS PER SHARE AMOUNTS
Earnings per share of common stock are computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding for each period. The weighted average number of shares of common
stock and common stock equivalents used in the computation of earnings per share
was 8,940,564 and 9,052,445 for the three-month periods ended September 27, 1997
and September 28, 1996, respectively. Common stock equivalents include options
to purchase common stock.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic (primary) earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary earnings per share of $.01 per
share for the three-month periods ended September 27, 1997 and September 28,
1996. The impact of Statement 128 on the calculation of fully diluted earnings
per share is not expected to be material.
4. SUBSEQUENT EVENT
In order to accommodate the capital requirements of the Company's
program to repurchase up to 1,000,000 shares of its common stock, in September
1997, the Company and its lender agreed to amend its revolving credit facility
to allow the Company and its subsidiaries to borrow up to $70,000,000. The
amendment to the revolving credit facility, dated October 14, 1997, includes
adjustments to specified levels of tangible net worth and cash flow levels that
the Company must maintain.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales. Net sales increased from $30.9 million in the first quarter of fiscal
1997 to $34.3 million in the first quarter of fiscal 1998, an increase of $3.4
million or 11.1%. Compared to the same period last year, net sales, adjusted for
the effect of a stronger U.S. dollar for the three-month period ended September
27, 1997, increased 21%. The increase in sales was a result of the continued
worldwide demand for Cannondale products and a sales mix that favored
international markets.
Gross Profit. Gross profit was $11.4 million in the first quarter of fiscal
1998, an increase of $1.2 million, or 11.0%, over the gross profit in the first
quarter of fiscal 1997 of $10.2 million. The increase in gross profit was a
result of the continued worldwide demand for Cannondale products. Gross profit
as a percentage of net sales in the first quarter of fiscal 1998 was static at
33.1% for the first quarter of fiscal 1998 compared to the first quarter of
fiscal 1997. Gross profit benefited from a sales mix that favored
international markets, cost-reduction programs and the Company's continued
integration of proprietary technology through the use of its Cannondale bicycle
frames, CODA components and HeadShok suspension systems. The benefit of these
factors was offset by the effect of a stronger U.S. dollar on sales by the
Company's foreign subsidiaries.
Operating Expenses. Operating expenses were $10.2 million for the first quarter
of fiscal 1998, an increase of approximately $1.1 million, or 12.4%, over the
first quarter of fiscal 1997 of $9.1 million.
Increased selling, general and administrative expenses, offset by a stronger
U.S. dollar, were directly associated with increased sales, additional personnel
primarily relating to the expanded field-sales force and costs incurred to
support the Saeco professional road cycling team. As a percentage of sales,
selling, general and administrative expenses remained at approximately 27% for
the first three months of fiscal 1998 compared to the first three months of
fiscal 1997.
The increase in research and development expenses reflects the Company's
commitment to improvement of its current products and the generation of new
products and manufacturing processes. As a percentage of sales, the Company
increased its investment in research and development expense to 3.3% for the
first three months of fiscal 1998 compared to 2.5% for the first three months of
fiscal 1997.
Other income (expense). Adjusted for capitalized interest costs related to the
construction of the Company's new headquarters facility and the expansion of the
manufacturing facility, interest expense for the first quarter of fiscal 1998
was $250,000, a decrease of approximately $99,000 from the first quarter of
fiscal 1997. In the first quarter of fiscal 1998, higher average borrowings were
more than offset by lower interest rates available under the Company's unsecured
multi-currency revolving credit facility. The increase in other income in the
first quarter of fiscal 1998 primarily represents the receipt of finance charges
payable by dealers.
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $450,000 for the first three
months of fiscal 1998, a decrease of $2.1 million compared to the $2.5 million
provided for the first three months of fiscal 1997. The decrease in cash
provided by operating activities is primarily attributable to relatively larger
increases in inventory and prepaid expenses during the first quarter of fiscal
1998 compared to the first quarter of fiscal 1997, offset by a net increase in
cash provided by trade receivables. Due to the seasonality of the business,
higher inventory levels are typical for the first quarter of the fiscal year in
anticipation of second and third quarter shipments.
Capital expenditures were $3.4 million for the first three months of fiscal
1998, compared to $1.6 million in the first three months of fiscal 1997. The
increase in spending primarily reflects the Company's investment in the
Company's new administrative headquarters and research and development facility
and the expansion of the Company's production facility, which is required to
support the increases in production volume and to support future growth.
Net cash provided by financing activities for the first three months of fiscal
1998 was $1.9 million, an increase of approximately $1.4 million compared to the
$489,000 for the first three months of fiscal 1997. The net cash provided by
financing activities in fiscal 1998 primarily reflects the net proceeds from
borrowings under the Company's long-term revolving credit facility to meet its
operating and capital requirements, and to finance the Company's program to
repurchase shares of its common stock. The company is authorized to repurchase
up to 1,000,000 shares of its common stock at an aggregate price not to exceed
$20 million. In order to accommodate the capital requirements of the repurchase
program, in September 1997, the Company and its lender agreed to amend the
Company's revolving credit facility to allow the Company and its subsidiaries to
borrow up to $70 million. The amendment to the revolving credit facility, dated
October 14, 1997, includes adjustments to specified levels of tangible net worth
and cash flow levels that the Company must maintain.
The Company expects that cash flow generated by its operations and borrowings
under the revolving credit facilities will be sufficient to meet its planned
operating and capital requirements, and to accommodate the capital requirements
of the Company's share repurchase program for the foreseeable future.
<PAGE> 10
PART II OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE
----
<S> <C>
(a) Index to Exhibits 12
(b) Reports on Form 8-K
On September 4, 1997, the Registrant filed a report on
Form 8-K relating to its Stock Repurchase Program pursuant
to which program the Registrant may repurchase up to
1,000,000 shares of its Common Stock.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANNONDALE CORPORATION
Date: November 12, 1997 /s/ William A. Luca
------------------------------------
William A. Luca
Vice President of Finance, Treasurer
and Chief Financial Officer
(Principal Financial Officer
and authorized signatory)
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
11 Statement re: Computation of
Earnings per Common Share
27 Financial Data Schedule
</TABLE>
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EXHIBIT 11
CANNONDALE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT FOR PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------ ------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE COMPUTATION:
Weighted average shares outstanding .......... 8,685 8,612
Net effect of options-
based on the treasury stock method ........... 256 440
------ ------
Weighted average number of common shares
and equivalents outstanding during the period 8,941 9,052
====== ======
Income applicable to common shares and
equivalents .............................. $ 670 $ 489
====== ======
Net income per share ......................... $ .07 $ .05
====== ======
FULLY DILUTED EARNINGS PER SHARE COMPUTATION:
Weighted average shares outstanding .......... 8,685 8,612
Net effect of options-
based on the treasury stock method ........... 345 523
------ ------
Weighted average number of common shares
and equivalents outstanding during the period 9,030 9,135
====== ======
Income applicable to common shares and
equivalents .............................. $ 670 $ 489
====== ======
Net income per share ......................... $ .07 $ .05
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<CASH> 4,716
<SECURITIES> 0
<RECEIVABLES> 61,684
<ALLOWANCES> 7,324
<INVENTORY> 38,469
<CURRENT-ASSETS> 104,372
<PP&E> 44,169
<DEPRECIATION> 18,640
<TOTAL-ASSETS> 132,368
<CURRENT-LIABILITIES> 27,519
<BONDS> 22,474
0
0
<COMMON> 87
<OTHER-SE> 81,685
<TOTAL-LIABILITY-AND-EQUITY> 132,368
<SALES> 34,309
<TOTAL-REVENUES> 34,309
<CGS> 22,952
<TOTAL-COSTS> 22,952
<OTHER-EXPENSES> 10,224
<LOSS-PROVISION> 1,460
<INTEREST-EXPENSE> 179
<INCOME-PRETAX> 1,102
<INCOME-TAX> 432
<INCOME-CONTINUING> 670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 670
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
