<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 December 28, 1996
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 January 24, 1997 was 8,617,007.
1
<PAGE> 2
CANNONDALE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December
28, 1996, June 29, 1996 and December 30, 1995 3
Condensed Consolidated Statements of Earnings for the
three and six months ended December 28, 1996 and
December 30, 1995 4
Condensed Consolidated Statement of Stockholders'
Equity for the six months ended December 28, 1996
and the year ended June 29, 1996 5
Condensed Consolidated Statements of Cash Flows for
the six months ended December 28, 1996 and
December 30, 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II Other Information 10
</TABLE>
2
<PAGE> 3
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 28, 1996 JUNE 29, 1996 DECEMBER 30, 1995
----------------- ------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash .................................................... $ 2,019 $ 4,305 $ 3,099
Trade accounts receivable, less allowances of
$7,176, $5,238, and $4,601 ....................... 59,417 52,027 48,821
Inventory ........................................... 37,309 30,526 35,478
Deferred income taxes ............................... 2,805 2,041 1,874
Prepaid expenses and other current assets ........... 1,690 1,154 1,708
--------- --------- ---------
Total current assets .................................... 103,240 90,053 90,980
Property, plant and equipment, net ...................... 18,675 18,527 17,982
Other assets ............................................ 1,358 1,365 1,359
--------- --------- ---------
Total assets ............................................ $ 123,273 $ 109,945 $ 110,321
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 12,928 $ 12,431 $ 13,797
Revolving credit advances ........................... 2,995 4,756 7,755
Income taxes payable ................................ 1,425 1,845 980
Warranty and other accrued expenses ................. 5,667 5,043 5,928
Payroll and other employee related benefits ......... 1,366 2,266 1,225
Current installments of long-term debt .............. 1,425 1,680 1,717
--------- --------- ---------
Total current liabilities ............................... 25,806 28,021 31,402
Long-term debt, less current installments ............... 25,199 13,114 17,713
Deferred income taxes ................................... 96 235 347
Other noncurrent liabilities ............................ 294 281 261
--------- --------- ---------
Total liabilities ....................................... 51,395 41,651 49,723
--------- --------- ---------
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 18,000,000
Issued and outstanding shares - 8,616,241,
8,611,715 and 8,555,735 .......................... 86 86 86
Additional paid-in capital .......................... 56,029 55,965 55,597
Retained earnings ................................... 16,189 12,547 4,819
Cumulative translation adjustment ................... (426) (304) 96
--------- --------- ---------
Total stockholders' equity .............................. 71,878 68,294 60,598
--------- --------- ---------
Total liabilities and stockholders' equity .............. $ 123,273 $ 109,945 $ 110,321
========= ========= =========
</TABLE>
See accompanying notes
3
<PAGE> 4
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT FOR PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 28, DECEMBER 30, DECEMBER 28, DECEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales .............................. $ 41,294 $ 35,069 $ 72,174 $ 61,918
Cost of sales .......................... 25,396 21,889 46,048 40,648
-------- -------- -------- --------
Gross profit ........................... 15,898 13,180 26,126 21,270
-------- -------- -------- --------
Expenses:
Selling, general and
administrative .................. 9,451 8,020 17,790 14,651
Research and development .......... 905 828 1,662 1,484
-------- -------- -------- --------
10,356 8,848 19,452 16,135
-------- -------- -------- --------
Operating income ....................... 5,542 4,332 6,674 5,135
-------- -------- -------- --------
Other income (expense):
Interest expense .................. (339) (413) (688) (1,131)
Other income (expense) ............ 17 (224) (9) (5)
-------- -------- -------- --------
(322) (637) (697) (1,136)
-------- -------- -------- --------
Income before income taxes ............. 5,220 3,695 5,977 3,999
Income tax expense ..................... (2,067) (1,471) (2,335) (1,581)
-------- -------- -------- --------
Net income ............................. $ 3,153 $ 2,224 $ 3,642 $ 2,418
======== ======== ======== ========
Primary income per share:
Net income ........................ $ .35 $ .25 $ .40 $ .29
======== ======== ======== ========
Fully-diluted income per share:
Net income ........................ $ .35 $ .25 $ .40 $ .29
======== ======== ======== ========
</TABLE>
See accompanying notes
4
<PAGE> 5
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON STOCK PAID-IN RETAINED TRANSLATION
SHARES VALUE CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ----- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1995 ........... 7,127,181 $71 $33,294 $ 2,401 $ 322 $36,088
Net income ..................... -- -- -- 10,146 -- 10,146
Issuance of common stock (Net
of $1,490 offering costs) .... 1,366,666 14 22,071 -- -- 22,085
Exercise of options ............ 117,868 1 600 -- -- 601
Foreign currency adjustment .... -- -- -- -- (626) (626)
--------- --- ------- ------- ----- -------
Balance at June 29, 1996 .......... 8,611,715 86 55,965 12,547 (304) 68,294
(Unaudited)
Net income ..................... -- -- -- 3,642 -- 3,642
Exercise of options ............ 4,526 -- 64 -- -- 64
Foreign currency adjustment .... -- -- -- -- (122) (122)
--------- --- ------- ------- ----- -------
Balance at December 28, 1996 ...... 8,616,241 $86 $56,029 $16,189 $(426) $71,878
========= === ======= ======= ===== =======
</TABLE>
See accompanying notes
5
<PAGE> 6
CANNONDALE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 28, 1996 DECEMBER 30, 1995
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES ............ $(11,154) $(17,314)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures ............................. (3,453) (1,204)
Proceeds from sale of headquarters facility ...... 1,676 --
-------- --------
Net cash used in investing activities ............ (1,777) (1,204)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ....... 64 22,318
Net proceeds from (repayments of) borrowings under
short-term revolving credit agreements ....... (1,635) 3,179
Net proceeds from (repayments of) borrowings under
long-term debt and capital lease agreements .. 11,972 (5,973)
-------- --------
Net cash provided by financing activities ........ 10,401 19,524
-------- --------
Effect of exchange rate changes on cash .......... 244 (162)
-------- --------
Net increase (decrease) in cash .................. (2,286) 844
Cash at beginning of period ...................... 4,305 2,255
-------- --------
Cash at end of period ............................ $ 2,019 $ 3,099
======== ========
</TABLE>
See accompanying notes
6
<PAGE> 7
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- and six-month periods ended December 28, 1996
are not necessarily indicative of the results that may be expected for the year
ending June 28, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended June 29, 1996
included in the Company's Annual Report on Form 10-K/A.
Certain prior-period amounts have been reclassified to conform to the
current year's presentation.
2. INVENTORY
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 JUNE 29, 1996 1995
---- ------------- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Raw materials ......................... $ 19,802 $ 14,664 $ 21,627
Work-in-process ....................... 2,614 1,772 1,767
Finished goods ........................ 16,117 15,505 13,219
Less reserve for obsolete inventory ... (1,224) (1,415) (1,135)
-------- -------- --------
$ 37,309 $ 30,526 $ 35,478
======== ======== ========
</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 9,061,713 and 8,860,365 for the three-month periods ended December 28, 1996
and December 30, 1995, respectively, and 9,056,665 and 8,220,751 for the
six-month periods ended December 28, 1996 and December 30, 1995, respectively.
Common stock equivalents include options to purchase common stock.
7
<PAGE> 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales. Net sales increased from $35.1 million in the second quarter of
fiscal 1996 to $41.3 million in the second quarter of fiscal 1997, an increase
of $6.2 million or 17.8%. For the first six months, net sales increased 16.6%
from $61.9 million in fiscal 1996 to $72.2 million in fiscal 1997, an increase
of $10.3 million. The increase in sales was a result of the continued worldwide
demand for Cannondale products, a sales mix that favored international markets
and growth in the Company's non-bike categories.
Gross Profit. Gross profit as a percentage of net sales increased to 38.5% for
the second quarter of fiscal 1997 compared to 37.6% for the second quarter of
fiscal 1996. The gross profit for the second quarter of 1997 was $15.9 million,
an increase of $2.7 million, or 20.6%, over the gross profit of $13.2 million
for the second quarter of fiscal 1996. For the first six months of fiscal 1997,
gross profit as a percentage of net sales increased to 36.2% ($26.1 million)
compared to 34.4% ($21.3 million) in fiscal 1996. The improvement in gross
profit reflects a mix that favored international markets, an increase in
non-bike sales, 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.
Operating Expenses. Operating expenses were $10.4 million for the second quarter
of fiscal 1997, an increase of approximately $1.6 million, or 17.0%, over the
second quarter of fiscal 1996 of $8.8 million. For the first six months of
fiscal 1997, operating expenses were $19.5 million, an increase of approximately
$3.4 million, or 20.6%, over the first six months of fiscal 1996 of $16.1
million. For both periods, increases in selling, general and administrative
expenses accounted for a significant portion of the increase and were directly
associated with increased sales, and additional personnel, advertising, and
marketing costs required to support the Company's current and planned growth.
The Company also increased its investment in international advertising and
marketing. As a percentage of sales, selling, general and administrative
expenses remained at 23% for the second quarter. The increase in research and
development expenses reflects the Company's commitment to further investments in
innovation. As a percentage of net sales, total operating expenses increased to
approximately 27.0% for the first six months of fiscal 1997, compared to 26.1%
for the first six months of fiscal 1996.
Interest Expense. Interest expense for the second quarter of fiscal 1997 was
$339,000, a decrease of approximately $74,000 from the second quarter of fiscal
1996, as higher average borrowings were offset by the lower interest rates
available under the Company's multi-currency revolving credit facility. For the
first six months of fiscal 1997, interest expense was $688,000, a decrease of
approximately $443,000 from the first six months of
8
<PAGE> 9
fiscal 1996. This decrease, again, reflects the lower interest rates available
under the Company's multi-currency revolving credit facility, and the effect of
the net proceeds from the public offering of common stock in September 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $11.2 million for the first six months
of fiscal 1997, a decrease of $6.1 million compared to the $17.3 million used
for the first six months of fiscal 1996. The net use of cash is typical for the
first six months of the fiscal year due to seasonal activity, which includes
higher inventory levels in anticipation of third quarter shipments and seasonal
terms offered to dealers through the Company's Authorized Retailer Program. The
reduction in the use of cash from operating activities compared to the prior
year was primarily attributed to the comparative leveling of inventory growth
during the first six months of fiscal 1997 compared to fiscal 1996. During the
prior year period, the Company initiated a strategy to maintain higher inventory
levels to capitalize on its flexible manufacturing capabilities. Capital
expenditures were $3.5 million for the first six months of fiscal 1997, compared
to $1.2 million in the first six months of fiscal 1996. The increase in spending
primarily reflects the Company's investment in its facilities' expansion, which
is required to support future growth. The proceeds from the sale of the
Company's headquarters facility, $1.7 million, will be reinvested in this
expansion.
Net cash provided by financing activities for the first six months of fiscal
1997 was $10.4 million, a decrease of $9.1 million compared to the $19.5 million
for the first six months of fiscal 1996. The net cash provided by financing
activities in fiscal 1997 primarily reflects the net proceeds from borrowings
under the Company's long-term revolving credit facility to meet its operating
and capital requirements during the period. The net cash provided by financing
activities in fiscal 1996 reflects the net proceeds from the public offering of
common stock in September 1995, which were used to reduce borrowings under the
Company's credit facilities.
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 for the foreseeable future.
9
<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
None
</TABLE>
10
<PAGE> 11
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: February 10, 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>
10.67 Aircraft Lease dated as of
October 6, 1996, between
JSM, Inc. and Cannondale
Corporation
11 Statement re: Computation
of Earnings per Common
Share
27 Financial Data Schedule
</TABLE>
12
<PAGE> 1
AIRCRAFT LEASE
This Aircraft Lease (this "Lease") is made and entered into as of the
6th day of October, 1996, by and between JSM, Inc., a Connecticut corporation
which has a principal place of business c/o Cannondale Corporation, 9 Brookside
Place, Georgetown, Connecticut 06829 (hereinafter called "Lessor"), and
Cannondale Corporation, a Delaware corporation which has a principal place of
business at 9 Brookside Place, Georgetown, Connecticut 06829 (hereinafter called
"Lessee").
Lessor and Lessee hereby certify that the Aircraft Lease, dated as of
March 29, 1995, between Lessor and Lessee, recorded by the Federal Aviation
Administration on June 23, 1995, and assigned Conveyance No. C32820 (the "Prior
Lease") has terminated and the Aircraft and Engines covered thereby are no
longer subject to the terms thereof. The foregoing shall not affect indemnity
obligations under Section 16 of the Prior Lease, which obligations, by the
agreement of the Lessor and Lessee, shall survive the termination of the Prior
Lease.
W I T N E S S E T H:
In consideration of the rents and covenants set forth herein, Lessor
does hereby lease to Lessee and Lessee hereby leases from Lessor the aircraft
described below (the "Aircraft"), subject to all of the terms and conditions set
forth herein:
Aircraft Manufacturer and Model: Cessna 525 CitationJet
Aircraft Serial No.: 525-0094
U.S. Registration No.: N94MZ
Engine Manufacturer and Model: Williams-Rolls, Inc.
Model FJ-44-1A*
Engine Serial Nos.: Left: 1206
Right: 1193
* Engines are in excess of 750 shaft horsepower or its equivalent.
Lessee shall have complete responsibility to maintain the Aircraft
during the term of the Lease in accordance with the terms and conditions set
forth herein, except as otherwise provided herein.
1. DELIVERY OF AIRCRAFT (a) Lessee shall take delivery of the Aircraft
upon the expiration of the Prior Lease at Danbury Municipal Airport, Danbury,
Connecticut. On such date Lessee shall be deemed to have accepted the Aircraft
for all purposes hereunder in an "AS IS" condition, ACKNOWLEDGING THEREBY THAT
<PAGE> 2
LESSOR HAS NOT MADE NOR DOES IT MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO AIRWORTHINESS, DESIGN, CONDITION, SUITABILITY, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR AS TO ANY OTHER MATTER. Lessor represents
and warrants that upon such delivery, it will have good title to the Aircraft
and that the Aircraft will have been registered in its name with the Federal
Aviation Administration ("FAA"). During the term of this Lease, Lessor shall not
impair such registration or cause it to be impaired, suspended or canceled.
Lessor agrees that so long as the Lessee is not in default and fully performs
hereunder, Lessor will not interfere with Lessee's quiet use and enjoyment of
the Aircraft.
(b) Upon delivery of the Aircraft and thereafter during the
remainder of this Lease so long as Lessee is not in default hereunder, Lessor
assigns to Lessee, and authorizes Lessee to exercise, such rights as Lessor may
have under any warranty, express or implied, with respect to the Aircraft, made
by any manufacturer, supplier or subcontractor, to the extent the same may be
assignable or made available to Lessee, and Lessor agrees that upon Lessee's
request, Lessor shall use its reasonable efforts to enforce such rights as
Lessor may have with respect thereto for the benefit of Lessee.
2. TERM -- The term of this Lease shall commence as of October 6, 1996,
and shall expire on October 5, 1999.
3. AMOUNT OF PAYMENT -- Lessee agrees to pay rent at the rate set forth
on Exhibit A annexed hereto and made a part hereof, together with all applicable
sales and use taxes.
4. MODE OF PAYMENT -- Monthly rental payments shall be paid in advance
on or before the 6th day of each calendar month.
5. PLACE OF PAYMENT -- Monthly rental payments are to be made to Lessor
at the address specified above or to such other place as the parties may agree.
6. TIME, PLACE, CONDITION AND DELIVERY UPON TERMINATION -- The Aircraft
shall be returned to Lessor at the place the Aircraft was accepted for delivery
hereunder or such other place agreed upon by the parties. At the time of such
delivery, Lessee shall deliver all operating, overhaul and maintenance manuals,
records, logs and other materials required to be maintained with respect to the
Aircraft. The Aircraft will be in the same
-2-
<PAGE> 3
operating condition, order, repair and condition as when received excepting only
for reasonable wear and tear.
7. MAINTENANCE AND REPAIR -- Lessee shall, at its own expense, maintain
the Aircraft and keep the Aircraft in good order and repair, in accordance with
(i) all applicable laws, rules and regulations and (ii) applicable requirements
of the FAA or other governmental authority. All inspections, repairs,
modifications and overhaul work to be accomplished by Lessee shall be performed
by personnel duly licensed to perform such work and shall be performed in
accordance with the standards set by the FAA in its regulations and
requirements. Lessee shall maintain all log books pertaining to the Aircraft
during the term of this Lease in accordance with the rules and regulations of
the FAA. Such records shall be made available for examination by Lessor or its
duly authorized agent upon reasonable notice to Lessee, and Lessee shall, at the
end of the term of this Lease, deliver such records to Lessor. Lessee will
promptly replace all or any part of the Aircraft which may be worn out, lost,
destroyed, confiscated or otherwise rendered unsatisfactory or unavailable for
use in or upon the Aircraft.
8. INSPECTION BY LESSOR -- Lessee agrees to permit Lessor or its duly
authorized agent to inspect the Aircraft upon reasonable notice to Lessee.
Lessee agrees to furnish Lessor with any information in respect to the Aircraft
and its use that Lessor may reasonably request.
9. RISK OF LOSS -- During the term of this Lease (and until the
Aircraft is returned to Lessor in accordance with paragraph 6 above), Lessee
shall bear the risk of loss with respect to the Aircraft.
10. INSURANCE -- Upon delivery of the Aircraft and thereafter during
the remaining term of this Lease (and until the Aircraft is returned to Lessor
in accordance with paragraph 6 above), Lessee shall maintain in full force and
effect and at its own expense policies of insurance against loss or damage to,
or relating to the operation of, the Aircraft, with insurers and in such form as
are reasonably acceptable to Lessor, as follows:
(i) Hull insurance covering all risks on the ground and in
flight in an amount not less than $3,000,000.00, naming the Lessor, Joseph S.
Montgomery, and Park National Bank, as Trustee for the Joseph S. Montgomery
Irrevocable Trust, as their interests may appear, as loss payees. Such coverage
shall
-3-
<PAGE> 4
include a mutual waiver of subrogation between Lessor and Lessee; and
(ii) Passenger liability, public liability and property damage
liability with an aggregate combined limit of not less than $25,000,000.00
against claims arising from the possession, maintenance or operation of the
Aircraft by Lessee. Such coverage shall name Lessor, Joseph S. Montgomery and
Park National Bank, as Trustee for the Joseph S. Montgomery Irrevocable Trust,
and any person or entity on whose behalf the Aircraft may be operated
(including, without limitation, Joseph S. Montgomery), as their interests may
appear, as additional insureds.
The above coverages shall contain a provision requiring the
insurance carrier to provide the Lessor with at least thirty days written notice
prior to canceling coverage and a breach of warranty provision in favor of Park
National Bank, as Trustee for the Joseph S. Montgomery Irrevocable Trust.
Lessee shall deliver to Lessor at the commencement hereof, and
annually thereafter, a copy of said insurance policy or other reasonable
evidence that coverage in accordance with this provision is in effect.
11. LESSEE'S COVENANTS -- The Lessee covenants and agrees as follows:
(i) Conforming Use. To abide by and conform to the provisions
of any insurance policy issued with respect to the Aircraft and all laws,
ordinances, orders, rules and regulations controlling or affecting the operation
or use of the Aircraft.
(ii) Operation. To operate and to cause others to operate the
Aircraft at all times in accordance with the Aircraft's flight manual.
(iii) Licensed Pilotage. To permit the Aircraft to be operated
only by pilots duly licensed and qualified to operate the Aircraft and having at
least the minimum total pilot hours required by insurance covering the Aircraft.
12. TAXES -- Lessee agrees to pay all local, state and federal taxes
relating to the Aircraft, except income taxes of Lessor.
-4-
<PAGE> 5
13. TITLE; PERMITTED USE -- The registration of, and title to, the
Aircraft shall be in the name of Lessor at all times during the term of this
Lease. This Lease is and is intended to be a lease and the Lessee does not
acquire hereby any right, title or interest whatsoever, legal or equitable, in
the Aircraft except its interest as Lessee hereunder. Lessee may sublease or
permit use of the Aircraft by third parties provided that any such use shall be
in accordance with the terms of this Lease and all applicable laws, rules and
regulations and the insurance policies maintained under paragraph 10 hereof.
14. DEFAULT -- In addition to any of Lessor's other remedies at law or
in equity, if Lessee fails to make any payments of rent as required hereunder or
if Lessee fails to comply with any provision of this Lease, Lessor shall have
the right to take possession of the Aircraft wherever it may be located without
demand or notice. In the event of such default by Lessee, Lessor may at its
option terminate this Lease immediately.
15. GOVERNING LAW -- This Lease shall be construed under the laws of
the State of Connecticut.
16. INDEMNIFICATION -- Lessee shall indemnify, defend and hold harmless
Lessor from all claims, expenses, damages and liabilities, including, without
limitation, personal injury, death and property damage claims, arising during
the term of this Lease and in any manner occasioned by or related to Lessee's
possession, operation, use, or maintenance of the Aircraft to the extent the
same are not covered by the insurance required hereunder. The foregoing
indemnification obligations shall expressly survive any termination of this
Lease.
17. ENTIRE AGREEMENT -- This Lease, together with any exhibits and
schedules appended hereto, constitutes the entire agreement between the parties,
superseding any and all agreements and undertakings, oral or written, between
the parties hereto, and may not be modified or amended except in a writing
executed by the parties.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have set their hands and seals at
Georgetown, Connecticut as of the 6th day of October, 1996.
JSM, INC. CANNONDALE CORPORATION
By: /s/ Joseph S. Montgomery By: /s/ John Moriarty
------------------------- -----------------------
Name: Joseph S. Montgomery Name: John Moriarty
---------------------- ----------------------
Title: President Title: Assistant Treasurer
-6-
<PAGE> 7
EXHIBIT A
To Aircraft Lease dated as of October 6, 1996, between JSM, Inc., as
Lessor, and Cannondale Corporation, as Lessee
RENT
1. First Year of Term. Annual rent for the first year of the
term of the Lease shall be $375,000 payable in advance on the 6th day of each
month as follows:
October 6, 1996 $100,000
6th day of each
calendar month
thereafter $25,000
2. Subsequent Years of Term. Within 90 days prior to each
anniversary date of the Lease, Lessor and Lessee shall negotiate in good faith
to determine whether the rent as provided in paragraph 1 of this Exhibit A
should be adjusted to account for changes in the fair market value of aircraft
comparable to the Aircraft.
-7-
<PAGE> 1
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 SIX MONTHS ENDED
------------------------ ------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 28, DECEMBER 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE COMPUTATION:
Weighted average shares outstanding ............... 8,614 8,511 8,613 7,850
Net effect of options-
based on the treasury stock method ................ 448 349 444 371
------ ------ ------ ------
Weighted average number of common shares
and equivalents outstanding during the period ..... 9,062 8,860 9,057 8,221
====== ====== ====== ======
Income applicable to common shares and
equivalents .................................... $3,153 $2,224 $3,642 $2,418
====== ====== ====== ======
Net income per share .............................. $ .35 $ .25 $ .40 $ .29
====== ====== ====== ======
FULLY DILUTED EARNINGS PER SHARE
COMPUTATION:
Weighted average shares outstanding ............... 8,614 8,511 8,613 7,850
Net effect of options-
based on the treasury stock method ................ 521 360 520 371
------ ------ ------ ------
Weighted average number of common shares
and equivalents outstanding during the period ..... 9,135 8,871 9,133 8,221
====== ====== ====== ======
Income applicable to common shares and
equivalents .................................... $3,153 $2,224 $3,642 $2,418
====== ====== ====== ======
Net income per share .............................. $ .35 $ .25 $ .40 $ .29
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> DEC-28-1996
<CASH> 2,019
<SECURITIES> 0
<RECEIVABLES> 66,593
<ALLOWANCES> 7,176
<INVENTORY> 37,309
<CURRENT-ASSETS> 103,240
<PP&E> 35,200
<DEPRECIATION> 16,525
<TOTAL-ASSETS> 123,273
<CURRENT-LIABILITIES> 25,806
<BONDS> 25,199
0
0
<COMMON> 86
<OTHER-SE> 71,792
<TOTAL-LIABILITY-AND-EQUITY> 123,273
<SALES> 72,174
<TOTAL-REVENUES> 72,174
<CGS> 46,048
<TOTAL-COSTS> 46,048
<OTHER-EXPENSES> 19,452
<LOSS-PROVISION> 6,145
<INTEREST-EXPENSE> 688
<INCOME-PRETAX> 5,977
<INCOME-TAX> 2,335
<INCOME-CONTINUING> 3,642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,642
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
