<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-24884
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.)
16 TROWBRIDGE DRIVE, BETHEL, CONNECTICUT 06801
(Address of principal executive offices) (zip code)
(203) 749-7000
(Registrant's telephone number, including area code)
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
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
---- ----
The number of shares outstanding of the issuer's Common Stock, $.01 par value
per share, as of November 8, 2000 was 7,515,225.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
2000, July 1, 2000 and October 2, 1999 1
Condensed Consolidated Statements of Operations for the three
months ended September 30, 2000 and October 2, 1999 2
Condensed Consolidated Statements of Cash Flows for the three
months ended September 30, 2000 and October 2, 1999 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 JULY 1, 2000 OCTOBER 2, 1999
------------------ ------------ ---------------
(UNAUDITED) (UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash ................................................ $ 2,748 $ 5,064 $ 2,089
Trade accounts receivable, less allowances of
$10,537, $10,076 and $9,368 ...................... 42,249 50,224 53,425
Inventories ......................................... 41,092 40,413 33,752
Deferred income taxes ............................... 5,715 5,571 4,116
Prepaid expenses and other current assets ........... 2,956 3,300 3,976
Interest receivable from a related party ............ 196 1,318 1,071
--------- --------- ---------
Total current assets .................................... 94,956 105,890 98,429
Property, plant and equipment, net ...................... 38,824 40,114 40,460
Notes receivable and advances to related parties ........ 13,231 13,197 12,926
Other assets ............................................ 7,534 5,706 3,550
--------- --------- ---------
Total assets ............................................ $ 154,545 $ 164,907 $ 155,365
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 14,429 $ 15,912 $ 14,843
Revolving credit advances ........................... 1,384 2,235 2,271
Income taxes payable ................................ 783 307 --
Warranty and other accrued expenses ................. 6,713 7,403 8,174
Current installments of long-term debt .............. 4,393 4,577 485
--------- --------- ---------
Total current liabilities ............................... 27,702 30,434 25,773
Long-term debt, less current installments ............... 58,467 63,363 52,855
Deferred income taxes ................................... -- -- 1,614
Other noncurrent liabilities ............................ 415 424 449
--------- --------- ---------
Total liabilities ....................................... 86,584 94,221 80,691
--------- --------- ---------
Commitments and contingencies ........................... -- -- --
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued shares - 8,808,125, 8,808,125 and
8,784,321 88 88 88
Additional paid-in capital .......................... 57,935 57,935 57,809
Retained earnings ................................... 37,175 38,802 39,843
Less 1,292,900 shares in treasury at cost ........... (20,162) (20,162) (20,162)
Accumulated other comprehensive loss ................ (7,075) (5,977) (2,904)
--------- --------- ---------
Total stockholders' equity .............................. 67,961 70,686 74,674
--------- --------- ---------
Total liabilities and stockholders' equity .............. $ 154,545 $ 164,907 $ 155,365
========= ========= =========
</TABLE>
See accompanying notes
1
<PAGE> 4
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, OCTOBER 2,
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales .............................. $ 36,687 $ 36,473
Cost of sales .......................... 26,725 25,736
-------- --------
Gross profit ........................... 9,962 10,737
-------- --------
Expenses:
Selling, general and administrative 9,469 9,812
Research and development .......... 1,962 2,424
-------- --------
11,431 12,236
-------- --------
Operating loss ......................... (1,469) (1,499)
-------- --------
Other income (expense):
Interest expense .................. (1,788) (1,042)
Other income, net ................. 274 221
-------- --------
(1,514) (821)
-------- --------
Loss before income taxes ............... (2,983) (2,320)
Income tax benefit ..................... 1,356 835
-------- --------
Net loss ............................... $ (1,627) $ (1,485)
======== ========
Basic and diluted loss per share ....... $ (0.22) $ (0.20)
======== ========
</TABLE>
See accompanying notes
2
<PAGE> 5
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 OCTOBER 2, 1999
------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................... $ 3,241 $ 1,349
------- -------
INVESTING ACTIVITIES:
Loans provided to related parties, net of repayments ................ (34) 28
Capital expenditures ................................................ (807) (1,464)
Proceeds from sale of equipment and buildings ....................... -- 633
------- -------
Net cash used in investing activities ............................... (841) (803)
------- -------
FINANCING ACTIVITIES:
Net proceeds used in issuance of common stock ....................... -- (6)
Net proceeds from (repayments of) borrowings under short-term
revolving credit agreements ..................................... (719) 1,242
Net proceeds from (repayments of) borrowings under long-term debt and
capital lease agreements ........................................ (4,140) (3,156)
------- -------
Net cash used in financing activities ............................... (4,859) (1,920)
------- -------
Effect of exchange rate changes on cash ............................. 143 163
------- -------
Net decrease in cash ................................................ (2,316) (1,211)
Cash at beginning of period ......................................... 5,064 3,300
------- -------
Cash at end of period ............................................... $ 2,748 $ 2,089
======= =======
</TABLE>
See accompanying notes
3
<PAGE> 6
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
accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United
States 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 30, 2000 are not necessarily indicative of the results
that may be expected for the year ending June 30, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto for the
year ended July 1, 2000 included in the Company's annual report on Form 10-K.
Reclassifications
Certain fiscal 2000 amounts have been reclassified to conform to the
current year's presentation.
2. INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 2,
2000 JULY 1, 2000 1999
---- ------------ ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Raw materials ....................... $ 24,561 $ 22,722 $ 19,408
Work-in-process ..................... 2,084 1,848 2,404
Finished goods ...................... 16,536 17,722 14,041
-------- -------- --------
43,181 42,292 35,853
Less reserve for obsolete inventories (2,089) (1,879) (2,101)
-------- -------- --------
$ 41,092 $ 40,413 $ 33,752
======== ======== ========
</TABLE>
4
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CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. LOSS PER SHARE AMOUNTS
The following table is a reconciliation of the numerator and
denominator of basic and diluted loss per share computations and other related
disclosures required by the Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings Per Share (in thousands, except loss per share
data):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, OCTOBER 2,
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
NUMERATOR:
<S> <C> <C>
Numerator for basic and diluted loss per share - net loss ........ $(1,627) $(1,485)
======= =======
DENOMINATOR:
Denominator for basic loss per share - weighted-average shares ... 7,515 7,492
Effect of dilutive securities:
Employee stock options and Ableco warrants .................... -- --
------- -------
Denominator for diluted loss per share - adjusted weighted-average
shares and assumed conversions ................................ 7,515 7,492
======= =======
Basic and diluted loss per share ................................. $ (0.22) $ (0.20)
======= =======
</TABLE>
The following table sets forth the options and warrants to purchase
shares of common stock at the respective ranges of exercise prices that were not
included in the computation of diluted loss per share. For the periods
indicated, inclusion of such options and warrants would result in an
antidilutive effect due to the net loss incurred by the Company.
<TABLE>
<CAPTION>
OPTIONS RANGE OF EXERCISE PRICES WARRANTS EXERCISE PRICE
------- ------------------------ -------- --------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
SEPTEMBER 30, 2000 ....... 2,507,112 $ 0.34 - $15.00 393,916 $ 0.01
THREE MONTHS ENDED
OCTOBER 2, 1999 .......... 2,344,447 $ 0.34 - $15.00 - -
</TABLE>
5
<PAGE> 8
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. COMPREHENSIVE INCOME (LOSS)
Pursuant to the provisions of SFAS No. 130, Reporting Comprehensive
Income, the Company's comprehensive loss is as follows, net of tax (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, OCTOBER 2,
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net loss ........................................... $ (1,627) $ (1,485)
Net accumulated derivative gains ................... 115 -
Foreign currency translation gain (loss) ........... (1,213) 1,155
------------ -----------
Total comprehensive loss ........................... $ (2,725) $ (330)
=========== ===========
</TABLE>
The accumulated derivative gain and loss activity relating to cash flow
hedges for the three months ended September 30, 2000 is as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
(UNAUDITED)
<S> <C>
Beginning accumulated derivative gains and losses ......................... $ -
Revaluations of cash flow hedge derivatives ............................... 244
Net reclassifications to earnings ......................................... (129)
-----
Ending net accumulated derivative gains ................................... $ 115
=====
</TABLE>
The components of accumulated other comprehensive loss are as follows,
net of tax (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JULY 1, OCTOBER 2,
2000 2000 1999
---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net accumulated derivative gains ................... $ 115 $ -- $ --
Foreign currency translation adjustments ........... (7,190) (5,977) (2,904)
------- ------- -------
Accumulated other comprehensive loss ............... $(7,075) $(5,977) $(2,904)
======= ======= =======
</TABLE>
6
<PAGE> 9
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. OPERATIONS BY INDUSTRY SEGMENTS
Pursuant to SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, the Company's reportable segments are Bicycles and
Motorsports. The Company operates predominantly in the bicycle industry as a
manufacturer and distributor of high-performance bicycles and bicycle-related
products, which include clothing, shoes and bags, and a line of components. Due
to the similarities in the nature of the products, production processes,
customers and methods of distribution, bicycles and bicycle-related products are
aggregated in the Bicycle segment. The Company has also entered the motorsports
industry with its line of motocross motorcycles and related accessories and
clothing, as well as its development of an ATV (All-Terrain Vehicle).
Summarized segment data is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, OCTOBER 2,
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales to external customers:
Bicycles ............................................. $ 35,148 $ 36,473
Motorsports .......................................... 1,539 -
--------- ----------
$ 36,687 $ 36,473
========= =========
Operating income (loss):
Bicycles ............................................. $ 1,810 $ (10)
Motorsports .......................................... (3,279) (1,489)
--------- ----------
$ (1,469) $ (1,499)
========= =========
</TABLE>
The Company evaluates performance of its segments based on profit or
loss from operations. The amounts below are not allocated between the segments
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, OCTOBER 2,
2000 1999
---- ----
(UNAUDITED) (UNAUDITED
<S> <C> <C>
Total operating loss for reportable segments ............. $ (1,469) $ (1,499)
Other income (expense):
Interest expense .................................... (1,788) (1,042)
Other income ........................................ 274 221
-------- --------
(1,514) (821)
-------- --------
Loss before income taxes ................................. $ (2,983) $ (2,320)
======== ========
</TABLE>
7
<PAGE> 10
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Summarized segment assets are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 JULY 1, 2000 OCTOBER 2, 1999
------------------ ------------ ---------------
(UNAUDITED) (UNAUDITED)
Indentifiable assets:
<S> <C> <C> <C>
Bicycles ....... $135,024 $146,875 $145,481
Motorsports .... 19,521 18,032 9,884
-------- -------- --------
$154,545 $164,907 $155,365
======== ======== ========
</TABLE>
6. DERIVATIVES AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, and its
amendments SFAS No. 137 and SFAS No. 138, in June 1999 and June 2000,
respectively. The Statement requires the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through earnings. If a derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives are either
offset against the change in fair value of assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company adopted SFAS No. 133, as amended, effective July 2, 2000; the effect
of such adoption was not material to either operating results or financial
position for the quarter ended September 30, 2000.
The Company enters into forward foreign currency contracts to purchase
and sell U.S., European, Australian, Canadian and Japanese currencies to reduce
exposures to foreign currency risks. The Company enters into forward foreign
currency contracts for a significant portion of its current and net balance
sheet exposures, principally relating to trade receivables and payables
denominated in foreign currencies, and firm sale and purchase commitments. The
Company also uses forward foreign currency contracts as cash flow hedges to
mitigate foreign currency risks related to the settlements of forecasted sales
and purchase transactions. The forward exchange contracts generally have
maturities that do not exceed 12 months and require the Company to exchange at
maturity various currencies for U.S. dollars and Euros at rates agreed to at the
inception of the contracts.
The carrying amount of derivatives at fair value as of September 30,
2000 was not material to the Company's financial position. The net expense
relating to amortization of premiums and discounts of cash flow hedges was not
material to either operating results or financial position for the quarter ended
September 30, 2000 and is included in other income (expense) on the Consolidated
Statement of Operations. The total net accumulated derivative gains of $115,000
included in the accumulated other comprehensive loss at September 30, 2000 are
expected to be reclassified into earnings within the next 12 months upon
settlement of the related hedged item (accounts receivable or sale of inventory
to a third party). As of September 30, 2000 the maximum period of time the
Company was hedging its exposure to the variability in future cash flows for
forecasted transactions was nine months.
7. SHIPPING AND HANDLING FEES AND COSTS
Prior year net sales and selling, general and administrative expenses
have been restated pursuant to EITF Issue 00-10, Accounting for Shipping and
Handling Fees and Costs. In accordance with such, all
8
<PAGE> 11
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
shipping and handling billings to customers have been included in net sales, and
freight costs incurred for product shipments have been included in selling,
general and administrative expenses. Previously, the Company offset shipping and
handling charges billed to customers and the related freight costs within
selling, general and administrative expenses. For the quarterly periods ended
September 30, 2000 and October 2, 1999, shipping and handling billings of
approximately $492,000 and $464,000, respectively, have been included in net
sales, and freight costs of approximately $746,000 and $791,000, respectively,
have been included in selling, general and administrative expenses.
8. RELATED PARTY TRANSACTION
During the first quarter of fiscal 2001, the Company deferred the
interest payment on the note receivable from Joseph Montgomery, the President
and Chief Executive Officer of the Company, due August 1, 2000 of approximately
$1,067,000 until August 28, 2000. At such time, Mr. Montgomery paid $1.4 million
to the Company as full payment of all deferred interest and accrued interest
thereon.
9. INTERCOMPANY DIVIDEND
During the first quarter of fiscal 2001, the Company received a
dividend from Cannondale Europe, a wholly-owned foreign subsidiary, in the
amount of $1,073,000. The Company has provided for additional U.S. federal
income taxes representing the net tax impact of the dividend after the effect of
foreign tax credit adjustments, which offset the majority of the U.S. federal
income taxes generated by this dividend.
10. LITIGATION
The Company currently and from time to time is involved in product
liability lawsuits and other litigation incidental to the conduct of its
business. The Company is not a party to any lawsuit or proceeding that, in the
opinion of management, is likely to have a material adverse effect on the
results of operations, cash flows or financial condition of the Company;
however, due to the inherent uncertainty of litigation there can be no assurance
that the resolution of any particular claim or proceeding would not have a
material adverse effect on the Company's results of operations, cash flows or
financial condition.
9
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales. Net sales increased to $36.7 million in the first quarter of
fiscal 2001 from $36.5 million in the first quarter of fiscal 2000, an increase
of approximately $200,000 or 0.6%. Included in the net sales amount for the
first quarter of fiscal 2001 is approximately $1.5 million in motorsports sales.
Net sales of bicycles and cycling-related products in the U.S. market increased
7.4% compared to the prior-year quarter, and European bicycle net sales
increased 0.3%, excluding the effect of foreign exchange. This growth in net
sales was more than offset by the unfavorable foreign exchange impact of
approximately $2.7 million primarily resulting from the weakened Euro compared
to the U.S. dollar. Net sales for the first quarters of fiscal 2001 and 2000
include shipping and handling billings of approximately $492,000 and $464,000,
respectively, pursuant to EITF Issue 00-10, Accounting for Shipping and Handling
Fees and Costs.
In October 2000, the Company suspended production and shipments of its
MX400 motorcycle in order to complete testing and implementation of various
improved engine components. The Company expects to resume shipments of the MX400
in December 2000, but can give no assurance that shipments will be resumed by
that date. As a result, the Company expects that motorcycle sales will decrease
substantially in the second quarter of fiscal 2001.
Gross Profit. Gross profit was $10.0 million in the first quarter of
fiscal 2001, a decrease of 7.2% from the gross profit in the first quarter of
fiscal 2000 of $10.7 million. Gross profit as a percentage of net sales in the
first quarter of fiscal 2001 decreased to 27.2% compared to 29.4% for the first
quarter of fiscal 2000. The decrease in gross profit dollars and gross profit as
a percentage of net sales was primarily attributable to the production start-up
costs of the MX400 which were not proportionately offset by revenues. Bicycle
margins increased to 32.9% for the first quarter of fiscal 2001 from 29.8% in
the prior year primarily as a result of a more favorable product mix; this
margin increase includes the unfavorable foreign exchange impact of
approximately $860,000 primarily resulting from the weakened Euro compared to
the U.S. dollar.
Operating Expenses. Operating expenses were $11.4 million for the first
quarter of fiscal 2001, a decrease of 6.6% from the $12.2 million recorded for
the first quarter of fiscal 2000.
Selling, general and administrative expenses decreased to $9.5 million
for the first quarter of fiscal 2001, from $9.8 million recorded during the
prior-year period. Decreased selling, general and administrative expenses during
the first quarter of fiscal 2001 were primarily attributable to the foreign
exchange impact of the weakened Euro compared to the U.S. dollar. Continued cost
reductions in the bicycle segment were offset by the initial selling expenses in
the motorsports segment. As a percentage of net sales, selling, general and
administrative expenses decreased to 25.8% for the first three months of fiscal
2001 from 26.9% in the prior-year period due to the effect of foreign exchange
noted above.
Research and development expenses decreased to $2.0 million in the
first quarter of fiscal 2001, from $2.4 million recorded during the prior-year
period. The decrease in research and development expenses during the first
quarter of fiscal 2001 primarily reflects reduced expenses related to the MX400
motorcycle. The Company invested approximately $1.0 million in research and
development for its motorsports products during the first quarter of fiscal 2001
compared to approximately $1.3 million during the same period last year. As a
percentage of net sales, research and development expenses decreased to 5.3% for
the first three months of fiscal 2001 compared to 6.6% for the first three
months of fiscal 2000.
10
<PAGE> 13
Other Income (Expense). Interest expense increased to $1.8 million in
the first quarter of fiscal 2001 from $1.0 million recorded during the
prior-year period. The increase in interest expense was primarily attributable
to higher interest rates associated with the Company's new credit facilities and
higher debt levels compared to the same period last year. For the first quarter
of fiscal 2001, other income primarily consisted of interest income totaling
$303,000 from the loan to Joseph Montgomery.
Income Tax Benefit. For the first quarter of fiscal 2001 an income tax
benefit of approximately $1.4 million was recorded, compared to the income tax
benefit of approximately $800,000 for the prior-year period. The increase in the
income tax benefit recorded for the first quarter of fiscal 2001 was primarily
attributable to the decreased profitability from the Company's European
operations, and the effect of the U.S. Research and Development Tax Credit.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $3.2 million for the
first three months of fiscal 2001, an increase of approximately $1.9 million
compared to $1.3 million of net cash provided by operating activities for the
first three months of fiscal 2000. The increase in net cash provided by
operating activities during the first quarter of fiscal 2001 compared to the
first quarter of fiscal 2000 was primarily attributable to a larger decrease in
accounts receivable levels compared to the same period last year, coupled with
the receipt of approximately $1.4 million in accrued interest from Joseph
Montgomery, offset by increases in inventory levels and other assets.
Capital expenditures were $807,000 for the first three months of fiscal
2001, compared to $1.5 million for the first three months of fiscal 2000.
Capital expenditures during the first quarter of fiscal 2001 principally related
to tooling used in the production of motorsports products, whereas capital
expenditures during the first quarter of fiscal 2000 related to computer
equipment and manufacturing equipment associated with the production of both the
bicycle and motorsports product lines.
Net cash used by financing activities for the first three months of
fiscal 2001 was $4.9 million, an increase of approximately $3.0 million compared
to the $1.9 million of net cash used in financing activities for the first three
months of fiscal 2000. The net cash used in financing activities during the
first quarters of fiscal 2001 and 2000 primarily reflect the decreases in the
Company's working capital levels during the respective quarters and the
corresponding reductions in its debt. At September 30, 2000 the availability
under the Company's revolving line of credit with the CIT Group/Business Credit
Inc. was approximately $9.0 million.
The Company expects that cash flow generated by its operations and
borrowings under its borrowing facilities will be sufficient to meet its planned
operating and capital requirements for the foreseeable future.
CERTAIN FACTORS WHICH MAY AFFECT THE COMPANY'S FUTURE PERFORMANCE
This Quarterly Report on Form 10-Q contains certain forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which represent the Company's expectations or beliefs concerning future events,
including, but not limited to, the following: statements regarding the timing of
the Company's planned production and shipping of its motorsports products;
statements regarding the Company's capital and current operational investments
to finance the planned growth of the Company;
11
<PAGE> 14
statements regarding the Company's expected cash needs, sources of cash to fund
its planned operating and capital requirements and its future ability to comply
with the terms and conditions of its present financing facilities. Such
statements are based upon the facts presently known to the Company and
assumptions as to important future events, many of which are beyond the control
of the Company. Reference is made to the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained in the Company's
annual report on Form 10-K for the fiscal year ended July 1, 2000 for a
description of certain additional risk factors which may affect the Company's
future results.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in interest rates and foreign exchange rates, as well as credit risk
concentrations. To address these risks, the Company enters into various hedging
transactions as described below. The Company does not use financial instruments
for trading purposes. For further discussion of the quantitative and qualitative
aspects of market risk, see Part II Item 7A of the Company's annual report on
Form 10-K for the fiscal year ended July 1, 2000.
CREDIT RISKS.
The Company's customer base is composed of specialty bicycle retailers
which are located principally throughout the United States and Europe. The
Company's net sales are concentrated in the United States and Germany. No other
single country accounted for more than 10% of the Company's net sales during the
first quarter of fiscal 2001. No single customer accounted for more than 5% of
the Company's sales during the first quarter of fiscal 2001. As a result of the
seasonality of the Company's business, the payment terms offered to its bicycle
dealers generally range from 30 to 210 days depending on the time of year and
other factors.
FOREIGN CURRENCY RISKS.
The Company enters into forward foreign currency contracts to purchase
and sell U.S., European, Australian, Canadian and Japanese currencies to reduce
exposures to foreign currency risks. The Company enters into forward foreign
currency contracts for a significant portion of its current and net balance
sheet exposures, principally relating to trade receivables and payables
denominated in foreign currencies, and firm sale and purchase commitments. The
Company also uses forward foreign currency contracts as cash flow hedges to
mitigate foreign currency risks related to the settlements of forecasted sales
and purchase transactions. The forward exchange contracts generally have
maturities that do not exceed 12 months and require the Company to exchange at
maturity various currencies for U.S. dollars and Euros at rates agreed to at the
inception of the contracts. As of September 30, 2000 the maximum period of time
the Company was hedging its exposure to the variability in future cash flows for
forecasted transactions was nine months.
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PART II OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule for the Three Months
Ended September 30, 2000.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 2000.
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SIGNATURE
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 14, 2000 /s/ WILLIAM A. LUCA
-----------------------------------
William A. Luca
Vice President of Finance, Treasurer,
Chief Financial Officer and Chief
Operating Officer
(Principal Financial Officer
and authorized signatory)
