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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended January 3, 1997 Commission file number: 0-05083
HYDE ATHLETIC INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-1465840
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Centennial Industrial Park, 13 Centennial Drive, Peabody, MA 01960
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(Address of principal executive offices)
Registrant's telephone number, including area code: (508) 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
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(Title of class)
Class B Common Stock, $.33-1/3 par value
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(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 or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant, as of March 21, 1997, was approximately $6,801,742 (based on the
last sale price of the Class A 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 21,
1997 was 2,703,227 and 3,533,659, respectively.
Portions of the following documents are incorporated by reference in this
Report.
Documents Incorporated by Reference
-----------------------------------
Document Form 10-K Part
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Proxy Statement for Annual Meeting of Stockholders Part III
of the Registrant to be held on May 15, 1997, to be
filed with the Securities and Exchange Commission.
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 and apparel for adults under the Saucony
brand name and (ii) outdoor recreational products for children and young adults
under licensed names, such as Barbie(R), Playskool(R) and Spalding(R), as well
as under Brookfield and other proprietary names of the Company (collectively,
"Brookfield products"). The Company's Saucony athletic footwear products
include running, walking, cross training and outdoor trail shoes, and the
Company's Brookfield outdoor recreational products include roller skates, roller
hockey skates and accessories. The following table sets forth the approximate
contribution to net sales (in dollars and as a percentage of net sales)
attributable to each product line for the periods and geographic areas
indicated. "Other" consists of Spot-Bilt coaches and officials shoes, Quintana
Roo bicycles and wetsuits, 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.
Net Sales
(dollars in thousands)
Fiscal 1994 Fiscal 1995 Fiscal 1996
---------- ----------- ----------
Sales Sales Co. Sales Sales Co. Sales Sales Co.
$ % % $ % % $ % %
- - -- - - - --
Saucony
Domestic $ 53,939 71% $ 47,040 67% $ 54,445 69%
International 22,420 29% 23,628 33% 24,366 31%
---------- ------- ---------- ------ ---------- ------
Total $ 76,359 100% 71% $ 70,668 100% 69% $ 78,811 100% 71%
---------- ------- ---------- ------ ---------- ------
Brookfield
Domestic $ 19,699 80% $ 18,737 78% $ 9,407 48%
International 4,824 20% 5,277 22% 10,061 52%
---------- ------- ---------- ------ ---------- ------
Total $ 24,523 100% 23% $ 24,014 100% 23% $ 19,468 100% 18%
---------- ------- ---------- ------ ---------- ------
Other $ 6,696 6% 7,881 8% $ 12,530 11%
---------- ------ ---------- ------ ---------- ------
Grand Total $ 107,578 100% $ 102,563 100% $ 110,809 100%
========== ====== ========== ====== ========== ======
SAUCONY BRAND. The Company sells quality running, walking, cross training, and
outdoor trail shoes for adults under the Saucony brand name, which has been
marketed in the United States for over 25 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 fifth in sales of
running shoes in the United States during 1996. In addition, according to
ASD/Target Research, the Company's market share of running shoes sold in the
United States was 5.5% in 1996. 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 which 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.
Several of the Company's top-of-the-line running and other athletic shoes
incorporate the Company's G.R.I.D. ("Ground Reaction Inertia Device") 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 G.R.I.D. System is designed to
react to various stress forces differently and thereby simultaneously to
maximize shock absorption and minimize rear foot motion. In 1996, the Company
introduced several new running shoe styles which incorporated Saucony's advanced
midsole technology, the 3D G.R.I.D., and extended the regular G.R.I.D. System
technology into its more moderately priced running shoes.
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 $125 per pair.
The Company designs its Saucony cross training, 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 traditional white leather 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. Accordingly, the Company has licensed the Saucony name for the
United States market to the Bangor Trading Company of Chula Vista, California,
for use in connection with a line of sporting apparel. The Bangor Trading
Company introduced these apparel products into the performance athletic apparel
market in 1993. The Company also licenses its Saucony apparel brand to selected
markets internationally in addition to designing and marketing its brand
throughout most of Europe.
BROOKFIELD PRODUCTS. The Company markets a range of recreational and dedicated
enthusiast sports products that provide "Outdoor Fun For Kids." The principal
products in this category include moderately priced roller skates, roller hockey
skates and in-line skates for children and young adults. Other products include
protective accessories, such as wrist, elbow and knee pads. These products are
sold through mass merchants, toy and sporting goods departments and, in some
cases, through free-standing sporting goods outlets.
Brookfield products are sold both under names owned by the Company, including
the "Brookfield," "Hyde," and "Spot-Bilt" names, and also under brand names
licensed from third parties, including Mattel, Inc., Hasbro, Inc., Franklin
Sports, Inc., Spalding, Inc., Time Warner Entertainment Company, and the Walt
Disney Company. Licensed brands include such recognizable names as Barbie,
Playskool, Nerf, Spalding and Topflite, as well as Mickey and Minnie and 101
Dalmatians.
The Company's strategy for licensed products is to offer categories and families
of products under well known trademarks and children's characters that
distinguish its products from those of its competition. The Company believes
that the use of these licensed brand names enables it to leverage established
consumer awareness created by licensor-implemented national and international
advertising and promotional programs.
OTHER PRODUCTS
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. (See Note 3 of Notes to Consolidated
Financial Statements).
QUINTANA ROO. The Company manufactures and distributes the Quintana Roo line of
triathlon bicycles, road bicycles, mountain bicycles and wet suits.
FACTORY OUTLET STORES. The Company operates six 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, Brookfield, Spot-Bilt and Quintana Roo products at these
outlets, as well as athletic accessory goods of third parties.
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 currently expects to begin delivery of its Hind
apparel products to the retail trade in the third quarter of 1997.
AUSTRALIAN PRODUCTS. The Company's Australian subsidiary holds the exclusive
license to distribute various non-Hyde products throughout Australia.
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. In developing Brookfield
products, the Company focuses both on comfort and on the color, graphics and
design of the product and the product packaging. The Company maintains a staff
of 15 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 3, 1997, January 5, 1996, and December 30, 1994, the Company expended
$1,945,000, $1,851,000, and $1,296,000, respectively, in connection with its
product development programs.
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. With the exception of certain specified
"house accounts" handled directly by the Company, the Company sells its athletic
footwear products in the United States through 12 independent manufacturer's
representatives, whose organizations employ approximately 42 individual sales
representatives. Company sales personnel directly service a limited number of
specified house accounts and sell to a number of national accounts on a joint
basis with the Company's independent representatives.
In 1996, the Company hired a number of additional sales personnel, including
several regional sales managers, and established a sales administration team.
In addition, in recent years, the Company has introduced a state-of-the-art CD-
ROM multimedia sales presentation program and created a Web site on the World
Wide Web(R) at www.saucony.com.
The Company sells its Saucony products outside the United States in 32 countries
through 24 distributors located throughout the world, including joint venture
subsidiaries in which the Company holds controlling interests located in the
Netherlands (which holds the distribution rights to the Company's Saucony
products in the Benelux countries), Australia, Germany and Canada, and through 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 Europe and Australia.
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.
The Company engages in various advertising and promotional programs for its
Saucony products. The principal media used by the Company as part of its
advertising and promotional programs are magazines, with a particular focus on
athletic and fitness magazines. The Company also uses radio and regional
television advertising. To heighten its brand presence in retail outlets, the
Company emphasizes account-specific, in-store promotions of its Saucony
products, such as holding special events, providing consumers with a gift upon
the purchase of specified products and employee contests. Also to heighten
brand awareness, the Company frequently employs grass roots promotional
activities, such as its "Walking Club" and "Extra Mile Club" promotions. In
addition, the Company promotes its products on a limited basis through product
endorsements by athletes and sponsorship of sporting events.
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.
BROOKFIELD PRODUCTS. The Company's Brookfield products are sold through mass
merchants, toy and sporting goods departments and, in some cases, through free-
standing sporting goods outlets. Retailers of Brookfield products include Sam's
Wholesale Club, Service Merchandise, Target and Toys "R" Us. The Company sells
its Brookfield products to these retailers in the United States primarily
through nine multi-line independent manufacturers representative agencies.
Company sales personnel directly service a limited number of specified house
accounts for Brookfield products and sell jointly with the Company's independent
representatives to a limited number of national accounts. The Company has
continued its efforts to expand sales of Brookfield products in international
markets and at the end of 1996 was selling products in 42 foreign countries.
The Company directs most of its advertising and promotional efforts for
Brookfield products towards the trade through attendance at trade shows and
similar events. The Company also employs an advertising program under which it
reimburses participating retailers for a portion of the costs incurred by such
retailers in advertising Brookfield products.
BACKLOG; SEASONALITY; DISTRIBUTION. The Company's backlog of unfilled orders
was approximately $42,056,000 at January 3, 1997 and $34,727,000 at January 5,
1996. The Company expects that all of its backlog at January 3, 1997 will be
shipped in fiscal 1997. 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 distributes its
products through its warehouses in Peabody and Brookfield, Massachusetts, as
well as through independent warehouse facilities located throughout the world.
For information about the Company's foreign operations and export sales, see
Note 13 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 Brookfield and Spot-Bilt 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 1996 the Company purchased products from 16 overseas
suppliers. One of such suppliers, located in China, accounted for approximately
38% 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 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. 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
foreign 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. 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 Brookfield products are Variflex, Roller Derby, Blade Runner and
Fisher-Price. The Company believes that the key competitive factors as to both
its Saucony and Brookfield products are styling, durability, product
identification through promotion, brand awareness and price. Technical
performance is an important competitive factor with respect to the Company's
Saucony products, and name identification is an important competitive factor
with respect to the Company's licensed Brookfield products. 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.
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, Spot-Bilt, Hyde, G.R.I.D.,
Quintana Roo, and Hind marks, among others, in the United States. 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. The
Company also obtains licenses on a royalty-bearing basis to various marks from
third parties from time to time, generally for two- to three-year periods. The
Company currently uses Barbie, Playskool, Franklin, Spalding and other marks in
connection with sales of its Brookfield products.
Although the Company has usually been able to renew its licenses upon
expiration, there can be no assurance that it will be able to do so in the
future. The loss by the Company of its license for the Barbie or Spalding marks
could have a material adverse effect on the Company's consolidated financial
position and results of operations. In addition, one or more of the Company's
licensed tradenames or likenesses may decline in popularity.
EMPLOYEES
At January 3, 1997, the Company employed approximately 421 people worldwide, of
whom approximately 140 worked at the Company's manufacturing plant in Bangor,
Maine, approximately 25 worked in the Company's Peabody, Massachusetts
warehouse, approximately 29 were sales and marketing personnel, approximately 27
were executive and finance personnel, approximately 15 were product development
and design personnel and the remainder were involved in various other aspects of
the Company's business. Eighty-four 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 3, 1997. 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 Australian
subsidiary owns an office and warehouse facility in St. Peters, Australia,
containing approximately 15,000 square feet.
ITEM 3 - LEGAL PROCEEDINGS
A subsidiary of the Company, Saucony Shoe Manufacturing Co., Inc. ("SSM"), was
named as a third-party defendant in the case of United States v. Atlas Minerals
and Chemicals, et al., which was filed on August 9, 1991 in the United States
District Court for the Eastern District of Pennsylvania asserting liability
under the Comprehensive Environmental Response Compensation and Liability Act
for the remediation of hazardous substances contamination at a landfill in
Pennsylvania. The United States and the original defendants in this case
entered into a settlement agreement under which the original defendants will
conduct or pay for future remedial actions at the landfill, and reimburse the
United States for certain past response costs. The United States and the
original defendants estimated these remedial actions and response costs at
approximately $23 million. The original defendants had initiated third-party
actions against approximately 40 parties, including SSM, seeking reimbursement
or contribution as to these costs. SSM conducted manufacturing operations from
1968 to 1983, at which time it was phased out of business. On August 25, 1995,
the court issued an opinion and judgment, holding certain parties in the case
jointly and severally liable for response costs which had been and will be
incurred, and determined the equitable share of each liable party. The court
determined that SSM's equitable share of response costs was $89,370, or 0.44% of
the total costs. Should the estimated response costs rise, or should one or
more liable parties fail to satisfy the judgments against them, SSM's obligation
would increase. Payment of SSM's obligation is expected to occur over a number
of years.
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 49 President, Chief Executive Officer
and Director
Charles A. Gottesman 46 Executive Vice President,
Chief Operating Officer, Treasurer
and Director
Wolfgang Schweim 44 President, Saucony Athletic Footwear
Division
James A. Buchanan 50 President and General Manager of
Brookfield Athletic Co., Inc. and
Director
Roger P. Deschenes 38 Controller and Chief Accounting
Officer
Kenneth W. Graham 43 Senior Vice President,
Research & Development/Manufacturing
Daniel J. Horgan 41 Vice President, Operations
John H. Fisher became Chief Executive Officer of the Company in 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.
Wolfgang Schweim became President of the Company's Saucony Athletic Footwear
Division in June 1994. 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.
James A. Buchanan joined the Company in 1989 as Vice President, Marketing and
was promoted to his present position in 1990. From 1985 to 1989, he was
President of Marketing Associates International Ltd., a company engaged in the
marketing of entertainment products, including the European introduction of the
board game Trivial Pursuit. From 1981 to 1985 he was employed by General Mills,
Inc., first as Director of Marketing for New Ventures (non-foods) and then as
European Marketing Vice President for the General Mills Fun Group. Mr. Buchanan
became a director in 1991.
Roger P. Deschenes joined the Company in 1990 as Corporate Accounting Manager
and was promoted to Controller and Chief Accounting Officer in October 1995. 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. From 1986 to 1987, Mr. Deschenes was employed at Rule Industries,
Inc., a manufacturing firm, as Accounting Manager. Mr. Deschenes is a Certified
Management Accountant.
Kenneth W. Graham was promoted to Senior Vice President of Research and
Development/Manufacturing in 1996, after serving 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
Shoes Corporation.
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.
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.
Class A Class B
Common Stock Common Stock
------------ ------------
High Low High Low
---- --- ---- ---
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
FISCAL YEAR ENDED JANUARY 5, 1996
---------------------------------
First Quarter $ 5-1/2 $ 4-5/8 $ 5-1/2 $ 4-5/8
Second Quarter 5-1/2 4 5-1/8 3-7/8
Third Quarter 5-1/4 4 5 4
Fourth Quarter 5-1/4 3-5/8 4-5/8 3-5/8
There were 401 and 374 stockholders of record of the Class A Common Stock and
Class B Common Stock, respectively, on March 21, 1997.
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 3, 1997, approximately $11,507,000 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.
ITEM 6 - SELECTED FINANCIAL DATA
Selected Income Statement Data
Year Ended Year Ended Year Ended Year Ended Year Ended
January 3, January 5, December 30, December 31, January 1,
1997 1996 1994 1993 1993
---- ---- ---- ---- ----
Net sales $110,809,169 $102,562,755 $107,577,873 $103,735,477 $81,302,002
Income before interest, income
taxes, minority interest and
cumulative effect of change in
accounting principle 3,181,293 3,320,129 6,256,133 9,081,123 7,701,541
Minority interest 307,998 (285,820) 8,516 (46,747) (26,670)
Cumulative effect on prior
years of change in
accounting principle (1) -- -- -- -- (303,538)
Net income 1,494,090 1,591,106 2,936,637 4,607,698 3,422,099
Net income per common share(2) 0.24 0.26 0.46 0.76 0.65
Weighted average number of
common shares and
equivalents outstanding (2) 6,251,889 6,239,557 6,437,281 6,074,238 5,238,410
Cash dividends per share of
common stock -- -- -- -- --
Selected Balance Sheet Data
January 3, January 5, December 30, December 31, January 1,
1997 1996 1994 1993 1993
---- ---- ---- ---- ----
Current assets $57,815,101 $59,190,090 $61,621,756 $58,121,147 $49,032,888
Current liabilities 14,208,783 14,728,785 15,657,860 13,372,714 13,417,951
Working capital 43,606,318 44,461,305 45,963,896 44,748,433 35,614,937
Total assets 71,591,726 69,471,289 77,082,332 73,693,786 56,691,068
Long-term debt and capitalized
lease obligations, net of
current portion 4,892,753 4,205,568 11,922,392 12,941,977 10,015,977
Stockholders' equity 50,078,617 48,365,054 46,754,828 44,709,824 30,868,287
- ---------------------------
(1) The Company adopted Statement of Financial Accounting Standards 109 (SFAS No. 109) in fiscal 1992. SFAS No. 109
required initial application of this statement to be reported as a change in accounting principle. Included in 1992
consolidated net income is a charge to earnings of $303,538 or $.06 per share of Common Stock, reflecting the
cumulative effect of adopting SFAS No. 109.
(2) See Notes 1 and 10 of the Notes to Consolidated Financial Statements regarding restatement to reflect stock dividend.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Selected Quarterly Financial Results
The following table sets forth certain unaudited quarterly financial data of the
Company for each of the four fiscal quarters in each of fiscal 1996, 1995 and
1994. The Company believes that this information has been prepared on the same
basis as the audited Consolidated Financial Statements and that all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the selected quarterly information
when read in conjunction with the audited Consolidated Financial Statements and
the Notes thereto.
SELECTED QUARTERLY FINANCIAL RESULTS
Quarters Ended
(Unaudited)
April 5, July 5, October 4, January 3,
1996 1996 1996 1997
---- ---- ---- ----
STATEMENT OF INCOME DATA:
Saucony
Domestic $ 18,569,207 $ 15,687,804 $ 10,796,406 $ 9,391,947
International 7,139,294 5,489,664 6,418,020 5,318,892
------------- ------------- ------------- -------------
Saucony Total 25,708,501 21,177,468 17,214,426 14,710,839
------------- ------------- ------------- -------------
Brookfield
Domestic 1,881,752 1,383,626 3,116,876 3,024,950
International 1,371,829 3,261,233 3,987,583 1,440,371
------------- ------------- ------------- -------------
Brookfield Total 3,253,581 4,644,859 7,104,459 4,465,321
------------- ------------- ------------- -------------
Other 2,929,811 3,218,663 3,394,633 2,986,608
------------- ------------- ------------- -------------
Net sales 31,891,893 29,040,990 27,713,518 22,162,768
Other income 249,654 367,593 95,914 362,504
------------- ------------- ------------- -------------
Total revenue 32,141,547 29,408,583 27,809,432 22,525,272
------------- ------------- ------------- -------------
Costs and expenses
Cost of sales 22,587,788 20,848,665 18,903,001 15,109,717
Selling expenses 4,578,823 4,823,427 4,136,758 4,101,999
General and administrative
expenses 3,310,240 3,228,976 3,397,683 3,676,464
Interest expense 263,198 239,047 230,660 218,832
------------- ------------- ------------- -------------
Total costs and expenses 30,740,049 29,140,115 26,668,102 23,107,012
------------- ------------- ------------- -------------
Income (loss) before income
taxes and minority interest 1,401,498 268,468 1,141,330 (581,740)
Provision (benefit) for income
taxes 526,618 61,309 392,183 (552,642)
Minority interest in income (loss) of
consolidated subsidiaries 135,411 93,466 146,529 (67,408)
------------- ------------- ------------- --------------
Net income $ 739,469 $ 113,693 $ 602,618 $ 38,310
============= ============= ============= =============
Per share amounts:
Net income $0.12 $0.02 $0.10 $0.01
==== ===== ==== =====
Weighted average common shares
and equivalents outstanding 6,225,960 6,244,225 6,268,925 6,268,732
============= ============= ============= =============
Statement of Income Data as a Percentage of Net Sales:
Quarters Ended
(Unaudited)
STATEMENT OF INCOME DATA: April 5, July 5, October 4, January 3,
1996 1996 1996 1997
---- ---- ---- ----
Net Sales
Saucony
Domestic 58.2% 54.0% 39.0% 42.4%
International 22.4% 18.9% 23.2% 24.0%
-------- -------- -------- --------
Saucony Total 80.6% 72.9% 62.2% 66.4%
-------- -------- -------- --------
Brookfield
Domestic 5.9% 4.8% 11.2% 13.6%
International 4.3% 11.2% 14.4% 6.5%
-------- -------- -------- --------
Brookfield Total 10.2% 16.0% 25.6% 20.1%
-------- -------- -------- --------
Other 9.2% 11.1% 12.2% 13.5%
-------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Other income 0.8% 1.2% 0.3% 1.6%
-------- -------- -------- --------
Total revenue 100.8% 101.2% 100.3% 101.6%
-------- -------- -------- --------
Costs and expenses
Cost of sales 70.8% 71.8% 68.2% 68.2%
Selling expenses 14.4% 16.6% 14.9% 18.5%
General and administrative
expenses 10.4% 11.1% 12.3% 16.5%
Interest expense 0.8% 0.8% 0.8% 1.0%
-------- -------- -------- --------
Total costs and expenses 96.4% 100.3% 96.2% 104.2%
-------- -------- -------- --------
Income (loss) before taxes and
minority interest 4.4% 0.9% 4.1% (2.6%)
Provision (benefit) for income
taxes 1.7% 0.2% 1.4% (2.5%)
Minority interest in income
(loss) of consolidated
subsidiaries 0.4% 0.3% 0.5% (0.3%)
-------- -------- -------- --------
Net income (loss) 2.3% 0.4% 2.2% 0.2%
======== ======== ======== ========
SELECTED QUARTERLY FINANCIAL RESULTS
Quarters Ended
(Unaudited)
STATEMENT OF INCOME DATA: March 31, June 30, September 29, January 5,
1995 1995 1995 1996
---- ---- ---- ----
Saucony
Domestic $ 16,146,371 $ 12,777,890 $ 9,958,877 $ 8,156,455
International 7,145,958 5,775,849 5,487,042 5,219,465
------------- ------------- ------------- -------------
Saucony Total 23,292,329 18,553,739 15,445,919 13,375,920
------------- ------------- ------------- -------------
Brookfield
Domestic 4,090,634 3,933,322 6,215,743 4,497,599
International 632,771 1,181,895 1,929,266 1,533,042
------------- ------------- ------------- -------------
Brookfield Total 4,723,405 5,115,217 8,145,009 6,030,641
------------- ------------- ------------- -------------
Other 2,222,167 1,744,781 2,058,338 1,855,290
------------- ------------- ------------- -------------
Net sales 30,237,901 25,413,737 25,649,266 21,261,851
Other income 126,221 859,868 383,692 146,078
------------- ------------- ------------- -------------
Total revenue 30,364,122 26,273,605 26,032,958 21,407,929
------------- ------------- ------------- -------------
Costs and expenses
Cost of sales 20,376,734 17,380,076 17,464,091 15,639,920
Selling expenses 4,860,525 4,361,712 4,419,572 3,045,335
General and administrative
expenses 3,617,505 3,034,023 3,356,192 3,202,800
Interest expense 435,168 311,463 228,306 324,921
------------- ------------- ------------- -------------
Total costs and expenses 29,289,932 25,087,274 25,468,161 22,212,976
------------- ------------- ------------- -------------
Income (loss) before income
taxes and minority interest 1,074,190 1,186,331 564,797 (805,047)
Provision (benefit) for income
taxes 417,103 460,844 220,581 (383,543)
Minority interest in income
(loss) of consolidated
subsidiaries 28,148 (113,550) 24,808 (225,226)
------------- -------------- ------------- --------------
Net income (loss) $ 628,939 $ 839,037 $ 319,408 $ (196,278)
============= ============= ============= ==============
Per share amounts:
Net income (loss) $0.10 $0.13 $0.05 $(0.03)
==== ==== ===== =======
Weighted average common shares
and equivalents outstanding 6,252,746 6,245,913 6,231,606 6,228,588
============= ============= ============= =============
SELECTED QUARTERLY FINANCIAL RESULTS
Statement of Income Data as a Percentage of Net Sales:
Quarters Ended
(Unaudited)
STATEMENT OF INCOME DATA: March 31, June 30, September 29, January 5,
1995 1995 1995 1996
--- ---- ---- ----
Saucony
Domestic 53.4% 50.3% 38.8% 38.4%
International 23.6% 22.7% 21.4% 24.5%
-------- -------- -------- --------
Saucony Total 77.0% 73.0% 60.2% 62.9%
-------- -------- -------- --------
Brookfield
Domestic 13.5% 15.5% 24.3% 21.2%
International 2.1% 4.6% 7.5% 7.2%
-------- -------- -------- --------
Brookfield Total 15.6% 20.1% 31.8% 28.4%
-------- -------- -------- --------
Other 7.4% 6.9% 8.0% 8.7%
-------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Other income 0.5% 3.4% 1.5% 0.7%
-------- -------- -------- --------
Total revenue 100.5% 103.4% 101.5% 100.7%
-------- -------- -------- --------
Costs and expenses
Cost of sales 67.4% 68.4% 68.1% 73.6%
Selling expenses 16.1% 17.2% 17.2% 14.3%
General and administrative
expenses 12.0% 11.9% 13.1% 15.1%
Interest expense 1.4% 1.2% 0.9% 1.5%
-------- -------- -------- --------
Total costs and expenses 96.9% 98.7% 99.3% 104.5%
-------- -------- -------- --------
Income (loss) before taxes and
minority interest 3.6% 4.7% 2.2% (3.8%)
Provision (benefit) for income
taxes 1.4% 1.8% 0.9% (1.8%)
Minority interest in income
(loss) of consolidated
subsidiaries 0.1% (0.4%) 0.1% (1.1%)
-------- -------- -------- --------
Net income (loss) 2.1% 3.3% 1.2% (0.9%)
======== ======== ======== ========
STATEMENT OF INCOME DATA:
Quarters Ended
(Unaudited)
April 1, July 1, September 30, December 30,
1994 1994 1994 1994
---- ---- ---- ----
Saucony
Domestic $ 14,754,713 $ 14,153,824 $ 13,580,430 $ 11,450,127
International 6,025,409 3,679,950 5,847,618 6,867,348
------------- --------------- ------------- -------------
Saucony Total 20,780,122 17,833,774 19,428,048 18,317,475
------------- --------------- ------------- -------------
Brookfield
Domestic 3,449,622 4,640,359 3,818,867 7,789,835
International 253,649 683,519 2,329,573 1,557,237
------------- --------------- ------------- -------------
Brookfield Total 3,703,271 5,323,878 6,148,440 9,347,072
------------- --------------- ------------- -------------
Other 1,630,817 1,587,163 1,876,050 1,601,763
------------- --------------- ------------- -------------
Net sales 26,114,210 24,744,815 27,452,538 29,266,310
Other income 129,850 240,981 379,591 558,028
------------- --------------- ------------- -------------
Total revenue 26,244,060 24,985,796 27,832,129 29,824,338
------------- --------------- ------------- -------------
Costs and expenses
Cost of goods sold 17,779,333 16,879,487 18,156,065 19,678,500
Selling expenses 4,102,384 4,713,858 4,366,960 4,494,929
General and administrative
expenses 3,093,239 2,924,344 3,418,839 3,022,252
Interest expense 371,138 358,138 360,106 390,865
------------- --------------- ------------- -------------
Total costs and expenses 25,346,094 24,875,827 26,301,970 27,586,546
------------- --------------- ------------- -------------
Income before income taxes
and minority interest 897,966 109,969 1,530,159 2,237,792
Provision for income taxes 319,229 13,277 532,244 965,983
Minority interest in income
(loss) of consolidated
subsidiaries 61,912 (87,002) 42,449 (8,843)
------------- ---------------- ------------- --------------
Net income $ 516,825 $ 183,694 $ 955,466 $ 1,280,652
============= =============== ============= =============
Per share amounts:
Net income $0.08 $0.03 $0.15 $0.20
===== ===== ===== ====
Weighted average common
shares and equivalents
outstanding 6,501,071 6,457,466 6,423,956 6,333,950
============= =============== ============= =============
SELECTED QUARTERLY FINANCIAL RESULTS
Statement of Income Data as a Percentage of Net Sales:
Quarters Ended
(Unaudited)
April 1, July 1, September 30, December 30,
1994 1994 1994 1994
---- ---- ---- ----
Saucony
Domestic 56.5% 57.2% 49.5% 39.1%
International 23.1% 14.9% 21.3% 23.5%
------- ------- -------- --------
Saucony Total 79.6% 72.1% 70.8% 62.6%
------- ------- -------- --------
Brookfield
Domestic 13.2% 18.8% 13.9% 26.6%
International 1.0% 2.7% 8.5% 5.3%
------- ------- -------- --------
Brookfield Total 14.2% 21.5% 22.4% 31.9%
------- ------- -------- --------
Other 6.2% 6.4% 6.8% 5.5%
------- ------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Other income 0.5% 1.0% 1.4% 1.9%
------- ------- -------- --------
Total revenue 100.5% 101.0% 101.4% 101.9%
------- ------- -------- --------
Costs and expenses
Cost of goods sold 68.1% 68.2% 66.1% 67.2%
Selling expenses 15.7% 19.1% 15.9% 15.5%
General and administrative
expenses 11.8% 11.8% 12.5% 10.3%
Interest expense 1.4% 1.4% 1.3% 1.3%
------- ------- -------- --------
Total costs and expenses 97.1% 100.5% 95.8% 94.2%
------- ------- -------- --------
Income before taxes and
minority interest 3.4% 0.4% 5.6% 7.7%
Provision for income taxes 1.2% 0.1% 1.9% 3.3%
Minority interest in income
(loss) of consolidated
subsidiaries 0.2% (0.4%) 0.2% 0.0%
------- ------- -------- --------
Net income 2.0% 0.7% 3.5% 4.4%
======= ======= ======== ========
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 1996 COMPARED TO FISCAL 1995
The Company's net sales increased 8.0% to $110,809,000 in fiscal 1996 from
$102,563,000 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. The Company currently distributes its Saucony
products in 32 countries through 24 distributors located throughout the world.
Net sales of the Company's Brookfield's products decreased 19% to $19,468,000 in
fiscal 1996 from $24,014,000 in fiscal 1995. Domestic sales of Brookfield
products decreased 50% to $9,407,000 in fiscal 1996 from $18,737,000 in fiscal
1995, due to lower unit shipment volume for certain licensed products and a
shift in the sales mix to lower-priced product. The Company believes this
decrease resulted from an oversupply of inventory at the retail level combined
with the Company's current, more conservative credit risk environment. Foreign
sales of Brookfield products increased 91% to $10,061,000 in fiscal 1996 from
$5,277,000 in fiscal 1995, due primarily to increased unit shipment volume and a
change in product mix, with increased sales of the Company's recently introduced
products that have higher selling prices. The Company currently distributes its
Brookfield products in 42 countries.
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, Inc. ("Quintana Roo"), which was acquired
in August 1995, and increased sales of non-corporate brands by the Company's
Australian subsidiary.
Other income decreased 29% to $1,076,000 in fiscal 1996 from $1,516,000 in
fiscal 1995, due primarily to the gain on the sale of the Company's investment
in a limited partnership and the receipt of the final royalty payment under a
litigation settlement, both of which were recognized in fiscal 1995.
The Company's gross profit increased to $33,360,000 in fiscal 1996 from
$31,702,000 in fiscal 1995. The Company's gross margin decreased to 30.1% in
fiscal 1996 from 30.9% in fiscal 1995 reflecting decreased margins for both
Saucony and Brookfield 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.
The decline in the gross margin for Brookfield products resulted from a shift in
the sales mix to lower-margin domestic Brookfield product and increased
international sales, which have lower margins than domestic sales.
Selling, general and administrative expenses increased to $31,254,000, or 28% of
net sales, in fiscal 1996, from $29,898,000, or 29% of net sales, in fiscal
1995. Advertising and promotion expenses increased $1,033,000 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 decreased by $79,000 in fiscal 1996 due to management's initiative to
reduce commissions on sales of Saucony products and to increased sales of
Brookfield products to house accounts, which are non- commissionable. General
and administrative expenses increased $403,000 in fiscal 1996, due to increased
costs related to Quintana Roo, which was acquired in August 1995, 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 27% to $952,000 in fiscal 1996 from $1,300,000 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.
The effective tax rate decreased 16.2%, to 19.2% in fiscal 1996 from 35.4% in
fiscal 1995, due to the recovery by the Company of low-income housing tax
credits, which had previously recaptured, the reversal of a deferred foreign tax
valuation allowance and a shift in the international mix of pretax earnings
among taxing jurisdictions. The low-income housing tax credit recovery is a
non-recurring event.
FISCAL 1995 COMPARED TO FISCAL 1994
The Company's net sales decreased 5.0% to $102,563,000 in fiscal 1995 from
$107,578,000 in fiscal 1994.
Net sales of the Company's Saucony products decreased 7% to $70,668,000 in
fiscal 1995 from $76,359,000 in fiscal 1994, due to decreased unit shipment
volume and a change in the sales mix to lower-priced product, both of which
reflect a difficult retail environment, marginal acceptance of certain new
product offerings and increasing brand strength of a footwear competitor.
Saucony domestic net sales decreased 13% to $47,040,000 in fiscal 1995 from
$53,939,000 in fiscal 1994, due primarily to lower unit shipment volume, and to
a lesser extent, a change in the sales mix to lower-priced product. Saucony
foreign net sales increased 5% to $23,628,000 in fiscal 1995 from $22,420,000 in
fiscal 1994 and accounted for 33% of Saucony net sales in fiscal 1995 compared
with 29% of Saucony net sales in fiscal 1994. The increase in foreign Saucony
net sales reflected market gains due to increased unit shipment volume at the
Company's foreign subsidiaries. The Company currently distributes its Saucony
products in 32 countries.
Net sales of the Company's Brookfield products decreased 2% to $24,014,000 in
fiscal 1995 from $24,523,000 in fiscal 1994. Domestic sales of Brookfield
products decreased 5% to $18,737,000 in fiscal 1995 from $19,699,000 in fiscal
1994, primarily as a result of a difficult retail environment at the mass
merchant channels of distribution and the absence of a promotional roller skate
license for the Christmas selling season. Foreign sales of Brookfield products
increased 9% to $5,277,000 in fiscal 1995 from $4,824,000 in fiscal 1994,
accounting for 22% of net sales of Brookfield products in fiscal 1995, compared
to 20% of net sales of Brookfield products in fiscal 1994. The increase in
foreign net sales of Brookfield products was attributable to increased
international markets, with distribution in 31 countries in fiscal 1995 compared
with 18 countries in fiscal 1994.
Net sales of other products increased 18% to $7,881,000 in fiscal 1995 from
$6,696,000 in fiscal 1994, due primarily to increased sales on non-corporate
brands by the Company's Australian subsidiary.
Other income increased 16% to $1,516,000 in fiscal 1995 from $1,308,000 in
fiscal 1994 as the result of the gain on the sale of the Company's investment in
a limited partnership and increased royalty income. Royalty income increased in
fiscal 1995 due to a final payment received under a litigation settlement which
amounted to $272,000.
The Company's gross profit decreased to $31,702,000 in fiscal 1995 from
$35,085,000 in fiscal 1994. The Company's gross margin decreased to 30.9% in
fiscal 1995 from 32.6% in fiscal 1994 reflecting decreased margins for both
Saucony and Brookfield products. The decline in gross margin for Saucony
products resulted from a greater proportion of sales of lower-priced, lower-
margin footwear to sales of higher-priced, higher-margin footwear in fiscal
1994. The decline in gross margin for Brookfield products resulted from a
greater ratio of lower-margin international sales to higher-margin domestic
product sales compared with fiscal 1994. Increased international sales in
fiscal 1995 by Brookfield as an OEM manufacturer for certain of its licensors
also caused gross margins to contract on some specialty Brookfield product
items.
Selling, general and administrative expense decreased to $29,898,000, or 29.2%
of net sales, in fiscal 1995 from $30,137,000, or 28.0% of net sales, in fiscal
1994. The increase in selling, general and administrative expenses as a
percentage of net sales in fiscal 1995 as compared to fiscal 1994 was due to the
decrease in net sales in fiscal 1995 in comparison to fiscal 1994. The absolute
dollar decrease in the amount of selling, general and administrative expenses
resulted from a reduction in Saucony product advertising and promotion spending.
Advertising and promotion expenses decreased $1,263,000 in fiscal 1995 due
primarily to decreased Saucony domestic television and print media advertising.
Selling expenses increased by $272,000 in fiscal 1995 due to increased selling
payroll and tradeshow expenses. General and administrative expenses increased
$752,000 in fiscal 1995, due to increased foreign spending, including costs
associated with the lease of a warehouse in Australia, increased costs related
to Saucony GmbH, which was formed in December 1994 and increased payroll costs
due to increased staffing at several of the Company's foreign subsidiaries.
Interest expense decreased 12% to $1,300,000 in fiscal 1995 from $1,480,000 in
fiscal 1994, as a result of the paydown of corporate debt during fiscal 1995 and
debt reduction realized as a result of the sale by the Company of its limited
partnership investment.
The provision for income tax declined by $1,116,000 in fiscal 1995 as compared
with fiscal 1994 as a result of the decreases in the Company's pretax earnings.
The effective tax rate decreased by 2.9%, to 35.4% in fiscal 1995 from 38.3% in
fiscal 1994, due primarily to the relative effect of fixed tax credits from the
Company's tax related investment on lower income before tax for fiscal 1995, as
compared with fiscal 1994, and an adjustment to the Company's tax reserves
LIQUIDITY AND CAPITAL RESOURCES
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 $6,003,000, net of the provision
for bad debts and discounts of $5,397,000, an increase of $1,691,000 in
inventory during fiscal 1996 and the acquisition of trademarks and tradenames of
an athletic apparel manufacturer for $1,250,000, offset in part by the
depreciation and amortization provision of $1,565,000. The increase in accounts
receivable was due to increased net sales of the Company's Saucony products in
the fiscal fourth quarter of 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 96 days at the end of fiscal 1996 from 74 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 increased to 2.8 turns in fiscal 1996 from 2.4 turns in
fiscal 1995.
During fiscal 1996, the Company used $5,058,000 of net cash to finance operating
activities, expended $1,984,000 to acquire capital assets and information
technology, expended $1,250,000 to acquire the tradenames 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 $2,404,000 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.
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
$1,151,000 (due to the timing of inventory shipments), and an increase in
accrued expenses of $419,000 (due to increased advertising and promotional
spending). The declining value of the U.S. dollar decreased the value of cash
and cash equivalents by $51,000.
As of January 5, 1996, the Company's cash and cash equivalents totalled
$11,668,000, an increase of $8,319,000 from December 30, 1994. The increase was
primarily the result of a decrease in accounts receivable of $6,846,000 and a
decrease in inventory of $5,187,000 during fiscal 1995. The decrease in
receivables was due to reduced corporate net sales in the fiscal fourth quarter
of 1995. The Company's days sales outstanding at the end of fiscal 1995
remained consistent with fiscal 1994's level of 74 days. The Company's
inventory turn ratio decreased to 2.4 turns at the end of fiscal 1995 from 2.7
turns at the end of fiscal 1994. Inventories in fiscal 1995 decreased due to
lower inventory requirements.
In fiscal 1995, the Company generated approximately $11,215,000 from operations,
expended $1,120,000 for capital expenditures, information technology and other
deferred charges, invested $112,000 to form a new subsidiary, expended $77,000
to repurchase shares of the Company's Common Stock, reduced long-term debt and
other long-term commitments by $2,920,000 and received $1,335,000 in cash as the
result of the sale by the Company of its investment in a limited partnership.
As part of the sale of this investment, the Company realized a reduction of
$4,056,000 of debt and accrued interest, of which $3,259,000 was long-term debt.
Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory) affecting the Company's operating cash flows
in fiscal 1995 included an increase in prepaid expenses and other current
assets of $262,000 (due to advance payments for business insurance and
production molds), an increase in marketable securities of $308,000, an increase
in accrued letters of credit of $1,115,000 (due to increased in-transit
inventory), a decrease in accounts payable of $865,000 (due to lower inventory
requirements and reduced operating spending in the fourth quarter of 1995), a
decrease in accrued expenses of $1,605,000 (reflecting decreased sales
commissions, incentive bonuses, royalties payable, and other operating expenses,
which are attributable to the fourth quarter sales decrease and lower interest
payable as a result of the reduction in long term debt) and a decrease in
accrued income taxes of $743,000 due to lower pre-tax income and the timing of
tax payments. The declining value of the U.S. dollar decreased the value of
cash and cash equivalents by $37,000 in fiscal 1995.
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, will extend through August 1, 1998 and
provide for a short-term demand line of credit, in the principal amount of up to
$15,000,000, subject to formula adjustment, and a revolving line of credit in
the principal amount of $15,000,000. Borrowings under this facility generally
will be made at the primary bank's prime rate of interest. As of January 3,
1997, there was $2,301,803 outstanding under the current facility. The Company
had open commitments at such date related to letters of credit in the amount of
$5,347,751. As of March 7, 1997, $6,440,221 was available for borrowing under
the short-term demand line and $15,000,000 was available for borrowing under the
revolving term line. 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 $5,888,000. As of March 7, 1997, an
aggregate of approximately $2,057,059 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. The Company may prepay the note at
the time of any scheduled principal or interest payment, subject to a prepayment
premium in certain circumstances.
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 3,
1997, the Company had various commitments for capital expenditures, including
information technology systems, improvements to and expansion of distribution
facilities, both domestic and foreign. 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.
SFAS 121
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), issued
by the Financial Accounting Standards Board, requires that long-lived assets to
be held and used or disposed of by an entity be reviewed for impairment whenever
events or changes in the circumstances indicate that the carrying amount of an
asset may not be recoverable. SFAS 121 establishes standards for recognizing
and measuring impairment of long-lived assets, certain identifiable intangibles
and goodwill. For 1996, the Company determined that an impairment loss was not
required on its long-lived assets.
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 is continuing to account for employee stock
compensation expense under the precepts of APB Opinion No. 25. See Note 11 for
pro forma disclosures of net income and earnings per share, calculated utilizing
the fair value method prescribed under SFAS 123.
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 on Form 10-K 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 Brookfield products are Variflex, Roller Derby, Blade Runner and
Fisher-Price.
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 1996, one of such suppliers, located in
China, accounted for approximately 38% 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.
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 or outdoor recreational products for children, 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.
DEPENDENCE UPON LICENSING ARRANGEMENTS. The Company sells Brookfield products
under trade names licensed from other parties. Most of the Company's licenses
are non-exclusive, have a fixed term and limit the types of products that may be
sold under the license.
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.
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
1996, 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 and Toys-R-Us for the Company's Brookfield products.
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 15, 1997 (the "1997 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 1997 Proxy Statement within 120 days after the close
of the fiscal year ended January 3, 1997.
Officers are elected on an annual basis and serve at the discretion of the Board
of Directors.
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 Company's 1997 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 Company's 1997 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 Company's
1997 Proxy Statement and is incorporated herein by this reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Index to 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 3, 1997 and January 5, 1996
Consolidated statements of income for the years ended January 3, 1997,
January 5, 1996 and December 30, 1994
Consolidated statements of stockholders' equity for the years ended
January 3, 1997, January 5, 1996 and December 30, 1994
Consolidated statements of cash flows for the years ended January 3, 1997,
January 5, 1996 and December 30, 1994
Notes to the consolidated financial statements
2. Index to Consolidated Financial Statement Schedule
---------------------------------------------------
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 are listed on the Exhibit
Index immediately preceding such exhibits, which Exhibit Index is incorporated
herein by reference.
(b) Reports on Form 8-K
-------------------
No Current Reports on Form 8-K were filed in the fourth quarter of fiscal
1996.
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 3, 1997
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.
NAME CAPACITY DATE
---- -------- ----
/s/ John H. Fisher President April 3, 1997
- -------------------------
John H. Fisher Chief Executive Officer
Director
/s/ Charles A. Gottesman Executive Vice President April 3, 1997
- -------------------------
Charles A. Gottesman Chief Operating Officer
Director
(Principal Financial Officer)
/s/ Roger P. Deschenes Controller April 3, 1997
- -------------------------
Roger P. Deschenes Chief Accounting Officer
/s/ James A. Buchanan President April 3, 1997
- -------------------------
James A. Buchanan Brookfield Athletic Co., Inc.
Director
/s/ John J. Neuhauser Director April 3, 1997
- -------------------------
John J. Neuhauser
/s/ Jonathan O. Lee Director April 3, 1997
- -------------------------
Jonathan O. Lee
/s/ Phyllis H. Fisher Director April 3, 1997
- -------------------------
Phyllis H. Fisher
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Hyde Athletic Industries, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Hyde Athletic Industries, Inc. and Subsidiaries listed in
Item 14(a) of this Annual Report on 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 joint venture, which statements reflect total net assets and
revenues consisting of thirteen percent and 12 percent, respectively, of the
related consolidated totals. Those statements were audited by other auditors
whose report has been furnished to us, and in our opinion, insofar as it relates
to the amounts included for Saucony SP Pty. Ltd., is based solely on the report
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit also 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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Hyde
Athletic Industries, Inc. and Subsidiaries as of January 3, 1997 and January 5,
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended January 3, 1997, 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, presents fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 14, 1997
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF SAUCONY SP PTY., LIMITED
Scope
We have audited the financial statements of Saucony SP Pty., Ltd., as set out on
pages 2 to 18, for the year ended 3 January 1997. 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 generally accepted auditing
standards 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 accordance with generally accepted
accounting principles the Company's state of affairs as at 3 January 1997 and
its profit and cash flows for the financial year ended on that date.
GRANT THORNTON
Chartered Accountants
/s/ W. H. Chapman
Partner
Sydney, NSW Australia
April 2, 1997
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
January 3, January 5,
1997 1996
---- ----
Current Assets:
Cash and cash equivalents $ 2,802,864 $ 11,668,316
Marketable securities (Note 2) 236,128 307,500
Accounts receivable, net of allowance
for doubtful accounts and discounts
(1996, $1,334,530; 1995, $940,244) (Note 3) 22,840,161 17,361,195
Inventories (Note 4) 28,632,511 26,831,600
Deferred income taxes (Note 12) 1,424,987 1,251,654
Prepaid expenses and other current assets 1,878,450 1,769,825
-------------- --------------
Total current assets 57,815,101 59,190,090
-------------- --------------
Property, plant and equipment, net of
accumulated depreciation and
amortization (Note 5) 9,217,468 8,122,937
-------------- --------------
Other assets:
Deferred charges, net of accumulated
amortization (1996, $1,613,931;
1995 $1,185,319) 1,447,804 999,363
Long-term accounts and notes
receivable (Note 3) 1,035,987 353,175
Goodwill (Note 13) 1,250,001 --
Investment in limited partnership (Note 6) 753,433 753,433
Other 71,932 52,291
-------------- --------------
Total other assets 4,559,157 2,158,262
-------------- --------------
Total assets $ 71,591,726 $ 69,471,289
============== ==============
See notes to consolidated financial statements
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
January 3, January 5,
1997 1996
---- ----
Current liabilities:
Accrued letters of credit (Note 9) $ 1,848,666 $ 2,619,819
Notes payable (Note 9) 4,237,083 4,336,940
Current portion of long-term debt and capital
lease obligations (Notes 6 & 7) 2,484,459 2,199,225
Accounts payable 2,121,528 2,436,148
Accrued expenses (Note 9) 3,517,047 3,136,653
-------------- --------------
Total current liabilities: 14,208,783 14,728,785
-------------- --------------
Long term obligations:
Long-term debt, net of current portion (Note 6) 3,885,342 4,000,000
Capital lease obligations, net of current portion (Note 7) 1,007,411 205,568
Deferred income taxes (Note 12) 1,923,708 2,001,655
-------------- --------------
Total long-term obligations 6,816,461 6,207,223
-------------- --------------
Commitments and contingencies (Note 9)
Minority interest in consolidated subsidiaries 487,865 170,227
-------------- --------------
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 1996, 2,706,227; 1995, 2,704,727) 902,075 901,575
Class B, $.333 par; authorized 20,000,000 shares
(issued 1996, 3,729,059; 1995, 3,710,815) 1,243,020 1,236,939
Additional paid-in capital 15,581,353 15,521,470
Retained earnings 33,704,957 32,210,867
Accumulated translation (233,654) (257,694)
--------------- --------------
51,197,751 49,613,157
-------------- --------------
Less:
Common stock held in treasury, at cost
(1996, 198,400; 1995, 198,400) (1,053,790) (1,053,790)
Unearned compensation (65,344) (194,313)
--------------- ---------------
50,078,617 48,365,054
-------------- --------------
Total liabilities and stockholders' equity $ 71,591,726 $ 69,471,289
============== ==============
See notes to consolidated financial statements.
HYDE